1973 housing and urban development legislation. Hearings, Ninety-third Congress, first session..

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J9I3jaDUSING AND URBAN
DEVELOPMENT LEGISLATION

HEARINGS

BEFORE THE

SUBCOMMITTEE ON
HOUSING AND URBAN AFFAIES

OF THE

COMMITTEE ON

BANKING, HOUSING AND URBAN AFFAIRS

UNITED STATES SENATE

NINETY-THIRD CONGRESS

FIRST SESSION

ON

PROPOSED HOUSING AND COMMUNITY DEVELOPMENT
LEGISLATION FOR 1973

PART 1

JULY 16, 17, 18, 19, 20, 23, 24, AND 27, 1973

Printed for the use of the
Committee on Banking, Housing and Urban Affairs

U.S. GOVERNMENT PRINTING OFFICE
99-888 WASHINGTON : 1973

yy. -322

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COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS

JOHN SPARKMAN, Alabama, Chairman
WILLIAM PROXMIRE, Wisconsin JOHN TOWER, Texas

HARRISON A. WILLIAMS, JR., New Jersey WALLACE F. BENNETT, Utah
THOMAS J. McINTYRE, New Hampsliire EDWARD W. BROOKE, Massacliusetts
ALAN CRANSTON, California BOB PACKWOOD, Oregon

ADLAI E. STEVENSON III, Illinois BILL BROCK, Tennessee

J. BENNETT JOHNSTON, JR., Louisiana ROBERT TAFT, Jr., Ohio

WILLIAM D. HATHAWAY, Maine LOWELL P. WEICKER, Jr., Connecticut

JOSEPH R. BIDEN, Jr., Delaware

Dudley L. ONeal, Jr., Staff Director and General Counsel
Michael E. Burns, Minority Counsel

Subcommittee on Housing and Urban Affairs

JOHN SPARKMAN, Alabama, Chairman
WILLIAM PROXMIRE, Wisconsin JOHN TOWER, Texas

HARRISON A. WILLIAMS, JR., New Jersey EDWARD W. BROOKE, Massachusetts
ALAN CRANSTON, California BOB PACKWOOD, Oregon

ADLAI E. STEVENSON III, Illinois ROBERT TAFT, Jr., Ohio

Carl A. S. Coan, Staff Director
Thomas A. Brooks, Minority Counsel

(ID

CONTENTS

(The same table of contents appears in parts 1 and 2) Paee

S. 12 2329

Reports from:

Department of Housing and Urban Development 2343

Environmental Protection Agencv 2345

S. 149 2347

S. 361 2348

S. 513 2360

S. 779 2362

S. 833 2363

S. 854 2364

S. 892 2387

S. 898 2395

S. 899 2399

S. 910 2401

S. 971 2403

S. 1188 2429

S. 1299 2432

Report from Department of Housing and Urban Development 2434

S. 1322 2436

S. 1329 2438

S. 1348 2441

S. 1348 with proposed amendments of Mobile Home Manufacturers

Association 1091

S. 1579 2476

S. 1604 2482

S. 1614 2484

S. 1743 2495

S. 1744 2522

S. 1753 2549

S. 1834 2553

S. 1850 2555

S. 1851 2556

S. 1967 2557

S. 1968 2559

S. 1978 2561

S. 1997 2562

S. 2021 2570

S. 2028 2575

S. 2103 2583

S. 2169 2597

S. 2170 2601

S. 2171 2603

S. 2175 2605

S. 2179 2613

S. 2180 2618

S. 2181 2621

S. 2182 ^ 2631

S. 2185 2781

S. 2190 2782

S. 2228 _ . . . - . _ 2798

S. 2276 . 2808

S. 2288 2824

CHRONOLOGICAL LIST OF WITNESSES

Monday, July 16

James T. Lynn, Secretarj-, Department of Housing and Urban Develop-
ment, accompanied by Floyd Hyde, Under Secretary 8

(in)

IV
Tuesday, July 17

Page

James Abourezk, U.S. Senator from the State of South Dakota 177

George McGovern, U.S. Senator from the State of South Dakota 179

Frank B. Elliott, Acting Administrator, Farmers Home Administration,
accompanied by James F. Neville, Assistant Administrator, Rural

Housing; and Jennings Orr, Director, Single-Family Housing 206

George W. Rucker, Research Director, Rural Housing Alliance; David W.
Herlinger, executive director, Colorado Housing, Inc., and John W.
Biasucci, executive vice president, West Virginia Housing Development
Fund 226

Wednesday, July 18

Gov. John J. Gilligan of Ohio, chairman. Committee on Rural and Urban
Development, National Governors' Conference, accompanied by
Richard W. Lincoln, special assistant 355

Gladys Noon Spellman, councilwoman, Prince Georges County, Md.,
president. National Association of Counties, accompanied by John C.
Murphy, legislative representative 380

Daniel J. Wuenschel, executive director, New Hampshire Housing Develop-
ment Corporation 389

David H. Shepherd, member, board of directors. National Association of

Regional Councils, and mayor of Oak Park, Mich 393

Robert Honts, chairman, governmental relations. League of New Com-
munity Developers 402

Thursday, July 19

Thomas R. Bomar, Chairman, Federal Home Loan Bank Board, accom-
panied by Dick Piatt, Director Office of Housing and Urban Affairs,
Federal Home Loan Bank Board; Bill Nachbaur, Office of General
Counsel; and Michael Westgage, Assistant to Director, Federal Savings
and Loan Insurance Corporation 443

Roman S. Gribbs, mayor, city of Detroit, Mich., Representing the National
League of Cities and the U.S. Conference of Mayors, accompanied by
John Gunther, executive director, U.S. Conference of Mayors; and
David F. Garrison, legislative counsel to the league and conference 449

Hugh McKinley, city manager, Eugene, Oreg., on behalf of the Inter-
national City Management 494

William H. Wilcox, Secretary of Community Affairs, Commonwealth of

Pennsylvania, accompanied by Mr. Lorenzo, staff member 545

Richard Tucker, deputy director. Housing Assistance Council, accom-
panied by Arthur Collins 595

Friday, July 20

Henry Eschwege, Director, Resources and Economic Development Divi-
sion, General Accounting Office, accompanied by Clarence P. Squellati,
Assistant Director; Clare K. Roher, Supervisory Auditor; and Smith
Blair, Legislative Attorney 613

Marshall Kaplan, senior vice president, Raymond Nasher Co., Dallas,

Tex., accompanied by Antonia Chayes 621

Maxine Kurtz, on behalf of the American Institute of Planners, accom-
panied by Albert Massoni, director of national affairs 670

Monday, July 23

George C. Martin, president. National Association of Home Builders,
accompanied by Carl A. S. Coan, Jr., legislative counsel; and Michael
Sumichrast, chief economist 705

Kennon V. Rothchild, chairman, Mortgage Bankers Washington Com-
mittee, accompanied by Lee Holmes, legislative counsel 739

James H. Scheuer, president. National Housing Conference, accompanied

by A. N. Prothro 760

Arthur Abba Goldberg, president, Section 23 Leased Housing Association,

accompanied by Charles L. Edson, general counsel 822

M. J. Weeks, president. National Association of Building Manufacturers,
accompanied by James J. Judge, executive vice president; and Charles L.
Edson, general counsel 834

Tuesday, July 24

Page

Louis Frey, Jr., Representative in Congress from the State of Florida 839

Ronald Williams, president, Wilquest, Inc., Charlotte, N.C 855

John Randolph Ingram, commissioner of insurance, State of North
Carolina; Kern E. Church, chief engineer. Engineering and Building
Codes Division, North Carolina Department of Insurance; and Jack A.

Bono, assistant chief engineer, Underwriters Laboratory 862

John M. Martin, president. Mobile Home Manufacturers Association 1057

J. Lanny Wiens, chairman of the board, Mobile Home Dealers National

Association 1130

James S. Fosdick, executive secretary to Lt. Gov. Martin Schreiber of
Wisconsin; Lynda McDonnell, Center for Auto Safety, Washington,
D.C. ; and Margaret J. Drury, senior research staff. Urban Institute,
Washington, D.C 1134

Friday, July 27

William E. Brock, U.S. Senator from the State of Tennessee 1227, 1479

Charles Noon, Director of Neighborhood Development, Department of
Housing and Communit}^ Development, Baltimore, Md., accompanied by
Roger Windsor, director, home ownership development program 1233

Robert W. MafRn, executive director. National Association of Housing and
Redevelopment Officials, accompanied by Mary K. Nenno and John R.
Maguire 1245

J. C. Miller, executive director. Housing Authority of the City of Mont-
gomery, Ala., accompanied by Pat Morgan, administrative assistant 1315

Archibald C. Rogers, first vice president, American Institute of Architects
accompanied by Michael B. Barker, administrator. Department of En-
vironment and design; and David E. Osterhout, director of congres-
sional liaison 1350

Edward J. Logue, president and chief executive officer. New York State
Urban Development Corporation, accompanied by Lee Goodwin,
commissioner, New York State Division of Housing and Community
Renewal 1424

L. B. Nelson, president, National Apartment Association, accompanied by

John C. Williamson, legal legislative counsel 1443

Thomas J. Meade, Densus Area Stabilization Association, Chicago, 111.,
accompanied by John Ignazak, United Associated Block Clubs; Jeanne
Filler, Southwest Community Congress; Marianne Gazda, St. Peter
Canisius Community Council; Margaret Gorman, North Austin Com-
munity Convention; and Ruth Heiber, Amundsen Park Community
Council 1458

Monday, July 30

Lewis C. Murphy, mayor of the city of Tucson, Ariz 1483

Irwin Silver, vice president, F. D. Rich Housing Corp., Stamford, Conn_. 1494

George Schermer, Americans for Democratic Action 1512

Chester Sudbrack, chairman. Realtors' Washington Committee, National
Association of Realtors, accompanied by A. E. Abrahams, director of
governmental affairs; and Steven Doehler, special assistant to the di-
rector 1523

James G. Schmidt, chairman, Federal Legislative Action Committee,
American Land Title Association, accompanied by William J. Mc-
Auliffe, Jr., executive vice president; Thomas S. Jackson, general counsel;

and William T. Finley, Jr., counsel 1603

John C. Payne, adviser, Special Committee on Residential Real Estate

Transactions, American Bar Association 1768

Robert E. Herndon, Jr., executive director and treasurer, American Con-
gress on Surveying and Mapping, accompanied by Rodney Hanson,
president, Marj^and Society' of Surveyors, and Robert Kim, member,

Virginia Association of Surveyors 1780

Fletcher G. Rush, representing the Florida bar; Robert W. Crenshaw, Jr.,
representing the State bar of Georgia, accompanied by S. H. McCalla;
Angelo Mastrangelo, representing the New Jersey State Bar Association;
B. George Ballman, president of the Montgomery County, Md., Lawyers'
Association _. __ _ _ _ 1806

VI

Tuesday, July 31

Jacob K. Javits, U.S. Senator from the State of New York accompanied by Paee
Charles Warren, legislative assistant 1997

William R. Hutton, executive director, National Council of Senior Citizens

accompanied by Richard M . Millman, attorney 2036

Robert Dole, U.S. Senator from Kansas accompanied by Becky Sinclair 2055

John B. Martin, Jr., consultant to the American Association of Retired
Persons and the National Retired Teachers Association and former
Commissioner on Aging accompanied by Peter W. Hughes, Legislative
Representative, and Harriet Miller, Consultant on Housing 2069

H. Ted Olson, executive vice president, American Association of Homes
for the Aging accompanied by Jacob Rein gold, executive director,
Hebrew Home for the Aged, Riverdale, N.Y 2154

Louise B. Gerrard, executive director. West Virginia Commission on

Aging 2160

Harold G. Haskell, Jr., trustee, National Recreation and Park Association,

and former mayor of Wilmington, Del 2181

William H. Whyte, trustee, American Conservation Association, Inc 2184

James J. Truncer, director, Monmouth County, N.J., park system 2188

Dwight Rettie, executive director, National Recreation and Park As-
sociation 2190

John M. Elliott, chairman, Urban Committee, Citizens' Advisory Council
to the Pennsylvania Department of Environmental Resources, and
member, Philadelphia City Planning Commission 2195

Tersh Boasberg, attorney at law, on behalf of Historic Preservation Founda-
tions in Galveston, Tex., North Adams, Mass., and New York 2204

ALPHABETICAL LIST OF WITNESSES

Abourezk, James, U.S. Senator from the State of South Dakota 177

Abrahams, A. E., director, governmental affairs, National Association of

Realtors 1513

Ballman, B. George, president, Montgomery County, Md., Lawyers

Association 1806

Barker, Michael B., administrator, department of environment and design,

American Institute of Architects 1350

Biasucci, John W., executive vice president. West Virginia Housing De-
velopment Fund 226

Blair, Smith, Legislative Attorney, General Accounting Office 613

Boasberg, Tersh, attorney at law on behalf of Historic Preservation Foun-
dations in Galveston, Tex., North Adams, Mass.; and New York 2204

Bomar, Thomas R., Chairman, Federal Home Loan Bank Board 443

Bono, Jack A., assistant chief engineer. Underwriters Laboratory, North

Carohna 862

Brock, William E., U.S. Senator from the State of Tennessee. __ 1227, 1479, 1777

Chaves, Antonia, Raymond Nasher Co., Dallas, Tex 621

Church, Kern E., chief engineer, engineering and building codes division,

North Carolina Department of Insurance 862

Coan, Carl A. S. Jr., legislative counsel, National Association of Home

Builders 705

Collins, Arthur, Housing Assistance Council 595

Crenshaw, Robert W., Jr., representing Georgia State Bar Association 1806

Doehler, Steven, special assistant. National Association of Realtors 1513

Dole, Robert, U.S. Senator from the State of Kansas 2055

Drury, Margaret J., senior research staff, Urban Institute, Washington,

D.C 1134

Edson, Charles L., general counsel, Section 23 Leased Housing Associa-
tion 822, 834

Elliott, Frank B., Acting Administrator, Farmers Home Administration 206

Elliott, John M., chairman, urban committee, citizens' advisory council

to the Pennsylvania Department of Environmental Resources 2195

Eschwege, Henry, Director, resources and economic development division.

General Accounting Office 613

Finley, William T. Jr., counsultant to American Land Title Association 1603

Fosdick, James S., executive secretary to Lt. Gov. Martin Schreiber of

Wisconsin 11 34

Frey, Louis Jr., Representative in Congress from the State of Florida 839

VII

Garrison, David F., legislative counsel, National League of Cities and U.S. Page

Conference of Mayors 449

Gazda, Marianne, St. Peter Canisius Community Council, Chicago, 111 1458

Gerrard, Louise B., executive director. West Virginia Commission on

Aging 2160

Gilligan, John J., Governor of Ohio 355

Goldberg, Arthur Abba, president, Section 23 Leased Housing Association. 822
Goodwin, Lee, commissioner. New York State Division of Housing and

Community Renewal 1424

Gorman, Margaret, North Austin Community Convention, Chicago, 111 1458

Gribbs, Roman S., Mayor, city of Detroit, Mich 449

Gunther, John, executive director, U.S. Conference of Mayors 449

Hanson, Rodney, president, Maryland Society of Surveyors 1780

Haskell, Harold G., Jr., trustee. National Recreation and Park Associa-
tion, and former mayor of Wilmington, Del 2181

Heiber, Ruth, Amundsen Park Community Council, Chicago, 111 1458

Herlinger, David W., executive director, Colorado Housing, Inc 226

Herndon, Robert E., Jr., executive director and treasurer, American Con-
gress on Surveying and Mapping 1780

Holmes, Lee, legislative counsel. Mortgage Bankers Washington Com-
mittee 739

Honts, Robert, chairman, governmental relations. League of New Commun-
ity Developers 402

Hutton, William R., executive director, National Council of Senior Citizens. 2036
Hyde, Floyd, Under Secretary, Department of Housing and Urban De-
velopment 8

Ignazak, John, United Associated Block Clubs, Chicago, 111 1458

Ingram, John Randolph, commission of insurance, State of North Carolina. 862

Jackson, Thomas S., general consultant to American Land Title Association. 1603

Javits, Jacob K., U.S. Senator from the State of New York 1997

Judge, James J., executive vice president, National Association of Building

Manufacturers 834

Kaplan, Marshall, senior vice president, Raymond Nasher Co., Dallas,

Tex 621

Kim, Robert, member Virginia Association of Surveyors 1780

Kurtz, Maxine, on behalf of the American Institute of Planners 670

Lincoln, Richard W., special assistant to Governor Gilligan of Ohio 355

Logue, Edward J., president and chief executive officer. New York State

Urban Development Corporation 1424

Lynn, James T., Secretary, Department of Housing and Urban Develop-
ment 8

Maffin, Robert W., executive director. National Association of Housing and

Redevelopment Officials 1245

Maguire, John R., National Association of Housing and Redevelopment

Officials 1245

Martin, George C, president. National Association of Home Builders 705

Martin, John B., Jr., consultant to the American Association of Retired

Persons and former Commissioner on Aging 2069

Martin, John M., president. Mobile Home Manufacturers Association 1057

Massoni, Albert, director of national affairs, American Institute of Plan-
ners 670

Mastrangelo, Angelo, representing the New Jersey State Bar Association. 1806
McAuliffe, William J. Jr., executive vice president, American Land Title

Association 1603

McDonnell, Lynda, Center for Auto Safety, Washington, D.C 1134

Mc Govern, George, U.S. Senator from the State of South Dakota 179

McKinley, Hugh, city manager, Eugene, Oreg 494

Meade, Thomas J., Densus Area Stabihzation Association, Chicago, 111 — 1458
Miller, J. C, executive director. Housing Authority of the city of Mont-
gomery, Ala 1315

Morgan, Pat, administrative assistant to the executive director. Housing

Authority of the City of Montgomery, Ala 1315

Murphy, John C, legislative representative, National Association of

Counties 380

Murphy, Lewis C, mayor of the city of Tucson, Ariz 1483

Nachbaur, Bill, Office of General Counsel, Federal Home Loan Bank

Board 443

Nelson, L. B., president. National Apartment Association 1443

VIII

Nenno, Marv K., National Association of Housing and Redevelopment Page

Officials- _ 1 , 1245

Neville, James F., Assistant Administrator, Rural Housing, Farmers Home

Administration 206

Noon, Charles, director of neighborhood development. Department of

Housing and Community Development, Baltimore, Md 1235

Olson, H. Ted, executive vice president, American Association of Homes for

the Aging 2 154

Orr, Jennings, Director, Single-Family Housing, Farmers Home Admin-
istration 206

Osterhout, David E., director of congressional liaison, American Institute

of Architects 1350

Payne, John C, adviser. Special Committee on Residential Real Estate

Transactions, American Bar Association 1768

Filler, Jeanne, Southwest Communit.y Congress, Chicago, HI 1458

Piatt, Dick, Director, Office of Housing and Urban Affairs, Federal Home

Loan Bank Board 443

Prothro, A. N., National Housing Conference 760

Rettie, Dwight, executive director. National Recreation and Park Asso-
ciation 2190

Rogers, Archibald C, first vice president, American Institute of Architects. 1350

Roher, Clare K., supervisory auditor. General Accounting Office 613

Rothchild, Kennon V., chairman. Mortgage Bankers Washington Com-
mittee - 739

Rucker, George W., research director. Rural Housing Alliance 226

Rush, Fletcher G., representing the Florida State Bar Association 1806

Ruvoldt, Harold, J., representative, New Jersey State Bar Association 1806

Schermer, George, Americans for Democratic Action 1512

Scheuer, James H., president. National Housing Conference 760

Schmidt, James G., chairman, Federal Legislative Action Committee,

American Land Title Association 1603

Shepherd, David H., member, board of directors. National Association of

Regional Councils 393

Silver, Irwin, vice president, F. D. Rich Housing Corp., Stamford, Conn_. 1494

Spellman, Glayds Noon, councilwoman. Prince Georges County, Md 380

Squellati, Clarence P., assistant director. Resources and Economic Devel-
opment Division, General Accounting Office 613

Sudbrack, Chester, chairman. Realtors' Washington Committee, National

Association of Realtors 1523

Sumichrast, Michael, chief economist, National Association of Home

Builders 705

Truncer, James J., director, Monmouth County, N.J., Park System 2188

Tucker, Richard, deputy director. Housing Assistance Council 595

Weeks, M. J., president. National Association of Building Manufacturers. 834
Westgate, Michael, assistant to director. Federal Savings and Loan

Insurance Corporation 443

Whyte, William H. trustee, American Conservation Association, Inc 2184

Wiens, J. Lanny, chairman of the board. Mobile Home Dealers National

Association 1130

Wilcox, William H., secretary of community affairs, Commonwealth of

Pennsylvania 545

Williams, Ronald, president, Wilquest, Inc., Charlotte, N.C 855

Williamson, John C, legislative counsel. National Apartment Association. 1443
Windsor, Roger, director, home ownership development program, Depart-
ment of Housing and Community Development, Baltimore, Md 1233

Wuenschel, Daniel J., executive director, New Hampshire Housing De-
velopment Corporation 389

ADDITIONAL STATEMENTS AND DATA

Abzug, Bella S., Representative in Congress from the State of New York,
comments on :

S. 1743, S. 1744, and S. 2182 438

S. 12 2203

Aetna Mobile Home Sales Inc., letter from Mrs. Shirley Martin 1162

Alabama Society of Professional Engineers, letter from Millard R. Mc-

Gruder, executive secretary 2008

Alspach, Alfred C, statement submitted for the record 1985

IX

American Association of Motor Vehicle Administrators, statement of Louis P^se

P. Spitz 1047

American Association of Retired Persons, letter from George Sunderland,

program specialist 2075

American Bankers Association, letter received from Charles R. McNeill,

executive director, government relations 168

American Congress on Surveying and Mapping :

Certification statement 1805

Letter to Office of General Counsel of HUD from Edvi^in W. Miller,

president 1791

Minimum standard detail requirements for land title surveys 1800

Mortgage loan inspection committee, final report and recommendations 1804

Organization chart 1796

Position regarding referenced HUD proposed rulemaking 1792

Resolution on mortgagee's inspection 1803

Technical standards for property surveys 1797

American Friends Service Committee, Inc., letters from Gushing N. Dol-

beare, community relations division 2316

American Institute of Architects :

National Policy Task Force, report of Constraints Conference 1376

Report on plan for urban growth 1356

American Institute of Planners, community development policy adopted in

conference session, February 24. 1973 699

American Institute of Steel Construction, Inc., letter from John Edmonds,

executive vice president 2008

American Iron and Steel Institute, letter from John P. Roche, president — 2009
American Jewish Congress, statement of Paul S. Berger and Seymour

Mann 152

American Land Title Association :

Letter from Irving H. Plotkin, senior economist, Arthur D. Little, Inc 1683

Letters to Eugene A. Gulledge, assistant secretary for housing, produc-
tion, and mortgage credit 1648

Memorandum on an exploratory overview of the HUD/VA analysis of

title related costs 1687

Response of James G. Schmidt to written questions from subcom-
mittee 1639

Revised model title insurance code 1732

American Plywood Association, statement received for the record 2020

American Society of Civil Engineers, letter from John E. Rinne, president- _ 2021
Anderson, Wendell R., Governor of South Dakota, telegram to Senator

Abourezk 370

Barber. Roger S., letter to Consumer Protection Bureau 1149

Benner, Mrs. Diana, letter to Ralph Nader 1147

Blount, Inc., letter to Senator Sparkman from A. J. Paddock 2024

Brown, Mrs. Barbara, letter to Ralph Nader 1153

Building Officials and Code Administrations International, telegram from

Richard L. Sandeson, executive director 2021

Burlington, Iowa, statement received from Frederick C. Stouder, director,

department of planning and development 373

Cedar Rapids, Iowa, memorandum to Mayor Canney from Thomas L. AUer,

intergovernmental coordinator 376

Census Area Stabilization Alliance, Chicago. 111., agenda of meeting called

by Senator Stevenson with HUD administrators 1469

Chamber of Commerce of the United States, statement of Harvey G. Hallen-

beek, Jr., construction affairs manager 2013

Chicago Park District, Chicago, 111., statement of commissioners 2194

Church, Frank, U.S. Senator from the State of Idaho, letter received for

the record 148

Clark, Dick, U.S. Senator from the State of Iowa, statement for the

record 372

Clark. Mrs. Mosie, Jr., letter to Ralph Nader 1152

Colorado Housing, Inc., letter from David W. Herlinger, director 230

Congressional Record, remarks of Senator John Sparkman on introducing

S. 1743 and S. 1744 2

Consulting Engineers Council of the United States, letter from W. N.

Holway, president 2022

Council of State Governments, Lexington, Ky., letter to Commerce Depart-
ment from John K. Hickey, secretary, Committee on Suggested State Pa&e

Legislation 1045

Cravette, Charles K., letter Ralph Nader 1156

Crossland, Arthur J., letter to Mobile Homes Manufacturing Association., 1159

Data sheets for mobile homes 892

Davenport, Iowa, letter from Mayor Kathryn Kirschbaum 379

David Miller & Associates, Inc., letter supporting S. 2103 2022

Davis, James I., letter to Jack Anderson 1148

Dole, Robert. U.S. Senator from the State of Kansas, letters from con-
stituents supporting S. 1579, housing opportunities for the handicapped__ 2063
Domenici, Pete V., U.S. Senator from the State of New Mexico, statement

for the record 147

Durham Mental Retardation Interagency Planning Council, letter from

Dorothy Cansler, chairwoman 2227

East Providence, R.I., letter from Paul A. Flynn, city manager 147

Edberg, Edgar, letter to Ralph Nader 1161

Egger Steel Co., letter to Senator Sparkman from Albert E. Egger, presi-
dent 2025

Farmers Home Administration :

Housing activities in South Dakota 196

Letter to Senator Sparkman from James F. Neville (for Frank B.

Elliott, Administrator) 208

Federal Communications Commission, letter from William B. Ray, chief.

Complaints and Compliance Division 1060

Federal Home Loan Bank Board :

Answers to written questions of Senator Cranston 448

Letter to Congressman Patman from Preston Martin, chairman 1731

"Flash Facts," pocket reference to the mobile home industry 1086

Flatiron Cos., letter from Harold H. Short, chairman of the board 2022

Foremost Insurance Co., statement of James W. Jarrad, vice president 1054

Gas Appliance Manufacturers Association, Inc., letter from Wynne A.

Stevens, Jr., director of legislative services 146

Gene Stewart's Lahontan Valley Car-Ral, letter to Senator Bible from

Gene Stewart, pre.sident 92

George Washington Law Review, reprint of article by Kenneth F. Phillips,

and David B. Bryson 2281

Gonzales, Mrs. Nelson G., letter to President's Committee on Consumer

Statistics 1155

Gravel. Mike, U.S. Senator from the State of Alaska, memorandum to

Senator Sparkman 150

Hartley, Mr. and Mrs. Earl, letter to Ralph Nader 1164

Henson, Mrs. O. K.. letter to Ralph Nader 11.52

Hollings, Ernest F., U.S. Senator from the State of South Carolina, state-
ment for the record 854

Hoover, E. Dwight, letter to Ralph Nader 1158

Hornby, Robert K., letter to Skyline Corp 1161

House Banking Committee, statement of David E. Betts, president-elect,

Maryland State Bar Association 1807

Housing and Urban Development Department :
Answers to written questions of :

Senator Cranston 56

Senator Proxmire 53

Staff positions vacant 42

Howard, Mrs. Richard H., letter to Ralph Nader 1154

Huntington, New York, letter and accompanying documents from Jerome A.

Ambro 57

Idaho Housing Agency, statement of Jim H. Hooper, executive director 371

International City Management Association, report of committee on

finance on Federal block grant and community development 506

International Conference of Building Officials, letter with proposed amend-
ments to S. 2103 2023

J. & L. Homes Manufacturing Co., letter from William J. and Helen L.

Callahan 1165

Kansas, letters from :

Vern Miller, attorney general 1145

Dennis E. Popp, coordinator, developmental disabilities services 2068

Kappes, Philip S., statement received for the record 1969

XI

Kowall, Carroll, assistant director, OflBce of Problem Housing, New York

City Housing and Development Administration, article on the case for Page

congregate housing 2222

Laskey, Mrs. Kenneth, letter to Ralph Nader 1151

League of New Community Developers, statement of LevA'is Manilow,

chairman of the board 403

League of Women Voters of the United States, letter and statement from

Lucy Wilson Benson, president 157

Levy, Herbert, reprinted article from Journal of Housing, on single-room

occupants 2215

List of housing and urban development bills pending before the sub-
committee 6

Los Angeles Area Chamber of Commerce, letter from Frederick Llewellyn,

president 2025

Martin, Shirley A., letter to Ralph Nader 1162

Maryland Department of Housing and Community Development, letter to

Senator Beall from R. C. Embry, Jr., commissioner 174

Mobile Home Act, section-by-section analysis 1038

Mobile Home Manufacturers Association, letter enclosing proposed mobile

home bill, from John M. Martin, president 1126

Montgomery, Ala., Housing Authority, additional data received f(?r the

record 1322

Montgomery County (Md.) Lawyers Association :

Proposed settlement cost regulations 1824

Report on review of the analytical methods and procedures used by
HUD to establish maximum FHA and VA mortgage settlement

charges 1884

Suggested amendments to S. 2228 1815

National Association of Home Builders, exhibits submitted with prepared
statement :

Reprint from Housing Starts Bulletin 735

Results of survey of 83 cities conducted July 1973 :

Availability of mortgage commitments 732

Interest rates quoted for i>ermanent mortgages 733

Outlook for next 90 days 734

National Association of Housing and Redevelopment OflScials, reprint of

paper titled "Future Directions in Federal Housing Policy" 1268

National Association of Real Estate Boards, additional exhibits accom-
panying prepared statement :
Excerpts from statements of :

Jeffrey M. Bucher, Member, Board of Governors, Federal Re-
serve Board 1602

J. L. Robertson, Vice Chairman, Federal Reserve Board 1601

Letter to Secretary Lynn from J. D. Sawyer, president 1542

Remarks of Robert M. Laird, Jr., owner and manager. The Laird

Agency, Aiken, S.C 1587

Reprint of article from Real Estate Today, titled "Consimier Pro-
tection for the Homebuyer" 1591

National Association of Retired Federal Employees, position paper on

housing for the elderly 2046

National Caucus on the Black Aged, statement of Hobart C. Jackson, chair-
man 2228

National Conference of States on Building Codes and Standards :

Letter and accompanying documents from Kern E. Church, chairman,

legislative committee 1019, 2026

Outline of programs 872

National Electrical Contractors Association, letter from Robert L. White,

manager, public relations 2023

National Governors' Conference, report on 1973 questionnaire on rural

and urban development 356

National Housing Conference, resolutions adopted by membership at an-
nual meeting on March .5, 1973 791

National League of Cities and U.S. Conference of Mayors :

Answers to questions of Senator Sparkman regarding FHA reposses-
sions by program in Detroit 491

Excerpt from the National Municipal Policy 484

Reprint of article from publication titled "Washington Analysis" 478

Resolution on community development block grants 488

xn

National League of Insured Savings Associations, statement of William F. Page

McKenna, general counsel/vice president 169

National Pest Control Association, letter from Richard L. Eldredge, execu-
tive director 1989

National Retired Teachers Association, reprint of booklet titled "Crime

Prevention Program" 2077

National Society of Profes,sional Engineers, letter from Paul H. Robbins,

executive director 2024

Newspaper articles :

Journal of Housing 2215

Long Island Press 65, 66, 69, 86

Newsday 66, 79, 80, 83

New York Times 67, 69, 73, 77, 81, 83, 87

Northwest Trailer and Mobile Home News 1128

Suffolk Sun 65, 79, 82

Nipp, Doug, letter to Ralph Nader 1149

North Carolina :

Council of Code Officials, letter from W. H. Jamison, president 882

Department of Insurance, proposed legislation relating to the safety

of mobile home.s 876

Department of Justice, letter from Robert L. Woodahl, attorney

general 1144

League of Municipalities, letter from S. Leigh Wilson, executive

director 881

Manufactured Housing Institute, letter from Becky L. Griffin, execu-
tive director 881

Ohio State Bar Association, letter from Walter A. Porter, president 1993

Pell, Claiborne, U.S. Senator from the State of Rhode Island, letter to

Senator Sparkman 146

Pennsylvania :

Department of Agriculture, letter from James A. McHale, secretary 563

Department of Community Affairs, letter from William H. Wilcox,

secretary 563

Housing Finance Agency, statement of John M. McCoy, Jr., executive

director 556

Reprint of report on urban renewal 564

Phillips, Kenneth F., director, national housing and economic development
law project, Earl Warren Legal Institute, University of California, letter,

statement, and additional documents received for the record 2236

Phoenix Department of Law, letter from Cary K. Nelson, attorney general 1143
Planetarium Neighborhood Council, New York City, letters from John

Kowal, chairman 2212

Pocatello, Idaho, letter from Mayor F. W. Roskelley 150

Prue, Mrs. Cisella M., letter to Ralph Nader 1145

Ralph Nader, letters of complaint on mobile homes received from the

public 1143

Redlinger, Paul A., letter to Ralph Nader 1148

Rogers. James I., letter to Center for Auto Safety 1156

Rostenkowski, Dan, Representative in Congress from the State of Illinois,

prepared statement 2193

Rural Housing Alliance analysis of costs of the proposed Emergency Rural

Housing Administration 253

Sample settlement statement as submitted at House Banking Committee

hearings 1811

Shirk, Kenelm L., Jr., statement submitted for the record 1980

"Sixty Minutes," transcript of CBS broadcast on mobile homes 1062

Skyline Corp., letter from Robert K. Hornby 1161

Society of American Wood Preservers, Inc., letter from George K. Eliades,

executive vice president 2034

Society of the Plastic Industry, Inc., letter from Joseph S. McDermott,

staff director 2024

South Dakota :

Current status of public housing 199

Data on housing and use of federally subsidized housing programs 195

xiir

South Dakota — Continued Page

Effects of the 18-month moratorium on housing 202

Farmers Home Administration and its Iiousing activities 196

Federal Housing Administration and its housing activities 201

Number of substandard housing units in the six planning districts 196

Rural rental housing program activity since inception of program,

January 8. 1972 199

Section 502 homeownership loans by county — Arranged in planning

districts 197

Statement of Richard F. Kneip, Governor 194

Southern Building Code Congress, letter from William G. A'asvary. execu-
tive director 2025

Southern Manufactured Housing Institute, Inc., letter from John B.

Manley, Jr.. president 1779

Survey of legal fees and practice in residential real estate transactions,

submitted by New Jersey State Bar Association 1963

Tassone, Linda, letter to Ralph Nader 1150

Thygerson. Dr. Kenneth J., economist, U.S. Savings and Loan League,
reprint of paper titled "The Costs of Overspecialization in the Mortgage

Market" 93

Title Insurance Company of Minnesota, letter from Dean T. Lemley,

regional vice president 1995

Trenton, N.J.. letter from Mayor Arthur J. Holland 174

United Cerebral Palsy Association, Inc., statement of E. Clarke Ross,

Federal programs consultant 2208

United Cerebral Palsy of Greater Kansas City, letter from Edwin B.

Minter, executive director 2068

U.S. Savings and Loan League :

Reprint of paper svibmitted by Dr. Kenneth J. Thygerson, economist 93

Statement on mortgage settlement costs 1975

Wentlandt, Karl and Jane and son, letter to Ralph Nader 1160

Weston, Mrs. Sandra, letter to Ralph Nader 1147

Wheeler, Charles B., Jr., mayor of Kansas City, Mo., statement received

for the record 2233

Williams, Harrison A., Jr., U.S. Senator from the State of New Jersey,
statement on four bills introduced to improve housing status of senior

citizens 2006

Winter, Mrs. Gladys, letter to Ralph Nader 1157

Wisconsin legislation, draft mobile home warranty 1179

W^ittsey, Charles J., letter to Ralph Nader 1158

Charts

Bond yield curves 124

Housing trends, chart from Housing Starts Bulletin of National Associa-
tion of Homebuilders 738

Iron age composite prices 2010

Location of new communities 434

Metropolitan areas, submitted by American Institute of Architects 1369

Montgomery, Ala. Housing Authority :
Conventional program :

Actual reserve as to percentage permissible 1329

Dwelling rent 1325

Expenses 1331

Financial analysis 1330

Operating income versus expenditures 1327

Ratio of routine operating expense to local operating income 1328

Rent range 1326

Leased housing program :

Actual reserve as to percentage permissible 1334

Additional Federal subsidy required 1337

Dwelling rent 1332

Expenses 1338

Operating income versus routine expenditures 1336

Ratio of routine operating expense to local operating income 1333

Rent range 1335

XIV

Mortgage bankers originate increasing volume of conventional single- Pa&e

family mortgages 759

Organization of American Congress on Surveying and Mapping 1796

Pennsylvania renewal multiplier 568

Short-and long-term treasury yields 1950-73 106

State community development services 359

Steel industry scrap purchases and scrap exports 2010

Under $20,000 new home market (mobile homes) 1088

Tables

Average effective tax rate of FHLB member savings and loan associations

1950-72 130

Balance sheet of all FSLIC insured associations. December 31, 1972 100

Closing costs subject to regulation 1647

Comparison of estimating equation insurance rate effects and insurance

rate effects used to estimate title insurance costs 1914

Comparison of mobile homes shipments and sales of single-family site built

homes 1 1088

Estimated average total (buyers and sellers) costs by type of cost and price

range. FHA and VA cases. U.S. total, March 1971 1646

Estimated need for ERHA housing as.sistance as of 1973 258

Estimated prepayments 114

Estimates of mortgage loans closed by type of loan and by type of purchas-
ing investor 758

Estimates of title examination costs 1911

Ferrous scrap exports? — foundry and steel producer receipts 2011

FHA mortgage foreclosures in Detroit, January-June 1973 491

Financing operations of State housing agencies 132

Guarantees, loans, grants and other assistance authorized by title VII 435

Holding of total residential mortgages by various lenders 134

Housing need in ERHA territory as of 1970 census of housing 258

Land and land improvement costs experience 330

Levels and spreads between the conventional mortgage rate and AAA

corporate bond rate (1965-73) 136

Manufacturers shipment of mobile homes 736

Mobile homes shipments 1087

Montgomery, Ala.. Housing Authority :

Conventional housing 1322

Leased housing program 1324

Monthly comparison of actual housing .starts, 1964-73 736

New housing activity 736

Nonfarm residential mortgage debt outstanding, September 30, 1972 170

Number of sub.standard housing units in the State of South Dakota 196

Percent of saWngs withdrawals to beginning of year savings balance

1966-72 102

Ranking of title-related co.sts for States 1896

Rental housing compared to tenant income, 1970 2322

Section 235 homes constructed in West Virginia from program start in

1968 through March 1973 333

Section .W2 homeownership loans by county — arranged in planning dis^-

tricts. South Dakota 197

Securities of Federal agencies and Government-sponsored enterprises

which support housing 126

South Dakota :

County housing and redevelopment commissions 201

Municipal housing and redevelopment commissions 200

Tribal hou.sing and redevelopment commissions 201

Summary of new communities completing the HT^D application process — 432

Summary of new communities guaranteed by HUD 431

Telephone complaints and inquiries by women to HUD's fair housing

office 1231

Title insurance estimates 1910

Towns (or townships) over 50,000 62

Tucson model cities stati.stic.'? 1493

1973 HOUSING AND URBAN DEVELOPMENT

LEGISLATION

MONDAY, JULY 16, 1973

U.S. Senate,
Subcommittee on Housing and Urban Affairs,
Committee on Banking, Housing and Urban Affairs,

Washington, D.C .

The subcommittee met at 10:13 a.m., pursuant to call, in room
5302, Dirksen Senate Office Building, Senator William Proxmire
presiding.

Present: Senators Proxmire, Cranston, Stevenson, Biden, Brooke,
and Taft.

Senator Proxmire. The committee will come to order.

I apologize, Mr. Secretary, that I am late. I had work on the floor
that I had to do this morning and was not able to get free.

I am acting on behalf of the chairman of the committee this morn-
ing, Chairman Sparkman, who has, as you know, been in China
and is returning this evening.

We are starting hearings today on proposed housing and urban
development legislation. The hearings will run for 2 weeks and will
cover all bills pending before the subcommittee, including both hous-
ing and urban development matters.

The legislation pending before us covers a whole range of subjects,
and it is hoped the testimony will be submitted from a cross section
of Government and public interest groups to give the committee
adequate assistance in considering these various bills.

Because of the actions taken by the administration earlier this
year in freezing funds for all HUD-assisted housing and urban
development programs, this hearing takes on additional significance.

The committee has a heavy responsibility placed upon it to come up
with new legislative proposals covering both the housing and urban
development fields.

Early in April the committee held oversight hearings to review the
existing programs. Following that, tlie committee invited further
reports from the public to help it prepare for these legislative hearings.

When the President froze housing funds earlier this year, he
promised to report to the Congress his recommendations for new leg-
islation by September 7. We are proceeding with hearings ahead of
that date l)ecause the importance of developing a legislative package
which can pass the Congress this calendar year.

And I stress '"pass the Congress." If we can do so, I will be sur-
prised but delighted, and I am sure, Mr. Secretary, that you will be
very happy, too, if we can accomplish that.

(1)

We are proceeding with hearings ahead of that date because of the
importance of developing a legislative package, as I say, which can
pass the Congress this year.

The hiatus in housing programs has been a serious blow to our efforts
to reach our national goals. We cannot afford to delay any further in
getting these programs restored.

Unless housing-authorizing legislation is passed this year, it will be
extremely difficult to obtain an adequate level of funding in fiscal year
1975.

It is the chairman's plan, therefore, to press hard and move as
rapidly as possible in conductmg hearings and marking up a bill for
Senate consideration hopefully by the end of September.

If the President's September 7 package contains radical changes
from previous legislation, we can conduct short hearings just for that
purpose.

We should be prepared, therefore, to start committee markup by the
middle of September.

For the purpose of the record I would like to add at this point a
statement that Chairman Sparkman made in the Senate on May 8,
1973, relative to the committee's plan for developing new housing leg-
islation for this year. I will also place in the record a list of bills on
Housing and Urban Development pending before the subcommittee.

[The statement by Senator Sparkman referred to above, followed
by a list of the bills being considered at these hearings is reported as
follows. Complete text of the bills is printed in the appendix, part 2
of this publication at page 2329.]

[From the Congressional Record, May 8, 1973]

Mr. Sparkman. Mr. President, I am introducing two alternative bills to estab-
lish a new program of Federal assistance to the Nation's communities for urban
development.

The one bill entitled "The Better Communities Act" I am introducing by re-
quest for myself and the distinguished senior Senator from Texas (Mr. Tower).
This bill, which was sent to the Congress by Hon. James T. Lynn, Secretary
of Housing and Urban Development, on April 20. would carry out the President's
recommendations in his message to the Congress of March 8, 1973, on community
development. It is one of several special revenue sharing proposals that the
President is submitting to the Congress as part of his legislative program for
1973. According to the President's message, the bill would provide $2.3 billion
a year, beginning July 1, 1974, to communities to be spent as they desire to meet
their community development needs. It would replace seven existing categorical
grant and loan programs, retain existing levels of Federal funds to communities
by a hold-harmless provision, upgrade the role of State governments by dele-
gating to them the authority of distributing part of the funds, assure a specific
level of funding by formula for metropolitan cities and urban counties, and
reduce Federal redtape by distributing the funds automatically to units of local
government without the requirement of all application.

The other bill I am introducing is identical with the provisions of chapter III
of S. 3248, which the Senate passed early last year by a vote of 80 to 1. The
only change is the dates of reference in view of an anticipated passage in 1973
rather than 1972.

Last year's provisions grew out of a bill, S, 2333, which I introduced in 1971
to bring about a consolidation of existing community development programs
into a single block-grant program. Our committee had before it both S. 2333 and
S. 1618, the administration's special revenue sharing community development
bill sent to the Congress in 1971. The resulting product, developed by the com-
mittee after extensive hearings and many hours of committee meetings in

executive sessions, has provisions from both bills, but basically contains the
block grant principles of S. 2333.

Some of the same issues considered by the committee in connection with last
year's bill will be before us again this year. However, much has happened in
the last year ; and I know that the committee will want to take a new look at
each of the issues and make independent judgments to develop legislation for
recommendation to the Senate this year. The important differences between the
two bills follow :

1. REVENUE SHARING

The principle of special revenue sharing has not yet been accepted by the
Congress. It carries ^-ith it a transfer of resiwnsibility for meeting national
objectives from the Federal Government to local governments with no built-in
means for directing or evaluating how the Federal funds are spent, other than
a postaudit for accounting and auditing puriioses. Under the administration bill,
communities would be automatically eligible regardless of plans or national goals,
the only requirement being a 60-day time period for local comment and a require-
ment to meet Federal civil rights and other laws.

The Senate-passed bill of last year had a number of built-in requirements to
insure that eligibility would be limited to those communities preparing and im-
plementing plans to meet the national objectives spelled out in the law. This
obviously would require HUD review and some delays. The committee would
probably want to reexamine its decision of last year which required an applica-
tion and a year-end review to seek a procedure which minimizes the inevitable
bureaucratic application approvals, while at the same time insuring that the
program is being administered to meet community development national objec-
tives and not just to reduce local taxes or other purely parochial, partisan or
narrow local objectives not considered in the public interest.

2. HUD PROGRAMS REPLACED

The major program difference between the two bills is that the administration
bill proposes to terminate the model cities and the rehabilitation loan programs,
while last year's bill does not. Last year's Senate bill contemplated the eventual
inclusion of the model cities program into the new program, so I see no problem
over model cities. However, the termination of the rehabilitation loan program
proposed by the administration this year appears to leave a serious gap in the
tools for an effective rehabilitation program.

3. FUNDING LEVELS

Last year's Senate bill authorized $5.9 billion in contract authority over a
2-year period of time, fiscal years 1974 and 1975. Such contracts could be liqui-
dated subject to an appropriation act by a maximum of $2.7 billion in fiscal
year 1974 and $3.2 billion in fiscal year 1975.

The administration's bill would authorize an appropriation of $2.3 billion for
fiscal year 1975 with an equal amount contemplated for each of the 4 years
thereafter. Considering the inclusion of the model cities program in the admin-
istration bill, which last year was at a program level of $600 million, the sharp
reduction in the proposed funding becomes quite apparent.

4. ADVANCE FUNDING

Last year's bill contemplated a 2-year advance funding program to insure
continuity from year to year. Two-year contracts would be made by the Secre-
tary which would be renewed each year in order to provide for continuing
support on a 2-year cycle subject to adequate contract performance.

5. BASIC ENTITLEMENT FOR METROPOLITAN CITIES AND URBAN COUNTIES

The administration's bill would establish a different allocation procedure than
the one approved in last year's Senate bill ; however, the basic provisions for
hold-harmless and the primary distribution of program funds to metropolitan
cities in accordance with population size and need would be retained. Entitlement
for large metropolitan counties was not covered in last year's bill, but I see no
problem in having such counties included.

99-855 O - 73 - pt. 1

The distribution of funds through the States rather than by HUD for small
communities proposed by the administration is a new proposal that needs to
be considered by the committee. Last year's bill made States eligible for funds
to carry out community development funds, whereas the administration's bill
would contemplate them only as passive distributors of funds. Considerable
work needs to be done on the computers to insure that tlie formula for basic
entitlement of funds and hold-harmless provisions are equitable and fair.

6. HOUSING

The administration's bill makes no provision to insure that a recipient com-
munity would undertake a program to meet its housing needs as part of its
community development efforts. Also, no provision is made in the administration
bill to meet the statutory requirement for relocation housing for families dis-
placed by this program or, in fact, by any other current Government program.

Last year's Senate bill not only contemplated a prerequisite plan to meet
housing needs, but also a plan to carry out programs to eliminate slums and
blight and to improve and upgrade community services and facilities in areas
affected by community development programs.

7. LOANS

No provision is made in the administration bill for Federal support to enable
a community to borrow funds at reasonable rates to carry out costly develop-
ment programs like urban renewal. The bill merely recognizes the right of the
community to use whatever financial mechanisms that are available.

Last year's bill made provision for Federal loans to States and communities
for planning and operating activities. Our committee has been told that without
federally supported loan funds, any substantial development or redevelopment
program would not be feasible for most U.S. communities. Land acquisitions, for
example, under urban renewal have been largely financed with temporary loans
locally issued, but backed by a Federal loan commitment.

Mr. President, you can see that there are many fundamental issues that need
to be ironed out. Most of the issues were considered last year, so they are not
new to the committee. I have introduced both bills to lay before the committee and
the Senate the choices before us and to solicit comments from the public and
users of the programs well in advance of hearings. To speedup consideration of a
community development bill that will be acceptable to the committee and the Con-
gress and, I hope, to the administration, I am having extensive work done to up-
date the provisions of chapter III of last year's bill. I want an updated bill which
will reflect the testimony submitted to the Housing Subcommittee in the recent
oversight hearings ; also, the current thinking of the administration as indicated
in supporting material of its Better Communities Act, which I am also introducing
today by request. An example of provisions to be added are those proposed by
the administration, which I am sure the committee will support, to add model
cities to the list of categorical programs replaced and the addition of a special
allocation for urban counties.

Another reason for introducing last year's community development provisions
as a separate bill at this time is the concern I have that mayors and other com-
munity leaders are being confused by the current distribution of proposed revenue-
sharing funds coming out of the administration's nationwide drive to inform the
public on the terms of its revenue-sharing better communities bill. Many Mem-
bers of Congress are receiving calls complaining about the figures on the assump-
tion that they are final, are, in fact, approved by the Congress. By having my bill

introduced as an alternative I hope to eliminate this speculation, making it clear
that there is an alternative and that Congress has not yet acted on the matter.

Mr. President, the Congress is facing a very important policy issue at this time
involving the reestablishment of Federal programs for housing low- and moder-
ate-income families which were cut off by the President in early January of this
year. Over 4 months have gone by and no acceptable plan has been advanced for
reinstating these programs or developing new ones. I am fearful that, at the rate
we are going, the President's original 18-month moratorium may end up as a 24-
raonth moratorium or longer. The President sent a message to the Congress on
March 8 in which he promised to send a report to the Congress in 6 months —
that is, by September 8 — on his policy recommendations based upon the results of a
major study he is making of the housing subsidy programs. Presumably based on
these recommendations, some legislative action could be taken at some later date
to reinstate Federal subsidy programs, or it is possible that the recommendations
would not favor any such program at this time. This latter possibility is credible
in view of the lack of housing subsidies for new programs in either the fiscal year
1974 Ijudget or projected fiscal year 1975 budget estimates.

Mr. President, I do not believe that Congress should hold up our normal pro-
cedure and wait for this indefinite product. We must remember the long leadtime
required to initiate programs. Cutting off programs is so simple compared with re-
instating or initiating new ones. Once the authorizing legislation is passed, ap-
propriations must be made, regulations must be written and communities and
sponsors need time to prepare for program funds, apply for assistance and finally
initiate action at the local level.

I believe that Congress has the responsibility for enacting legislation this year
to have the authorization ready for the President's fiscal year 1975 budget mes-
sage and, even more important, to insure its consideration by the Congress under
the new budget procedures recently recommended by the Joint Study Committee
on the Budget which would require authorizations 1 year in advance. Any
authorization approved by Congress during early calendar year 1974 would
have little chance of being included in an appropriations act for fiscal year 1975.

Mr. President, I have another strong feeling about our pending legislation,
which I believe would be strongly supported by Members of the Congress ; that
is, that a community development bill without provision for housing subsidies
would be a disservice to our communities and to our needy and ill-housed families.
These programs should go together and I propose to move ahead with the prepa-
ration of housing legislation to accompany the community development bill. I
have already taken steps to draft such a bill consistent with the testimony re-
ceived in our recent oversight hearings. I hope that our work in drafting a new
housing bill can be completed and hearings held on both the housing legislation
and the community development legislation this summer. This would give ade-
quate time for passage of legislation in both the Senate and the House this fall.

This is my plan. I have every reason to believe we can meet the schedule I have
outlined. I believe that Congress owes this to the Nation and must proceed as
rapidly as possible hopefully bringing the administration along, but proceeding
in any event to meet our congressional responsibility.

Mr. President, there is one more matter which I should add here, that is. that
we expect to concur with the House in passage of a simple extension bill before
the June 30, 1973, deadline for FHA and many of our programs. It has been pro-
posed that such an extension bill extend both dates and funding authority, leav-
ing an option to the Appropriations Committees to appropriate funds for fiscal
year 1974 to carry out certain programs through until the new programs can be
implemented on July 1, 1974. 1 support that plan.

HOUSING AND URBAN DEVELOPMENT BILLS PENDING BEFOR,E THE SUBCOMMIHEE*
Bill Senator Subject

S. 12 Williams To amend title VII of 1961 Housing Act to establish an Urban

Parkland Heritage Corp. to provide funds for the acquisition
and operation of open-space land.

S. 149 Inouye To amend sec. 5(c) of Home Owners Act of 1933 to authorize

an Increase in principal amount of mortgages on properties
in Alaska, Guam, and Hawaii to compensate for higher
prevailing costs.

S. 361 McGovern et al. To provide housing and community development for persons

in rural areas of the United States on an emergency basis.

S. 513 Moss To amend sec. 232 of the National Housing Act.

S. 779 Sparkman To provide that certain expense incurred in the construction

of a municipal building in Taledega, Ala., shall be eligible
as local grants-in-aid for purposes of title I of the Housing
Act of 1949.

S. 833 Tower and Fannin To repeal certain provisions of law applicable to federally

assisted housing.

S. 854 Stevenson A bill to improve planning and management processes in

States, regions, and localities.

S. 892 Sparkman and Tower To amend sec. 404 of the National Housing Act.

S. 898 Hollings and Cranston To authorize insurance in connection with loans to finance

purchase of lots for mobile homes.

S. 899 Hollings and Cranston To amend title V of the HUDA of 1949.

S. 910 Hollings To amend title V of the HUDA to assure borrowers of the right

to employ qualified attorneys in performing necessary legal
services in connection with loans under that title.

S. 971 _. Taftand Cranston. _ Home Preservation Act of 1973.

S. 1188.. Brock To promote the utilization of improved technology in federally

assisted housing projects and to increase productivity in
order to meet our national housing goals.

S. 1299 Symington... _. To amend title I HUDA 1949 to permit a city whose population

is below 50,000 to convert any outstanding urban renewal
projects from a two-thirds to a three-fourths capital grant
formula.

S. 1322 Williams To require HUD secretary to disregard the increase in benefits

under title II of the Social Security Act pursuant to Public
Law 92-336 in determining eligibility or the amount of
assistance under certain laws relating to low-income hous-
ing.

S. 1329 Sparkman and Tower To amend laws relating to FNMA.

S. 1348 Brock To provide for the establishment of safety standards for mobile

homes in interstate commerce.

S. 1579.. Dole __ To provide for the demonstration of models of living arrange-
ments for severely handicapped adults as alternatives to
Institutionalization and to coordinate existing supportive
services necessitated by such arrangements, to improve the
coordination of housing programs with respect to handi-
capped persons, etc. "Housing Opportunities for the Handi-
capped Act."

S. 1604 Brock To prevent discrimination on the basis of sex in housing.

S. 1614 Percy _, To require Secretary of HUD to furnish additional consumer

protection services, and for other purposes.

S. 1743 Sparkman and Tower Better Communities Act.

S. 1744 Sparkman Community Development Assistance Act.

S. 1753 Hartke To amend the Interstate Land Sales Full Disclosure Act to

Provide for ths licensing of developers inorder to insure the
maintenance of high professional standards, and for other
purposes.

S. 1834 Fong To amend National Housing Act re property in Alaska, Guam

and Hawaii; also the Home Owners oan Act of 1933.

S. 1850 Sparkman and Tower... To amend sec. 507 of the Housing Act 1949 to make the vet-
erans' preference applicable to veterans of the post-
Korean era.

S. 1851. do To amend title V Housing Act 1949 to provide for the use of

fee appraisars and construction inspectors.

S. 1967 do To amend title V of the Housing Act of 1949 to expressly

authorize the collection of taxes and insurance from rural
housing borrowers, to authorize fees and charges to be
available for administrative expensas, and for other purposes

S. 1968 do To amend the title V of the Housing Act of 1949 to transfer

certain farm labor housing and rural rental housing loans
from the agriculture credit insurance fund, and for other
purposes.

♦See contents page ill for location of reprints of these bills in part 2 of this publication.

HOUSING AND URBAN DEVELOPMENT BILLS PENDING BEFORE THE SUBCOMMITTEE

Bill

Senator

Subject

S. 1978 Beall.

S. 1997 Moss.

S. 2021 Hathaway.

S. 2028... Hart.

S. 2103 Javits.

S. 2169 Proxmire.

S. 2170 Proxmire.

S. 2171 Proxmire.

S. 2175 Brooke...

S. 2179.. Williams.

S. 2180. Williams.

S.2181... Williams.

S. 2182 Sparkman.

S. 2185 Williams...

S. 2190 Abourezk et al.

S. 2228 Brock

S.2276 Javits....

S. 2288 Proxmire.

To amend laws relating to the Federal National Mortgage
Association.

To authorize the Secretary of Housing and Urban Development
to encourage and assist in the deveropment on demonstration
basis of several carefully planned projects to meet the
special health-care and related needs of elderly persons in a
campus-type sjtting.

To recognize the role of certain State and local agencies in
assuming the responsibility for carrying out low- and
moderate-income housing programs, to affirm the continuing
responsibility of the Federal Government in carrying out
such programs, to facilitate the interim operation of such
programs by those State and local agencies, to provide for the
resumption of the operation of such programs by the Federal
Government in an expeditious manner, and for other such
purposes.

To regulate interstate commerce by providing for uniform and
full disclosure of certain information with respect to the sale
of dwellings for occupancy by not more than 4 families in
order to promote sound and effective price competition and
to prohibit unfair and deceptive sales and other anticom-
petitive practices, and for other purposes.

To amend the Housing and Urban Development Act of 1970 to
provide a more effective approach to the problem of develop-
ing and maintaining a rational relationship between building
codes and related regulatory requirements and building
technology in the United States, and to facilitate urgently
needed cost-saving innovations in the building industry,
through the establishment of an appropriate nongovern-
mental instrument which can make definitive technical
findings, insure that the findings are made available to all
sectors of the economy, public and private, and provide an
effective method for encouraging and facilitating Federal,
State, and local acceptance and use of such findings.

To provide for the direct financing of low- and moderate-in-
come housing programs under sees. 235 and 236 of the Na-
tional Housing Act.

To amend the United States Housing Act of 1937 to require that
20 percent of new units in public housing projects be avail-
able for occupancy by large families.

To encourage low rise construction in public housing and el-
derly housing projects.

To amend sec. 24 of the Federal Reserve Act to simplify, con-
solidate, and improve the law relating to the investment in
mortgages and residential real estate by national banks, and
to enable the Federal Reserve banks to extend credit to mem-
ber banks on any sound collateral at a uniform rate of in-
terest.

To establish a demonstration program to provide direct financ-
ing of housing for the elderly under sec. 236 of the National
Housing Act.

To provide for increased security and protection for certain
federally related housing projects.

To amend the National Housing Act to provide further assist-
ance to public and private nonprofit corporations for the con-
version of existing single family housing for occupancy by
elderly persons of low or moderate income.

To consolidate, simplify, and improve laws relative to housing
and housing assistance, and for other purposes.

To provide a $100,000,000 increase in the authorized funding
for the sec. 202 housing for the elderly and handicapped
program.

To provide housing for persons in rural areas of the United
States on an emergency basis.

To provide for greater disclosure of the nature and costs of real
estate settlement services, to eliminate the payment of kick-
backs and unearned fees in connection with settlement serv-
ices provided in federally related mortgage transactions, and
for other purposes.

Neighborhood Conservation Act.

To regulate closing costs and settlement procedures in federally
related mortgage transactions.

♦See contents page ill for location of reprints of these bills in part 2 of this publication.

8

Senator Proxmire. Mr. Lynn, we are happy to have you. And,
Under Secretary Hyde, we are happy to have you, too, sir.
Go right ahead.

STATEMENT OF JAMES T. LYNN, SECRETARY OF HOUSING AND
URBAN DEVELOPMENT, ACCOMPANIED BY FLOYD HYDE, UNDER
SECRETARY

Mr. Lynn. Thank you, Mr. Chairman. It is good to be here today.

The committee has asked me to testify today on two community
development bills presently before this subcommittee — S. 1743, known
as the Better Communities Act, which was prepared by the admin-
istration and introduced on May 8, 1973, and S. 1744, which Chairman
Sparkman introduced on the same day and which incorporates the
provisions of chapter III of the omnibus housing bill passed by the
Senate last year.

I should stress at the outset that while there are significant differ-
ences in certain provisions of the two bills, the bills reflect substantial
agreement on basic objectives, approach, and on most of the substantive
issues.

First, and most fundamental, we seem agreed on the concept of
special revenue sharing or block grants — whichever term you prefer —
which provides formula-calculated entitlements based on objective
factors producing sums certain year after year to local governments
for community development needs.

We both want to see the end of inordinate, needless processing
delays inherent in the project-by-project approach, and, most im-
portantly, the elimination of the dependency syndrome which pre-
sently relegates local officials to second-class status — that of
supplicants or, if you will, "grantsmen" — and at the same time allows
them to escape full responsibility to their constituents because there
is always the Federal bureaucracy to blame when anything goes wrong.
Since local officials in any community are, after all, the elected gov-
ernment officials closets to the people, they can be expected to be the
most responsive to the people on issues which immediately and vitally
affect that community.

Second, we seem agreed on the necessity of holding harmless at
least initially, communities which would, under the needs formula,
receive less than they had been receiving under the categorical pro-
grams being replaced, in order to help such communities toward com-
pletion of current activities.

On a related point, we also seem agreed that communities which
have been receiving less under the categorical programs than they
would under the needs formula entitlement should "phase in" to the
new arrangement rather than immediately jumping to the entitlement
level.

Finally, I know that we are both in agreement on the need for
prompt action. I stated to this subcommittee last April that I believed
our proposed funding level for community development programs for
the transitional period of fiscal year 1974, albeit frugal, would not
result in severe hardship from the national perspective, particularly
in view of the large amount of funds which would be committed but
unused at the end of fiscal year 1973 and in view of the accelerated

9

procedures for funding commencing July 1, 1974, under the proposed
Better Communities Act.

However, you will also recall that I stated we had urged individual
meetings between HUD and city officials on a community-by-
community basis to determine whether the funding limit proposed
would create situations in particular communities inconsistent with the
reasonable transition we desire. We said we would listen and we wanted
to be fair.

Although we do not have quite yet a complete analysis of the situa-
tion conununity-by-community at this point, inasmuch as year-end
allocation and reallocation did much to avoid transitional problems in
a number of communities, our present assessment indicates that some
additional funds are in order.

In my June 21, 1973, letter to the Senate Appropriations Committee,
I estimated these needs as in the range of $155 to $185 million more
for Urban Renewal, and $50 to $75 million more for Model Cities
programs.

But what will be needed for fiscal year 1975 will be assurances well
in advance of July 1, 197-1, to our communities that funding at definite
levels will be available. I, therefore, applaud the action of this sub-
committee in moving ahead promptly with hearings on these impor-
tant matters, and I promise the Department's expeditious cooperation
with the Congress as it moves toward enactment of improved com-
munity development legislation.

I should also note that last year the House subcommittee extended
entitlements to urban counties which have populations of 200,000 or
more exclusive of metropolitan cities, and other localities therein which
qualify for hold-harmless treatment. In the Better Communities Act,
we have accepted this approach and have included urban counties
along with metropolitan cities as entitlement units of local general gov-
ernment. However, the capacity of certain urban county governments
to handle community development funds has been questioned, and we
would like to consider this matter with you as work on details of the
legislation proceeds.

Neither the prior administration bill nor the Senate and House
bills of last year included any role for State goverim^ients except as
[recipients, potentially, of secretarial funds. We have thoroughly
reconsidered this issue and in the Better Communities Act have pro-
vided for a significant but limited State role.

On the one hand, there are those who say States have no role to play
in community development primarily because most of them have here-
tofore eschewed any responsibility in this area. On the other hand,
there are those, including those at the National Governors' Conference
last June, who believe that all Federal moneys should be channeled
through the States either for the States' own expenditure on commu-
nity development projects or for redistribution to localities within the
States.

This is not an issue of whether all funds should be distributed to
all communities of any size by formula. There appears to be agreement
that inasmuch as this approach would result, at reasonable overall
funding levels, in checks for $100 or less going to some communities
for community development projects which, by their nature, cannot
be carried out with a flow of small dollar amomits, an element of dis-

10

cretion in the distribution of funds to smaller communities is neces-
sary. The real issue, therefore, is who should exercise the discretion —
HUD or State governments.

In our view, it would be wrong to ignore the unique position and
capabilities of the States to work toward coordinated community de-
velopment. By providing States with decisionmaking authority over
some community development funds, cooperation between States and
their localities will be enhanced, dependence on the Federal Govern-
ment will be lessened, and Statewide community development goals
can be implemented.

Moreover, a new State community development role will un-
doubtedly result in keener awareness 'by States of the effect of their
decisions in program areas where States already have substantial ac-
tion, highway location, environmental control, and taxation, to name
but a few examples, or where, as in the case of land use and other
planning, States may in the future play a far more significant role.

Such increased awareness by the States of the impact of their
decisions on their communities cannot help but aid not only our urban
area, but the State as a whole.

Accordingly, the Better Communities Act, in an acknowledged de-
parture from all previous bills, would provide funds to the States,
one-half of which must be redistributed to localities in specific SMSA's
on the basis of the formula factors which gave rise to the State en-
titlement, and the other half of which, less reasonable administra-
tive expenses, must be redistributed to localities anywhere in the State.

Under this arrangement. States will not have funds for their own
community development programs but must, more appropriately we
believe, distribute funds for use in local communities.

But what the States will have through control over distribution of
these funds is the ability to coordinate and influence community de-
velopment activities on a scale larger than the individual communities
themselves.

We hope that the subcommittee will very carefully examine this
matter in its deliberations.

As I stated earlier, there are, to be sure, a number of significant dif-
ferences between the proposed Better Communities Act and S. 1744.
I would like to discuss these differences and explain the reasons for
the administration position.

First, there are the related matters of "prior program experience"
as an element in the needs formula and the perpetuation of hold-harm-
less. Both the Senate bill and the House bill contained both of these
provisions last year. Even assuming that one wanted to hold communi-
ties harmless forever, I am puzzled as to why both concepts are pro-
vided; they certainly seem more in the nature of alternative rather
than complementary approaches.

More importantly, I question the desirability of the basic idea of
holding communities harmless forever. Advocates of this position —
principally those communities which have done exceptionally well
under HUD's categorical programs in recent times — must know as
well as I do that even under the categorical programs they could not
have counted on any particular funding levels in the future.

In fact, the more such a community got in one or more recent years,
the more its officials must have realized that maybe soon it would be
somebody else's turn and their funding from the Federal Government
would soon become a trickle.

11

Our position is simply stated : we recognize the need for holding
harmless initially as a transition mechanism to help complete current
activities, but we do not acknowledge the propriety of continuing the
fruits of past grantsmanship forever. Recognizing that where the
hold-harmless level is higher the wrench of a sudden switch to needs
formula apportionment would not be fair, we propose maintaining
such higher hold-harmless levels for 2 full years with gradual transi-
tion to the needs formula level over the next 3.

Hold-harmless funding transitioned into formula funding will give
communities for the first time forwo rd funding they can count on in-
stead of having to rely on a hand-to-mouth, year-by-year, catch-as-
catch-can categorical system where their important priorities get lost
in a maze of annual redtape and on- again-off -again funding. And
most important, from the standpoint of equity, the most objectionable
feature of a hold-harmless provision beyond the transition period is
that it denies other commvmities their rightful share of Federal com-
munity development funds determined by objective criteria of need.

A second significant difference between the Better Communities
Act and S. 1744 concerns the related matters of application process
and HUD's review process.

Both bills reflect the basic concept that citizens in the community
receiving funds from the Federal Government should be advised as to
the purposes for which the funds will be used and have an oppor-
tunity to express their views. In the Better Communities Act, a pre-
liminary statement of purposes must be published 60 days prior to
finalization of the statement, and comments made by interested persons
and groups must be taken into consideration in finalization of the plan.

In contrast, S. 1744 requires public hearings in the event private
land is to be acquired and, in any case, requires "adequate opportunity
for citizen participation in the development of the annual applica-
tion."

S. 1744 also requires provision "for the meaningful involvement of
the residents in areas in which community development acivities are
to be concentrated in the planning and execution of these activities, in-
cluding the provision of adequate information and resources."

All local governments permit citizen participation through the elec-
toral process. In addition, citizen participation takes place through a
variety of mechanisms ranging from the town meeting to formal hear-
ings.

Because we do not seek to modify these differences, we have sought
in the administration bill only to require that the citizenry be in-
formed of community development plans and to insure that citizen
views are considered. We believe there is no national purpose to be
served in prescribing the exact manner in which such views are to be
expressed or considered. Of course, any attempt to evade the basic
requirements imposed by the Better Communities Act by sham would
result in withholding of funds.

S. 1744 also specifies in detail the contents of an application. There
must be an outline of community needs and objectives and actions to
be taken over the then ensuing 3-year period- — first, to meet housing
needs of families who may reasonably be expected to seek housing in
the community, particularly families with low or moderate incomes ;
second, to prevent and eliminate slums and blight and upgrade neigh-
borhood environments through renewal, code enforcement and other

12

community improvement programs; and third, to improve and up-
grade community services and facilities to meet the social needs of
residences in areas affected by community development activities.
There must also be a description of the activities to be undertaken dur-
ing the then ensuing 2-year period which are designed to meet the ob-
jectives, their estimated cost and general location, and any require-
ment for federally assisted housing units and rehabilitation. The ap-
plicant must certify that the activities are consistent with local and
areawide comprehensive development plans and national growth
policies.

Under S. 1744, the Secretary must make a determination on the ap-
plication within 90 days and cannot approve an application unless he
concludes that a community has "(A) set forth a meaningful pro-
gram to meet its urgent development needs and to achieve the pur-
poses of the act, and ( B ) carried out its contractual commitments pur-
suant to any previous applications."

In contrast, the Better Communities Act sets out permissible ac-
tivities for which funds may be used which are, in essence, any activi-
ties eligible under the seven categorical programs being replaced, in-
cluding their planning and administration. From these eligible activi-
ties, communities are required to set forth, in an annual statement of
purpose, what they intend to use the money for. Finally, the Depart-
ment, through postaudit procedures, would determine whether the
moneys have in fact been spent for the stated purposes.

There are a number of reasons that we urge a simplified application
and approval process. First, the whole idea of special revenue sharing
or block grants based on a needs formula is to eliminate the competi-
tion among grantsmen which has heretofore taken place on the battle-
ground of the application process. The thrust of this competition seems
to have been that HUD would reward those who would in its judg-
ment— and based on the persuasiveness of the application prepared
by the cormnunity or by its consultants — eliminate the most blight,
create the most open space, have the best plans, or whatever. In con-
trast, when need is determined under a needs formula using the objec-
tive factors of popidation, housing overcrowding and poverty (counted
twice) as in the Better Communities Act, we think the basic purpose of
a plan or an application is to inform the public and HUD as to what
the funds are to be used for. The formula — not competing applica-
tions— determines that a community needs more or less funds relative
to other communities.

Second, we believe that local communities are in a better position
to set their own community development priorities — whether they
need housing, renewal of areas of slums and blight, creation of open
space, improvement of water and sewer systems, experimentation in
local neighborhoods, improvement of recreational facilities, infra-
structure for job-producing businesses to replace lost industry, or
whatever — than are we at HUD or, with all deference, are you in the
Congress.

As the President has stated :

Local priorities differ; the intensity and order of local needs vary.

Clearly, no single, rigid scheme, imposed by the Federal G-ovemment from
Washington, is capable of meeting the changing and varied needs of this diverse
and dynamic Nation.

13

There is no "best" way, no magic, universal cure-all, that can be dispensed
from hundreds or thousands of miles away.

What is good for New York City is not necessarily good for Chicago, or San
Francisco, much less for smaller communities with entirely different economies,
traditions, and populations.

Third, the new program of special revenue sharing should allow
local officials to spend their very valuable time solving local problems
rather than drafting applications which will strike the fancy of Fed-
eral officials.

Fourth, we desire that the money be available to communities on
July 1, 1974, and this is possible under the Better Communities Act.
There would be no lengthy delay involved in preparing detailed ap-
plication forms and in a 3-month HUD review period.

Finally, we do not think it is the place of HUD bureaucrats to de-
termine whether a particular local community has a "meaningful" pro-
gram. Meaningful to whom ? To HUD bui-eaucrats? If the program is
to be "meaningful to the community,"' the best test is to place responsi-
bility on locally elected officials who will not remain in office for long
if tlie citizens decide that the program is not meaningful enough.

Advocates of HUD review seem to assume that Federal participa-
tion assures meaningful expenditures at the local level, particularly
for the needy. But, I ask, how much have the needy really benefited
from our seven categorical programs? I think you will agree that the
honest answer is "Not much."

I suppose then, the advocates of HUD review will counter that this
is because HUD bureaucrats are not doing a good job. I suggest, how-
ever, that it is unreasonable and just plain unrealistic to expect any
Federal official, however industrious and well-intentioned, to be so
knowledgeable about the problems, opportunities, and needed priori-
tics for action of a particular community that he can properly second-
guess the plans put together by the community itself.

To sum up on this point, although we fully realize that all communi-
ties will not respond uniformly when responsibility and resources are
shifted to them, we believe strongly that overall, and increasingly,
they will do a substantially better job than we have done, and that
Federal second-guessing of their approaches would only stifle rather
than foster the kind of innovative, productive effort we all seek.

There are other differences between the Better Communities Act
and S. 1744. We have folded in Model Cities and rehabilitation loans
whereas S. 1744 does not. We see no reason why a community should
not be free to alter, expand, or phase out these community develop-
ment programs in terms of its own priorities. In fact, we see a real
danger in burdening local governments with separate programs with
separate administrative structures aimed at achieving essentially the
same goals for the same people.

Another difference is the elimination of a local match requirement
in the Better Communities Act. As the subcomittee is aware, local
match requirements — particularly those provisions permitting non-
cash contributions — have eroded in their actual application to the
point where nearly anything goes, and it is questionable whether the
basic objective — promoting local interest in the project through re-
quiring local funds — has much meaning.

14

Of more importance, we believe that making local officials take the
responsibility for deciding how the funds will be spent is a better way
to assure proper attention to priorities.

Finally, experience has shown that the determination of non-cash
contributions is among the greatest producers of redtape, delay, and
confusion in comiection with community development programs.

The Better Communities Act also has several features related to the
close out — completion — of urban renewal projects. Under Better
Commmiities Act rules, a coimnunity could phase in funds from reser-
vations in old projects under urban renewal and thus free itself as
to such funds from narrow contractual constraints attendant to those
projects.

A second feature would permit the Secretary to order a closeout in
appropriate circumstances. Without this provision, numerous projects
would limp along without completion with a large part of the project
funding going to needless, wasteful, administrative overhead. The
requirement that the Secretary consult with the local agencies in-
volved and with the chief executive of the relevant local government
provides assurance that this secretarial authority to close out projects
will not be used unfairly.

Further, the concentration on closeouts reflected in fiscal year 1973
funding allocations and in proposed fiscal year 1974 funding alloca-
tions will substantially reduce the need to use money distributed under
the Better Communities Act to complete old projects.

Let me reemphasize one thing : under this proposal, no community
will lose so much as a single nickel previously committed to it under the
urban renewal program.

Finally, while the Better Communities Act expressly permits local
communities to obtain loans to finance community development
activities and to pledge its assets to secure such loans, S. 1744 would go
further by authorizing the Secretary to make loans to these com-
munities to finance planning and operating activities pending the
receipt of grant assistance.

The S. 1744 provision for Federal loans seems to ignore certain basic
differences between the present system of categorical grants under
conventional urban renewal and revenue sharing under the Better
Communities Act.

In the first place, the typical categorical grant situation under
urban renewal — a loan being made to tide the local authority over until
it takes down funds under its grant 6 or 7 years into the project —
would not exist under the act. Instead of funds being taken down
near project completion, funds would be distributed annually.

Second, loans are now secured by grants which will be made pursuant
to existing contracts with the Federal Government. S. 1744, by con-
trast, would permit loans on the security of statutory grants that may
no then have been appropriated. Accordingly, we do not believe the
loan provisions of S. 1744 are advisable.

Mr. Chairman, I trust that this statement constitutes good and suf-
ficient evidence that we in the administration are deeply interested in
early and appropriate transformation of categorical community
development programs into a better system — a system more responsive
to community needs and desires. We are and will remain available for
discussion about any aspect of this matter, and we earnestly desire to be

,15

of whatever help we can in the work of coming up with the best bill
possible. I do, however, want to emphasize that we desire a true shift
of power and responsibility in community development decisionmaking
from Washington to local governments, we desire that the pattern of
past grantsmanship not be perpetuated indefinitely and, finally, we
desire an overall funding level for these purposes which is consistent
with a noninflationary budget and no tax increase. Thank you.

Senator Proxmire. Thank you, Mr. Secretary.

Mr. Secretary, I said in January that, and I quote, "any Secretary
worth his salt should fight within the administration to end the mora-
torium as soon as possible."

I still believe that. Do you ?

Mr. Lynn, No, sir, I do not. I believe that my responsibility at the
moment is, first of all, to carry out the statements that Secretary
Romney made in his Houston speech announcing the suspension,
which means completing the job of identifying and honoring commit-
ments in addition to processing the applications that were already in
the pipeline, and to expeditiously further the housing study that has
been commenced so that the President may meet the September 7 time-
table that he announced for presenting his approaches to housing
policies and programs to Congress,

Senator Proxmire, "Well, I said "end the moratorium as soon as
possible,'- 1 don't understand why you can't

Mr. Lynn. I'm sorry.

Senator Proxmire [continuing] . Do these things-

Mr. Lynn. I thought you meant by "end the moratorium as soon as
possible" using the word "possible" to mean by announcement, say,
tomorrow, to try to make the term "possible'' mean something like
that — tomorrow.

Senator Proxmire. I would want to do that myself. I am not asking
you to do that. I wouldn't expect you to.

But the question was whether you felt the Housing Secretary should
do his best to end the moratorium as soon as possible, recognizing these
objectives that you want to achieve as you end it.

Mr. Lynn. The problem with that from my standpoint, Mr. Chair-
man, is that I don't know at this point whether or not our suggested
policy recormnendations will be to restore the present programs in
whole or in part.

I can agree with you that I think the objective of the Secretary of
Housing and Urban Development should be to come up with — or to
put the President in a position to come up with — our recommended
policy program recommendations as soon as possible.

Senator Proxmire. Have you done that yet ?

Mr, Lynn, I can say to you that we have been moving as rapidly
as anyone possibly could to put the President in a position of coming
up with those policy recommendations.

Senator Proxmire. Have your recommendations gone to the Presi-
dent yet ?

Mr. Lynn. They have not, sir.

Senator Proxmire. When do you expect them to go to the President ?

Mr. Lynn. I will be meeting with the President, I expect, in the
course of the next couple of weeks to bring him up to date on an in-
formal basis as to where we are at that point in time. We will also be

16

distributing to sister agencies some rough cuts of options within the
next week to 2 weeks.

Senator Proxmire. Wlien will the President be able to consider your
recommendations fully? You say you will be giving him a fill-in, a
kind of an interim report, but I take it if you are going to meet this
September 7 schedule that you have another date in mind as to when
you will report to him finally.

Mr. Lynn. I would certainly hope at least a month before the time
for his recommendations to the Congress.

Senator Proxmire. Have you, Mr. Lynn, as counselor to the Pres-
ident or as Secretary of HUD urged 0MB to release more housing
funds — urged the Office of Management and Budget to release more
housing funds?

Mr. Lynn. Wliat I am doing at the moment is reviewing with 0MB
the fimding levels that we would require for fiscal year 1974 in con-
nection with the honoring of the commitments that Secretary Eomney
referred to.

In that connection, I have asked for a release of funds in fiscal year
1974 to meet additional commitments that we have identified.

Senator Proxmire. Have they said yes or no ?

Mr. Lynn. I am due to sit down with them either today or tomorrow.

Senator Proxmire. I see. How much are you asking ?

Mr. Lynn. I would prefer not to answer that question, Mr.
Chairman.

Senator Proxmire. I asked in January if you had ever talked with
the President about the housing moratorium. I indicated concern be-
cause of the President's reported isolation from important domestic
questions. You answered as follows :

I have not personally discussed the action that was taken as announced by
Secretary Romney with the President, but I am advised that the President cer-
tainly is aware of it and understands it, that it is, as Mr. Cole states in the letter
response on behalf of the President.

Question. Now I ask have you talked with the President at all in the last few
months, Mr. Lynn?

Answer. Yes.

Question. How recently?

Answer. Day before yesterday.

Now, I want to bring that up to date if I can. Have you ever talked
with the President about the moratorium and its impact ?

Mr. Lynn. No, I have not.

Senator Proxmire. You have not talked with him? Have you ever
directly urged him to restore housing programs ?

Mr. Lynn. I have not.

Senator Proxmire. You have not because you concurred in the policy
that the program should be suspended pending this study and pending
your determination as to whether you should go ahead? Is that the
reason ?

Mr. Lynn. Yes, sir.

Senator Proxmire. Do you agree with the judgments of the HUD
program made by the Office of Management and Budget ?

Mr. Lynn. Would you repeat that question, sir ?

Senator Proxmire. Do you agree with the judgments of the HUD
programs made by the Office of Management and Budget ?

Mr. Lynn. Which particular judgments?

17

Senator Proxmire. Well, I'm talking about the limitations on the
funds made available by the Office of ]Management and Budget,
whether you asked for more, whether they reduced you, whether you
felt that the amount that 0MB approved w^as adequate.

Mr. Lynx. I think my answer has to be in two parts, JNIr. Chairman.

I agreed with the actions that were decided by the administration
before I took this office with respect to the suspension and termination
of certain programs. On the other hand, I have gone back to 0MB
with respect to requests for further funds, as I said a little earlier, first
of all in order to honor commitments as we have identified them, and,
secondly, as you know, Mr. Chairman, from the other position that you
hold as chairman of the Senate Appropriations Subcommittee, I went
back to 0MB as a result of our community-by-community examination
to request additional funding in the urban renewal and model cities
programs so as to assure that a reasonable transition to the Better
Communities Act will be able to take effect on July 1, 1974 — I might
add successfully.

Senator Proxmire. I'm sorry. Go ahead. Did you have something
else to add ?

Mr. Lynn. No, sir.

Senator Proxmire. In your testimony last January you said that
Mr. Cole's statement that HUD programs were ineffective and counter-
productive left the door open to evaluation because he referred to
mounting evidence in support of his conclusion. Is the evidence
mounting ?

Mr. Lynn. Yes, sir.

Senator Proxmire. Can you give us what this evidence amounts to —
this mounting evidence ?

Mr. Lynn. I would prefer, Mr. Chairman, to let our written analysis,
vphich will be available on or before September 7, speak for itself.

You will recall that in the oversight hearings held in April I said
I faced a fundamental question as to whether to package that evidence
separately or to proceed in tandem with our appraisal of alternatives
and decided in favor of proceeding in tandem.

I believe, however, that the written submission that will be available
on or before September 7 will demonstrate very clearly that there
was and is such mounting evidence.

Senator Proxmire. The hearings that we have had before the Hous-
ing Subcommittee of the Appropriations Committee and also in the
Joint Economics Committee indicated contrary information. You are
convinced that the evidence is mounting in support of the ineffective-
ness and counterproductiveness of the HUD programs that have been
suspended ?

Mr. Lynn. Yes, sir. Let me add, though, as I added in my testimony
in the April hearings, that it is not entirely programmatic, although
it is certainly programmatic to a large degree, but also administrative
to some extent. In other words, the way the programs have been shaped
under the existing laws have been at least partly to blame.

Senator Proxmire. You have come to the conclusion that we better
serve the national interest by suspending the programs entirely rather
than continuinij any part of them while the study is going on ?

Mr. Lynn. Yes, sir.

18

Senator Proxmire. It is very difficult for us — and we have tried
hard to get outside experts to support ypur view — it is hard to find
people who do. The people who have testified not only from the in-
terests groups but the outstanding economists from universities, and
so forth, all seem to feel that these are programs that should have been
continued, although they would agree with you in almost every case
that there are shortcomings in them and areas that could be improved.

They feel that the need for housing for low and moderate income
people is so urgent that this loss is one that is going to be extraordi-
narily difficult to make up.

Mr. Lynn. Mr. Chairman, the one thing I would like to empha-
size is that we have at this point in time in no way foreclosed as an
option the possibility of returning to the use of one or more of these
programs.

One of the reasons why I am in favor of the suspension is that the
totality of the programs as being carried out I feel is fraught with
inequity and waste. And, very frankly, it would take an appreciable
period of time even to amend the procedures and the administration
cast of these programs, and it seems to us that that ought to be done
only after we have evaluated the programs entirely to see whether or
not there are better alternatives to the programs themselves.

Senator Proxmire. Even at that point I can see difficulty. Suppose we
don't have a housing bill this year. What do you intend then to do
about maintaining housing and community development programs?
Nothing ?

There is a very unfortunate likelihood that by the middle of October,
when we adjourn sine die — it was the determination of the leadership
to adjourn ths 1st of October, but this morning I talked to Senator
Byrd and he felt the 15th of October or so was about the realistic esti-
mate of the time — there would be some chance that we wouldn't have
any housing programs. I'd say 50/50 perhaps. Then what do you do ?

Mr. Lynn. Having been in government for about four and a half
years, Mr. Chairman, my approach would be to look at the situation
at that time.

However, I would still say that as far as putting these programs
back on again in the way that they have been conducted in the past
is something that I would resist strongly.

Senator Proxmire. My time is about up, but I would hope that you
would have a plan prepared to deal with the situation in which the
House fails to act on a Senate-passed bill — could be vetoed by the Presi-
dent, could not pass the House perhaps. It may not pass the Senate
by then. I would hope that you would have a program developed to
act in the event that this occurs.

Senator Brooke.

Senator Brooke. Thank you, Mr. Chairman.

Mr. Secretary, at your confirmation hearing I made an opening state-
ment touching upon a whole spectrum of problems facing HUD, and
my subsequent questions to you, as you will recall, focused on the q^ues-
tion of impoundment and its effect on the housing picture, the time-
table for new legislation, the desire to replace existing programs, the
moratorium on subsidized housing, the problems of minority con-
tractors, executive privilege, and problems relating to so-called Brooke
amendments.

19

And I placed in the record my concern over practically every issue
of our housing policy.

Now, you repeatedly declined to answer those questions or to get
into them substantially on the basis that this was a new job for you
and that you were too new to the whole field of housing policy. Do you
recall that?

Mr. Lynn. Yes.

Senator Brooke. But you did promise two things. One, that you
would investigate all the chief policy issues in HUD and either formu-
late new solutions or return to administering old ones, and two, in
either case that you would be available for contact with us and would
cooperate with us, this committee, notwithstanding any claims of exec-
uive privilege open to you as a presidential counsel at that time.

You gave no timetible for propounding your solutions to our hous-
ing problems, but you indicated that 18 months would not be required.
Do you recall that ?

Mr. Lynn. I do, sir.

Senator Brooke. You promised to move as quickly and as expedi-
tiously as you possibly could.

Now you appear before us today on the Better Communities bill, but
there are certain questions outside of that bill which the chairman
has touched upon and which are still of very deep concern to me
personally, and I think to the committee, and to the country, that I
would like to discuss with you.

At the time of your confirmation I accepted the thesis that in light
of HUDs problems perhaps it was wise to appoint a fresh mind and
one that was free of any preconceived ideas. But I did emphasize that
time was of the essence, and I think you agreed.

Mr. Lynn. I did.

Senator Brooke. And you promised to come back again and testify
more fully on housing matters.

Now I would like to raise these questions with you.

Surely even though HLTDs formal study of our housing programs
is not scheduled to appear, you have already put together some tenta-
tive conclusions about the broad outlines of HUD policy, have you
not?

Mr. Lynn. Of HUD policy, sir ?

Senator Brooke. Yes.

Mr. Lynn. In what particular area ?

Senator Brooke. All right. I will give you those particular areas.

You told me that it was possible to consider concepts apart from
the administrative matters and that your study concerns chiefly ad-
ministrative matters. But questioned in January on policy matters
such as impoundment, you said you didn't know a heck of a lot about
them yet, and you couldn't even give a glimmer as to future policy.

So we received less than the traditional look at you as a Cabinet
nominee.

I went along with your cooperation because of my respect for you
and your promise to work out specific recommendations to Congress.

And you have had what ? Seven months now ?

Mr. Lynn. No, sir. I was confirmed, if I recall correctly, the begin-
ning of February. That would be — what ? Five months ?

99-855 O - 73 - pt. 1 -- 3

20

Senator Brooke. Well, 6 months. Let's call it closer to 6 months,
I think, you have been in the job.

Mr. Lynn. Would you buy a little less than half a year ?

Senator Brooke. All right. Now, of the three key administration
bills, you have only come up with one, the Better Communities bill. Is
that right ^

Mr. Lynn. Well, w^e also had other key legislation.

Senator Brooke. You haven't hied it, have you ?

Mr. Lynn. Oh, yes indeed.

Senator Brooke. What have you filed ?

Mr. Lynn. We filed a bill to improve upon the flood assistance legis-
lation. We have filed a bill to improve disaster assistance.

Senator Brooke. Let's get to housing specifically and related mat-
ters. You filed the Better Communities bill '(

Mr. Lynn. Yes, sir.

Senator Brooke. But we know nothing about your proposals on
housing at all. We know nothing about the responsive government's
bill. Eight?

Mr. Lynn. Except there has been some discussion with members of
staff, as I understand it, as to the format of that particular bill.

One of the things we are trying to do very much. Senator, on the
Responsive Government's Act is to really do a first class job of getting
advice before we submit legislation.

There is tied in with the Responsive Government's Act what the
approach should be of the administration to fiscal year 1974 funding
techniques under section 701, and we have been meeting with repre-
sentatives of the Governors' groups, the mayors' groups, areawide
planning groups, and so on, discussing those issues.

We would expect to have that legislation to the Hill very shortly
now.

Let me say on housing I did say that I didn't think it would take
18 months. I did say that we wanted to move expeditiously. And I
think that both of those points were confirmed by the President's state-
ment in the community development portion of his state of the Union
message when the President announced that he would have his policy
recommendations to the Congress by September 7.

And we are doing our very besl to stick by that date, and I have
every reason to believe that a decision by that date will be achieved.

Senator Brooke. Specifically, what can we expect on September 7 ?

Mr. Lynn. What you can expect by September 7 is, first of all, a
substantial amount of fact gathering and analysis of where we are,
consideration of alternative proposal, and the President's policy recom-
mendation as to where we should go from here.

I do have in mind also Senator Tower's — what's the right word ? —
admonition at the oversight hearings in April that I would be very
well advised to have whatever recommendations the President comes
up with accompanied by specific legislation.

Senator Brooke. Every day impoundment of housing funds con-
tinues it is working hardships. I am sure you are aware of that, are
you not ?

Mr. Lynn. I cannot deny that it has caused some hardships.

Senator Brooke. Well, let's take an example of housing for the
elderly. Our constituents have been asking what will happen to pro-

21

grams which but for the freeze would have received the go-ahead by
now. This type of housing is Jiot particularly tainted by scandals —
as you pointed out, some housing programs have been, and I agree
with you on the need for HUD to take a long look at its operating pro-
cedures where scandals have occurred. And although the freeze may
not have entirely destroyed housing projects for the elderly, it cer-
tainly is delaying them and discouraging future ones. I think you are
well aware of that.

Mr. Lynn. One of the interesting things, though. Senator, is the
amount of housing for the elderly that is included within the total
amount of commitments — or I should say within the total amount
of applications already in the pipeline and by other projects that we
have approved where we have identified commitments.

Senator Brooke. Xow, let's just take the build of housing. Because
of the slowdown we are building houses now that should have been
built last year. Isn't that correct ?

Mr. Lynn. I don't quite understand that, Senator.

Senator Brooke. I mean that because of slowdowns and the freeze
on subsidized housing commitments we are not keeping pace with
our building program. We are building new, houses that we had
agreed to build in fiscal 1972.

Mr. Lynn. No ; that is not true.

Senator Brooke. That isn't true?

Mr. Lynn. No, sir. Because where, for example, a feasibility letter
had been issued on a section 236 application, those projects have gone
forward toward completion of the HUD processing, and the starts
may or may not have begun, depending on how recently the final
processing had been completed.

Senator Brooke. All right. Can you tell us the number of the fed-
erally assisted starts recommended in your housing goals report for
this year?

Mr. Lynn. That have been recommended ?

Senator Brooke. Yes. Can you tell me how many starts there have
been since you have been in ?

Mr. Lynn. I cannot, sir.

Senator Brooke. You cannot ?

Mr. Lynn. I must say. Senator, that I came here today prepared
to discuss the Better Communities Act, and also to discuss one specific
piece of legislation of housing that I had been told would be under
consideration today. I had not been made aware that this session was
to involve the overall spectrum of the housing program, so you caught
me without materials, I'm afraid.

Senator Brooke. Well, can we get you back to discuss the general
policy concepts of housing ?

Mr. Lynn. Senator

Senator Proxmire. Will the Senator yield ?

Senator Brooke. Yes.

Senator Proxmire. It is my understanding the Secretary was in-
formed, the staff tells me to discuss all housing bills before us. You
were asked to testify on all of them.

We realize you have an interest which is perfectly proper and
understandable interest in this bill you would like to discuss, but
we want you to discuss all of them.

22

Mr. Lyxn. There may be some misunderstanding, sir, because this
was not the advice given to me by my staff. I'm sorry if there has
been some miscommunication in that regard.

What other housing bills are before the committee?

Senator Proxmire. We have I think about 50 bills before us. We
expected you to

Mr. Lynn. If you would like me to come back and discuss the
50 bills, I will be happy to do it, Mr. Chairman.

As I said when I came here in January, I expect to be most co-
operative with the committee. And if you would like me to come
before you and testify on all 50 bills, I would certainly do so, I will
leave out the word "happy" to do so, but I will certainly do so.

Senator Brooke. We certainly want to discuss the Better Com-
munities Act with you, Mr. Secretary, but we don't get an opportunity
to meet with you often, and housing is important, as you are very
well aware.

I think as I told you earlier, it is one of the most challenging jobs
that you could have entered into.

Mr. Lynn. I certainly agree with you, Senator.

Senator Brooke. And I am sure you are finding it that.

We want to know more about what your concepts are, what you
are doing, what bills you are proposing, how long you are going to
need to come up with some proposed legislation, or whether Con-
gress will have to go it alone this year.

As the chairman said, there is a strong possibility we won't even
have a housing bill this year. What happens under those circumstances
is very important.

Mr. Lynn. You will recall. Senator, I appeared before the
committee

Senator Brooke. In April.

Mr. Lynn [continuing]. On an oversight basis in April.

Senator Brooke. Yes, I remember.

Mr. Lynn. At that time I stated that we would expect to have the
President's policy statement by September 7. And I can say I am look-
ing forward eagerly to appearing before this committee promptly
after the time the President makes those policy recommendations to
explore his recommendations and, of course, other alternatives that
may have been presented to the committee.

Senator Brooke. My time is up, and I hope to get back to you, but
as you well know, I am very much concerned about public housing, for
example, and I would like to know before I reach any conclusion on
the subject whether HLTD has conducted some independent studies and
whether you can give us statistics and facts on public housing which
will be helpful to us in writing the new housing bill, or whether we
shall have to conduct our own hearings and go it alone. We would like
to have the benefit of your proposals.

Mr. Lynn. What happened very early, Senator, was the establish-
ment of liaison between the committee and our task force working on
the housing study, and I believe that there has been a trading of factual
data back and forth.

We invited the members of the committee and the staff to come over
to HUD to see how we were proceeding with our study, how it was
broken down into parts, the approaches that we were going to use.

23

I am very hopeful that within the course of the period immediately
ahead I personally will be able to sit down with the members of the
committee that would care to do so, but most certainly with staff, and
explore some of the options with them and get their views as to what
they think of various options that have been proposed to us.

You will recall, Senator, we put out a request for views of the pri-
vate sector on where we should go with our housing policies. We were
pleased to receive over, I think, 600 responses so far, totaling over 8,000
or 9,000 pages, and those responses are being taken into account in our
study.

We have advised the staff that they are welcome to come and look at
those materials, the responses that we have received from the outside.

We also anticipate having our outside consultants' reports made
available to the committee and to the staff.

Senator Brooke. Thank you, Mr. Chairman.

Senator Proxmire. Before I yield to Senator Stevenson, let me call
attention to the letter of June 29 in which the chairman of this com-
mittee, Senator Sparkman, said, "I would appreciate it if you would
be our first witness appearing on Monday, July 16, at 10 a.m. I assume
you will want to testify on the community development bills, S. 1743
and S. 1744, but I would appreciate it also if you would cover housing
programs and other matters that will be important to the subcommittee
in preparing a new omnibus housing bill later in the year."

And you responded that you would be happy to testify on the com-
munity development bill.

In fairness to you, I think that was your understanding.

Mr. Lynn. The reason, sir

Senator Proxmire. I think you do appreciate, however, as Senator
Brooke has pointed out, we do have limited time. We want to cover as
much ground as possible. We want to push through a housing bill
early. And you want us to do so.

Mr. Lynn. We certainly want you to.

Senator Proxmire. While you are here — You are a very capable man.
As has been pointed out, you have had several months in office. And I
think you can handle most of these questions. To the extent you can't,
we will be happy to have you expand your response in the record.

Mr. Lynn. Fine, Mr. Chairman.

Just for a little bit of clarification, apparently my staff did ask
whether the committee wanted me to come back next week during the
period of time you were getting more fully into housing, and the
advice was that it wouldn't be necessary.

But, as I say, I am at the disposal of the committee.

Senator Proxmire. Senator Stevenson.

Senator Stevenson. Thank you, Mr. Chairman.

I think the main point, Mr. Secretary, is that it is very difficult for
us to consider housing and community development in isolation as if
each were separate from the other. They simply are not. Housing is
part of community development.

I would like to know right now — and I guess this is impossible —
what the relationship is between the Better Communities Act and the
future role of the Federal Government in housing.

I have to assume from what you have said this Better Communities
Act has been put together without any comprehension at all of what
the role of the Federal Government will be in housing. Is that right ?

24

Mr. Lynn. I think the Better Communities Act was put together
with the idea that whatever our housing component turns out to be,
the Better Communities Act makes excellent sense as a replacement for
the seven categorical programs that we have had.

Now, I am certainly not denying — I am confirming — that we look
upon housing as an important element of community development,
just as we look upon a number of other things as extremely important
components, whether we are talking about transportation, whether
we are talking about job training, whether we are talking about crime
control, or whether we are talking about a number of other items.

One of the things that was so encouraging to me was the willing-
ness of this committee to proceed with these hearings to get into the
Better Communities Act and S. 1744 so that work could be done to-
ward finalizing the block grant or special revenue-sharing approach
in place of the seven categorical programs.

But, as you say, it is difficult for you. Senator Stevenson, it is diffi-
cult for me, because the President will most certainly speak on the
administration's position in this area. Our promise has been to meet
an extremely tight deadline, I might add, of September 7.

For me to comment, frankly, on housing proposals prior to that
time is next to impossible.

Senator Stevenson. In the meantime we are expected to mark up
community development legislation without any recommendations
from the President on housing.

Well, if we can't get policy recommendations from the President
on housing, could we, short of that, get the HUD special studies on
housing ?

I believe that you in a letter to the chairman of this committee dated
June 20 said that you would make available to this committee and its
staff, final reports from special studies for which the Department
has contracted in connection with the evaluation, and that final copies
of some of the initial papers should be ready in about 1 month's time.
This is 1 month from the date of that letter — almost. Can we get those
special studies now ?

Mr. Lynn. You certainly may have them. Senator, as soon as they
are completed. I notice Mr. Moskow is not here today, and I would
have to check with him as to which ones have been completed. I have
been reading some that are marked "draft." I don't know whether
they have subsequently been firmed up into final documents or not.

Senator Ste\t:nson. I am just informed by the staff

Mr. Lynn. But we certainly want the Senate to have the benefit of
these materials. I certainly want the Senate to have the benefit of
those documents.

I must admit you certainly don't find uniformity, but you find them
mind-expanding by way of things to take into account.

Senator Stevenson. Well, they could be very helpful.

Mr. Lynn. Yes, indeed.

Senator Stevenson. I am sure all the members would be grateful
for them, as would I.

Many of these studies have apparently been contracted for outside
of HUD. Could we also have a list of the contractors and the amounts
paid for their services and the dates of the contracts ?

Mr. Lynn. Yes, sir.

25

Senator Stevenson. Now, Mr. Secretary, to return to the Better
Communities Act, on page 10 of your statement I note that the permis-
sible activities under tlie act are those now eligible under the seven
categorical grant programs.

One of those categorical grant programs is model cities. Isn't it
true that under the model cities program any activity is eligible for
Federal support so long as it is approved by HUD ?

And if that is the case, isn't it true, then, that any activity would
be eligible for Federal support under the Better Communities Act?

Mr. Lynn. I don't believe that any activity is authorized by the
model cities program. I do know that it is quite broad by way of its
permission for such things as social services.

Perhaps Under Secretary Hyde, who should be the master of that
program, would care to comment further.

Mr. Hyde. Yes, I think there is something in what you say, Senator
Stevenson. However, I think we have to look at the total bill. You as a
lawyer, I think, would agree.

Senator Stevenson. Let me interrupt just at that point and rephrase
my question slightly.

What activities, taking into consideration the whole bill, all the
categorical programs folded in, including not only model cities but
the other six, would be ineligible ?

Mr. Hyde, Well, I had never looked at it from that point but let
me see if I can get at your inquiry in this fashion

Senator Stevenson. You have never looked at it

Mr. Hyde [continuing]. What would be ineligible? It seems to
me, obviously, at the point of time where one looks at the total bill,
you have to take into account at the very outset on what basis does
a community receive funding. It receives funding on the basis of its
population, its poverty conditions, and housing overcrowding.

I think that immediately sets the tone of what their entitlement
is based upon, and what is to be expected of them in very general
terms.

It seems to me if you start, from that base and read the bill as a
whole, I think reasonable men would conclude — and certainly I think
local officials would conclude — that their overall approach would
be in the context of the development or redevelopment of their com-
munity that deals with the issues that gave rise to their entitlement.

I think that's a reasonable interpretation.

Senator Stevenson. Well, assuming, however academic the assump-
tion may be, that some local official is unreasonable or not responsible
and were, for example, to improve the real estate of public officials in
some community or other, or embark upon some unreasonable program
by most generally accepted standards, would it be eligible — let me
go back to where I started. What is ineligible ?

Mr. Lynn. If I might try a little further on that. Senator, I started
with an earlier question when we were drafting the bill, and that was:
What kinds of things are permitted by the Model Cities Act ? I think
for the other six programs they are pretty fairly well identified.

I agree with you that there is a vagueness about the Model Cities
Act. The best I could get from various conversations I had was that
there is a line — albeit a gray one — between things that are permitted
under the Model Cities and are not permitted.

26

Let me give examples. That is the only way that I can at this point,
because the question is so broad.

Demonstration programs in social services to see whether or not they
work and to give them enough time to see whether they can work as
an important element in community development are covered by
Model Cities, as shown by the past funding efforts that have been
made under the Model Cities program.

But at some point programs become so clearly enough operating
programs that it was the judgment of the people I talked to that these
programs no longer would be eligible for Model Cities funding.

Now, bear in mind that the Model Cities Act envisioned a 5 -year
program and, therefore, the effort still was one of trying new initiatives
to see whether they would work. But there is that gray area, and we
acknowledge there is a gray area.

I do think as a practical matter this isn't going to cause great diffi-
culties under the statute, because looking at the funding levels and
looking at the other things that are encompassed within the Better
Communities Act, I don't believe we will be seeing communities
spending a large portion of their funding on things that would present
problems in this gray area.

Senator Stevenson. Are you suggesting under this act, HUD would
have the authority to cut off spending under the Better Communities
Act of some demonstration program in a community ?

Mr. Lynn. No, I am suggesting that as long as it is a demonstration
program that it would be permitted, but that when it finally reached
the point that it became a part of the regular operations of the city
and had demonstrated its worth, then we would question continued
funding. However, we'd have to work our way through this on a case-
by-case basis.

Senator Stevenson. Well, it sounds like general revenue sharing.

Mr. Lynn. No, not at all.

Mr. Hyde. Let me

Senator Stevenson. What is in ineligible then ? It's general-

Mr. Hyde. Let me see if this helps. Senator. I get your point. It is
difficult to get a handle on.

But, for example — I don't mean this to be facetious — let's take a
look at the language, for example, of Senate bill 1744, the bill intro-
duced by Senator Sparkman, to illustrate the other side of this coin.

Under section 7 ( 1 ) ( B ) , for example, activities for the following
purposes are permitted : "To prevent and eliminate slum and blight,
and upgrade neighborhood environment through renewal, code
enforcement, and other community improvement programs."

Now, if we took that literally, without reading the full context
of the bill, one could argue, as you have, literally nothing is ineligible.

If you eliminate slums, tear them down, you could build a new
residence for the mayor. That is eliminating slums. But I don't think
you and I as reasonable men would argl^e that that is what is intended
by that provision of S. 1744 or by the Better Communities Act.

I think you have to look at the totality. And, believe me, the local
officials do. When one is faced with any kind of a Federal program,
literally every word is a word of intimidation to the local official.

So they do not take the intent, the overall intent, of the Federal
grant lightly.

27

Senator Stevenson. Well, I just point out that in S. 1744 an applica-
tion procedure is established and HUD approval is required.

I happen to disagree with you about local officials. Most conscien-
tious and responsible and thoughtful local officials that I have talked
to feel as I do that problems are rarely solved with more money, that
reforms are needed, that standards of performance are needed. They
need to be gotten off the hook in many cases.

I don't see what this program offers except more money. It looks to
me like another general revenue sharing program another different
way.

Anyway, maybe we'll come back to this. My time is expired.

Senator Proxmire. Senator Taft.

Senator Taft. Thank you.

Mr. Secretary, do you feel that there is any basis for the claim that
housing, in effect, is being held hostage to inflation ?

In that respect specifically, let me ask if your timing on working
and reporting on these various items and the White House's timing
is related to the inflation problem and related to OMB's concerns in
that regard, rather than solving the housing problem?

Mr. Lynn. I think the principal reason for the suspension of the
housing subsidized pogram is our assessment of the inequities and
the waste of those programs.

If there is a program that we feel is not working well, then it ought
to be suspended to give us time to look at other alternatives. And the
fact that there could be some inflationary pull from continuing the
program is an added factor, but I would certainly not say that it is
the primary reason in this case.

Senator Taft. Suppose you had a big dropoff in housing generally in
the United States and you felt from an economic point of view that
it was desirable to proceed with building of public and subsidized
housing. Could you speed up your choice of various changes that you
would want to make ?

Mr. Lynn. I really don't believe so, Senator Taft. Even the time-
table we have

Senator Taft. What would you do ?

Mr. Lynn [continuing] . Is incredibly short term.

Senator Taft. Would you expand the present programs on an in-
terim basis, then ?

Mr. Lynn. Which programs are we talking about?

Senator Taft'. Well, 235, 236

Mr. Lynn. I don't think I would. No, sir. I just think there are too
many problems with those programs, at least as we have used them
in the past.

Senator Taft. What about public housing ?

Mr. Lynn. Let me add to that, of course, we still have an extremely
healthy starts rate in the United States, as indicated by the May fig-
ures for housing starts, both on conventional and on

Senator Taft. I understand that.

Mr. Lynn. And we are talking now less than 60 days for our timing
in coming up with our own policy recommendations.

Senator Taft. Has the recent interest rate change, the increase, af-
fected your thinking on this since the May figures ?

Mr. Lynn. Of course, the increase on the conventional side has been
going on now for some months. It has jumped substantially within the

28

last month, if I recall correctly, something like 20 basis points or
more. So, therefore, it is an area that we look at very,very carefully.

But when I take a look at things like unused permits and the level
of production that we currently have, I have no reason to believe that
there is going to be a really dramatic decrease in the number of starts.

Senator Taft, But this isn't affecting your timing in making these
decisions ?

Mr. Lynn. It really cannot. Senator, because one of the things I had
wanted to do in connection with the study is immerse myself totally
in it. It was only last week that I started getting all of the consultants'
reports and first drafts from the various in-house task forces.

As I kidded Under Secretary Hyde this morning, I was given a 2-
f oot stack of documents, and as quickly as I read through them they
gave me new studies so that my stack is still 2 feet high..

I would hope by the end of this week that stack will be appreciably
lower in size.

Senator Taft. Kehabilitation loans, of course, or rehabilitation, is
one of the fields covered by the Better Communities Act. Are you
ready to say what kind of a provision we ought to be looking at inso-
far as rehab is concerned in a housing bill ?

Mr. Lynn. No, I am not. Senator. Of course, rehabilitation is an
extremely important area. It is also one that requires definition as to
what we mean by rehabilitation. And it is one that we are looking at
very, very hard in connection with the study, because preservation of
existing housing stock is certainly an important element in an overall
strategy.

The circumstances under which you engage in minor repair, exten-
sive repair, rehabilitation is not an easy question.

Senator Taft. Do you think rehabilitation ought to be covered ex-
clusively under the Better Communities Act or do you think that there
ought to be other rehab programs as well ?

Mr. Lynn. All I can say to you at this point is that we certainly do
not consider the folding in of section 312 into the Better Communities
Act as the end of the rehabilitation matter. We are looking at reha-
bilitation and all of the gradations of rehabilitation as part of our
housing study.

Senator Taft. Mr. Secretary, it seems to me the whole premise be-
hind the Better Communities Act is that citizens can best determine
community development needs locally through the mechanism of local
governmental process.

Many observers, however — I'd say perhaps even an increasing num-
ber— feel that the experience of general revenue sharing thus far indi-
cates that the money isn't going to be used to address the needs of the
citizens who need the most help.

We have seen golf courses built with general revenue sharing funds
and similar horror stories in various parts of the country.

Are you confident that the revenue sharing approach, the special
revenue sharing, through the Better Communities Act approach is a
way to go in view of these experiences ?

Mr. Lynn. I am fully confident that it is the way to go, Senator,

First of all, a good word for general revenue sharing, if I might.
I don't care what program the Federal Government comes up with,
you can find situations, as Chairman Proxmire has stated to me many,

29

many times, where the funding has not been spent in a way that you
wanted to have it spent. Second, there is a fundamental difference
between general revenue sharing and special revenue sharing, it seems
to me. The general revenue sharing was given to these communities
with the idea that they should spend it in accordance with their own
ideas as to what they should do. With the Better Communities Act by
contrast, we are giving the money to the communities on the basis of
a needs formula tied two parts to poverty, one part to overcrowding,
and only one part to population. With that kind of a formula it
seems to us that we are going to see these communities respond with
programs that are going to help the overall conmiunity development
of their particular cities and particular help the people at the lower
end of the income scale.

Senator Taft. Do you think it is going to help get over such hurdles
as you have had insofar as open housing and racial discrimination,
for instance, as far as the Cleveland area is concerned?

Mr. Lynn. I think that the Cleveland experience, to the extent I
know it, is one that is a housing situation primarily, and we intend
addressing ourselves to the discrimination question as part of our
housing study.

Senator Taft. But do you think the local communities if they are
given this authority — I'm afraid, frankly, because of that issue, that
in some areas you are going to see either ignoring of any provision
written into the bill against discrimination in housing or else com-
plete stalemate of all programs at the local level.

Mr. Lynn. First of all, our act makes it very, very clear that these
funds are not to be used for programs that result in discrimination
as among

Senator Taft. I am certain we will write it that way, but I am just
wondering if it is written that way whether it will not result in either
ignoi-ing it de facto or in a complete stalemate, because it seems to me
that the local authorities are far less able or seem to be far less able
to handle this problem — take the public housing area particularly —
than HUD has been.

Mr. Lynn. Again, Senator, we do not look to the Better Commu-
nities Act as providing us the answers in the housing area. We hope
to have some meaningful recommendations in the housing area in the
President's recommendations due September 7.

Senator Taft. Have you taken any action to try to get the Congress
moving and get some resolution of the expiration of FHA and VA
authority and the present paralysis that seems to exist at least in my
own State with regard to present commitments even that are about
to be closed. I'm getting a lot of flak on this.

Mr. Lynn. We have taken at least three steps. Senator. One, we
want to have a simple 1-year extension. The House passed a simple 1-
year extension of the FHA programs. And we earnestly desire that
the Senate do the same and leave modifications of the FHA authori-
ties to housing legislation.

Secondly, we have increased the interest rate from 7 to 7% percent
dependent on our getting the extension of the programs.

And we believe that this will help people rather than hinder them
in obtaining FHA financing.

Thirdly, I have asked

30

Senator Taft. Because it will eliminate points ?

Mr. Lynn. That's right. ■

Third, I have asked as one of his No. 1 assignments for Mr, Lubar,
the new Assistant Secretary for Housing Production and Mortgage
Credit, to look at the other impediments that presently exist to stream-
line FHA financing, and, of course, Mr. Lubar is also involved in our
housing study.

Senator Taft. To move to another subject, are you going to be able
to get a community development board or commission appointed in
full? We have got Mr. Trevino through for you here, but what about
the other members so that they can start to act on some pending
applications?

Mr. Lynn. I am aware there are particularly two applications that
are at about the point where they can have Board consideration, and
I have that at the top of my list of priorities.

Senator Taft. The projects themselves seem to be in great jeopardy
unless very prompt action is taken, and I hope it will be taken before
you have a failure or setting aside of the commitments that are already
severely strained at least in one case.

Mr. Lynn. I am well aware of the problem.

Senator Taft. Thank you.

Senator Proxmire. Before I yield to Senator Cranston, Senator Taft
has hit very well and very hard at the importance of coordinating
housing policy with community development policy, and that is one
of the strengths I think of the Sparkman bill, S. 1744, which you dis-
cussed in your statement.

I point out on page 16, line 9, it says, "Each application shall con-
tain the following: (1) An outline of community development needs
and objectives, and the actions to be taken during the next 3-year
period — (a) to meet the housing needs and needs arising from the in-
stallation or relocation of Government facilities, including replace-
ment and relocation needs, of families who may reasonably be expected
to seek housing in the community," and so on.

So that that is a requirement that gives I think greater strength
to the Sparkman proposal.

Mr. Lynn. The only things I would say, Mr. Chairman — There is
no denying that housing is an important component. I certainly feel
that it is. But there are many other elements that are important com-
ponents. One of the things, for example, that I have seen very clearly
during my first 5-plus, almost 6 months in office is the need for an
appraisal of job development. What jobs are going to be in that com-
munity over a period of time ?

In fact, I am inclined to believe that the place a community should
start is with an assessment of what its economic development picture
looks like for the immediate future.

It seems to me we tend to deal more with symptoms than with the
basic requirements. Our cities change. Their strengths and weaknesses
vis-a-vis each other from a competitive standpoint change. And if we
are going to ask questions of the communities, it would seem to me
one of the first questions that you would want to ask them is : What
do you foresee as the future oi your community by way of economic
development? Is it growing? If it is, in what kinds of jobs? Where
will they be available ? To what income levels will they be available ?

31

Housing is important, but there are many, many, many other items
that are also important. And if you once start trying to list them
all, you will have a list like you have in the Model Cities or even
longer. Secretary Hyde tells me that was one of the basic problems
with the Model Cities Act. We tied up people for weeks and months
and months trying to come up with pretty documents whereby what-
ever their priorities might be, our priorities were, "You have to talk
about this, this, this, and this." And what we are trying to do is get
rid of that.

We want these communities to assess what their priorities are for
action in the next year, 2 years, that type of thing.

Senator Proxmire. Senator Cranston.

Senator Cranston. Thank you very much.

I am delighted we are having this opportunity of meeting with
both of you today.

I sent you a letter after the January hearings, Mr. Secretary, ask-
ing you certain questions. In response to one of them you said, "I am
unable to indicate a specific date for legislative recommendations,"
although you did indicate it w^ould be before 18 months. Are we going
to get specific legislative recommendations on September 8?

Mr. Lynn. As I said a little earlier, Senator Cranston, I have seared
into my mind Senator Tower's admonition that I would be very well
advised to have my specific legislative proposals at the time the Pres-
ident makes his policy recommendations in September.

I cannot say with complete assurance at this point in time that I
would have all of such legislation, but I am going to do my best to try
to be in that position.

Senator Cranston. Is that going to be specifically September 8 ?

Mr. Lynn. On or before September 7, 1 believe was the statement in
the President's community development message.

Senator Cranston. Will these be

Mr. Lynn. No, excuse me. He said it would be 6 months after his
community development message, and the way that works out re-
sults in a date of September 7.

I am sure JNIr. Moskow would love to have the extra day at this
point.

But I don't want to cut it that close. I would like to — I certainly
want to — be in the position of having the President in a position of
reporting by September 7. If we could even do it sooner than that I
would love to do that. But I look upon September 7 as my outside
date at this point in time.

Senator Cranston. Will those be comprehensive, detailed legisla-
tive proposals or general policy recommendations ?

Mr. Lynn. As I said a moment ago, I will do my very best to have
the study accompanied by specific legislative proposals. I don't know
at this point in time whether I will be able to actually carry that out,
but certainly my target is to do so if I possibly can.

Senator Cranston. Regarding the Better Communities Act, what
role will HUD personnel perform if they are divested of what you
describe as their primary role of approving plans which strike their
fancy ?

Mr. Lynn. HUD has a number of roles. First of all, if you take a
look at our commitment level for the existing seven categorical grant
programs, you will see that there is a very substantial amount of

32

money that is committed and unspent. I am told by staff at HUD
that fully 50 percent of the total HUD effort on these programs comes
after the commitment is made, so there is substantial work in the years
ahead for HUD in that regard.

Second, I would certainly expect particularly in the early years of
the act that HUD experts will be consulted by the cities, the counties,
and the States to use their expertise in helping the cities formulate
their plans.

I say that very carefully because we do not want the HUD officials
dictating to these communities what they put in their plans, but we cer-
tainly will be there for assistance.

Third, HUD retains important responsibilities in the area of plan-
ning and management. One of the things we have heard from the
mayors is that, with the advent of the Better Communities Act, they
see a need for further assistance in the planning and management
category. HUD, of course, presently has substantial responsibilities
under the 701 program and we are hopeful that it will have similar
responsibilities under the Responsive Governments Act.

Fourth, under the act as we have submitted it, the Secretary of
HUD, or I should say the staff of HUD, has the obligation of review-
ing the plans to be sure that the types of projects that are being pro-
posed are within the act's definition of permissible activities, of seeing
that there isn't discrimination with regard to those plans either in their
statement or in their actual operation, and of auditing to assure also
that the plans were carried out.

Fifth, I have a responsibility under the act, as we have presented it,
to evaluate its actual workings and, as part of our annual report to
the President and the Congress, to give our appraisal as to whether the
act is working the way it should and whether there are ways it should
be improved.

Senator Cranston. Will HUD evaluate local performance, the suc-
cess or failure, or reasons why, in terms of what happened with local
programs ?

Mr. Lynn. We will do our best. Senator. When I say "do our best,"
I mean that I find it extremely difficult if not impossible for a HUD
official, no matter how knowledgeable he is, no matter how reasonable'
he is, to do a better job in assessing what a particular community, given
the variation in communities, ought to do.

But we certainly will take a look, overall, across the country, to see
whether or not it appears that the communities are making progress
on their community development needs through this vehicle.

Senator Cranston. You state that under the act the department
through post-audit procedures would determine whether the moneys
have, in fact, been spent for the stated purpose, but wouldn't it also
be necessary to make certain that the general performance measures
up to some sort of a standard that is set for what we hope to accomplish
under the act ?

ISIr. Lynn. As the act has been proposed, we would not either at the
time of the plan or after the action year try to second-guess whether
what the community has proposed was the right thing to do. Our post-
audit inspection would be intended to cover the point of whether or
not the community has actually spent the money in the way it said
it was going to do.

33

But as part of my overall evaluation that I must give to the Presi-
dent and the Congress, we would want to see whether in more com-
munities or not it appeared to us, using our own judgment, these
communities were accomplishing the kinds of things that would ap-
pear to be right for them.

Senator Ciiaxston. If the eligible activities are the same activities
as existed under the categorical programs, how do you explain the
President's budget which criticizes programs such as code enforce-
ment, model cities, open space as being wasteful and ineffective ? Where
has waste occurred and will an automatic formula as proposed in the
Better Commmiities Act solve all these ills?

Mr. Lynn. There is a distinction. Senator, between permitting a
city or a county or other government being funded to engage in any
of these activities and what I would reasonably expect they actually
will do.

I think in view of our experience under certain of the categorical
programs, you won't find a community spending much money on
those particular activities.

Senator Cranston. Will the data for each community be updated
each fiscal year, as to the changes in population, poverty, and housing
overcrowding so that changes will be reflected in the money a com-
munity receives, or is that data fixed for the 5-year period ?

Mr. Lynn. If I understand it correctly, a new allocation is fixed
each year. As to the data that goes into the formula, however, this
may not have been updated in one aspect or another. Also there would
of course be a problem of using updated data for one community of
similar data was not available for others.

Senator Cranston. Do you believe the metropolitan areawide orga-
nizations such as the councils of government have played a valuable
role in reviewing applications for HLTD funds under the A95 process?

Mr. Lynn. From what I have been able to determine thus far, they
have performed on the whole a useful role. I think it has only been a
step, however, and that we must give further consideration to what is
the best way of achieving overall area planning.

Senator Cranston. You are giving them no role under this act,
are you ?

Mr. Lynn. We asked them, if I recall correctly, to tell us the way
in which the activities they are proposing fit areawide or statewide
plans.

Senator Cranston. One last question. Can you explain how small
communities with less than 50,000 population will be treated under
this act ?

Mr. Lynn. They would receive their funding from either the State
government or from HL D.

Let me explain a little further. First of all, as I know you know,
Senator, there will be some communities under 50,000 in population
that will be entitlement communities because they are the central
city in an SMSA even though they do not have a population of 50,000.
The Governors collectively are given the largest share of the discre-
tionary funds. Half of the funds each State is given must be spent in
the particular SMSA that gave rise to the Governor having those
funds under the f onnula.

The other one-half of the funds given to the State may be spent in
any SMSA or any other community in the State.

34

Senator Cranston. Thank you very much.

Senator Proxmire. Senator Biden.

Senator Biden. Thank you, Mr. Chairman.

Mr. Secretary, I have several questions. An awful lot of ground
has been covered, and I will try not to put you in position of having
to be repetitious.

Moving to that magic date of September 7 which everyone is talk-
ing about or September 8. whichever it is. I think you have explained
what we can expect as well as you can explain it at this point in time,
but I would like to add one other — I'm not sure my question relates
to the September 7 date, but at what point in time are we going to as
a committee or as a Congress get some concrete evidence justifying
some of the repeated statements that are made by the administration
such as on page 12 of your statement in the middle of the page, "But
I ask you how much have the needy really benefited from our seven
categorical programs? I think you will agree the honest answer is
'not much.' "

And we have heard time and time again how the programs haven't
worked and they have been a failure. And Senator Cranston pointed
out some reference to inspection programs under our existing system,
how they have been failures and a waste of money, and so forth.

Is there any time we are likel}^ to get a compilation of the results
of the studies which you are having done by your agency or you are
contracting for now when you are going to say, "We were right ; this
is specifically how it will be wasteful" ?

Mr. Lynn. Senator, I think we have to make a distinction between
the housing programs and the community development programs,
the seven categorical programs.

As I mentioned a little earlier to the chairman, we expect in con-
nection with the President s policy recommendations to submit that
chapter and verse that you are referring to with regard to the housing
programs.

As you know, the President's policy recommendations on Septem-
ber 7 are with regard to the housing programs, and part of our backup
materials will be the evidence and analysis that we think shows why
the programs as they are presently being conducted should be
suspended.

Now, with respect to the community development programs, the
seven categorical programs that would be folded into the Better Com-
munities Act, I had not anticipated submitting anything to the Con-
gress in that regard. My question in my statement was : How much
have those programs helped the needy quite apart from what they
might have done for community development generally? How much
have they done for the needy ?

I recall preparing for a press interview at one point. Someone asked
on general revenue sharing, "What are you going to say if they ask you
the question about this one community that is using its general revenue
sharing money for a baseball stadium ?"

And one wag down at the end of the table said, "How often have you
gone to a baseball game recently that wasn't played in a stadium that
was not built with urban renewal funds ? ''

My point here is simply that if you take a look at the overall impact
of the programs we have as they relate to the needy, as to the lower

35

income people in the community, I don't think that the record is an
outstanding one.

Senator Bidex. Well, at the expense of appearing to be facetious,
Mr. Secretary, I am not sure that there are a number of us who disagree
with you on that point.

And although there is a great need for improvement in almost every-
thing that affects the needy — we are giving them such short shrift all
the way around — we have sold or some who have taken your position
have attempted to sell the American public on the point of view that
the programs which have been initiated in the past which were directed
at helping the needy, those who need the help most, however we define
needy, have been a bust, that someone else has been benefiting and the
needy haven't been benefiting.

Now, last time you and I spoke here I was probably a little less than
gentlemanly in my attitude toward you and you I think treated me the
same way, and I am trying to be very, very polite about it. I am trying
to be a good young freshman Senator.

Mr. Lynn. I certainly will be too.

Senator Biden. But it sounds a bit like the kind of campaign rhetoric
some of us might use. let me say that I might use, in the campaigns. It's
easy to say the needy haven't been getting the benefit, but I have yet
to see any evidence specifically pointing out how the needy are being
very bluntly "cheated" under present programs and how it is going to
be changed under the future programs.

Mr. Hyde. Senator, if I might try to shed some light on that, I think
neither the Secretary nor I would take the position that none of these
programs has helped any of the needy. That was not the essence of the
statement.

Senator BroEN. It was not meant specifically.

Mr. Hyde. I think the point can be illustrated as to what is happen-
ing in those seven programs we ai-e talking about best I think in making
this point: When you look at a chart which we have here, you can
see the processing time, the time from which a community applies for
a given grant, to when the contract with HUD is actually signed.
With lag time as substantial as we have in these programs, the needy
are not being served. The money that the Congress has appropriated
is tied up. The rules of the game make it a very disastrous thing for
the community.

Let me just tick off a few, for example.

In the traditional urban renewal the chart shows some 31 months
of lag time in processing to go into a signed contract.

In open space the lag is something in excess of 16 months.

With Model Cities, which is the closest kind of thing of an overall
approach, in the first action year the lag ran in excess of 30 months.

In this kind of situation, the cost that this occasions a community
could be better utilized in really getting down to the job of doing
things, of implementing, of making things happen.

I think that is what we are trying to get at in proposing that we
have a better way to do it.

I don't think that a debate as to how bad the other programs might
or might not have been is really all that useful, but I think

Senator Biden. Only to the degree that it would shed some light on
how the new programs can be useful.

99-855 O - 73 - pt. 1 -- 4

36

Mr. Hyde. I ayoiiM agree.

Senator Biden. That's really all I am trying to get at.

Mr. Hyde. I would agree.

Senator Biden, We hear time and again debate in this Congress and
back in our communities of the argument of whether or not we are —
which seems to have been the administration position — wasting tax-
payers' money ostensibly to help the needy and the needy aren't getting
the benefit of that help.

And that always comes down when you're arguing here or back at
home to how much is wasted. You hear people say things like, "Not
20 percent of the money intended for them is getting to them,'' and
you hear others say, "No, that's not true. Sure, there's waste in the
program, but 90 percent of what is intended is getting there."

And it really translates at least in the minds of my constituency
to : How much of the money is being wasted ? And I assume that is
at least part of the question you are addressing. How much waste
is involved in determining what programs are most useful? And it
would be very helpful to me to either be specifically — and I don't
mean for purposes of this hearing today — but for me to be very
specifically corrected and shown the light that I am wrong in saying
that 80 to 90 percent of the money we intended to get there, that
was supposed to get there, gets there as opposed to most of it being
wasted.

You hear terms like "most of it" or whatever.

I would like very much to have specific documentation, you know,
to show where I am wrong in those kind of statements.

Seriously, that is the kind of thing I am trying to raise.

Mr. Lynn. Senator, I have not heard that kind of statement, the
idea that 80 percent is wasted, and so on, in connection with these
programs. Our point on these programs

Senator BroEN. By the way, these programs. I have been a bit
imfair to you. I was talking about your whole jurisdiction, you know,
of HUD. I am talking about everything from housing to these
programs.

Mr. Lynn. I see.

Senator Biden. I didn't just mean these. But that is why I pointed
out the statement about housing has been a bust, which has been essen-
tially the administration position, that the categorical grants that are
being folded into your community development have been at least
in part a bust. You know. The whole idea it just hasn't worked, that
we're wasting it, that it's not getting to the people. You hear that
time and again.

That is the general area I was trying to address myself to.

Mr. Lynn. I think. Senator Biden, as I have said before on occa-
sions before this committee, these are essentially matters of degree.

In the housing programs there isn't any doubt that there are some
people housed today in better housing than they would have had
without the programs, but it seems to me in evaluating a program
as to whether it is a success or a failure you have to weigh what that
program is costing, how many people are not being assisted, what
kinds of inequities are being created as among different income classes,
whether the approach is satisfactory from the standpoint of new hous-
ing as opposed to the use of existing stock, and so on.

37

In the housing programs we say that the programs have fallen
way short in those and other areas.

On the community development side, I am sure you can and I can
go to communities where one or more of these programs has had sub-
stantial impact on the needy, perhaps in the most important way of
all in producing jobs for them by way of new activity downtown
under urban renewal and the like.

But if you look at the total impact of the programs, we are stating
it isn't that outstanding a record, and comparing it with something
else, we find it far short. The something else in this case is allowing
that community, which, after all, knows better than anybody else what
its problems are, the opportunity to set its own priorities as to what
ought to be done.

Senator Bideist. Mr. Chairman, I have three more specific questions.
I am probably already over my time, but I would like to get them in
the record.

Senator Proxmire. Is there objection ?

[No response.]

Senator Biden. You mentioned, Mr. Hyde, in a statement July 3,
the weekly report of the Secretary of Housing and Urban Develop-
ment of July 3, essentially what you just said here, that if you are
going to have a detailed application form you are going to have to be
ready to pay the price for them. Your specific quote is, "Anyone who
flirts with continuing a detailed application process must consider the
consequences."

And as a consequence of that feeling on your part, it seems as though
in the administration bill here you have moved in the direction of try-
ing to get away from what you refer to as nit-picking and that you
leave it up to the local community to set out how, when and where
they are going to do what they want to do, and with hardly any
oversight.

Now, it has been pretty well expressed here in this committee and
I think by other people in Congress that a number of Members of the
Senate and Congress as a whole are interested in some continued Fed-
eral oversight of these programs. Now, isn't there a meeting ground
somewhere in here where there can be some significant oversight with-
out encumbering the localities as we apparently have under our pres-
ent sj^stem ?

Mr. H\T)E. Well, perhaps there is, Senator, but not as I see it. I have
very carefully read Senator Sparkman's bill again and again because
I am concerned about this very issue. I think the crux of the Better
Communities Act vis-a-vis the bill that Senator Sparkman introduced
is the very fimdamental issue as to how the Federal Government pro-
vides assistance to localities. Another fundamental issue in my mind is
as to whether or not we are ultimately going to build that capacity at
the local level to do the kind of job we all expect ought to be done and
ought to be done better. And I speak with some experience from the
local level as well as administrator of complex programs.

But let me give you an idea of what happens when you give greater
authority and literally cut loose the strings, if you will.

We undertook an experiment within the model cities program called
planned variations. We picked 20 cities, not all good ones. We wanted
a mix. And we, to the extent we could within the statute, literally said,
"Go city wide. Do just about anything you want to."

38

Now, our latest evaluation indicates some very significant thinp:s.

A first point that is extremely important : Without any rules, with-
out any mandate from the Federal Government, without any de-
mand, every one of those 20 planned variation cities have made changes
in their governmental structure, beginning with some very, very dras-
tic overhaul of their whole structural system.

Every single city on its own, given this new responsibility, said,
"We have got to gear up and build our capacity to be able to do a
better job."

Secondly, 70 percent of those cities have already decided that
whether they continued to get Federal funds or not they would con-
tinue to pay for a review mechanism that we instituted in that pro-
gram— chief executive review and comment on all Federal programs
impacting the city.

in addition to that, — and I think this gets at the heart of the issue —
I am sorry Senator Stevenson left — I think this is very significant^ — 80
percent of the cities on their own have planned and committed them-
selves to continue to fund an institutionalized citizen participation
process. No mandate. No rule. They must.

And so on. I could go on with other examples.

Senator Biden. Mr. Secretary, isn't it true that in those cities — and
I think there is one my State — that they, in fact, did those things predi-
cated in large part upon the existing Federal programs and the need
for them to be able to better facilitate using the existing programs ? At
least in my State.

Mr. Hyde. That reason still exists. In other words, you know, when
we look at the $2.3 billion proposed in the Better Communities Act and
you set against the range of other Federal funds available, many
billions from HEW, from Labor, and so forth, and you look at it
against, say, what State and local government are now raising and
spending, $198 billion of their own, this $2.3 billion isn't going to
change the world overnight.

But I think the point is that communities, given that greater flex-
ibility— ^the first thing they do is respond by assuming more respon-
sibility. That is, after all, what we're looking for.

Senator Btdex. I have two more questions, but I will end with a
comment on that. Hopefully I will get back to the questions.

Like yourself, I have had experience at the local level, very limited,
as limited as my experience at the Federal level. And my experience
at the local level is that if we are measuring competence and commit-
ment to take on the tough problems, there is less of that at the local
level, generally speaking, than at the Federal level, only because we are
'more isolated here and it doesn't take as much courage to take a
position.

Mr. Hyde. I would respectfully disagree, but that's all right.

Senator Biden. Specifically, let's move out by way of example of the
area of community development for a moment to housing.

I doubt very, very much that local city councilmen and county coun-
cilmen, when given the total responsibility for formulating a housing
program and initiating it in a way that and the areas they see fit with-
out the Federal guidelines, I'll laV you eight to five that there "ain't"
going to be no public housing built. And if it is built, is is going to be

39

built right where it is now, and it is only going to be rebuilt, because I
doubt very, very much that without some tough Federal guidelines,
whicli to use Senator Stevenson's words help the local official on oc-
casion to get off the hook and to say to his constituency "I'd love to
keep those people out of your neighborhood but the Federal Govern-
ment says we have to do it this way in order to get the following grant
or programs'' — that we are going to see meaningful public housing
starts around this country if we put the responsibility with no strings
attached, in effect, on local officials.

And the same with 235 and 236. So I guess that's philosophical.

Mr. Hyde. I do wish to clarify. Senator Biden, the Better Communi-
ties Act does not envision any role as to how or where localities or local
officials would provide housing.

Senator Bidex. I undei-stand that. But it is a general philosophy that
runs through your whole position, whether it be, you know. Better
Communities Act or housing. "Wliat you are saying is the local officials
are going to tackle the knotty problems and know how to do it better
than we.

And you say things time and again — I don't mean this in an argu-
mentative sense. INIy point is you say if a program is to be meaningful
to the community the best test is to place the responsibility on the
locally elected official who will not remain in office for long if the
city decides the program is not meaningful enough. Meaningful to
whom ?

I grant they will not stay in if it is meaningful to the needy poor
and it happens to infringe upon their lovely locality.

They stand up in areas like mine, the area where I live — and mine is
as enlightened as any other area in the country — the educational stand-
ard I think is the second highest on a county basis nationwide — and
you're going to get people standing up and saying, "I love my fellow
man. I am concerned about his housing. But we happen to have a
sewer problem here," or, "We happen to have a school problem. We
happen to have six million other problems.''

And they are saying the same thing in those areas as my less educated
constituency down on a particular side of the city says, "We don't
want no niggers here, boy. You understand me V

And they are just two different ways of saying the same thing. And
I have yet to see many local officials who want to appear in the second
version of "Profiles in Courage.'' There aren't a whole lot of them
around.

I really mean that. I don't know how I can say it

Mr. Hyde. Let me — I don't want to belabor this point, Mr. Chair-
man, but I don't like to leave a statement like that unanswered.

I would agree with you there are local officials as you have described.
I am not that pessimistic though, Senator Biden, that that is the
prototype that you have described.

And, furthermore, as you know, we do still have our nondiscrimina-
tion provisions in here. In fact, our bill alone provides for the with-
holding of funds if there is discrimination, and, of course, there are
the fair housing laws in which the Department has done I think a very
reasonable job to try to make sure that kind of thing doesn't happen.

I see that as an issue separate and apart from what we are proposmg.

Senator Biden. To clarify one last point, Mr. Chairman, and I will

40

be quiet, local officials have no less courage or more courage than
Federal officials. They are just as less insulated than we are.

The only way we can take a position, we can say something now,
as a U.S. Senator it's further removed. They are not going to be
knocking on your door. No. 1. And, No. 2, we have 6 years in which
to operate. And I think you have all detected a slight change in our
attitudes. I can mouth off. I have got 51/2 years before I run. I don't
know whether I'd say what I just said if I were up 6 months from now,
because I'd have to go back and someone in my community would say,
""What did you say about me, boy ? What did you say ? What are you
im]>lying in such thing?"

There wdll forget in 51^ years from now.

Mr. Hyde. I doubt it. [Laughter.]

Senator Bidex. At any rate, there are equally as many courageous
and equally as many cowardly officials locally as there are federally,
but when you are up every 2 years and you represent only 6,000 people
in a constituency, you have them living in the same neighborhood with
you, they knock on your door, they know you by your first name, let me
tell you it's a heck of a lot harder being a county councilman than it is
a U.S. Senator, from my very limited experience.

Mr. Lynn. I would say. Senator, there are some forces at work that
I have seen not just in my time at HUD but my time at Commerce
that I think have been changing the situation over a period of years.

The kinds of problems that we had in the cities in the mid-1960's
has made the majority community much more aware than they were
in the past of the need to take care of these problems. It isn't just a
love of fellow man. It's the idea of having a city that will continue and
remain healthy.

As I talk to people around the country, I have the feeling there is a
growing awareness that if you are to have a community that is going
to be healthy overall, you have to address yourself to the needs of the
poor people in your community.

Secondly, I w^ould say that what we proposed in the Better Com-
munities Act will have a very salutary effect on the situation when the
city fathers put together their plan. They will be very much aware
that for 60 days that plan is goin^ to be the center of attention in that
community with the media, the interest groups, and so on. taking a
hard look at it.

And knowing that that is so, I would say that even before you get
to the 60-day period you are going to see an awful lot of time and atten-
tion by those city fathers as to whether or not that plan gives adequate
attention to the problems of the needy.

The other point is that where everyone in that community, in-
cluding the media and the interest groups, know^s that the funding
came through a formula which primarily pays attention to the needs
of the poor, they are going to be looking very, very hard for what those
plans do for the poor.

Senator Biden. Mr. Secretary, based on that statement, either you
are one of the finest men I have ever met or you are one of the biggest
phonies.

If you really believe what you said — I mean this sincerely — if you
really believe what you say, I made a mistake voting against you.

Mr. Lynn. Well, let me say that I do believe this.

41

Senator Biden. OK.

Mr. Lyxn. You will notice in my statement I very carefully said
that not all communities are <roing: to do equally well and people
would be fools if they said otherwise. What I am saying is that taking
this situation overall I think you are going to be pleasantly surprised
at the amount of statesmanship that will be evidenced looking at the
situation on a national basis.

Senator Biden. Thank you very much. I appreciate it.

Senator Proxmire. This has been one of the most interesting and
helpful exchanges that we have had in a long time. I want to com-
mend Senatoi- Biden for putting his finger on the political dimen-
sions of this thing. It is something we don't look at with sufficient
concern. And I think that what he has said has been very, very useful
to make this whole deliberation more realistic.

I am disturbed that we continue to hear that imjjortant HUD jobs
are not yet filled, that many able career employees both in the region
and in the central HFD are leaving HITD because they feel this
administi-ation does not want a housing program. Stories of chaos
and confusion in HUD headquarters circulate widely. Your efforts
are compared to those carried out by Howaixl Phillips at GEO.

Would you want to indicate what steps are being taken to retain the
housing program and agency as you have ?

For your benefit, one of the articles called to my attention was an
article in the Government Executive for July, just out or very i"e-
cently out, which says, "Lynn, a former Tender Secretary of Com-
merce, had not been considered a top candidate for the HUD post.
His qualifications, however, w^ere impressive. He was young, ener-
getic, and a dedicated advocate of the new federalism. He had no dis-
cernilile political base and no ties to special interest groups. He would,
it was decided in the highest level of the administration, be a perfect
candidate to preside over the final dismantling of Great Society
housing programs.''

Now, I am asking this question particularly with respect to your
staff. It is a problem when you have a moratorium on housing for
this length of time and have at least the people who have been most
articulate and vigorous in pressing for housing in this country
opposing that moratorium. I should think it would be a problem
holding on to your best people.

What has been your experience ?

Mr. Lynx. I think that it is a difficult time for a number of HT^D
employees because primarily of the uncertainty at the present time.

We have uncertainty in two major areas within the Department. One,
of course, is the housing area. And when you do put on a suspension
of the existing programs, except for honoring commitments and
except for pr-ocessing what is already in the pipeline as far as sub-
sidized housing programs are concerned, this does create uncertainty
and. therefore, is somewhat demoralizing.

Likewise, where we are proposing a fairly fundamental shift in our
community development programs, that cannot also help but have an
effect of uncertainty and again causes restlessness among the people
in HUD.

I would like to think, though. Senator, that overall there is an un-
derstanding within the Department of what we are trying to do.

42

I think we have been going forward making our top appointments.
At the present time I have only one appointment at the very top of the
organization that has not as yet been made. That is out of either 11 or
12.

On the staffing of the area and regional offices, I was greeted with a
number of vacancies when I arrived. We have been filling those vacan-
cies, and I have made it a top priority to fill them, because, to obtain
proper morale the people in the area and regional offices should know
who is in charge.

Senator Proxmire. When you correct your remarks, will you tell
us in as much detail as you can, without getting into exhaustive detail,
but as much as you can when you respond, just what vacancies you have
and how they compare with the number of people that you are au-
thorized to have on your staff ?

Mr. Lyxn. When you say "staff." sir, how are you defining it?

Senator Proxmire. I mean what you have here at the national level,
at the Washington level, and what you have out in the field, regional
level too.

Mr. Lyxn. I will do my best, sir.

[The Department submitted the following information for the

record :]

Total Staff Vacancies Nationwide

For June 30, 1973, the Department was authorized 15,836 permanent full-time
positions. Our actual permanent full-time employment on June 30, 1973, was
15,820.

The Department's work force, on June 30, 1973, was distributed as follows :

Authorized

permanent

employment

Actual

permanent

employment

Headquarters

3,369

3,465

Regional offices.

1,852

1,726

Area and Insuring offices

Total

10,615

15.836

10,629
15,820

Top Staff Positions Vacant Nationwide

With the appointment of an Assistant Secretary for Administration, the Secre-
tary's top staff will be complete. In the field, all 10 Regional Administrators are
on-board, while only 15 of our 77 Area and Insuring Officer Director positions
are vacant. We are actively recruiting to fill these 15 key jobs.

Senator Proxmire. Now, in the light of the moratorium, the budget
cutbacks indicated in the Federal housing/community development
programs, and the credit crunch, which I think is perhaps the most
serious of all, the rise in interest rates and the recent rise that I am
sure every indication is is going to go higher in mortgage rates, aren't
you concerned about overall housing industry and activity and em-
ployment? What about our 1968 statement of goals? Where do we
stand? Do you see the need for accelerating Federal assistance if
we are to achieve these goals ?

Mr. Lynn. I think I testified either in January or April — I believe
in April — that one of the things that we are looking at in the study
is whether or not we believe it is feasible to have a statement of goals,
and, if it is feasible to have a statement of goals, whether those goals
should remain as they were set in 1968 or should be revised either up or
down.

43

As far as the current situation is concerned, I believe most econ-
omists are still at the point of predicting very strongs starts for the
balance of this year. And although the increase in interest rates has
caused me to watch the situation more carefully at present I do not
see any need for further action on our part.

This does not mean, however, that it isn't possible that in our study
we will not be coming up with recommendations that could do some
enhancing of purchasing power. I just don't know at the moment.

Senator Proxmire. I hope you will keep us posted on that. We
would like to know and follow it as closely as we can.

I asked in June if you would do your best to see HUD complied with
the law requiring a goals report by February 15. It indicated the
importance to this committee. You asked, and I replied, that it usually
comes in late, by June or July. You said you would do your best.

It appears that it will be even later than usual this year. Can you
tell us when the report will be submitted ?

Mr. Lynn. Just a minute, Mr. Chairman.

Mr. Chairman, I have been pushing HUD for — what is it now —
a little over 5 months, starting about 1 week after I came in, to get that
report out. I had assurances this morning that it will be on my desk
probably this week, and I surely hope to get it to you next week.

I have issued a general statement in the Department that from here
on out we are going to get reports of this kind up here on time one way
or another.

I find it absolutely deplorable for this report to have taken as long
as it has. I might add that I have one or two other reports that are
in the same category. And it's a matter of getting hold of the situation
within the Department.

I would like to think I have a much better hold on it now than
I had 51/21 6 months ago, but all I can do is apologize for the delay.
You should have it. You will have it.

Senator Proxmire. When you say we will have it, you say you think
we may well be able to have it by the end of next week ?

Mr. Lynn. Yes. One of the things, in fairness to my own staff, that
I should say is that the report was complicated to some extent by the
study, because we wanted to have the benefits of some of the work
that had been done in the study in giving the report to you, and that
did result in some inevitable delays. But I would very much have pre-
ferred to have gotten it to you earlier than this.

Senator Proxmire. Do you think community development funds
should be provided the cities that refuse to provide adequate low- and
moderate-income housing ?

Mr. Lynn. Well, my problem with that, Mr. Chairman, is deciding
what is adequate. When, in connection with the study, I start getting
in more deeply into the question of what is adequate housing, I find
myself into questions like : Where are the jobs going to be in that
community for the low- and moderate-income people ?

Senator Proxmire. Well, somebody has to make a judgment. As
indicated so well by Senator Biden — and I think it is something that
is apparent to all of us who have considered this — there just is not
a popular move in our cities to provide liousing for people with low
incomes, especially if they have lots of children.

Elderly, yes. Anything else

44

Mr. Ltnx. There is no doubt that there is a terrific problem in this
regard.

Senator Proxmire. And if we follow a policy of letting them do
with these funds what they want to do, it seems to me it's unlikely
they are going to come through with

Mr. Lynn. Let me say that one of the threshold questions. Mr. Chair-
man, relates to the data with regard to how much is needed. AVlien
you start Avith the realization that the communities, just like us at
HUD, have very little good data to go on, it becomes extremely diffi-
cult for anybody to make an appraisal as to how much is enough.

Now, on the question. Should they provide sufficient low- and
moderate-income housing? the answer is "Yes.'* Of course they should.
But I don't envy them their problem — the decisionmaking process
at the present time.

Because one of the things that I found so frustrating in connection
with the study is trying to get adequate data on how much is enough.
It is an extremely difficult thing to do, and this does suggest that one
of the things that we all ought to concentrate our attention on is better
data for those communities to use and for us to use to appraise the
situation.

Senator Proxmire. Well, so many of the Federal programs have been
negative in this respect. Urban renewal is one of them — over the years
at least. The highway program, of course, is another program that has
devastated low-income housing without replacing it.

At present, the urban renewal law requires at least 65 percent of
urban renewal funding to residential projects, but what happens to
that requirement under the Better Commmiities Act ?

Could all of these funds go to downtoAvn or commercial projects if
that is what the city fathers want? Couldn't we be once more back
where we started with urban renewal ? That was the removal of the
poor.

Mr. Lynn. The obligation to provide relocation housing is affirma-
tively stated I believe in the Better Communities Act,

Senator Proxmire. It's a separate law I understand.

Mr. Lynn. No, there is specific reference to it in the Better Com-
munities Act, that that obligation

Senator Proxmire. I am not talking about relocation. I am talking
about what the money is to be used for, what urban renewal money is
to 'be used for.

Mr. Lynn. Mr. Chairman, the act does not require that a certain
percentage of the funds should be used for low- and moderate-income
housing. That is true. We look to our housing initiatives to come from
the President's policy recommendations on September 7.

Senator Proxmire. So, absent the President's policy recommenda-
tions to the contraiy, you could have all of it used for office buildings
and luxuiy apartments and so forth ?

The natural reaction on the part of mayors is they want to beautify
their city. They want well-to-do people living in their city. For good
reason.

Mr. Lynn. First of all, Mr. Chairman, commercial offices or new
industrial development or business development may be one of the
best things you can do for the needy in that community. After all, we
face

45

Senator Proxmire. If they don't have a place to live, it doesn't help
much.

Mr. Lynn. We face a world today where job requirements are
changing very drastically. We face a world today where the skill
levels become increasingly higher and higher all the time. I think that
communities that use this money should give substantial attention to
job-creating enterprises in their city.

That doesn't mean that they should ignore the housing component.
I don't believe they should. We have needs in the housing area.

But again it seems to me we should leave to the local government
the judgmental decision as to which is the more important way of
helping the community development for next year or the year there-
after and have plans as to how all these things fit together, housing,
transportation, job development, crime control, some social services,
and the like.

Senator Proxmire. My time is up.

Senator Brooke.

Senator Brooke. Secretary Lynn, will the moratorium on subsidized
housing commitments as such ever be lifted ?

Mr. Lynn. I don't know. Senator.

Senator Brooke. It is your intention to just let the subsidized hous-
ing programs fade away and say nothing about the moratorium ?

Mr. Lynn. No. The reason I say I don't know is as I testified before
to this committee, that one of our options is to put back all or part of
the present programs that we have with administrative changes to
alleviate the inequities and the waste that we found in them. That is
why I have to say I don't know at this point.

I have got another — what is it ? — 45 or 50 days, something like that,
before we will be in a position of giving an answer.

Senator Brooke. I think great hardships have been worked as a
result of this moratorium, and I am just wondering whether you intend
to face the issue of the moratorium directly or just ignore it. Do you
intend to lift the moratorium at some time in the future or will you
just go ahead with proposals for legislation, ignoring the moratorium
as such ?

If, as you said, you find out that some of the programs were not
working, you might make recommendations for improvement in the
programs, but still not lift the moratorium. Is that an accurate
statement ?

Mr. Lynn. That is not accurate. I just don't know at this point.
Senator, and I would say

Senator Brooke. When will you know ?

Mr. Lynn. Pardon ?

Senator Brooke. When will you know ?

Mr. Lynn. Well, I will know what my own views are very shortly
now. I will not know what will happen in this regard until the Presi-
dent has made the decision.

Let me also put the moratorimu in perspective. If you take the dif-
ference between the level of starts or I should say the level of commit-
ment approvals that were being handled by the Department before
the suspension went into effect and the levels that we have under the
suspension — and we do have levels of starts by reason of the applica-
tions that were in the pipeline and also by way of honoring commit-

46

ments — and then compare that with the need for the housing, there
really isn't that large an impact.

What has been bothersome to me has been some hardship with
regard to people who had done planning on housing, whether for
the elderly or in other areas. These people have been frustrated in
their intentions of using the existing programs. There has been some
hardship in that regard, and I won't deny it.

But as far as hardship from the standpoint of meeting the total
housing needs of this country within the relatively short period of
time that we have and Avith the reduction in the numbers of approvals
that resulted from the quality processing that Secretary Romney
instituted to meet some of the problems that have been seen in the
programs, there really hasn't been that much of an impact.

Senator Brooke. Well, I disagree. But is this termination under
the guise of a moratorium ?

Mr. Lynn. I cannot say at this point, sir, because I do not know
whether or not part of the policy recommendation Avill be to return
to all or part of the existing programs. I just don't know.

Senator Brooke. You are going to make this recommendation to
the President and the President is to make the decision whether to
lift the moratorium. Is that right ?

Mr. Lynn. That's right.

Senator Brooke. When do you intend to make your recommenda-
tions to the President?

Mr. Lynn. On this particular point ?

Senator Brooke. Yes.

Mr. Lynn. Sometime in the first week in August would be my guess.

Senator Brooke. That is within 2 weeks ?

Mr. Lynn. That's right, 2 to 3 weeks. And as I said earlier, I liave
a 2-foot pile of documents that I cut into substantially, but I am by
no means at the bottom of them. And it seems to me if we are using
the taxpayers' money to have developed all these reports, it would
be a mistake for me to express recommendations Avithout at least going
through the more important of these documents.

Senator Brooke. Are you prepared at this point to give us any
insight as to what those recommendations might be?

Mr. Lynn. No, I am not, sir; unfortunately.

Senator Brooke. Now, turning to the Better Communities Act. It
seems to me that under your funding formula you might be penaliz-
ing those States that have worked hard and tried their best to improve
the situation. For instance, my own State of Massachusetts has done
very well, but under your Better Communities Act, we would be cut
back by 1976.

Mr. Lynn. It depends what particular year you look at. Senator
Brooke. The people that have levied objections have quite understand-
ably picked the highest funding year they can find and say, "Look,
I'm going to get less money."

But I can think of a large city in your State that has had funding
levels over the last 5 years during at least 1 or 2 of these years that
are less than what they would be getting even by the fifth year on
entitlement basis determined by a needs formula.

Senator Brooke. Well, you do want to keep the incentive program
in the legislation, don't you ?

Mr. Lynn. The incentive program ?

47

Senator Brooke. Yes. For example, one of the things that I thought
was an incentive to local governments to spend community develop-
ment money wisely and economically and which you apparently would
terminate is the 10-percent matching fund requirement. It seems to
me that if States or counties really want to participate in community
development, they could take the responsibility of taxing to raise at
least 10 percent of the needed money if the Federal Government puts
up 90 percent.

Mr. Lynn. I think my statement speaks for itself on that point,
Senator. I would only repeat that from my own knowledge of the
HUD programs that 10-percent matching share has become nothing
but a redtape exercise, that practically anything qualifies for it.

And what seems to me the much better way of getting the commu-
nities' attention to spending the money the right way is to put on their
shoulders the advantages and the burdens at the same time of deter-
mining the priorities of expenditure.

This 10-percent matching requirement — or I should say the match-
ing requirement — is one of the most redtape-ridden things that we
have. And we really can't see that it has accomi^lished much in the
actual operation of the categorical programs.

Senator Brooke. And that applies equally to the application as
well, because you have eliminated the application, haven't you ?

Mr. Lynn. We do require a plan that details proposed expenditures,
we have eliminated the necessity for an application insofar as it re-
quires the detailing of what a community intends to do in particular
categories, and we have eliminated the requirement of HUD second-
guessing what the community says it wants to do.

Senator Brooke. Suppose it doesn't want to, doesn't feel it should
apply, doesn't even want to take the oppoi-tunity given to apply. You
don't see any problems there at all — localities not wanting it?

Mr. Lynn. If they don't want to apply, they don't get funded.

Senator Brooke. Well, under I think S. 1743, you eliminate the re-
quirement for the application.

Mr. Lynn. No, we eliminate the need for addressing particular mat-
ters in the application or plan or whatever you want to call it. But the
community must still go through a process, particularly the very im-
portant process of community review, before it can be funded. And
the plan must also be reviewed by HUD from the standpoint of
whether or not the things being proposed are within the statutory
frame of reference.

Senator Brooke. Doesn't this tie the community to HUD's apron
strings ?

Mr. Lynn. I don't believe so.

Senator Brooke. You want to give them all the flexibility possible,
don't you?

Mr. Lynn, Absolutely.

Senator Brooke. Since the purpose of your bill is to localize
planning, should your oversight be limited to the minimum necessary
to assure that funds have been spent on projects which fall within the
broad limits of community development ?

Mr. Lynn. Yes, we do believe that it should be the minimum, Sena-
tor, but we think we have provided the right kind of minimum.

Senator Brooke. In S. 1743 do you feel you have achieved that ?

Mr. Lynn. Yes, we believe we do.

48

Senator Brooke. S. 1743 ?

Mr. Lynx. Yes, sir.

Senator Brooke. Mr. Chairman, I understand from Carl Coan our
counsel for housing, that a new liousing bill has been filed by Senator
Byrd. Are we going to have hearings on that bill so that we can have
the Secretary appear and give us the information w^e so sorely need ?

Senator Proxmire. Well, there are several options. One option is he
can come back prior to the time he submits his proposal or he can wait
until he submits his own proposal and then have him come back.

Senator Brooke. That will be September 7 ?

Senator Proxmire. Yes. We could have a week of hearings or so
after that before we act on the bill. So there will be time then. And
it might be a good time. The Secretary can come in and comment on
all the hearings we have had, and, of course, these things change from
time to time.

Senator Brooke. Mr. Chairman, I am very much concerned that, as
you stated earlier, we may not have a housing bill in 1973. If the Secre-
tary's proposal is submitted on Septembei- 7 and we are talking about
adjourning sine die on the 15th of October, that is precious little time
to have hearings on important legislation such as this, to get it past the
committee, past the Senate, past the conference committee, and to the
President for his signature.

Senator Proxmire. You are absolutely right. But, you see, the op-
tions are so tough because we do have that 5-week recess beginning
on August 3, and I think it would be most unlikely the administration
would come in with their program before August 3.

Whether we could have hearings during the recess is a possibility,
but it is very difficult to do. So I think we are in a tough time bind.

Senator Brooke. What concerns me more is what is going to happen
in the interim period. Suppose we don't have a housing bill in 1973.
Then what happens? Is HUD going to spend the money that we have
authorized and appropriated ?

Mr. Lynx. As I said earlier, I have consultations pending with
O^IB for the release of additional funding to honor the remaining
commitments that have not, as yet, been given the green light. Beyond
that I have no plans for spending funds.

Senator Proxmire. Senator Brooke has put his finger on why we
ought to end the moratorium.

Senator Brooke. No question about it. It seems to me you have got
to do it.

Mr. Lynx'. Senator, my problem is that you are advocating, for the
benefit of maybe another 50,000 or 100,000 units, reinstituting a pro-
gram which, in my judgment and in the judgment of the administra-
tion, is a program that is fraught with difficulty and waste and in-
equity. I'm saying that, looking at the total needs of this country for
low- and moderate-income housing and looking also at the generally
good liealth of housing starts in the ITnited States, that does not appear
to me to be the right course to follow.

Senator Brooke. When are you going to give that information to
us ? You're making this as a statement.

Mr. Lynn. I said earlier. Senator, I would expect to have the pack-
age setting forth that full analysis at the time the President makes
his recommendations to the Congress.

49

Senator Proxmire. If the Senator would yield, the Library of Con-
gress study, Avhich is a comprehensive study, doesn't indicate that it
is fraught with difficulty. We haven't gotten any hard evidence. We
have allegations and rhetoric and you're a very articulate and per-
suasive man, Secretary Lynn, but we haven't had any hard, convinc-
ing evidence in my view that these programs are bad.

As a matter of fact, those who have been most interested on the out-
side have made a very strong case that these programs are more work-
able than the conventional programs that are being continued.

Mr. Lynn. Mr. Chairman, I don't believe there is any unanimity in
the views of the people outside the Government in this regard at all.
We can match documents. You can bring some in where people say
these are the most wonderful things that ever happened to mankind,
and I can show you things running all the way from newspaper
articles to magazine articles to statements by experts that these pro-
grams are indeed a disaster and we ought to fess up to it at this point
in time.

Senator Brooke. You may be right, Mr. Secretary, but you are ask-
ing us to accept your statement without any supporting evidence.

Mr. Lynn. Well, I gave some indications of the areas that I thought
showed that the programs were not working the way they should when
I testified in April. But as I say to you, I think the detailed analysis
could be given to you in one of two ways. I could have put the study on
hold completely and, by putting full manpower on this first, done the
demonstration of how the programs aren't good. Alternatively, I could
have it go forward in tandem with the housing study and show the
comparisons between the way our present programs worked and the
way our alternatives would work. We chose the latter approach.

Senator Brooke. You didn't have a preconceived position or any-
thing of that nature? You had an open mind? You told me that when
you came before us in January — and that you were going to have this
study made and as a result of the study you would report back to the
Congress, and we are waiting for that report.

So I assume that you don't have any preconceived notions about this
and that you are making your judgments on the basis of the evidence.

Mr. Lynn. We have to make a distinction. Senator. I believe that I
testified on prior occasions that the programs as they were actually in
operation were wasteful and inequitable. I further said, however — you
are absolutely right — that I have no preconceived notions whatever as
to whether or not the statutory provisions are the best approach. And
that still remains true.

In other words, it may be when we have studied the whole thing that
the existing statutory authorities, with a different administrative ap-
proach and with different guidelines, are still the answer. I just don't
know at this point in time. That is why I am reading all these materials
that I have stacked up.

Senator Brooke. Now, Mr. Secretary, I know that you have some
problems, as has been stated in press reports, with some of the public
housing amendments to which I referred. They have given some hous-
ing authorities problems and some tenants problems around the
country.

Now, Senator Proxmire and I serve not only on the authorizing com-
mittee for HUD, but we also serve on the HL^D appropriations sub-

50

committee. We haA'e just finished with an appropriations bill, and we
have written very strong language regarding appropriation for public
housing operating subsidies into that bill.

We were very much disturbed that HUD has not been spending the
money that Congress has authorized and appropriated for operating
subsidies. We sort of chastised HUD, I believe, for not spending that
money. We have tried to write into the bill language which would
insure that HUD would spend the $315 million appropriated for the
purposes of the so-called Brooke 1, 2 and 3 amendments, for operating
expenses and subsidies, so that many of the housing authorities across
the country that are in dire straits at the present time would not go
bankrupt. I have serious questions as to whether they can go into bank-
ruptcy, at any rate. But that the quality of living in these public hous-
ing projects would be improved if the money appropriated by the
Congress is spent by HUD.

Now, what do you intend to do about that ? Do you intend to spend
this money, if the Congress so dictates, or do you still have serious
reservations about it? If you still have reservations, I urge you to give
us your proposals so that we can examine them ourselves to work some-
thing out with you. I have told you that from the time first you came
to my office in December or January, I believe, before you were con-
firmed. What are your thoughts about that ?

Mr. Lynn. First of all, Senator, we have spent all of the money
that was given to us for operating subsidies for public housing. The
last $14 million went out on it just before the end of the fiscal year.

Second, I am very familiar with the mandatory language of the
appropriation bill emanating from the Senate side on the operating
subsidies. I am as familiar with that as I am with the mandate to
spend all of the rest of the money that I can possibly spend on all of
the housing programs and all of the community development
programs.

Needless to say, it is obvious from my testimony earlier today that I
do not concur with the judgment as expressed by the Senate in that
appropriations bill, and I must say that I will vigorously resist that
language.

Coming back specifically to the operating subsidy situation, we are
addressing ourselves to that problem as well as to the whole problem of
financial responsibility of the public housing authorities.

As I believe you and I have discussed on occasion, we have a dilemma
in this regard. We all most desperately want to help our lowest income
people acliieve good housing. On the other hand, we also want financial
responsibility of the public housing authorities. The answer here lies
in doing our best to satisfy both of those objectives.

And it is with those dual thrusts that we are proceeding with our
housing study in this area.

We asked this year for a funding level for operating subsidies that
was the same as the funding level sought last year. I say "same'' because
there was a one-shot retroactive feature in the bill last year

Senator Brooke. I think you had $280 million if I remember.

Mr. Lynn. I think that's right.

Senator Brooke. But we sought $315 million last year.

Mr. Lynn. I'm not certain of that at all, sir.

Senator Proxmire. I understand it is $350 million.

51

Mr. Lynn. Was it $350 million ?
Senator Brooke. $350 million, yes.

Mr. Lynn. But there was a $90 million one-shot sum in that for
a retroactive feature. In other words, bv the time the appropriation
was passed Ave had j^assed the period of funding: that we wanted to
take care of it. I mean the annual fundincr level reflected by the appro-
priation was $280 million, and that is what we sought in fiscal year
1974.

I must look at all of this as stopgap funding because, as I say, we are
taking a look at the overall situation on how to help the situation of
existing public housing in our study.

Senator Brooke. Well, my time has expired, but I take it that we
are in disagreement, to say the least, on this funding for public hous-
ing. Again I say to you, if we are in disagreement and you have some
supporting evidence as to why it should not be done the way we have
mandated in the appropriations bill, why don't you come to the Con-
gress with it? Why don't you make proposals? Why don't you give us
some evidence, some documentation, that would support your position ?
We haven't seen it as yet. You might find some flexibility in the Con-
gress, but we haven't received any information from you,

Mr. Lynn. Senator, it is a question of whether we come forward
piecemeal. Many of these issues are interrelated, after all. They are
interrelated even within the statute. The limitations with respect to
income, and so on, for 235 and 236, are related to the income limita-
tions on public housing.

It seemed to us that the time had come for us not to consider all of
these things together instead of considering them piecemeal. And
that's why I have asked to be able to have until September 7 to come
forward with our recommendations and our analysis supporting those
recommendations.

Senator Brooke. As you are aware, we have a crisis in public hous-
ing, and if you are talking about not spending at least up to the fund-
ing level that we have authorized and appropriated, I think we are in
for some really difficult times in fiscal 1974.

Mr. Lynn. We had asked for an appropriation level. Senator, ef-
fectively the same as we had last year and we have every intention of
spending it.

It appears our disagreement is twofold. Or I shouldn't say "two-
fold," because it's really only one. And that is, what is the appropriate
level for this interim period of time ? AVe said it is $280 million, and
you folks in the Senate said it should be $315 million. I would hope
that would be looked upon as an honest disagreement.

Senator Brooke. We don't want to split the difference with you. I
can tell you that. That is not your intention, is it ?

Mr. Lynn. No, sir. That is not my intention.

Senator Proximire. Mr. Secretary, the hour is very late. I just have
one other question or two questions I want to ask quickly, and then we
will have to adjourn.

You say in your statement, and I quote : "I question the desirability
of the basic idea of holding communities harmless forever."

Now, this seems to me a misreading of the Senate bill. The bill is a
3-year authority to allocate dollai-s and specifically requires the Sec-

99-855 O - 73 - ct. 1

52

retary to recommend changes after 1 year's experience. That is 306
(i). Section 306(h) also gives him authority to adjust the calculation
if needed. The real question is how we keep city effort going.

Any fixed formula I think you would agree has shortcomings and
requires a measure of judgment.

Mr. Lynn. I agree with you that any fixed formula is not perfect.
But what was the intention of the Senate in its 3-year bill as to what
happens at the end of 3 years? The pressures by the cities that are
the "haves" would be just as great at the end of 3 years as they are now.
The only difference would be any city that got something more in the
third year than it had in the first would then be added to the group
that was saying, "For Pete's sake, don't reduce my funding."

It seems to me we should face up to the fundamental issue, which
is whether we should distribute this money on the basis of needs or.
alternatively, whether distribution shoulcl be based on the highest
average funding that a community had in the past.

Senator Proxmire. I agree with much of what you say.

Mr. Lynn. I opt for the formula.

Senator Proxmire. I don't think we necessarily have to give in on
the priorities. It is a 3-year bill. It is not a permanent direction.

Mr. Lynn. I would think, Mr. Chairman, that we would want a 5-
year bill, because one of the things that should be taken into account
by a community is what its longei- range plans are, and a 3-year bill
is not nearly as satisfactory in that regard as a 5-year bill.

We do not want the priorities to be distorted by their worry about
whether or not that statute is going to end at the end of the second year
or so or third year.

Senator Proxmire. I don't want to be unfair to you, Mr. Secretary,
but, finally, as you leave. I did ask you in the course of this an involved
question. You made a good response to part of the question. You may
have ignored the other part for whatever reason. I clon't know. Maybe
it just slipped your mind.

I quoted the assertion that you were the "Howard Phillips" of the
housing agency, that you were a perfect candidate to preside over the
final dismantling of Great Society's housing programs. And I didn't
get a kind of firm, flat, emphatic denial that I expected.

That doesn't mean — or does it mean that that's Avhat you are inter-
ested in doing?

Mr. Lynn. If I were interested in doing that, Mr. Chairman, I
wouldn't be here pushing so hard for what I believe to be the right
approach for community development, which is the Better Communi-
ties Act. I would not be spending 13 to 14 hours a day, most Satur-
days, and 4 to 5 hours on Sunday working my way through the housing
study and coming up with housing recommendations for better pro-
grams than we presently have.

I am in HUD to try to do a good job by making its mission a mean-
ingful one and carrying out that mission. I'm not there to dismantle
HUD. Believe me.

Senator Proxmire. I appreciate that.

Mr. Lynn. Is that emphatic enough. Mr. Chairman ?

Senator Proxmire. You know, I think we can only judge that — we
will have to await your recommendations on the housing program.

Mr. Lynn. That is a fair comment, Mr. Chairman.

53

Mr. Hyde. Mr. Chairman, may I go back to your previous question
and your statement concerning the "hold harmless'' and the fact that
this was only a 3-year authorization ?

I call attention to the committee report on the bill submitted in 1971
which is identical to this one. The committee report does indicate —
I won't read it but it's on page 43 — the intention to make that a perma-
nent fixture of the bill. And I think that is an issue that really must
be addressed by this committee and not left to the fact that this is only
a 3-year authorization.

Senator Proxmire, I pressed that issue at the suggestion of the
chairman, who can't be here today. He is very, very interested in that.
Frankly, that had escaped my attention.

But I think their point is that this is a 3-year authorization, it's
not permanent, and that mider those circumstances it is not a forever
provision.

Mr. Hyde. I would think in light of history of the last bill that
would have to be made abundantly clear to avoid the pressures the
Secretarj^ indicated earlier.

Mr. Lynn. You have a little dilemma. We believe the bill should be
a 5-year bill to allow proper priority assessing by the communities,
and if you go to 5 years you most definitely have to face this issue.

Senator Proxmire. I would like to announce that the committee
prints are available on hearings on oversight, the Washington hear-
ing, the Chicago hearing, the Toledo hearing, and following the com-
mittee oversight hearings, as I referred to earlier in the hearing, the
Library of Congress has summarized the results. And the attached
committee reports are available for the public. We have a substantial
body of material here.

Thank you very, very much, Mr. Secretary and Mr. Hyde. Very
helpful and intelligent testimony.

The committee will stand in recess until 10 o'clock tomorrow morn-
ing when we will reconvene in this room.

Mr. Lynn. Thank you, Mr. Chairman.

Mr. Hyde. Thank you, Mr. Chairman.

[AMiereupon, at 12:57 p.m., the subcommittee recessed, to recon-
vene at 10 a.m., Tuesday, July 17, 1973.]

[Following are answers to questions raised by Senator Proxmire
and Senator Cranston. The report referred to in question No. 1
from Senator Proxmire is retained in the committee files. These are
followed by letters and statements concerning the issues discussed
on this day:]

Questions From Senator Proxmire

1. Have you prepared a reix)rt on your "Planned Variations" experience?
Would you submit such a report to the Committee?

2. As I read your proposal for special revenue sharing, it does not contain any
provision in the formula for tax effort. The point is thaft a few states, like my
own, make very very heavy tax contributions — heavy state income tax, heavy
proi>erty taxes, a coriK)rate income tax, sales taxes, a)nd the like. So we tax
ourselves very heavily to pay for a high (luality of state services.

Some other states do not. In fact the Mayor of Newark — who has some of
the worst problems of any city in the country — has haid great difficulty getting
the state as a whole to provide funds for his city. Yet New .Jersey, as a state,
makes a relatively small effort — and there are other states .similarly situation
isie).

54

Now without a formula^ which includes tax effort, the people of Wisconsin
pay twice. They pay first for the very big effort for themselves. And they pay
second for the lack of effort — or relative lack of effort of others. That does npt
seem to me to be fair.

Have you left out "tax effort" by accident or by design? Why isn't it includefl?

3. Last Friday I introduced legislation to provide for direct Treasury financing
of the 235 and 236 progralm along (he lines recommended by the Comptroller
General in his testimony before the ,iEC last December. According to the Comp-
troller General, the Federal government wcnUd save $2 billion over the next
five years by this method. The Library of Congress estimates the savings at
$4 billion. Whatever the figure, can you give us your thoughts on the concept?
Woiildn't it make more sense and save the tax-payers money if we had a direct
financing alt^native to the existing financing methods?

4. If the President signs H..J. Res. 512 into law including the provision ending
the moratorium, or if such a provision befcomes law by overriding a Presi-
dential veto, will you faithfully carry out the provisions of the law and begin
processing and approving subsidized housing applications?

5. I have an amendment to provide that subsidized hotiing — Section 235 and
236 shall be financed by borrowing from the Treasury instead of from private
sources. This is very important.

First, we must find ways to cut the costs of .subsidized housing. 50 to 60
jiercent of the people in this country cannot now afford to buy a $27,500 house.

Second, borrowing by the Treasury can be done for from 1.5 to 2 interest rate
I)ercentage points lower tha/n from private sources.

The Douglas Commission advocated this and recommended it in 1968.

The Comptroller General, Mr. Staats, recommended it last December and
said that at the average interest rate of Treasury Iwrrowings it would save
from $4 to ,$5 billion in ca'rrying out the housing goals.

The Joint Economic Committee's Subcommittee on Priorities recommended
it in January.

T have an amendment to carry it out. I have submitted it in connection vpith
this bill.

Has your task force gone into this issue and why wouldn't you look very
closely at a proposal which would save you $4 to .$5 billion?

Staff note to Proxmire : (He (Lynn) may raise the issue that this would
be a loss for the private nuarket. The answer is that the total amount of
borrow would be the same. It woidd merely substitute Treasury borrowing for
private borrowing, but the funds would have to come from the private economy
and the total would be the same) .

6. In Baltimore, Chicago, and even Washington. D.C., the highway builders
have destroyed thousands of housing units.

By definition these are units for the poor. The Avell to do have enough political
clout that the superhighways, in general, do not go through their back yards.

TThe Douglas Commission found that through 196.H, more housing had been
destroyed by governments than had been built by the Federal and «tate housing
I)rograms. The destruction came from highways, urban renewal, code enforce-
ment, and the quivalent diemolition jirovision of the early public housing act.
In fact, quite a few more imits were destroyed than built.

I have an amendment which provides that the Highway Trust fund would
pay to you the cost of a 3 bedroom public housing unit for every housing unit
they destroyed in building roads.

AVhat do you think of sucTi a proposal ?

7. For years very little public housing of 3 bedrooms or more has been built.
First, almost half the public housing in recent years has been housing for the

elderly. That is 1 bedroom or efficiency apartments.

Second, communities don't want a bunch of kids when they build public hous-
ing. So they build two bedroom units for much of the remainder. Tliis means
they don't have to build a lot of new schools.

Third. HUD has traditionally had a ceiling amount per unit — set by the Sec-
retary— at relatively low amounts — too low to build a great deal of 3 bedroom
or more units.

As a consequence very little housing for the poor family has taken place. And
you must have a three bedroom unit if you have kids of more than one sex over
the age of 4 or 5.

I have an amendment which proposes that at least 20% of all new public
housing be 3 bedrooms or larger in the future. It may be that studies of the poor
and of tho.se who need public housing would show that this amount should be
greater, first to provide for the need and second to make up for some of the past
lapses.

55

What comment do you have about this?

8. As you know, it costs far more money to build high rise buildings than low
rise buildings. The high rise buildings are justified when land costs are so high
that they become more economical because of the land costs.

We also know that high rise construction for public housing has certain other
weaknesses. It crowds together in one spot all the problems of the poor. It often
means there is insuflacient light and play space. It's not a good place to raise
kids.

Because of this, public housing is now more and more scattered site housing
and leased housing, and the huge "projects"' are largely a thing of the past, or
they should be a thing of the past.

But for the elderly, we still build high rise in almost every situation. In small
town after small town — 5,000. 10,000. 50,000 throughout the country where there
is not another high rise building, except for the local grain elevators, housing
for the elderly is high rise housing.

That seems to me to be very expensive. It costs more. Here land values are low.
And it ought to be better housing to provide garden type apartments or low rise
dwelling units.

I have a bill which would forbid high rise for the elderly projects in cities of
less than 500.000, and in cities over that population only on a showing that the
high rise was less expensive because of land costs.

What comments do you have about that, Mr. Secretary?
9. Revenue Sharing

You have a formula based on population, overcrowding, and poverty, (counted
twice).

It takes a great deal less mone.v to live in a rural area than in a big central
city.

I do not want to downgrade rural poverty — it is more extensive than urban
poverty, I believe.

But does your formula adequately take account of the difference between rural
and urban poverty levels? Doesn't it cost more to live in a big city than in most
rural areas, and shouldn't the formula take account of this?

Answers to Questions From Senator Proxmire

1. Yes, the Office of Community Development, EA'aluation Division has pub-
lished a report on the first years experience with "Planned Variations." This
report is enclosed. A further report covering the second year is now in prepara-
tion, and will be furnished to the Committee upon its completion.

2. Tax effort was left out of the formula by design. This factor has been con-
sidered appropriate for general revenue sharing where funds are not being used
to meet needs in specific areas of functional need, such as community develop-
ment, law enforcement or transportation.

However, taxes are not imposed specifically for community development pur-
poses, with the result that State and local overall effort in taxation does not
neces.sarily result in proportionate expenditures or effort in dealing with the
problems of community development with which the Better Communities Act is
concerned. A city with a relatively high tax effort, for example, might be doing
relatively little to meet community development needs. A similar problem exists
as to State taxation, since States that tax heavily in relation to ability have not
necessarily ploughed many of those tax dollars into community development
activities of the kind to be undertaken under the Act. Moreover, the Better
Communities Act would replace seven categorical programs. Local tax effort has
never been considered in connection with these programs except in the most in-
direct way of local match requirements^ — requirements that have eroded to the
point of negligible impact.

3. 5. 6, 7 and 8. (These questions all request the Department's views on a num-
ber of bills or proposals which would : provide for direct Treasury, rather than
private, financing of the section 235 and 236 programs : require payments to
HUD (to be used for pulilic housing) from the HighAvay Trust Fund for housing
units destroyed by highway construction ; require that 20 percent of all new
public housing be 3 bedrooms or larger and limit the use of high rise construc-
tion for public housing for the elderly.)

As you know, the Administration is now nearing the completion of a broad
study of our housing programs and policies, which of course includes an evalua-
tion of the section 235, section 236 and public housing programs.

56

Following completion of this study, the President will submit his housing
recommendations to the Congress early in September. We cannot say at this
point to what extent the President's recommendations will specifically deal with
or respond to particular legislative suggestions. However, the study will in any
case provide a necessary context for evaluation of the proopsals contained in
these questions, and we must accordingly defer comment on them until the study
is completed and the President's recommendations submitted to the Congress.

4. That is an "iffy" question upon which I prefer not to speculate except to
say generally that of course the Department will do what it is legally bound to
do.

5. See answer to question S above.

6. See answer to question 3 above.

7. See answer to question 3 above.

8. See answer to question 3 above.

9. The Better Cbmmunities Act does not spell out a specific poverty level but
provides that the level will be fixed according to a definition provided by the
Office of Management and Budget. The question suggests that two definitions
should be used — ^one for rural and one for urban poverty.

Under the Better Communities Act, funds are distributed by formula among
metropolitan cities and urban counties. Also funds are distributed among States
on basis of the populations and other characteristics of their metropolitan areas.
Because all of these formulae deal with characteristics of urban areas, there is
no need to distinguish between urban and rural poverty levels. Cities, for ex-
ample, lose nothing as against lower income rural areas because they are not
being measured against those areas, but against other cities and urban counties ;
similarily. States with large urban populations do not lose as against States
with large relatively lower income rural areas, since the States compete under
the formula only on the basis of their metropolitan area populations.

Questions from Senator Cranston

The termination of the GNilA Tandem Plan for the unsubsidized programs
has caused a great deal of concern in my State and. I am sure, in others. Some
sponsors, for example, had firm commitments at the time GNMA said it had
closed its doors.

1. Why has HUD terminated the GNMA plan for the unsubsidized programs?

2. Will GNMA honor those firm commitments made around June 27-28?

3. Will the Tandem Plan for the subsidized programs cover all those applications
in the pipeline?

Answers to Senator Cranston's Questions

1. The Secretary has increased the maximum allowable interest rate permitted
for mortgages insured by FHA to SVz percent. HUD's Tandem Plan for FHA
insured housing (unsubsidized) will remain suspended (except for multifamily
housing mortgages covered by FHA commitments issued prior to June 30. see 2.
below) because the Plan will not be needed with the reduction in discounts re-
sulting from the higher interest rate.

2. GNMA will honor all commitments made by it for the purchase of mortgages
prior to the close of business June 28. It is anticipated, however, that most
mortgage lenders with commitments covering unsubsidized housing mortgages
will have their FHA commitments increased to the new interest rate thereby
avoiding the need for Tandem Plan participation. All Tandem Plans were sus-
pended, effective June 28, 1973, when funding authorizations were exhausted.
Since that time, in July and August, the Taudem Plans for Programs 16 (section
235(j)), 17 (section 221(d)(3)), 236, and rent supplements, and 18 (section
235(1)) were reinstated when funding authorizations were approved. Effective
on August 27, the Tandem Plan for Program 21 (unsubsidized multifamily housing
mortgages) was also reinstated for mortgages covered by FHA commitments
issued prior to June 30.

3. In order to avoid inequity in connection with the increase in the interest rate,
Tandem Plan assistance will continue as to all HUD subsidized housing in process
which would not be feasible at the higher interest rate and requires Tandem
Plan assistance to remain economically viable. A letter is required from the
local HUD oflSce to GNMA documenting the finding of infeasibility at the higher
rate.

57

August 27, 1973

Statement of Honorable Jerome A. Ambro, Supervisor of the Town of
Huntington, New York

As the elected chief executive officer of the Town of Huntington,
New York; a suburban municipality of over 210,000 people, it has
come to my attention that under the present distribution formula, the
Better Communities Act (S. 1743) would seriously deprive large seg-
ments of the urban population in the country who might otherwise have
benefited from this legislation. There are many large municipalities,
with populations over 50,000, which would be excluded from commu-
nity development revenue sharing simply because they are categorized
as "towns." The attached list (Enclosure #1) gives some idea of the
number of people across the nation who would be affected by this bill.
These general purpose local governments, unless they are eligible
for "hold harmless" funds, would clearly be dropped from any revenue
sharing in the area of community development. Yet, these municipalities
share the same burdens and responsibilities as "cities," as illustra-
ted in the attached material (Enclosure #2) .

As now written, the Better Communities Act provides for a $2.3
billion, five-year program of grants only to metropolitan cities (de-
fined as any city having 50,000 or more people) and urban counties
exceeding 200,000 population. There is no provision for money to
flow directly to our unit of local govemment--the town--no matter

58

what its size and location. It should be added that the bill does
contain a so-called "hold harmless" provision which allots funds to
all local governments if they have participated in the specific pro-
grams to be enveloped by the Better Communities Act in the past.
However, while the "hold harmless" amount for the first two years
would be equal to the average of funds received from 1968 to 1972
under these programs, it would be reduced significantly the next two
years, and totally eliminated after that. Towns that do manage to
benefit under this provision will then be completely excluded again.

We have counted more than 60 towns and townships across the
nation with a population of 50,000 or more that would be neglected
by this bill. Most of these local governments are urbanized. They
have a combined population of more than 7 million people, which is
larger than 42 of the 50 states. Towns and townships are usually
closer to the problems of their citizens and can be more responsive
than larger units of governments.

As an example of this form of government, the Town of Huntington,
New York, is perhaps typical. It is one of the ten townships which
comprises Suffolk County - occupying the northwestern most portion of
Suffolk County. It is a sprawling group of communities covering ap-
proximately one hundred square miles. In this aspect, it is as large
as the borough of Brooklyn in the City of New York. Within this area
live over 210,000 people.

Huntington has an Urban Renewal project presently under construction.

59

Within it is contained a modest public housing development.
When the neighborhood redevelopment is completed, its combination of
townhouses, apartments, promenades, green spaces, and business esta-
blishments may well serve as a model for suburban communities through-
out the nation. One example of the inequitable distribution in the
legislation as proposed occurs in this particular area of housing. In
the State of New York, counties are pre-empted from involving themselves
with urban renewal and housing. Yet, the Better Communities Act would
provide counties in New York with funds in these areas from which they are
legally barred while those local governments who are charged with urban
renewal and housing responsibilities would be excluded.

The Town of Huntington in 1964, established Community Develop-
ment for Youth, a private, non-profit agency dedicated to the pre-
vention and control of juvenile delinquency. It is funded by the New
York State Division for Youth as well as by the Town. In July, 1968,
the Town established the first Youth Board in Suffolk County. The
County has just recently established a Youth Board of its own.

In May of 1969, the Town of Huntington became the first town in
the State of New York to receive funds for the purchase of new buses
under the State's $2.5 billion bond issue. In addition, it operates a
system of buses on a regular schedule to all of its municipal beaches.
These, plus the new vehicles, which will be used to initiate service in
an area that is currently devoid of public transportation, are for the
purpose of giving citizens - particularly young people, senior citizens.

60

the handicapped, and the poor - greater freedom to take advantage of
the many recreational, cultural, and commercial activities that exist
within the Town.

Yet, the Town of Huntington is not demographically unique in its
geographical area. It is only the seventh largest of the thirteen
towns on Long Island. The Federal Government recognized the special
character of the entire Long Island area by separating it from the
New York City SMSA creating a separate one composed of just Nassau
and Suffolk Counties. But, the population, well over two and a half
million people, is faced with the prospect of being cut off from
vitally-needed community development revenue sharing at a time when
the problem those funds could help solve are multiplying. In this
respect, the towns of Nassau and Suffolk are representative of large
suburban townships across the nation.

The Town form of government has been the victim of Federal neg-
lect before, but there is little that can be done to rectify the past.
However, the proposed legislation is a prime example of Washington's
ignorance of the needs of the large suburban towns at present. It
is incumbent upon those of us who care about the vitality of local
government in America to bring attention to bear on the glaring de-
ficiencies of this bill. Not only does the proposed legislation
cover areas of importance to our citizens, but it also is the fore-
runner of a new era in Federal grants in aid. If we are bypassed
now, we can expect only further neglect in the future. It should
be remembered that the Town form of government, in most cases, pre-

I

61

dates the Federal and State governments. It was the means by which
our ancestors fostered democracy in this nation. Today, that form
of government is beset by many problems which could be fought with
the kind of funds proposed by the "Better Communities Act." We are
determined not to see this basic unit of government wither through
neglect and indifference.

62

Enclosure #1

TOWNS (OR TOWNSHIPS) OVEU^ 50.000

STATE
Connect i cut

TOWN

East Hartford
Fairf ie I d
Greenw i ch

POPULATION

57,583
56,487
59,755

STATE

I I

I no I s

TOWNSHIPS

Bremen

C i cero

E I k Grove

Leyden

Lyons

Mo i ne

New Tr i er

Ni les

Northf ield

Pa I at i no

Prov i so

Schoumberg

Thornton

Whee I i ng

Worth

Addi son

Downers Grove

York

Decatur

Rockford

POPULATION

93,906

67,058

79,642

99,793
100,898
140, 194

65,365
III, 197

65,557

54,817
172,761

50,541
187,863
119,218
155,834

72,280

92,899
173,724

77,546
191,671

STATE

I ndiana

TOWNSHIPS

Wayne
Center

POPULATION

149,516

87,469

STATE

Mary I and

TOWN

Rockvi ! Ie
Bethesda
Berwyn
Oxon Hill
Spau I di ngs

POPULATION

81,908
96,912

55,965

106,350

63

STATE
Massachusetts

TOWN

An I i ngton
Brook I i ne

POPULATION

53,534

58,886

STATE
Mich i gan

TOWNSHIPS
Redford

POPULATION

71,901

STATE

M i ssour i

TOWNSH IPS

Bonhomme

C layton

Creve Coeur

Gravo i s

St. Ferdinand

Midland

POPULATION

I 13,080
57,602
60,300
62,535
72,022
55,790

STATE

New Jersey

TOWNSHIPS

Cherry Hill
North Bergen
Ed i son
Woodbr idge
Mi ddletown

POPULATION

64,395
47,751
67, 120
98,944
54,623

STATE
New York

TOWN

Co! on ie

Uni on

Cheektowoga

Irondequoit

Hempstead

North Hempstead

Oyster Bay

C I arkstown

Orangetown

Ramapo

Baby I on

Brookhaven

Hunt i ngton

I si ip

Smithtown

Greenburgh

POPULATION

69,147

64,490
113,844

63,675
801, I 10
234,984
333,089

61,653

53,533

76,702
203,520
243,915
200,571
278,399
I 14,004

85,746

64

STATE TOWNSHIPS POPULATION

North Carolina Ashevillo 74,174

Jacksonvi I le 55'737

STATE TOV/NSIliPS POPULATION

Pennsylvania Lower Merion 63,392

65

[From the Long Island Press, Apr. 1, 1970]
Suffolk Needs 66,000 Rental Units : Planner

Huntington town has a "critical need" for 1,000 low- and low-middle-income
housing units for local families and has zoning barriers which probably could be
upset as unconstitutional Lee E. Koppelman, executive director of the Huntington
Committee on Human Relations and the town NAACP chapter.

At all income levels Suffolk will need 66,000 rental units in the next 15 years,
the planner forecast, and at least 6,600 of them should be in Huntington.

If the town does not act fast to open the way for housing by rezoning about
5 per cent of its available land for multiple dwelling "it will be done by an out-
side agency,"' Koppelman warned.

Koppelman said the amount of multiple housing he recommends is too small to
change the character of the town, which he said also is important since those
selected by the state.

As an example of state selection, he said, the much needed Suffolk State School
for the Retarded in Dix Hills is "in the worst possible location" from the stand-
point of the community and labor market.

Koppelman said the State Urban Development Corporation, which has "almost
unlimited powers," is in continuing negotiation with the Citizens Housing De-
velopment Corporation of Nassau and Suffolk counties to select from four pro-
posals the right housing project for vacant state acreage at Pilgrim State Hos-
pital in Brentwood.

Koppelman urged Huntington residents to try to avoid having outside agencies
step into the local housing situation by putting pressure on the town board to
create a responsive official climate for needed housing. He said he does not recom-
mend public housing or high-rise buildings which are so tall "a mother on the
23rd floor" loses supervision of her children.

School boards are the greatest opponents of multiple dwelling, the planner said,
adding they are incorrect when they assume apartments will add to the school
census. Most apartments do not accommodate large families, Koppelman said.

Koppelman said he had seen a "family living in a large packing box, with no
heat" in Amityville. He said the slums of Suffolk add to the public expense by
creating sickness and crime. Public Welfare costs are increased $1.5 million in
Suffolk, and double that in Nassau, for motel living — money which could be saved
if there was enough housing, including subsidized housing, he said.

Koppelman expressed hope the state soon will subsidize individual family rents
but conceded it can't be done until housing is available. He charged Suffolk legis-
lators "have already introduced bills in Albany to try to put shackles on the
Housing Development Corp."

Huntington has been a leader in having a comprehensive plan and in Urban
Renewal, Koppelman said, and "is the only town where I have seen town officials
in the audience when I speak."

[From the Suffolk Sun, editorial, Dec. 18. 1968]
Now It's Officxal: We're in Trouble

The report of the President's Task Force or Suburban Problems is not pleasant
reading for the year-end holiday season. It finds that communities ringing urban
centers are in the crisis stage.

Our problems range from soaring taxes and poor public transportation to in-
adequate housing for the poor, the aged, and minorities and rising crime rates.
In terms of social disorder, you name it ; we have it. and now it is all there in
black and white in an official document.

The report makes it clear that life in suburbia is not as plea.sant as real estate
advertisements in the Sunday pai>ers would have us believe. We are growing too
fast for our britches, are polluting our environment, and are fighting a rear guard
action to keep a social white noose around black urban slums.

The task force conclusion should come as no surprise to Long Islanders. Suf-
folk County Executive H. Lee Dennison and Nassau County Executive Eugene
Nickerson have been warning us about the growing crisis since the first day they
took office. Because they have not represented political majorities in the two
counties, their recommendations for reform have been adopted slowly, if at all.

Mr. Nickerson argues that town and village governments have not moved to

66

correct political and social wrongs. Oyster Bay Town Supervisor Michael Petito
agrees. "That all is not well in suburbia is an absolutely accurate statement,"
he said the other day.

Mr. Dennison's analysis of the situation is worth nothing. He blames our trou-
bles on speculative building, lack of planning, failures in such public housekeep-
ing as sewage disposal, corruption in public office, and failure in human relations.

We might add that of all the reasons for suburban decay, the long-time, one-
party political control of local affairs must rank on top of the list. This has led to
official corruption and civic inaction. Until real political balance is achieved, we
will continue to slide downhill.

[From Newsday, Aug. 13, 1970]
Suburban Crime Rises

The Federal Bureau of Investgation reported yesterday that the nation's
suburban areas showed an above-average rise in the volume of serious crime
last year — up 13.8 per cent from the previous year.

In Nassau County, however, crime increased by 10.8 per cent over the previous
year. In Suffolk County, the rate of increase was 11.5 per cent. The national
increase was 12 per cent.

In the New York metropolitan area, including the city. Long Island, and Rock-
land and Westchester Counties, the crime rate per 100.000 inhabitants was
4,731.5. nearly twice the national rate of 2,471.1. There were 555,001 crimes re-
ported in the area, including 1,105 cases of murder or non-negligent manslaughter
and 2,277 forcible rapes among 95,873 violent crimes.

Tlie FBI's uniform crime report is based on serious crimes — murder, non-
negligent manslaughter, rape, robbery, felonious assault, burglary, larceny and
automobile theft — reported to police. There is no way of determining the total
number actually committed.

The FBI report, issued in Washington, .said that serious crime rose by 148 per
cent in the 1960s while the U.S. population increased only 13 per cent. But Attor-
ney General Mitchell said tliat the "rate of increase slowed down .substantially in
1969," President Nixon's first year in office. "In 1969, the number of serious crimes
in the United States increased by 12 per cent over 1968, as compared to a 17 i^er
cent increase in 1968 over 1969," Mitchell said in a statement accompanying the
FBI report.

The rate of all serious crimes committed in Nassau County last year was
1,832.2 per 100,000 inhabitants, compared with the national rate of 2,471.1 and
the New York metropolitan rate of 4,731.5. The 1968 Nassau rate of all serious
crimes committed per 100,000 inhabitants was 1,549.9.

In Suffolk, the 1969 crime rate per 100,000 inhabitants was 1,238.5, an increase
of 11.5 per cent over the 1968 rate of 1,110.3.

Nas.sau Police Commissioner Francis B. Looney said that the county's 1969
crime rate was well below the national, metropolitan and suburban rates. In
addition, he said, major crimes deci'eased 6.7 per cent during the first three
months of this year compared with the comparable period of 1969.

In Suffolk, Police Commissioner John Barry said, "Tliis is one of the fastest-
growing counties in the countr>\ and with the increase of people comes an in-
crease in crimes."

[From the Long Island Press, Mar. 19, 1970]
Long Island Crimes Go Up — Increases Above Suburban Averages

The Long Island crime rate increased last year more than the national sub-
urban crime rate.

According to an FBI report, yesterday, crime was up 13 per cent in the nation's
suburbs. In Nassau the crime rate for seven major crimes was up 17 per cent
and in Suffolk it increased 16 per cent.

While both counties showed decreases in murders — down 22 per cent from
1968 to 1969 — the largest increases were in larcenies.

Nassau saw 36 per cent more larcenies committed in 1969 than 1968 while
Suffolk witnessed a 42 per cent increase in this field.

A Nassau Police Department spokesman explained that one reason for an in-
crease in this field is because instead of listing many articles as lost property
as was done in 1968, the police list them as larcenies.

67

Another reason the increases in rates seem higher in Nassau and Suffolk than
on a nationwide basis is because the 1968 figures were very low to start \\ith
in some areas, according to a Suffolk Police Department spokesman.

He pointed out that Suffolk listed 19 per cent more rapes in 1969 than in 1968
but this really means a total of eight more rapes in a county where the pop-
ulation continues to grow. He explained there were 43 rapes reix)rted in 1968 and
51 in 1969.

Other areas in which both counties showed rate increases were robbery, up
11 per cent in Suffolk and 33 per cent in Nassau, and auto theft, up 22 per cent
in Suffolk and 14.8 per cent in Nassau.

The number of assault charges dropped in Suffolk by 7 per cent while increas-
ing in Nassau by 32 per cent.

[From the New York Times, Oct. 9> 1972]

Violent Crimes Rising in Suburbs

but f.b.i.'s statistics show big cities still far ahead on a per capita basis

Violent crime in the nation's suburbs is increasing nearly twice as fast as in
the large cities. But suburban crime rates, on a per capita basis, are still so low
that even at the present rate of increase, there is no chance that suburbanites
will soon be in as much danger of violence as city residents.

According to the Federal Bureau of Investigation uniform crime reports for
1971, crimes of violence in the 57 cities %Aith more than a quarter-million people
rose by 7.5 per cent over 1970, while in the suburbs the increase was 13.4 per
cent.

But what the numbers really meant was this : For every 100,000 people in the
suburbs, 206 were victims of violent crimes. In the large cities the number was
1,048.

In the residential, middle-class suburbs in the New York metropolitan area,
violence is so relatively rare that local police spend only a small amount of their
time on those crimes, compared to crimes against property.

"Violence? Gosh, it's so rare here it's like asking me how many rabies eases
we've had in the last 20 years," said Chief Stephan Barran of the Greenwich,
Conn., police. "More and more people are out walking at night, for their health."

His comment was echoed in varying degrees by law-enforcement officers in a
number of suburban towns in Westchester, Nassau. Suffolk and Bergen Counties,
as w^ell as by those who take a broader view of the nation's crime problems.

That is not to say that suburban police have nothing to do, or that residents
are not worried about crimes. Burglary, which has been increasing for years
and is now at epidemic proportions in many areas, is the serious crime that con-
sumes the most local police time and attracts the most attention.

The burglar-alann business is booming in many of the areas' suburbs. Although
violence is rarely a comiX)nent of burglary, and most burglar-alarm owners do
not even turn the machines on as long as they are in the house, the possibility of
a violent confrontation with a burglar is ever present and frightening.

7 00 BURGLARIES EXPECTED

"In 14 years on this force, I can't recall an act of violence associated with a
burglary," said Lieut. George Calcagnini, chief of detectives in Yorktown, a
northern Westchester community that expects to record more than 700 burglaries
this year.

The figure will be up from 600 burglaries in 1971, a year when 21 crimes against
the person were committed in Y'orktown.

"Years ago, we had none at all, so I guess you could say there's been an increase
in violence," Lieutenant Calcagnini said. He noted that most of the violence
occurred between people who were already acquainted.

Numbers themselves are often more misleading than useful in attempting to
arrive at a complete picture of suburban crime. Percentage increases that appear
startling often rest on very small numercial basis.

Suffolk County, for example, experienced a 13 per cent increase in forceable
rape in 1971, but. expressed another way, that percentage represents an increase
of 10 rapes — from 73 to 83 — in a year in which the county's population increased
by 22,363 people to 1,149,393.

99-855 O - 73 - pt. 1 -- 6

i68

On a larger scale, the F.B.I, report for 1971 showed that the 7.5 per cent in-
crease in violent crime in the cities amounted to 31,000 cases, while the 13.4 per
cent rise in the suburbs represented only 12,000 crimes — and the suburban popu-
lation outnumbers the big-city population by 56.9-million to 42.6-million.

Another misleading aspect of crime statistics is the inability of over-all "sub-
urban" figures to differentiate between residential suburbs and those areas whose
urban character would be obvious were they not dwarfed by a major city.

In Westchester County, Yonkers, which is on the New York City line and con-
tains a quarter of the county's population, accounted for nearly one-third of the
county's 293 assaults, nearly one-half of the 439 robberies, and five out of the 16
homicides in the first six months of 1972. Compared with the first six months of
1971, Yonkers showed modest decreases in crimes against property and modest
increases in crimes of violence.

Violent crime was up for the county as a whole, but, according to Westchester
County Sheriff Daniel F. McMahon, almost all the increases occurred in the
county's cities.

Suffolk County has also experienced increases in violent crimes, with assault
up from 285 cases in 1970 to 378 in 1971, and armed robbery up from 578 to 691.
Most of the increase occurred in the four most highly urbanized towns — ^Babylon,
Islip, Huntington and Smithtown. according to John Barry, the county police
commissioner.

HIGHWAY ROBBERIES

Many suburban areas have noted increases in armed robberies of gas stations,
motels, restaurants, and other business establishments, often near highway
exists away from residential areas.

But street crime remains rare except for the run-down central areas of such
suburban cities as Yonkers, White Plains, New Rochelle or Bridgeport, the num-
ber of assaults dropped from 99 to 69 during the first six months of 1972, a de-
crease that Joseph Walsh, the police superintendent, attributes, to the creation of
a new 43-member Housing Authority police force.

Little research has been done on patterns of suburban crime, although two
studies now under way should contribute valuable insights. In Westchester, the
Council of Social Agencies has a $9,000 grant from the Federal Law Enforcement
Assistance Administration to correlate crime statistics in each of the county's
205 census tracts with the social characteristics of each tract.

And the United States Census Bureau in cooperation with the Justice Depart-
ment, is conducting interviews with a selected sample of 150,000 households for
the first of what it plans as a series of "crime victimization" studies.

One reason for the low rates of street crime in the residential suburban areas
may simply be logistic, a reflection of suburban living patterns.

"We don't have the opportunity for that kind of crime," said Thomas Facelle,
the chief assistant District Attorney in Westchester. "In the city, there is that
two- or three-block no-man's land between the subway and home. Here, people
leave their office and drive right into their garage. There's no street crime because
no one is on the street."

According to the F.B.I., killings within the family accounted for one-fourth of
all murders in 1971, and another 40 per cent of the murders were the results of
arguments, usually between people who already knew one another.

There is no doubt that fear of crime is growing in the suburbs, probably faster
than the crime rate. Four years ago, a study comparing suburban and slum areas
of Baltimore found that the suburban residents were five times more likely to
be afraid of crime, but actually five times less likely to become victims of crimes
than the slum residents.

That situation, if not the exact figure, seems to apply to many areas of the
New York metropolitan areas as well.

Marvin Wolfgang, the well-known criminologist, says there are three reasons
why the fear of crime in the suburbs outstrips the reality.

First, he said in a recent telephone interview from his office at the University
of Pennsylvania, the rate of crime increase actually has been greater in the sub-
urbs. Although the numbers are modest, rising crime is a reality.

The second reason is the increase in drug-related offenses, particularly frighten-
ing to suburban parents.

Third, he said, the knowledge that crimes such as burglary are often committed
by people from outside the community creates the special fear of falling victim
to "invaders from the outside," a fear of random attacks.

69

[From the Long Island Press, Mar. 17, 1970]
Suburban Crime Increasing Fastest

Serious crime, long believed to be centered in urban ghetto areas, is moving out
to the suburbs at an increasing rate — and it's involving more younger persons.

Major crimes rose 11 per cent nationwide last year over 1968, but the biggest
increase was in the suburbs — 13 per cent.

By comparison, cities of at least 250,000 population had a 9 per cent jump and
rural areas were up 11 per cent.

As for the swing to youth, arrests of adults rose 6 per cent while those of
juveniles soared 11 per cent.

Disclosing these trends in his annual report on major crises, FBI Director
J. Edgar Hoover said forcible rape led the list of crimes of violence with a 16
per cent increase. Murder was up 7 per cent, robbery 13 i^er cent and aggravated
assault 9 per cent.

The densely populated Northeast had an average crime increase of 7 per cent —
the lowest increase by region. The North Central states led with a 15 per cent
increase, followed by the West with 12 per cent, and the .South with 11 per cent.

Hoover said armed robbery rose 16 per cent and made up 61 per cent of all rob-
bery offenses. Street larcenies were up 12 per cent and made up 61 per cent of all
larcenies.

Hoover said serious assults where a gun was used as a weapon rose 12 per cent
and nearly one out of every four aggravated assaults was committed with a gun.

He said 1969 police arrests for criminal acts excluding traffic offenses rose 7 per
cent.

In New York City, the 1969 figures showed 1,043 murders, compared with 986
in 1968 ; 2,120 rapes last year and 1,840 in 1968, and 59,152 robberies last year
compared to 54,405 in 1968.

[From the New York Times, July 25, 1970]
Crime Fight Here Aided By a Grant

The State Crime Control Planning Board has awarded $4-million of Federal
funds for combating crime to New Yorli City, including nearly half a million
for eliminating delay and inefficiency in the Criminal Courts.

Governor Rockefeller, in announcing the grants — part of $8-million in Federal
funds under the Safe Streets Act — said that the aid was aimed at "one of
the most critical problems in our state — processing cases in a timely manner."

The court program is designed to end long waits in detention jseus — like
those in the overcrowded Tombs Prison in Manhattan that resulted in riots —
and also to reduce the time lost by policemen in the courts, to relieve witnesses of
all appearances in court except to testify, and to give early trials to defendants
charged with serious felonies, so criminals out on bail do not prey on the
community.

The grants to New York City also included $1,053,565 for a program to
reduce overcrowding in juvenile detention centers. For the training of center
personnel, $104,961 more was provided.

In an effort to reduce the incidence of delinquency in the East Tremont section
of the Bronx, $296,214 was given for a youth service program.

The Mayor's Criminal Justice Coordinating Council received $385,883 for
staff support. The Education Task Force, whose members are assigned to
high schools and colleges to mediate confrontations involving students and
faculty members, was allotted $331,350 for expansion.

The Correction Department received $149,760 for 30 Spanish-speaking correc-
tional officer aides, to improve communication with Spanish-speaking inmates.

Various programs in New York City for combating narcotics addiction and for
fighting other forms of delinquency received grants. They ranged from $356,080
for continuing methadone treatment for addicts in Brooklyn to $9,200 for aiding
probationers.

Buffalo, Rochester and Syracuse also receivetl grants to improve the processing
of criminal cases.

70

[From the New York Times, Aug. 18, 1971]
Rise in Jobs Poses Problem in Suburbs

Ten years ago much of Bridgewater Township, N.J., still looked much as it
did when George Washington camped his troops in the safety of the first range
of the Watching Mountains.

The township's population was 15,000 in 1960 and it contained industrial and
commercial property valued at $30-million. Its mountains were wooded and un-
touched, corn grew on its plains and apple trees in its valleys.

Today Bridgewater has 30,000 people. Houses are silhouetted on the crests
of the hills and office buildings dot the flat plain. The town's industrial value
has climbed to $161-million.

To a greater or lesser degree, the Bridgewaters are everywhere. The physical
monuments to the economic success story of the New York suburbs cover the
landscape : office towers rising at every highway intersection ; shopping centers
providing new definitions of the term with their sculpture gardens and com-
munity rooms ; the sprawling campus-style headquarters of the corporate refugees
from Manhattan.

But that success story has another side.

Land is more than wealth and power. It gives much more than merely physical
shape to the suburbs. A team of New York Times rei>ortei-s who toured the New
York suburbs for five weeks found that the economics of land use was the
prime factor in the grow^th of two closely related, vital components of the
suburbs' economic health : jobs and housing.

Because local government must pay for itself by — the tax it puts on land —
the property tax — land can mean either profit or peril to a town. If, because
of the tax structure, some kinds of development^ — housing — cost the town much
more than other kinds — industry — the town will inevitably avoid one and seek
the other. Severe imbalance are the inevitable results.

Job opportunities in the suburbs have been increasing, but the availability
of housing there lags so far behind that a majority of the region's labor force
must endure long and expensive commuting to reach the jobs.

And while industrial development has meant huge tax advantages for some
suburban communities, some neighboring areas that are not equally blessed with
shopping centers or industrial parks stagger under huge tax burdens.

Although no one is yet suggesting that the boom is about to end or that the
suburban monuments are crumbling, the growing imbalances have raised the
question : How long can the suburbs sustain their record of economic accomplish-
ment when the benefits fall so unevenly on the region's population?

According to the Regional Plan Association, 2.4 million additional jobs will be
created in the metropolitan area by 1985. Two million will be in the suburbs.

In 1910, according to the Regional Plan Association, New York City contained
80 per cent of the region's office jobs. The proportion was 70 per cent in 1940
and by 1960 it had dropped to 60 per cent. Today the figure is 56 per cent. The
figures are adjusted for the R.P.A.'s current definition of the 31-county metro-
politan region.

New York City's proportion of total manufacturing employment dropi>ed
from 54 to 51 per cent from 1959 to 1965, and is expected to fall to 42 per cent
in 15 years.

Fourteen of the wealthiest suburban municipalities in New Jersey have a
combined population of 380,000, almost equal to the population of the state's
largest city, Newark. The 14 contain industrial i>roperty worth .$2.1-billion.
according to figures compiled by the Suburban Action Institute, a foundation-
supported research and civil rights organization in White Plains. The value of
industrial property in Newark is less than a third of that figure, $665-million.

GROWING independence

If there is one factor held in common by suburban communities surrounding
New Y''ork City, it is a growing economic independence from the city.

In many cases, the perception of independence may not yet have caught up
with reality. Suburban residents, after a lifetime of hearing their communities

71

described as bedrooms for the city, often persist in believiniEi: that to be true even
if no one on their block commutes.

In fact, the city is moving toward becoming the l)edroom as tlie suburbs
approach the point of being net importers, rather than exporters, of labor.
Brooklyn, the Bronx and Queens, with their vast supply of apartments and aging
single-family houses, are becoming dormitories for those who work beyond
the city limits.

The new suburban jobs are not only jobs for executives and oflSce workers.
As the suburban economy continues to diversify, wholesaling and manufacturing
become more important.

According to an unpublished study by the National Committee Against
Discrimination in Housing, 150,000 of the 750,000 new suburban jobs, created
in the nineteen-sixties were blue-collar jobs, but during the .same period the
number of blue-collar workers living in the suburbs increased by only .50,000.

By 1985, the study predicts, the suburbs will have 65 per cent of the region's
blue-collar jobs but a much .smaller share of the workers.

With apartment development blocked by zoning regulations, and with the
minimimi price for new houses ranging from $30,000 in Suffolk County to as
high as .$.50,000 in Westchester, the vast majority of people taking new blue-
collar jobs in the suburbs will continue to find themselves priced out of housing
near their places of employment.

Figures compiled but not yet released by the Tri-State Transportation Com-
mission show that in Nassau County there are 139,000 more low-income and
middle-income jobs than there are comparalily priced housing units. In Bergen
County. N..I.. the deficit is 77,700 units.

The deficit is 82,200 units in Westchester County where, according to the
County Planning Department, the number of jobs will exceed the number of
employed residents for the first time in history within 10 years — an astounding
milestone for an area that is virtually synonymous in the minds of a nation with
tJie stereotyped commuter suburb.

These figures illustrate the change: In 1950, 76.000 people were regular com-
muters to New York City and elsewhere, and fewer than 10,000 people com-
muted to jobs in Westchester. Now, 116,000 commute from Westchester and
81,000 travel to the county, with the ratio getting smaller all the time.

The cost of the imbalance between jobs and housing is high, requiring expen-
sive and time-consuming traveling. The cost is also high for the suburban
employers, who have to depend on an outside labor force and who are concerned
over the ix)ssibility of labor shortages.

One such company is the Mem Company in Northvale, N..I., manufacturers of
the English Leather line of men's toiletries.

With 350 employes, the company is Northvale's largest employer. Its clerical
positions are filled by housewives from the surrounding Bergen County com-
munities. But half its employes are blacks and Puerto Rican.s, most of whom
commute from New York to their jobs on the assembly line and in tlie packing
rooms.

Every morning, the company runs a bus from the George Washington Bridge
terminal to its plant in an attractive industrial park, but a new employe may
spend as long as two years on the job before he gains enough seniority for one
of the 54 seats.

"Even though most of them can't get on the bus and have to use earpools, it
gives us a psychological edge in recruiting," .said George Danz, the company's
persoimel director. The bus costs the company $13,000 a year.

At least some employers have started to worry about the sitiuition. A survey
last year by the Somerset County (N.J.) Planning Department showed that
59 per cent of the county's major employers felt that the cost and availability of
housing would restrict their plans for expansion.

More than half said that they would not be able to meet tJieir labor needs
under the current residential zoning restrictions, and half answered yes to the
question : "Do you feel that some of your employes live .so far away as to affect
their efl5cency and present an economic burden?"

Eugene J. Schneider, executive director of the New Jersey County and Munici-
pal Government Study Commission in Trenton said : "Unless the imbalance be-
tween jobs and housing is corrected all our natui-al advantages for industry will
disappear."

But there have been few signs so far that companies are willing to exert
pressure on local governments to change the zoning restrictions that underlie the
housing shortage. Such restrictions rule out apartments and modest homes on
small lots that workers with low incomes could afford.

72

The corporate giants that have the power to influence hoiisini? patterns are,
because of their size, the least likely to feel the impact of any labor shortage.

"They know for a few dollars extra they can always get someone," said one
Manhattan-based company executive who has been a close student of the corporate
moves to the suburbs. "If you ask them why they don't use their leverage to
change things, they say, 'Well, we just want to be a good citizen.'

"But, after all, they used their leverage to get in and get their zone changes
in the first place."

The argument that suburban towns offer against residential development is
nearly always financial. As long as the property tax is the chief .source of revenue
for local government, a town stands to lose money on all but the most expensive
houses.

In Princeton Township, for example, a $60,000 house barely pays enough in
taxes to offset the services — such as schools, sanitation and the like — made
necessary by its presence.

North Ca.stle, in Westchester County, breaks even on a $52,000 house. In New
Canaan, Conn., the break-even point is $70,000.

The tax burden in the metropolitan area is not only heavy — property taxes
in the Northeast have historically been the highest in the country — but it is
distorted as well by the patchwork nature of development in the suburbs.

An example can be seen in Bergen County, where the two boroughs of Rockleigh
and Northvale, each a mile square, sit side by side. Rockleigh has 200 people and
a 126-acre industrial park that pays 90 percent of all local taxes, and, as a
result, the property tax rate is 72 cents for every $100 of assessed valuation.

Northvale, with 5,200 people, depends on residential property for more than
two-thirds of its tax revenue. The owner of a $40,000 house, who would pay $288
a year to Rockleigh, would get a tax bill in Northvale, where the rate is $3.87
per $100, for $1,362.

George Kershaw, an Eastern Airlines pilot who serves as Councilman, fire
chief and tax assessor of Rockleigh, discussed the matter recently as he drove
slowly through the industrial park.

PLANNING DEFENDED

"The trend may be to try to stop this kind of town," he said, "but we're not
simply a tax haven. We did this through good, judicious planning."

Equally dramatic inequalities exist within towns.

Buttonwood Avenue, a hilly dead-end street in the town of Cortlandt, in
northern Westchester County, cuts across a school district line. The houses on
the northern half of the street are in the Lakeland School District, which has
8,500 students and a base of taxable property worth $178 million.

The other end of the street lies in Central School District 3. which has 3.150
students and property worth $273-million, including two $100-niillion Consolidated
Edison power plants. The owner of a $25,000 house in District 3 pays $868 in
school and town taxes. Halfway up Buttonwood Avenue, the tax on the same
house would be $1,216.

As William Hitt, the Cortlandt Town Supervisor, explains it, the situation
has become a vicious cycle. Industry does not want to move into the high-tax
area, which has high taxes for the very reason that there is not enough industry
on the tax rolls.

The inequities, as well as the actual weight of the tax burden, are what fuel
voter resentment and the growing demand for reform, and both New Jersey and
New York State have special commissions .studying the proi>erty tax.

According to Thomas A. Dorsey, staff director of the New York State Joint
Legislative Committee on Metropolitan and Regional Area Study, the basic
question is "whether the property tax is still at all relevant."

If it is not, the problem is how to replace it. According to Mr. Dorsey, municipal-
ities in New York State raise $3.8-billion a year through the local property tax,
and "you'd have to go a long way to find another tax that can give you that kind
of money."

There have been numerous suggestions for reform, although most are still at the
discussion stage. Most focus on the financing of education, such as the assump-
tion by the state of all local education costs.

Other proposals include sharing tax burdens, or tax ratables, on a county level
or among groups of towns, and consolidating school districts.

Some planners and tax experts are skeptical about what impact reform, how-
ever needed, would have on zoning patterns. The economic argument is a valid

73

one, they say, but it is not the only reason the towns resist additional residential
development.

"You get rid of the economic argument and then, if you are opposed to certain
people moving into your neighborhood, you have to say it." said Arthur Kunz.
assistant director of the Nassau-Suffolk Regional Planning Board. "You can't
hide behind another argument. It would pull the bigots out of the woodwork."

INDUSTRY PEAK SEEN

Dick Netzer, dean of New York University's School of Public Administration,
said, "Everyone knows that, strictly speaking, you're not supposed to spot zone on
the basis of how it will affect taxes. But short of openly stating that purpose, you
can be pretty damn overt about it. But you can't be overt at all about other rea-
sons. There's some question as to how much the fiscal thing is a screen for others."

If suburban towns no longer needed tax ratables. Dr. Netzer suggests, they
might quickly become disenchanted with the nonresidential development they
are now so actively seeking.

"You might find out that nobody wants any factories any more," he said. "If
it's not going to do them any good, they'll say, put it in the next town."

There are those who think that even without such a policy change, the flow of
the glamour companies to the suburbs may be reaching its peak before slowing
down.

"If a few things were different, I could argue as a businessman as strongly in
favor of staying in the city." said D. Bruce Wiesley, a senior vice president of
the American Can Company who was in charge of the company's move to Green-
wich, Conn., last year.

"After all," he said, "in the city you have modern, beautifully convenient offices.
When you pull down the blinds you don't even know you're in New York. And
when you close these blinds, you don't know where you are either."

Others disagree, pointing out that the suburbs have natural advantages that
seem to assure their continued economic success.

The Regional Plan Association estimates that a campus-style office building
can be built for about 60 per cent of the cost of a skyscraper with the same
number of square feet.

And the availability of land is important to manufacturing operations that
function most efficiently spread horizontally through a one-story or two-story
plant.

And there are such intangibles in the suburbs as the prestige of the sul)urban
address and the commute over tree-lined parkways instead of tenement-lined
railroad tracks. And no matter how high a price the suburban housing shortage
may exact in the future, the executives who make the decision to move are not
themselves much affected by the cost of housing.

[From the New York Times, Aug. 16, 1970]
Suburbs Abandoning Dependence on City

The largest city in America is now the suburbs of New York.

They contain 8.9-million people, a million more even than New York City. They
cover 2,100 square miles, 600 more even than Los Angeles and its suburbs
combined.

They represent the fullest flowering of the historic migration of Americans out
of their cities. For even here, in the orbit of New York — the Big Apple— the
suburbs are strikingly, fiercely independent.

Huge numbers of suburbanites neither live, work, play, shop nor even go out
to eat in New York City. And they fight, with passionate hostility, against the
feared intrusion of change, of the inner city and of the people left behind.

As dramatically evident from official studies and five weeks of interviews by a
team of New York Times reporters, the most critical commodity in this struggle
against the city is land.

It is the land — and especially the emotional issue of how it will be used — that
shapes politics and power in the suburbs, that governs the suburban economy, that
determines where people work and where they live and how they travel.

New York's suburbs created a national image of bedroom towns for city work-
ers. Yet how many of the counties around the five boroughs now send even half
their workers to jobs in the city ? None.

74

Nassau County has net commutation to New York of less than 38 per cent.
Westchester has less than 32 per cent. In Suffolk County, 80 per cent of the work-
ers who live there work either in Suffolk or Nassau. In Passaic County, 79 per
cent work in Passaic or Bergen Counties.

The suburbs now have about half the area's manufacturing jobs, retail jobs
and restaurants. And they have a full range of "urban" facilities.

Gleaming new office towers contrast sharply witli the rolling greenery of pas-
toral Piscataway, N. J.

Every morning crowds of businessmen with briefcases at McArthur Airport in
Islip L. I., board nonstop flights to Chicago or Washington.

Downtown for Wayne, N. J., is now a carpeted and air-conditioned area, framed
by shrubbery and fountains, in an immense covered shopping malh

The impact of such decentralization of urban functions can be quickly seen
in other merely regional cities, where the business districts become ghost towns
each nightfall. Here decentralization is masked by two factors. One is size.

"There are three things one must always remember about New York City,"
says Edward J. Logue, president of the State Urban Development Corporation.
"They are scale, scale and scale."

Two million whites my have fled the city in the last 20 years, he acknowledges.
But still, "There is no other city with anything approaching New York's propor-
tion of the metropolitan population."

The second factor is New York's enduring role as a national city — a financial
hub, cultural capital, media center and meeca for young adults.

And, for the most part, that is the city that the residents of New York's
suburbs relate to, in the same way that residents of the suburbs of other cities
do — the national city, a place to visit and enjoy, not as residents but as tourists.

Ask suburbanites the last time they went to New York. Again and again, they
gave answers like ''for the last antique show" or "last December, to show the
kids the Christmas lights," or "in the fall, for a play."

BACK TO CENTEKLESS WORLD

And after the show, with a wince at the $30 or $40 tab for tickets and parking,
they Sliced back to the spacious, centerless world they have created in the
suburbs.

Like suburbanites everywhere, they strive to protect that world against
change with a ferocity that has become a national political fact.

The hostility was typified, says a Suffolk County official, at a recent town
zoning hearing on the construction of luxury apartments.

A New York City fireman leaped onto a chair, waived a newspaper full of
city crime and welfare news, and shouted : "We don't want this kind of trash
in our neighborhood."

And yet for all the ferocity, even irrationality, signs of change are now
emerging in the mushrooming, maturing New York suburbs, signs that could
well foretell the next cycle in the life of suburbs across the country.

The dikes of hostility appear slowly, but with gathering speed, to be leaking,
eroded not by an ominous outside urban tide, by feared Federal pressure for
housing integration, but by enemies within.

In town after town, residents find they are excluding not only outsiders but
their own grown children, older adults and civil servants. These are often unable
or unwilling to maintain the expensive single-family homes so frequently re-
quired by tight exclusionary zoning.

Increasingly suburbanites find that their exclusionary strategies no longer
work and may even promote the very sprawl, scrambled land use and urban
chaos that these strategies were intended to prevent.

TREND CALLED INEVITABLE

At this point the hostility remains intense ; the forces for change are far
from decisive. But, in the opinion of some authorities, the trend — for the complex
array of suburbs here, as well as for the more easily definable rings of suburbs
elsewhere — is inevitable.

In smaller, newer cities, "suburbs" more clearly mean communities that have
developed since the start of the automobile era on open land around the urban
core.

Here, prior to the automobile, there was no such clean slate. Tlie metropolitan
area already included railroad suburbs dating to the eighteen-seventies ; inde-

75

pendent cities like Newark, White Plains or Bridgeport ; and resorts like Long
Beach or the Jersey shore.

But it is the automobile — and the freeways it has generated — that have turned
the land between and beyond the old towns and the old rail lines into a vast urban
complex.

Its primary characteristic is centerless independence of the city. In place of an
urban center, mobile suburbanites use the varying facilities of their separate com-
munities collectively, as an interlinked Outer City.

Elsewhere sweeping circumferential freeways have made development of a
unitary outer city literally possible. Here the population, diversity and distance
of the suburbs are too great to be overcome by an eight-lane concrete loop.

Yet ever here, the signs of expanding centerlessness, of the collective suburban
"city," are clear.

In Nassau County. Leona Baum. a petite mother of two teen-aged boys, de-
scribes how her family lives in almost exactly the terms people use in the out-
skirts of Los Angeles :

"We live in East Meadow. I work in Garden City. My husband works in Syosset.
We shop for clothes in Hempstead. My husband's Pythias Lodge meets in Great
Neck. Our temple is in Merrick. The children's doctor is in Westbury. And we
pay our parking tickets in Mineola."

And the centerless growth continues. On the moon, the terminator is the moving
line between light and dark. In many suburbs, a similar line marks the contrast
between development and farmland.

In Westchester the line moves out a mile a year, says Peter O. Eschweiler, the
Planning Commissioner. "If you want to see what your town will look like 10
years from now," he says, "drive 10 miles back."

ZEALOUS ZONING OF LAND

On Long Island the urbanization line is instantly visible from the air. That
line, planners say, moves even faster — two miles a year.

In Middlesex County, N.J., the line is not so easily visible, says George M.
Ververides, a planner. "There's no front. It's like Vietnam. It's happening all
over."

The suburbs have, however, sought to protect their development from unwanted
change by controlling their most valuable resource : Land.

Each small community exercises its local zoning power zealously. Repeatedly,
town boards engage in what is called, variously, upzoning. exclusionary zoning,
or large-lot zoning. Whatever the name, the purpose is identical :

If the only housing permitted is single-family homes, and if these must be sited
on half, full, or even four-acre lots at a minimum, only the middle-income and
upper-income can afford to move in.

In Suffolk the typical new house cost $14,500 in 1960.

Now the cheai^est new house is $30,000. according to a study made for the
National CouncilAgainst Discrimination in Housing.

The council estimates that at least 80 per cent of New York area families are
now priced out of the new housing market entirely.

Some of the reasons for such vigilant exclusivity are straight-forward. Munici-
pal costs, particularly for schools, are soaring and more people can easily mean
more deficit.

"the country" guarded

Many suburbanites moonlight or put their wives to work to save enough to
escape from the city. They are quick to block the intrusion of any urban problems
into their refuge "in the country."

But other explanations for suburban hostility are not so candid or rational.
"New York has a lower proportion of blacks than many cities." says a suburban
planner, asking anonymity. "But even so. the sheer raw numbers are great. So
people out here perceive a great tide of blacks and Puerto Ricans they could be
engulfed by."

Other suburbanites disguise their hostility behind code words. They talk of
the need to protect "the country image" or to preserve "our environment." One
county, says Jack Wood of the National Council Against Discrimination in Hous-
ing, defends itself by saying it supplies an "airshed" for the metropolitan region.

76

RISE IN CONSERVATIVE VOTE

Still other suburban residents concede fears of the outward movement of city
crime, welfare costs and other burdens of the poverty population.

But almost none admits openly to a desire to keep out minorities. Again and
again, suburbanites insist that they have welcomed black families to their
neighborhoods.

And yet : "There's a tremendous upsurge in the Conservative party vote from
people who were Democrats in the city. Like Jews who envision being surrounded
by the blacks," says a Long Island official, himself a Jew. "Surrounded ! Just like
the Arabs are surrounded by the Israelis."

The effects of suburban exclusion are clear. New York's black population in the
nineteen-sixties went from 14 to 21 per cent. The suburban proportion, mean-
while, went from 5 to 6 per cent.

In town after town, population figures show that one-tenth — or one-hundredth —
of 1 per cent is black.

"We are very fortunate in our welfare situation," says Newton Miller, the
Mayor of Wayne, N.J., where the population doubled, to 50,000, in the sixties.

What is the welfare proportion, he was asked. "Under 10." Under 10 per cent?
"No. under 10 families."

The issue now is not whether exclusion has succeeded, but whether it may, in
fact, have succeeded too w^ell.

Some urbanists press the moral argument of unfairness. The suburbs, they say,
cannot in good conscience continue to pirate from the city only its desirable func-
tions and people.

SUBURBAN "duty" CITED

Suburbs must, the argument goes, take their share of the social welfare task
now being left almost entirely to imiioverished central cities. And they must pro-
vide lower-income housing near suburban jobs.

In recent months this argument aijpears to have become a centerpiece of liberal
thought about urban problems. There are, however, some strikingly contrary
views.

George Sternlieb, an authority on inner-city housing, believes that "the only
thing that's holding our central cities together is the suburban housing shortage."

If the suburban barriers were lowered, he contends, it would not be the poor or
black city residents who would move outward. It would be the city's remaining
middles-class and lower-middle-class residents, now deterred from moving by high
costs that are made still higher by exclusionary zoning.

The result could be to diminish even further the tax base from which cities
now try to finance costly social services for the needy.

Others agree with this assessment. If suburban zoning were relaxed, "it would
be the middle class that would move first," says Alfred B. Del Bello, the energetic
young Mayor of Yonkers. "They would continue to vacate the cities, leaving an
increasing proportion of poor black and Spanish population."

DOUBTS ABOUT EXCLUSIVITY

In the suburbs, meanwhile, there are growing signs that people now wonder
whether exclusion is so wise after all. The doubts have nothing to do with mo-
rality, fairness or concern for the urban poor. Tliey arise from practical reasons
of self-interest.

Some towns, says David Bogdanoff, Westchester's largest developer, are com-
ing to realize that not every community can assure its finances and its image by
emulating Scarsdale.

"Setting yourself up as a prestige town, with large lot zoning, won't work any
more," he says. "There just aren't that many people who can afford upper-middle-
class housing to fill all those towns."

Another practical reason for rising doubts about the tactics of exclusion is that
those tactics may hurt as much as they help.

On Long Island, planners say, oil spillage is a hazard because it is shipped to
12 harbors, and oil truck traffic is a nuisance. But the solution — a pipeline —
has been blocked because the Town Board of Babylon refused in early July to
permit construction of an essential storage terminal.

"It's a classic case of not-on-my-blockitis," says Lee E. Koppelman, Nassau-
Suffolk Planning Board director.

77

In Westchester, recalls Robert Weinberg, a developer, officials in every town in-
sisted on specifying where bus routes could go. "The result was such a zig-zag
that it made express routes impossible."

"eager to corrupt"

Still another reason for doubts is evidence that present exclusionary tactics are
not exclusionary enough.

"The suburbs develop elaborate master plans and tight zoning which they are
eager to corrupt whenever a big company, a good "ratable" that would pay lots
of taxes, comes along," says one developer, asking anonymity.

"To find anything that's considered a bad land use but a good ratable," says
another developer, "look at the village line. That's where the gas stations are.
"Let them bother the people in the next village," the town officials think. "They
don't vote for me."

This is exactly what happened, Harry Butler says, with the enormous Willow-
brook Center in W^ayne Township, N. J., where the wares include a marquise-cut
diamond ring ($2,215), a Lhasa Apso puppy ($279). and a potted stag horn fern
($75).

"Willowbrook doesn't bother anyone here," Mr. Butler says, "because it's way
on the south border, next to Little Falls Township. It bothers them ; they get all
the traffic and harassment. We get all the taxes."

THE JIGSAW EFFECT

People like Harry Butler around the subur'bs wonder out loud about the long-
range result of such narrowness and hostility.

iStretehes of Nassau County, where booming development of the fities has
now matured, may provide strong clues.

Drive north from Garden City, L.I., and in a few minutes, one passes an ele-
gant country club . . . and an intersection where narcotics are said to be sold
at night ; the miracle mile of elegant stores in Manhasset . . . and a roadside
beauty shop whose name may betoken both the race and occupation of its patrons :
"Ebony Maid".

"The whole county's like that," says Dominic Badolato. a youth program
director, "It's all a jigsaw, scrambled eggs."

Will the suburbs remain an exclusive sprawl, closed to those who can't afford
the cost ?

"It's going to break," says Herbert J. Gans, a noted Columbia urbanist, "be-
cause of middle-class demand. So many young families are already starting to
form that change has to come."

Wayne's Mayor knows the dilemma firsthand.

"There are very few places in Wayne he can afford to live," Mr. Miller says
of his .23-year-old son. And his parents, in their 70's, live in a retirement village
in South Jersey.

"We'd welcome lower-cost housing for our youth and elderly," he says warmly.
"But there's no guarantee we could keep it for them. And given the choice, we
just won't do it."

He hesitates for a moment- — perhaps a telltale moment. His college ring glints
as he rubs his gray crewcut. "It's a problem. No question about it."

[From the New York Times, Feb. 11, 1971]
More Blacks in Suburbs, But Ratio Stays Stable

A growing number of blacks moved to the suburbs in the nineteen-sixties, but
the largely white character of the suburbs was maintained by a huge simultane-
ous movement of whites there, a 1970 census report disclosed today.

At the same time, 3.4 million blacks moved into the central cities. Four big
cities now have black majorities, against one in 1960, and seven others are more
than 40 iier cent black.

In New York City, the proportion of black residents rose to 21 per cent from
14 per cent. Manhattan lost 17.000 blacks, but remained 25 per cent black because
of the loss of 197,000 whites. The black population of Brooklyn increased 284,000
and the Bronx 194,000, bringing each to about 24 per cent black.

78

Queens gained 112,000 black residents, bringing its black proportion to 13 per
cent.

The city as a whole gained 579,000 black residents, census experts estimate,
including about 85,000 from births in the existing population and from 300,000
to 400,000 from net migration.

The census report, covering the 67 metropolitan areas with 500,000 or more
people, showed that the central cities, as a whole, went to 23 per cent black from
18 per cent in the decade. But the black proi>ortiou of the metropolitan areas
increased much less, to 14 per cent from 12.

CENSUS REPORTS 4 BIG CITIES WITH NEGRO MAJORITIES

The black subur'ban population grew 762,000 in the decade, a gain of 42 per
cent, the report said. This represents a significant increase over the nineteen-
fifties, when black movement to all suburbs, not only those in the 67 largest
areas, totaled 600,000.

But 12.5 million whites also moved to the suburbs. As a result, the black com-
position of the total suburban population in 1970 was 4.5 per cent, barely changed
from the 1960 figure of 4.2 per cent.

(Experts believe that this white growth includes virtually all the 2.5 billion
whites who moved out of the central cities in the decade. New York City alone
lost 617,000 white residents.

Nationally, 58 per cent of the whites in metropolitan areas lived outside the
central cities, but only 16 per cent of the blacks did so. The national totals from
the last two censuses are :

1970:

White :

.Central city 39, 817, 000

(Suburb — 54, 093, 000

Black :

Central city 12, 487, 000

Suburb 2, 577, 000

1960:

White :

Central city 42, 355, 000

Subui^b 41,625,000

Black :

'Central city 9, 097, 000

Suburb 1,815,000

More than a third of the national suburban movement of blacks was accounted
for by three metropolitan areas — Los Angeles, where 124,000 black residents
moved to, suburbs; Washington, 84,000, and New York City, 77,000.

CITY LIMITS EXCEEDED

The census data released today show only total numbers for metropolitan
areas and do not make it possible to determine whether the outward movement
of blacks indicates either enhanced integration or economic progress.

Urban authorities have observed that, in some cities, blacks become "suburban"
simply because ghetto areas have spilled across the city limits. Elsewhere, they
say, blacks remain isolated in both new and historic "ghettolets" in what were
once outlying areas.

In several Northern and Southern cities, however, the proportion of suburban
residents who are black considerably exceeds the national figure of 4.5 per cent.
In Miami it is 12 per cent, in Houston 9 per cent, in Washington 8 per cent and
in St. Louis 7 per cent.

Blacks constitute 11 per cent of the national population.

Washington remains the most heavily black city. More than 71 per cent of its
city population of 757,000 is black, against 54 per cent in 1960. But for the Wash-
ington metropolitan area the black proportion has barely changed, going from
23.9 per cent in 1960 to 24.6 per cent in 1970.

The other cities with black majorities are Newark and Gary, Ind. — which, like
Washington, have black Mayors — and Atlanta, which has a black Vice Mayor.

In some areas, the percentage growth of black population in suburbs was
startling. In Cleveland, it was 453 per cent, in Salt Lake City 354 per cent, in
Minneapolis 223 per cent.

But these percentages masked small total numbers. The gain in Cleveland
was 37,000. In both Minneapolis and Salt Lake City it was 2,000.

79

[From the Suffolk Sun, editorial, July 14, 1969]
New Look Needed at Suburban Blight

The amount of blight in any area aflicted by suburban sprawl may be meas-
ured, as a rule, in inverse ratio to the amount of sensible land use planning that
has been done beforehand. It is also influenced, of course, by the amount of
tinkering politicians do with local zoning ordinances.

One way in which this problem may be overcome has been suggested by a
White House advisory group, appointed by former President Johnson and
headed by ex-Sen. Paul H. Douglas. The National Commission on Urban Prob-
lems asks that local government powers be broadened to provide for more
orderly residential, commercial and industrial development.

Under the plan, counties would set aside large tracts of land and permit no
use of it except as part of a large-scale planned development. It would allow
broadened government use of eminent domain, or condemnation proceedings.
Instead of taking only as much acreage as is immediately needed for public
projects — a power it already has — government could condemn and thereby ac-
quire large parcels in an effort to control development.

As an alternative, which might have greater appeal to financially pressed
counties like Suffolk, governments — rather than condemning and acquiring land
themselves — might vest their powers in private groups whose plans meet rigid
specifications.

The commission's proposals are unquestionably radical. Its objectives, how-
ever, are as old as the hills. Our current pattern of land development, through
local zoning codes, is only a few generations old. In Suffolk, for example, it be-
gan in 1932. It has not done the job it set out to do 37 years ago, thanks, in part,
to politicians who have subverted the system to line their pockets.

More community planning was done in Colonial days than is being done now.
Communities then were usually set up around a town square, in careful, orderly
fashion. Going back to medieval times, the castle was built upon a hill, the
common folk in the town below, and the entire city surrounded with a high wall
as a defense against outside attack. It was a deliberate overall design, not left
to chance.

Efficiency, economy and conservation are best served by large scale planning.
Suffolk still has enough undeveloped land to benefit immeasurably by a regional
plan. The sprawl has not yet swallowed up the entire county, but that day is
fast approaching.

We do not need nor want walls around Suffolk. The seas provide a natural
moat on three sides and the natives beyond the western boundary are not hostile.
But Suffolk would do well to limit the helter-skelter, piecemeal development
that has spread across Nassau.

So those who fear changing the present system are really supporting a rela-
tively modern approach, which has been tried and often found lacking. Many
traditionalists are prepared to return to older ways. The most conservative
people, therefore, are likely to be in the forefront of the radical movement for
change.

[From Newsday, Mar. 25, 1969]
LI Planners Get Funds To Finish Study

The Nassau-Suffolk Regional Planning Board will be able to complete its
comprehensive plan for Long Island's future growth on schedule aided by a
$150,000 federal grant announced yesterday by the Department of Housing and
Urban Development.

Last month, board officials had reported that a shortage of funds and inaction
by the federal government would delay the board's programs. "This (grant) will
allow us to proceed on schedule" with the master plan, said bicounty planning
director Lee Koppelman. The federal department also announced a $30,000 loan
to develop the City of Long Beach's first Turnkey public housing project and a
$7,500 loan to the Village of Freeport for a 50-home rehabilitation program al-
ready under way.

The $150,000 bicounty grant equalled the amount requsted last year by the
planning board, which is scheduled to complete its recommendations for the
Nassau-Suffolk region's land-use, transportation, economic and fiscal needs next

80

summer or fall. "Without it, the well would have run dry," Koppelman said of
the federal grant. However, he said that programs of the Regional Marine Re-
sources Council, which is not aided by the federal government, were still in
jeopardy because of a shortage of funds. "We're still grappling with that prob-
lem, but we're not pessimistic," Koppelman said.

In Long Beach, Housing Authority Chairman D. Lawrence Rose said that the
$30,000 loan would be used to pay for surveys and legal and clerical work needed
to devise a plan for 200 low-income apartments. 150 of which will be for the
elderly. Rose said the authority would select sites for the housing this week and
that some of the units would be located in existing buildings. Under Turnkey
legislation, the housing authority will buy the units from private builders.

James L. Bifuleo, housing authority director, estimated that the apartments
would cost the city between $15,000 and $19,000 per unit. Rose said that none of
the Turnkey units will be located in the city's urban renewal area, where 100
units of low-income, public housing are planned, 24 of them for the elderly.

Freeport's housing authority director. John E. Williams, said that the $7,500
loan to his village would defray the cost of planning that had already been com-
pleted for rehabilitating 50 one-family homes scattered throughout the northeast
section. Williams said that the authority was awaiting federal approval of the
plans for the rehabilitation project.

Other Turnkey projects have already been approved in Freeport, the City of
Glen Cove and Hempstead Town. Construction has already begun in Hempstead.
In Suffolk, Huntington Town is considered a Turnkey project, and one for Islip
Town is i)ending.

[From Newsd,ay, Apr. 9, 1970]
Housing Bars Seen Hurting LI Job Needs

New jobs often go begging on Long Island because unemployed city residents,
many of them black or Puerto Rican. are barred from living in the area by dis-
criminatory and costly suburban housing, according to a 250-page report issued
here today.

The National Committee Against Discrimination in Housing, reporting on the
metropolitan area, including parts of Long Island. New Jersey and Connecticut,
blamed poor planning by "hundreds of local governments, each seeking to manipu-
late to its own best advantage." (A federal oflScial urges suburban communities
to stop trying to exclude blacks and the poor. Story on Page 26. )

The committee, supported by 48 national groups interested in civil rights, was
granted $480,000 by the Carnegie Corp. for the two-year study.

"The region's unworkable development policies (are) rooted in institutionalized
racial and economic discrimination," the committee said. "Black cities and white
suburbs, unemployment at the core and labor shortages on the periphery, over-
crowding in the old cities and acreage lot sizes in the growth areas — all bear
witness."

Long Island planning officials generally agreed with the report, but spokesmen
for two major employers, Grumman Aerospace Corp. and LILCO, did not.

SOLUTIONS TO BE SOUGHT

In the coming year of the project, the committee will search for solutions. Its
work will include economic projections of the Plainview-Hicksville and Farming-
dale areas. Claiming to be the only national organization devoted solely to civil
rights in housing, the committee is best known for filing the major brief two
years ago when the U.S. Supreme Court upheld an all-but-forgotten 1866 federal
law prohibiting discrimination in private sales and rentals.

"Harlem is so remote from Scarsdale, Short Hills or Oyster Bay in terms of
person-to-person contact in any field that it could not be more removed if it
were on another continent," the report said. "The white and black populations
know of each other's communities only through the news media." Black and
Puerto Rican population runs as high as 99.3 per cent in central Harlem, but it
is under 1 or 2 per cent in most Long Island communities. The report said that
the countywide averages are 4.9 per cent in Nassau and 6.3 per cent in Suffolk.
"To find suburban municipalities with 5 to 10 per cent minority population is to
come on Lslands of democratic living," the report said.

81

Lower income groups are needed in suburbia for the trade and service jobs,
but "this elementary fact of economic life has evidentally been ignored or defied
by" the decision makers, the report said. Labor shortages "threaten to curtail
expansion and to inconvenience residents." Of the 990.000 new jobs in the region
from 1959 to 1967, only a fourth were in the city and many of those were for pro-
fessionals. Of the 100,000 new retail jobs from 1959 to 1965, suburbia claimed 95
per cent. Reverse commuting to suburban jobs is "almost useless." the report
said, because it takes too much money, time and trouble.

"Every suburban shopping center visited showed evidence of a labor shortage,
and 'help wanted' signs were numerous," the report said. One unnamed black,
who had been a clerk in a Suffolk shoe store for 18 months, attributed his promo-
tion as manager mainly to the high turnover. "Substantial vacancies" of 4.7 and
6.6 per cent were found when the survey went to 17 companies employing 1,658
persons in Lake Success, Nassau, and 12 lirms employing 4.166 in Deer Park,
Suffolk. The survey did not specify the firms.

ADVERTISEMENTS REFLECT SHORTAGE

An "increasingly severe housing shortage" was t.vpified by New York Times
and Newsday advertisements which the report said showed "dominant ranges (of)
$35,000 to $50,000 in Nassau and parts of western Suffolk." The report said that
it would take an income of $17,000 for such a house. It also found that most re-
cent new suburban hirees did not move in for their new jobs but "were already
living in the area."

"Those already in the suburbs are convinced that their own interests argue
against higher densities." the report said. "They have the power under state zon-
ing laws to guard the portals to their communities and determine how many can
come in and what one's income must be to enter." Specific barriers are discrim-
ination in sales and rentals, lack of public housing, resistance to apartments, high
interest rates, large lots and other expensive requirements, resistance to modern
building methods, high taxes, dwindling land, and rising costs of material and
labor. Study Director Ernest Erber predicted that if the trends continue "the
whole metropolitan system will break down."

In Oyster Bay, one of the committee's supporting groups, the National Associa-
tion for the Advancement of Colored People, is pushing for rezonings to allow
more multiple housing for low- and middle-income families.

Nassau-Suffolk Regional Planning Director Lee Koppelman said, "Basically the
finding are generally correct. There is a housing problem in both counties."
James Rousmaniere, commerce and industry commissioner for Nassau, said that
prospective new firms "continually stress the frightful housing situation they must
confront their employees with." His counterpart in Suffolk, Gilbert Hanse, sees
ample labor supply for unskilled and executive classifications, but not in between.
And he also finds a housing problem.

[From the New York Times, June 20, 1969]
House Panel Trims Funds for Housing

Washington, June 19. — Economy-minded Congressmen slashed funds today
for low-income housing and the Model Cities program and trimmed all but $10-
million from a proposed $55-million increase in funds for summer jobs for dis-
advantaged youths.

The initial tests on what Congressional liberals and moderates have termed
"national priorities" came almost simultaneously on the Senate floor and in the
House Appropriations Committee.

The House committee, warning that the "inflationary spiral must be con-
tained." chopped nearly $500-million in Nixon Administration budget requests,
primarily in housing, before approving and sending to the floor a $14.9-billion
money bill to finance a number of Government departments and agencies.

The Senate, meanwhile, refused to vote $55-million more to the Neighborhood
Youth Corps to pay for 136,500 summer jobs that the United States Conference
of Mayors had said were needed for disadvantaged urban youths.

With its Appropriations Committee firmly in control, the Senate voted instead
a $10-million increase for the program.

The additional money was contained in a $4.4-billion appropriations bill pro-
viding supplementary funds for the fiscal year that ends on June 30. About $1.3-
billion of the sum will go for the Vietnam war.

82

MODEL CITIES SLASH

Ever since this session of Congress started, liberals and moderates have been
insisting that the time had come to adjust "national priorities" to give greater
emphasis to domestic problems and less to the military and to space exploration.

In the big $14.9-billion money bill cleared today by the House Appropriations
Committee, a relatively modest cut of $19-million was made in the $3.7-billion
budget request for the national space program.

The economy ax fell heaviest on the Department of Housing and Urban Devel-
opment and its programs geared toward upgrading the cities and providing hous-
ing for low -income families.

The committee trimmed $384.3-million from housing agency programs, leaving
the department with a total appropriation of $1.6-billion.

The Model Cities program — inaugurated during the Johnson Administration to
help wipe out urban blight — was given $500-milliou, a cut of $150-milliou.

The committee also trimmed $150-million from the $250-million the Admin-
istration had sought for urban renewal programs.

The committee granted the full $23-million sought for payments under the pro-
gram whereby the Federal Government helps subsidize rent payments for low-
income families. But it cut $50-million from the $100-million sought for sub-
sidizing contructiou of these rental units by private builders.

The committee also trimmed $7.5-million from the $10.5-million the Admin-
istration had sought for enforcement of the open housing law enacted last year.

Officials of the housing agency expressed surprise at the severity of the cuts
but otherwise declined comment.

In a further economy move, the Appropriations Committee turned down an
Administration request for $150,000 to start work on an official residence for
the Vice President.

Congress authorized up to $750,000 for a Vice-Presidential home three years
ago but the Johnson Administration delayed requesting funds because of the
Vietnam war.

This year, the Administration asked for $150,000 for planning and designing
the house. The subcommittee that handled the bfll granted the request, but the
full committee eliminated the money today, upon the motion of Representa-
tive Frank T. Bow of Ohio, ranking Republican on the committee.

Wliile the committee imposed budget cuts on most of the 19 agencies and de-
partments included in the money bill, it increased funds for the Veterans Ad-
ministration by $34.5-million, for a total of $7.7-billion.

SUBCOMMITTEE REBUFFED

In the Senate, the move to increase funds by $55-million for summer jobs for
youths was led by Senator Jacob K. Javits, Republican of New" York. Term-
ing it "a modest test of priorities, he argued that additional funds were needed
"if we are to avoid a long, hot summer in the cities."

The Senate Appropriations Committee had recommended a $7.5-million increase
over funds already available for the summer job program. Seeking to head off
the Javits proposal, committee leaders agreed to increase this to $10-million,
and the Senate approved today.

The $10-million more is expected to provide about 20,000 new jobs in addi-
tion to the 340,000 jobs for which funds are already available.

The $4.4-billion catch-all bill, passed by the Senate today, now goes to a Senate-
House conference to iron out differences. The Senate version is about $652.5-
million above the House version.

[From the Suffolk Sun, June 27, 1969]
Group Studies Housing Plan

About 50 Suffolk County business, government, and religious leaders are dis-
cussing the structure of a housing development coriJoration which, if formed,
would help fulfill the county's acute housing needs.

The corporation, still in the planning stages, would be a private, non-i)rofit
organization designed to produce moderate and low income housing. It would
involve all segments of the community ranging from civil rights to labor groups.

Those assembled in the County planning board auditorium Wednesday
heard Bill Hirschorn, executive director of the Hartford (Conn.) Housing De-
velopment Corporation, describe ways to form such an organization.

83

[From Newsday. June 19. 1969]
LI Desperate for Housixg, Officials at Forum Agree

The builders, the banker.^, the planners and the officials from the Federal
and State housing agencies sat down at an all-day coufei-ence yesterda.v and
agreed that Long Island is in desperate need of new housing. At the end of the
day, the only problem remaining was how to provide it.

"Long Island's housing needs are huge," said planner George Raymond. A
bare minimum of 4.S.500 units of public low-income and publicly assisted middle-
income housing are needed right now, he said, and as for the future, "up to 80,000
units by 1985." Fewer than 2,000 such units have so far been constructed.

The problems, said Lee Koppelman. director of the Nassau-Suffolk Regional
Planning Board, are money and zoning. Richard M. Wasserman, president of
Levitt & Sons, one of the largest hoiising development firms, said that his com-
pany had the money, but not the zoning to allow ambitious, large-scale housing
programs. And Richard Van Dusen, undersecretary of Housing and Urban De-
velopment, also cited what he called "multiple, conflicting, separately adminis-
tered and often obsolete zoning and building codes."

Those who control the local zoning and building codes that determine how land
can be used, the elected town and village officials of Nassau and Suffolk, had been
invited to the conference at C. W. Post College but only a few attended. A coimcil-
man and a trustee or two were spotted among the 150 participants in the proceed-
ing, .sponsored by the Long Island Association.

The conference speakers talked about the kinds of projects that might be
undertaken on Long Island, if the prolilems could be overcome. Robert McCabe,
general manager of the state's new Urban Development Corp., which has the
money to build large housing projects and the power to ignore local zoning, but
is .sensitive to political pressures, talked about two new towns the coi'poration is
planning to build upstate.

One, housing 25.000 people, will be built in Baldwinsville, near Syracuse. The
other, still in the preliminary planning stages, will be in Amherst, near Buffalo.
"That ought to be the approach on Long Island." McCabe said. "We think we can
do something along the.se lines (in eastern Suffolk)." But McCabe said that his
agency's policy is to wait until local officials invite it into an area before acting.
And there have been no invitations. Most Long Island town and village officials
are hostile to the new-town concept, although county officials have expressed
interest in it.

Wa.sserman said that Levitt & Sons is "considering lots of ideas." One idea, he
said, is to put up a factory turning out a new kind of prefabricated housing con-
sisting of "three-dimensional" rooms to be set up at the housing site.

[From the New York Times, July 1.3. 1970]

Proposal for Long Island Asks Major Shift in Development

coordinated transport and higher-density housing emphasized in plan

Park Purchase Backed

MORE zoning powers URGED FOR COUNTIES .3.3 MILLION POPULATION SEEN BY lOS.",

A comprehensive plan for Long Island propo.ses major changes in housing and
transportation patterns, "aggressive" park acquisition and the review of zoning
at the county level to combat "deterioration and ol>solescence."

A summary of the plan was released today by the Nassau-Suffolk Regional
Planning Board. The plan is a result of a .$1.5-million four-year study. It proposes
that the following major projects be completed in 15 years :

The construction of 400.000 new housing units, including 128,500 apartments, to
meet the predicted population growth of the area from 2.6 million people now to
at least 3.3 million in 1985.

BUSES WOLTLD REPLACE TRAINS

Extensive subsidized improvements to bus systems and the conversion of exist-
ing trackage of the Long Island Railroad to exclusive lanes for buses east of
Patchogue on the Montauk branch, east of Northport on the Port .Tefferson Itranch
and east of Riverhead on the main line.

Three new so-called activity centers, at Yaphank, Middle Island and Manorville

99-855 O - 73 - pt. 1

84

in the Town of Brookhaven in Suffolk County, as major concentrations of com-
mercial, recreational and housing facilities.

"Park-and-ride" centers adjacent to the Long Island Expressway at Roslyn"
Heights, Plainsview. Melville and Dix Hills to encourage car pools, reduce traffic
and act as transportation hubs.

The construction of a limited-access east-west highway from the proposed
Clearview Expressway extension in southern Queens to the proposed Sunrise
Expressway in Babylon ; a north-south expressway in western Nassau from Sun-
rise Highway to the Long Island Expressway, and a major highway from Cold
Spring Harbor to a point east of Port Jefferson.

The public purchase and leaseback of at least 30,000 acres in the east end of
Suffolk County to preserve that area's rural and resort character and the creation
of several new parks.

FIRST COMPREHENSIVE PLAN

Lee E. Koppelman. the executive director of the bicounty boards, said that the
planners had not "costed" the plan, saying that estimating its cost would be
"merely an academic exercise."

Many of the proposals included in the plan had been made previously as sep-
arate suggestions, but the plan is the first over-all program to meet Long Island's
environmental, economic, recreational and tran-^jportation needs.

The plan, whose theme is "corridors, clusters, and centers," emphasized that
Long Island's growth, which has been at one of the fastest rates in the country
since World War II, has been "the antithesis of a rational development pattern,
one that would preserve open space, encourage the elimination of deterioration
and obsolescence, and provide adequate housing, linked to jobs and shopping by a
balanced transportation system?

To implement its goal of orderly development, the plan calls on the Nassau
County Board of Supervisors and the Suffolk County Legislature to adopt, after
discussion and public hearings, the applicable sections of the plan as guides to
budgetary and planning decisions on a county level.

The plan also states that the two counties should have the right of first refusal
on all properties that it suggests for park or conservation use.

Mr. Koppelman said in an interview that he expected the major opposition to
the plan to be centered on its zoning sections.

SHIFT IN ZONING POWER

While declaring that "zoning should continue to be the responsibility of local
government," the plan states that "existing state legislation providing for county
review should be strengthened," particularly with regard to giving each county
planning commission review powers over critical areas such as the shoreline, ad-
jacent wetlands and proposed county parks.

Eugene H. Nickerson, the Nassau County Executive, said last night that "it is
a good and sound plan and I hope the counties, towns, and villages will imple-
ment it." He said he thought it stood a "good chance over a period of time."

John V. N. Klein, the presiding officer of the Suffolk County Legislature, said
that the plan "is such a complex, all-inclusive document that there are going to be
segments of local government that will not approve some of its proposals but
there is so much of substance in it that it should be adopted and implemented by
every local government substantially as presented."

Some of the principal findings of the plan are :

HOUSING

Most of the projected growth on Long Island will occur in Suffolk County,
whose population will exceed that of Nassau County before 198"). Suffolk, the
largest county in the state, now has an estimated population of 1,200,000 and
Nassau 1,400,000.

The greatest emphasis in housing must be away from single-family detached
homes, the plan said, as the population trend is toward the young and the elderly.

The plan calls for 400,000 new housing units. Citing a scarcity of apartments
and land presently zoned for apartments, the plan recommends 62,500 apartment
units for Nassau County and 66,000 for Suffolk County. The plan calls for the
replacement of more than 30,000 obsolete or substandard units of housing.

The plan predicts that for households of low to middle income, Nassau County
will need 25,000 publicly assisted housing units by 1985 and Suffolk Countv
51,000. "Of these," it maintained, "about 2i,000 units in Nassau and about 23,000
in Suffolk are needed to make up present deficiencies."

85

TRANSPORTATION

Forecasting a 50 percent increase in automobile traffic in the area by 1985. thp
plan recommends the establishment of a co<:>rdinated mass transportation system
Rail and bus service would be coordinated and land near transportaticm centers
would be used at higher than present densities.

A bicounty department of franchises is recommended to increase bus service,
extend routes to areas now unserved and relieve the "chauffeur problems of the
housewife.

Retrieval of a "significant amount of recreational water frontage" can be
achieved, the plan said, through the use of larger tankers, inland oil storage fa-
cilities and pipeline distribution.

Recommending vertical and short take-off and landing airii<irt sites at all
general aviation airports and at Roosevelt Raceway, the plan predicts that air-
craft use will more than double by 1985, necessitating the expansion of existing
facilities. Considering the possibility that the United States Navy facility at Cal-
verton in Suffolk County might be chosen as a major jetport for the metro-
politian area, the plan calls for an extensive buffer area to be reserved around
it and the Suffolk County Airport in Westhampton, the recently deactivated
Air Force Base.

The bicounty planning board previously recommended construction of a bridge
across Long Island Sound from Oyster Bay in Xassaii County to Rye in West-
chester County, and while the organization continued to favor such a bridge, the
new jilan cautioned that the "generally low-intensity development of the North
Shore" should be protected.

Pointing to the problem of freight, it maintained that a bridge across the
Sound would "mitigate the dead-end situation for some truck freight shipments,
enabling the island to qualify for a change in the rate structure that will make
the two counties competitive with other areas."

PARKS AND RECREATION

The plan's highest priority is given to land for parks and conservation. Nassau
County now has less than 15,000 acres of vacant land, approximately 6 to 7 per
cent of the land area, and this is "insufficient to satisfy all of the projected needs,"
the plan stated.

Projecting a shortage of 15.000 acres of parklands in Nassau County by 1985,
the plan called on the county to acquire immediately any golf courses that might
be offered for sale or development.

Because Suffolk County still has 41 per cent of its land vacant, it will be able,
with careful, controlled planning to meet its own needs and absorb some of
Nassau's, the proposal said.

A large new park is recommended at AVoodbury and smaller ones at Woodmere.
Bayville and at the Naval Devices site at Sands Point in Nassau County as well
as the acquisition of some North Shore estates and the Mott, Lattingtown and
Stillwell Lane Woods.

In Suffolk County, the plan recommends a state park acquisition of a large
site in Flanders and additions to the state parks at Montauk Point and Wild-
wood. New county parks are urged at AVading River, Iron Pier and Fresh Pond on
the North Shore, at Reeves Bay, Robins Island, Nichols Point. Gardiners Island
and Napeague in the Peconic Bay-Gardiners Bay area and extension of county
holdings is suggested at Shinnecock Inlet and the barrier beach near Hampton
Bays.

AGRICULTURE

Future growth in the eastern end of Suffolk County must be limited, the plan
warned, if its provision of recreation and food for the broader region is to be
saved. The plan suggests that this be accomplished through land banks, clustering
and small centers.

To protect agriculture— Suffolk County is the riche.st agricultural county in the
state — the plan .said that a minimum of 30.000 acres of the most productive farm-
land in the Towns of Riverhead, Southold and Southampton should be publicly
purchased and then leased back.

ZONING

Local municipalities are urged not to enact zoning rules contrary to the pur-
poses of the plan. The Nassau-Suffolk Regional Planning Board, according to the

86

plan, should be granted review powers to resolve land-use and zoning questions
affecting communities along the Nassau-Suffolk border. It also "should be notified,
of all proposed zoning changes in the two counties and have the privilege of ap-
pearing where necessary on behalf of the plan."

In Nassau County no residential land should be rezoned to industrial, com-
mercial, or office use "unless it appears beyond a doubt that the land is unsuit-
able for parks or open space, or for development of multifamily units,'" the plan
said.

To ease the critical housing shortage, the plan calls for clustering — the com-
bining of townhonses and apartments with single-family detached houses to main-
tain the over-all original permitted density.

"The central corridor of the island should contain the major employment cen-
ters and other traffic generators," the plan continued, and "to serve this traffic,
transportation centers are planned for Mineola, Hicksville, East Farmingdale,
Ronkonkoma, Yaphank and Calverton, at the points where the main line of the
railroad crosses major north-south highway routes."

[From the Long Island Pres» — .Ian. 31, 1967]
LI Warned : Plan Now or Face City Woes

There is a need for greater regional planning in anticipation of Long Island's
immediate future growth, a State University at Stony Brook professor said
yesterday.

"Unless strenuous efforts are launched to create new areas of economic and cul-
tural activities within the suburban belt of an expansive metropolitan region,
one cannot foresee anything but a continuation of suburban sprawl," said Dieter
Zschock, editor of "Economic Aspects of Suburban Growth."

According to a report published by the Economic Research Bureau at the uni-
versity, Nassau almost has reached its saturation point in terms of available
land and housing. But Suffolk, i>articularly the eastern iwrtion, is just entering
its maximum growth period, according to the report.

Featured in the book are opinions from economists and planners throughout
the United States.

In the introduction, Edgar M. Hoover, a Pittsburgh University economics pro-
fessor, warns that Long Island may repeat "the mistakes of earlier development
in the region and find itself left with the same problems of congestion, pollution,
ugliness and poverty that exists in the inner city."

William Hamovitch, another contributor, believes Long Island will be able to
expand its employment opportunities and modern services and will lose its rural
character.

"Suburban growth will continue unhaltingly, but suburban communities are
in danger of losing the very attributes that attract newcomers." said the Queens
College Economics Department chairman.

Opportunities for scientific research and ultimate "clean" industries are pro-
vided by the university in conjunction with Brookhaven National Laboratory in
Upton, Hamovitch said. He also forecast "large numbers of new migrants" on
Long Island unless zoning regulations change radically.

Z.schock, in a chapter on "poverty amid affluence in suburbia," said two of
every five ix>or iiersons in the New York metropolitan area live "within its affluent
suburban belt."

The study used a $4,000 annual income for a family of four living in a suburban
area as the poverty level and $3,000 for a family living in the more remote
agricultural area.

The editor said 10 per cent of all Nassau-Suffolk families had incomes below
$4,000 in 1960. "This problem is particularly acute because those affected by it
view themselves surrounded — -and still widely ignored — by the more affluent
segment of the nation's population," he said.

Among major pn^blems of the poor are transportation, housing, employment
and education, according to Zschock.

The studies detailed in the volume were sponsored by the Economic Research
Bureau as an outgrowth of last year's publication, "Brookhaven in Transition,"
also edited by Zschock.

The book also was supiiorted by federal funds under the Higher Education Act
of 1965 and an allocation from the university's Graduate School.

87

other contributors include Lee E. Koppelman. Nassau-Suffolk Regional Plan-
ning Board executive director; Albert Levenson, associate professor of economics
at Queens College; and Robert Lekachman, professor of economics at Stony
Brook.

[From the New York Times. Feb. 4, 1969]

President Moves to Restrict Rfle of Poverty Board — Meets With Urban
Council on Taking Some of Major Functions From OEO

action due next week— head start may be first to go — NIXON ASKS aides to

review LEGISLATION PLAN

The Nixon Administration moved forw^ard today with its plans to strip the
Office of Economic Opportunity of some of its major functions and transfer them
to other agencies.

Informed sources disclosed that although no "final" decisions had been taken
on the antipoverty agency's future there would be an "interim" announcement
sometime next week stating that at least one of the agency's major programs^ —
presumably Head Start — was to be tran.sferred to another department of the
Government.

Reflecting his concern for an early resolution of the status of the antipoverty
program, President Nixon met for most of this morning with his Urban Affairs
Council.

FEW DETAILS RELEASED

The White House released almost no details about the session, which reportedly
focused on the fate of the poverty agency and the future alignment of the Admin-
istration's own efforts in the antipoverty field.

The antipoverty program is our Middle East," one council member commented
afterward, suggesting that the subject was receiving the same priority in the
domestic field that the President and his advisers had placed on the Arab-Israeli
dispute in the foreign field.

In a related action on the domestic front, the White House disclosed that Mr.
Nixon had issued 15 more directives to Cabinet officers, agency heads and
special advisers asking them to review and comment upon pro]X)sals for legisla-
tive action made by the President during the campaign and by his special teams
during the transition period.

WIDE RANGE UNDER STUDY

The 15 directives, described briefly in a White House statement released by
Ronald L. Ziegler. press secretary, brought to 29 the number of order<^ dispatched
by Mr. Nixon to his principal Government officials.

They ask for review and comment on proposals ranging from elaborate changes
in the welfare system to studies of the "rising costs" of Medicare to suggestions
for agricultural reform.

Among the directives was one aimed at the Secretary of Health, Education
and Welfare, Robert H. Finch, and the Department of Labor asking for "studies
into the need for substantive changes in O.E.O. programs and approaches."

But on the basis of information available today it was clear that such studies
were already well under way both in these agencies and in the Urban Affairs
Council.

Not only did the council meet on the question of the antipoverty program this
morning, but a special subcommittee of the council has already met twice to con-
sider changes in the antipoverty effort.

Tlie basis of all these deliberations — and the best available guide to the prob-
able shape of the Administration's final disposition of the antipoverty agency —
is the report of a team headed by Richard P. Nathan.

Mr. Nathan, a liberal Democrat, delivered his report to Mr. Nixon and ]\Ir.
Finch in early .January. He is now assistant director of the Bureau of the Budget
and is in almost daily communication with Daniel Patrick Moynihan, the Presi-
dent's urban affairs adviser, and Stephen Hess, Mr. Monynihan's principal deputy
on the council.

The team's report made several major recommendations related to the Office of
Economic Opportunity, most of which are expected to be followed.

88

It recommended, first, that the agency's "national emphasis" programs — includ-
ing Head Start, legal services ; Upward Bound, comprehensive health services
and family planning — "be spun ofE to other agencies as soon as they are firmly
established."

It also recommended that the Job Corps program be discontinued as a ".separate
entity" within the poverty agency and be transferred to the Department of Labor
or the Department of Health, Education and Welfare.

At the same time, however, it urged the incoming Administration not to dis-
mantle the OflSce of Economic Opportunity but. instead, to change its name and
convert it into an agency largely concerned with the intervention and protec-
tion— the "care and feeding" — of experimental antipoverty efforts that might
otherwise suffocate in the vast executive departments.

The "reconstituted" poverty agency would also continue to manage the network
of local community action agencies established under its auspices over the last
several years and designed to encourage citizens' participation and self-help
activities.

Finally, the agency would also, under the team's recommendations, assume
jurisdiction over neighborhood "community development — corporations" called
for in legislation now pending before Congress.

The legislation is designed to create incentives for neighborhood residents
to form community business ventures.

The team's report recommended that the "spinning-off" of the poverty agency's
major program functions should properly begin with Head Start, which it
described as "ready for delegation" to another department.

This evening a ranking White House official all but confirmed that Head
Start would be the first poverty program to leave its present home.

He pointed out that the principal architect of Head Start, Jule Sugarman,
had moved over to the Department of Health, Education and Welfare six
months ago. Asked what Mr. Sugarman was doing in his new post, the official
replied :

"He's waiting for his program to arrive."

Mr. Nixon's directives to his Cabinet and other officials included an order
to the Treasury Department to "study proposals for responsible use of lax
incentives to encourage private enterprise to participate in improving economic
and social conditions in poverty areas."

[From the New York Times, Aug. 17, 1971]
Land Is Prize in Battle fob Control of Suburbs

Land is the coin and the treasure of the suburbs around New York City and
that land — some of which has risen in value in 20 years from $700 to .$90,000
an acre — is the prize in a continuing battle for control of the 775 municipalities
that make up the world's largest suburban area.

The struggle over the land within 100 miles of Times Square, in its .simplest
terms, is between the people who already have some — whether a 70-faot-wide
lot in Massapequa, L.I., or a 1,000-acre estate in Far Hills, N.J.— and those
who want new residents and more intensive development in the suburbs for
their own personal profit or social goals.

A team of reporters from The New York Times who toured the New York
suburbs for five weeks found that in town after town there were fights over
land use with large numbers of people sharing a single goal — to keep other
people, new people, out of their community.

And in those same towns there was a surprising answer to the question of
who is winning the struggle, who runs the suburbs. The recurring answer was :
"The people." the people who live in the towns, who have their own property.

But this is not the whole story of the New York suburbs. The people there
often watch, heli>less and frustrated, as their lives and towns are changed by
decisions of Federal and state governments or by profit-minded combines of
developers and politicians.

But. in general, the people who now live in the suburbs have one sui)er-
weapon — zoning — and they have used it to become the dominant force in the
struggle over land use.

The other side of the struggle, the forces of change, involves an uneasy coalition
between the men who will make money if the land is intensely developed and

89

men who seek social change, civil rights activists and professional planners who
want to move low-income and moderate-income people out of the city.

The builders, landowners and politicians, some of them vulnerable to the
corruption that comes with the profits of land development, win a few battles.
Many suburbanites interviewed in the last few weeks, in fact, thought the
builders were always winning — they complained about new gas stations along
their highways and new homes or apartments rising.

GROWTH RESTRICTEn

But not much is actually going up, for the trend is clearly with "the people"
against change.

Westchester County, for example, has moved steadily toward more and more
restrictive zoning and its population capacity (if every vacant lot were built
on as densely as possible) has dropped from 8.2 million in 19r)2 to 2.3 million
in 1957 and 1.8 million today.

The Rockland County Xews-Leader-Independent commented editorially on the
trend two months ago in the following way :

"At a recent meeting of the Nanuet Rotary, a fellow said half-jokingly, 'You
know who runs Rockland County? Fifty women with baby carriages who turn out
to protest everything and anything" . . . He's right. They seem to wield more
power than a bevy of legislators, supervisors mayors and councilmen all put to-
gether. They are indeed the new power elite — a force that sets officials trembling
at their very approach."

John F. English, the former Nassaii County Democratic chairman who is now
a key figure in the Pre.sidential campaign of Senator Edmund S. Muskie, noted :

"Suburban government is much more responsive to the people than other Ameri-
can government. Ifs the politics of the territorial imperative, the protection of
their property. Tliat means opposing new housing and new people, anything that
might change the statiis quo."

"The power is really with the people." said Paul Davidoff, co-director of the
Suburl)an Action Institute, which has filed several suits in an attempt to force
suburban commimities to drop restrictive zoning and accept low-income Iiousing.

"They act perfectly rationally to protect their interests by keeping everybody
else out," he said. "And you can see their success by looking at the number of
develoi»ment projects turned down by any suburlnin government. They only change
zoning if they desperately need industry to help pay the tax liills."

Three miles away from the institute's small office in White Plains, Robert Wein-
berg, founder of Westchester County's largest developer. Robert Martin Associ-
ates, unhappily agreed.

STATUS QUO RULES

"I'm one of the largest landholders in Westchester." he said. "Within a half-
hour of here. I've got 500 to 600 acres I can't do anything with because of zoning.
It's all zoned for one house an acre to keep out anyone earning less than $25,000.

"All they want here is the status quo — a guy wants to walk his dog in my woods,
he thinks they're his woods. Citizens have an absolute right over zoning. We just
can't run with local little hometown rule. Every idiot can come down to the town
ball and have his say and the guys up front tremble because they're afraid they
won't be re-elected."

However, the metropolitan area's population keeps expanding and now people
want to live in the suburbs, especially as more and more companies move there.

Tlie pressure of that expansion, basically involving the white middle class, is be-
coming so great that some observers believe that Federal and state governments
will soon have break down local zoning restrictions- — as the Urban Development
Corporation already has the power to do in the State of New York.

A good illustration of the impact of zoning can be found in Wayne, N..T., 20
miles west of the Lincoln Tunnel. There, the value of an acre of land has ri.sen
from about .$700 to as much as ,$90,000 as the township's population grew from
12.000 in 1950 to 49.000 in 1970.

But the top value of that acre depends on zoning — an acre worth $90,000 today
for high-density use like office buildings or garden apartments is worth only
$10,000 if it's zoned for one single-family home.

"Tlie power to zone is the power to make millionaires," said Lee Edward Kop-
pelman, the director of the Xas.sau-Suffolk Regional Planning Board. And millions
were made as the population exploded into Wayne and a liundred other towns
around New York.

90

Who made the money? "The laml speculators and real estate operators made
most of it." said Harry J. Butler, a former Mayor of Wayne. "The farmers who
originally owned the land here never realized its value."

Mr. Butler, a Democrat, spent a stormy term in ofRce publicly denouncing the
profitable relationship between politics, land speculation and zoning in his town.
It happened that the township officials he was denouncing were Republicans.

In one case, for example, he pointed out that three municipal officials involved
in the rezoning of two residential acres to allow construction of a private medi-
cal center were the principals of the corporation owning the land.

The value of that little tract increased by .$SO,0(X) with the rezoning. Without
a variance, he said, the same medical center could have been built in a "business-
professional" zone only 1,000 feet down the same road, but there would have been
no .%SO.OOO rezoning windfall.

But in Wayne, as in most suburban municipalities, the people opposed to
further change have had at least their share of victories. Petitions signed by 7,500
Wayne residents and clamorous opposition at public meetings that sometimes
lasted into early morning hours recently killed a proposed high-rise apartment
development.

'responsive' public

The key to citizen participation in suburban governments, according to some
political scientists, is the newness of those governments and the fact that many
local politicians are amateurs who allow an unusually large proportion of public
business to be conducted as open meetings.

The number of people who attend such meetings or who come out to vote is
usually low, but apathetic citizens are often aroused and organized instantane-
ously around public issues, such as zoning variances.

These issues might be considered and decided in private within city govern-
ments, which have had centuries to perfect the art of decision-making within
a shielded bureaucracy rather than at town council meetings.

In a study of Levittown, X.J., which has since changed its name to Willingboro.
the .sociologist, Herbert J. Gans, offered polls showing that governmental deci-
sions were "remarkably responsive" to the wishes of the majority of citizens,
even when those decisions were primarily influenced by small ijrivate-interest
groups.

"The people generally win if they find out what's going on, but most of the
money changing goes on before the ix>^ople get there," said Mr. Gans, the author
of "The Levittowners" and one of the nation's suburban scholars.

"When it's still farms, everyone who lives out there shares in a bonanza befoi-e
the new voters get there. After that, if Mr. X wants to subdivide his land to
increase its value, he can bribe every town official $50,000 and see those officials
voted out 15 minutes later when the iieople get angry. Then new guys are elected
and they stop the building."

The land action has now moved out from places like Wayne. It is in locales
like eastern Suffolk County, where Mr. Koppelman estimated that 40 per cent of
the vacant land might be held by speculators : in Putnam County and in western
Xew Jersey — even as far out as the Sussex County farm country that will soon
be linked to the city and inner suburbs by Interstate Route 80.

THE BATTLE IS JOINED

Somerset County is made up of 198,000 people living in an area about the size
of New York City — ^in lovely little places named Pea pack-Gladstone and Bed-
minster, 35 miles from the Hudson River — and it is one of the next battle-
grounds.

In fact, the battle is already well under way as Western Electric learned when
it tried to move its national headquarters to Bedminster and withdrew the
plans after facing 400 unhappy residents at a town meeting in the local high
school's gymnasium.

There are, of course, already growing clusters of development and industry
in Somerset. But. mainly there are miles of gently rolling hills where Mrs.
Jacqueline Onassis and friends sometimes fox-hunt, where Doris Duke, C. Dou-
glas Dillon and the Englehard family own huge estates.

LIMITED PROJECTION

There is also a master plan in Somer.set County and some of the most restric-
tive zoning in the country. The Somerset Coimty Planning Board projects a

91

maximum population of 400,000 by the year 2000 and its planning director, Wil-
liam Roach Jr., talks hopefully of holding out and letting most of the population
growth leapfrog to rural Hunterdon County to the west — where Western Electric
is now trying to situate.

That would leave much of Somerset as a kind of giant country club, the place
where the best-paid executives live and commute to jobs, most of them in other
suburban areas.

Somerset has the zoning to do just that — 63 per cent of the county is zoned to
restrict t)uilding to one-family homes on lots of one to 10 acres. Only two of the
21 towns have multifamily (apartment) zoning and 95.3 per cent of Far Hills
Township is zoned for 10-acre building.

It's possible that with such zoning, and with the personal power of some of
its residents. Somerset is immune to the kind of growth that overwhelmed much
of Nassau County. But even in protected communities — Mr. Gans calls them
"vest-pocket principalities" — some iieople are beginning to have second thoughts
about what kind of future they are making for their towns.

Police Lieut. George D'Amicao of Xorthvale — a north Bergen County town of
5,200 people where 1,600 residents signed petitions that helped block a garden-
apartment development— put it this way :

"My daughter will be getting married in a few years and I'd like to see her
remain here. A nice little development wouldn't hurt anyone. Give our kids a
chance. It's unfair. We had our chance to move out here."

COMMON TREND OF THOUGHT

Mr. D'Amicao's way of expressing a thought came up in almost every inter-
view about government and power in the suburbs : Does democracy and home
rule mean that the people who already live within the arbitrary boundaries of
a community have the right to keep everybody else out?

Mr. Weinberg, the Westchester builder, and civil rights activists like Mr.
Davidoff and Mr. Gold all favor the same solution to their different problems —
they want state or Federal action to allow zoning at higher levels of government.

"The housing mix should be mandated at a higher level where it's more ditficult
to get at the public official," said Mr. Weinberg. "How long can the cities stay in
misery while everybody out here sits, enjoying the American dream. What right
does a person living on a quarter-acre lot have to make the next guy live on a
half-acre? If you want to live in a park, buy it."

"The Federal Government will eventually have to step in." Mr. Gans predicted,
"because the people who want to live there will be middle-class people, people who
can make their demands felt. Zoning and other safeguards will fall."

If he is right, the power of the people will be tempered Ity direct intervention
of higher government. It is already tempered, of course, by many other factors,
such as the pressure to reduce homeowners' tax bills by bringing in industry,
especially along highways and the borders of neighboring municipalities, ; which
must then deal with traffic problems.

When you ask Mr. Koppelman. the planner, and Mr. English, the politician,
about the most powerful visible forces on Long Island, both men immediately
an.swer : "the Republican organizations and Newsday."

And in each town, residents agree on an answer, generally naming a man or an
institution with heavy local economic interests who becomes involved pul>licly
or privately in a wide range of issues, winning more often than losing.

In Islip. the names that came up in interviews were Anthony Pace, a lawyer
and town Republican leader, and Edward McGowan, a former Republican leader
and one of the town's largest landholders.

PATTERN UNCHANGING

The name of Xewsday. the 458,000-circulation daily newspaper published in
Garden City, is also mentioned again and again, not surprisingly, since the news-
paper began the investigations of land dealings that sent greedy local oflRcials to
jail.

"Planning has a chance on Long Island," said Mr. Koppelman, "because News-
day supports it. And Newsday is the only thing that's kept Ivong Island from
going all the way down the drain of dishonesty."

In other suburbs, the pattern of power is the same but the names change.
*******

the suburbs are often well-educated, but nonworking housewives ; taxpayers'
associations in many towns which regularly fight to reduce school and municipal

92

budgets ; Spyros Lynos, known as "The Golden Greek" in Wayne because of his
land and construction dealings, and similar rtnancial-political operators in other
towns ; International Business Machines, Inc., in Dutchess County and Johnson «&
Johnson, Inc., in Somerset County, both with thousands of local employes, in-
cluding many in elected offices, but both reluctant to become so visibly involved
in local affairs that they become issues or targets in local elections. And, in town
after town, the Republican party.

The suburbs are not the Republican monolith often portrayed in the past. In
fact, half the 18 United States Repi'esentatives elected from New York's suburbs
are Democrats. But Republicans do tend to dominate suburban politics for several
reasons, especially because they are permanently organized in many small com-
munities along lines reminiscent of liig-city Democratic politics of the nineteen-
forties.

The home as the center of politics, of course, is still a major part of the story
of suburban power.

"People came here to get away from it all, from the problems of the city, of

* * it * * * *

any responsibilit.v for things like low-income hovising and the officials they elect
understand that their responsibility is to keep the community the way the people
here want it."

Gene Stewart's Lahontan Valley Car-Ral,

Fallon, Nev., Aug. 19, 1913.
Senator Alan Bible.
U.S. Senate,
Washington, D.C.

Dear Sen. Bible. Enclosed, please find some clippings from the Reno Gazette.
This is just the beginning of what is happening to our State and our Nation.

I'm sure you must realize what will happen to the economy of our State when
the building trades in our State come to a halt. It will have a devastating effect
on every citizen here, including our gambling industry which is so helpful to
our economy, and of which we are so proud.

I have been a resident of Nevada since 1939. For the past twenty-two (22)
years I have been in the automobile business. By February of this year I had
finally accumulated enough to buy my own new car agency. After paying for it
and the necessary equipment to operate the shop, it left very little operating
capital.

Two years ago our flooring interest on new cars was 5i/i%. When I opened my
business in February it was 7%. Now I am paying 10% and have been told
already that it will be 10^2% before September 1. This increase in interest has
made it impossible for us to order any more 1974 models. Summed up, this seems
to me to be the situation : We can't afford to stock new cars and even if we
had them no one could afford to buy because at the rate it's going now the
unemployment rate will be sky high.

For the past several months all you hear about is the Watergate situation,
pollution and ecology. Our nation's leaders have turned their backs to the
deplorable situation our country is coming to, while they played hide and seek
with Watergate and Mr. Nader tries to figure out some other idiotic idea to
force manufacturers to put on our new cars so the price can be raised another
5 to 10%.

In Mr. Nixon's speech to the nation concerning Watergate, he said something
to this effect, "Get Watergate off TV and the front page and let the courts take
care of these that are guilty, then we can go on with the more important task
of running our Great Nation." This is the one thing in his entire career that I
have agreed with him about.

Mr. Bible, I desperately urge you to take action immediately and bring these
interest rates back down to a figure that we can all afford to live with, otherwise
I feel that within the coming .vear our great State of Nevada, as well as the
Nation, will be in a depression like we had in 1930.

I am sending a copy of this letter to Congressman David Towell in hopes that
he, also, will help you in this problem. I feel that this is a problem that must be
placed in a number 1 position to save the economy of the State of Nevada.
Respectfully yours,

Gene Stewart,

President.

93

THE COSTS OF OVERSPEC lALI ZATION
IN THE MORTGAGE MARKET

By
Dr. Kenneth J. Thygerson
Economist
United States Savings and Loan League

August 28, 1973

94

CONTENTS

1. INTRODUCTION 1

II. THE HIGH COST OF INFLATION AND MONETARY INSTABILITY ON

THE SAVINGS AND LOAN BUSINESS: THE STRUCTURAL DILEMMA 5

Characteristics of the Savings and Loan Association 5

The Effects of Monetary Instability on Association

Performance 9

The Structural Dilemma and the Need for Asset-
Liability Restructuring 13

II. LEGAL AND OPERATIONAL PROBLEMS OF MORTGAGE MARKET

SPECIALIZATION 17

Usury Ceilings on Mortgage Rates '7

Effects of Consumer Oriented Loan Terms on

Associations '9

Legal and Social Constraints Against the Use

of Variable Rate Mortgages 22

Summary . , 25

IV. THE UNEXPECTED COSTS OF GOVERNMENTAL INTERVENTION

IN THE MORTGAGE MARKET 26

The Government's Role in the Mortgage Market

During the Post-War Period 26

Effects of Government Programs to Support Housing

on Private Specialized Mortgage Lending Institutions 33

Shift in Relative Holding of Mortgage Loans by

Various Lenders 39

Shift in Relative Rates Earned on Mortgage Assets '^2

Role of Federal Agencies Accelerates ^^

Thrift Institution Susceptibility to Tight Money ^5

Summary kS

V. CONCLUSIONS ^^

FOOTNOTES 52

95

TABLES

ll-I Balance Sheet of All FSLIC Insured Associations

(December 31, 1972) ^ 6

11-2 Percent of Savings Withdrawals To Beginning of Year

Savings Balance 1966-1972 g

lll-l Estimated Prepayments , 20

IV-l Securities of Federal Agencies and Government-Sponsored

Enterprises Which Support Housing 32

IV-2 Average Effective Tax Rate of FHLB Member Savings and

Loan Associations 1950-1972 , 36

IV-3 Financing Operations of State Housing Agencies 38

IV-^ Holding of Total Residential Mortgages by Various Lenders . . /4I

IV-S Levels and Spreads Between the Conventional Mortgage

Rate and AAA Corporate Bond Rate (I965-I973) ^3

GRAPHS

ll-I Short and Long Term Treasury Yields 1950 - 1973 , 12

IV-l Bond Yield Curves , 30

1 1

96

I. INTRODUCTION

The savings and loan business has grown to play a vital role in both
the real estate mortgage financing market and over-the-counter savings mar-
ket. At year-end 1972, savings and loan associations held kk.2% of all
residential mortgage debt. They comprised by far the largest single holder
of one-to-four family home mortgages with hi .1% of the total, versus only
16.4% for commercial banks, the next largest holder. In addition, they
were the largest holder of mortgages on multi-family properties, with
27.8% of the total, compared to 22.6% for life insurance companies.

Savings and loan associations had deposit liabilities of $207 billion
at year-end 1972. This comprised approximately 40% of the aggregate over-
the-counter savings — defined to include the deposits in mutual savings
banks, credit unions, savings and loan associations and time and savings
deposits of households, personal trusts and pension funds held in commercial
banks.

The relative importance of this intermediary both as a provider of
funds to the mortgage market and as a depository for savings of the house-
hold market seems quite clear. Any external disturbances which affect the
operations of associations can be expected to be reflected in nearly equal
proportions on these sectors of the economy. Of particular importance,
however, is the ability of the savings and loan association to supply cre-
dit to the construction sector.

The savings and loan business has come under rather severe competitive
and financial pressures since the mid I960's. During these years, savings
and loan associations entered a period of reduced growth, increased deposit
volatility and declining profitability, all of considerable magnitude. In

97

large part, the eroding financial and competitive position of associations
can be traced to the structure of their assets and liabilities and to their
high degree of specialization in conventional single-family mortgage loans.
This financial structure, combined with the Viet-Nam induced economic boom
and subsequent periods of accelerating inflation, has forced the industry
to bear the costs of the interest rate risk they assume because of the
nature of their assets and liabilities.

The difficulties of the savings and loan business during the past
decade and especially this year have prompted a number of academic, govern-
mental, and industry spokesmen to seriously question the long-term advis-
ability of constraining the association investment activities almost entirely
within the residential mortgage market.

This paper will deal with the issue of whether or not the interests
of the consumer, the savings and loan business, and the financial markets
in general are being best served by legislatively constraining savings and
loan associations to invest almost exclusively in residential mortgage
assets. (1 To analyze this important question, this paper will review the
structure of the savings and loan business, the economic environment in
which it operates, the competitive forces which bear upon the business,
and specific industry and legal practices that help determine its perform-
ance and long-term sustai nabi 1 i ty as a major financial intermediary.

This paper will focus on the significant changes that have occurred in
the last decade that seem to bear upon the recent problems of the business
because of its sole dependence on mortgage investments. Specifically, this
paper will investigate:

98

1) The effects on the business of the high social priority placed
on maintaining a fully employed economy, and the general
tendency to rely on restraining monetary policy to arrest the
attendant inflation which often results from the pursuit of
this goal. The focus here will be on the evaluation of
whether or not the asset-liability structure of the savings
and loan business is sufficiently adaptable to function

well in an environment of interest rate instability and
periodic and sustained increases in inflation rates.

2) The effects on the business of specific laws and financing
practices within the mortgage market that have from time
to time jeopardized the financial performance of the busi-
ness and its ability to serve the housing industry. The
focus here will be on the detrimental impact of such legal
constraints as usary ceilings on mortgage rates, constraints
on the geographic holdings of mortgages by associations and
limitations on the use of variable rate mortgages. Also
discussed will be the costs to the industry which result
from the traditional practice of offering their borrowers
loans with liberal prepayment penalty and renogot iat ion
clauses.

3) The effects on the savings and loan business of recent
Governmental activities within the mortgage market. Here
we will focus on the costs to the savings and loan business

of several unintended side effects resulting from the increased
mortgage creditor role of a multitude of recently established
state and federal credit agencies serving the mortgage market
during the last several years,

3 ~h

99

II. THE HIGH COST OF INFLATION AND MONETARY INSTABILITY ON
THE SAVINGS AND LOAN BUSINESS: THE STRUCTURAL DILEMMA

Characteristics of the Savings
and Loan Association

The fundamental economic role of the thrift institution is that of a

financial intermediary. As such, it gathers savings from the public and

f
invests these savings in various assets, mainly in residential mortgages.

Unlike commercial banks, however, the savings and loan business is
considerably more specialized in its operations. The assets which the
business is allowed to hold are highly restricted by Congress through either
the Federal Home Loan Bank Board and Federal Savings and Loan Insurance
Corporations or through the various state regulatory agencies. These
restrictions include: (1) geographical limitations on the origination and
holding of mortgage loans; (2) percent of asset limitations on the various
types of mortgage loans, including restrictions on property type, value of
property, and type of borrower; and (3) limitations on allowable types of
assets.

Virtually all of the association's assets are confined to real estate
credit instruments. The only major exception is liquidity held by associa-
tions. Liquid assets are held primarily in the form of government and
agency securities and demand deposits and currency. The result is that 85%
of the total assets of the industry are comprised of single-family, multi-
family and commercial mortgage debt.

Table I 1-1 shows the aggregate balance sheet composition of the FSLIC
insured associations as it looked on December 31, 1972. With roughly 85%
of the total portfolio devoted to mortgages with average loan lives aver-
aging between 7-12 years, it is clear that the average return on assets of

5

99-855 O - 73 - pt. 1

100

associations responds very slowly to short-term movements in current mar-
ket mortgage rates. Rather, the average portfolio yields of associations
exhibit a significant lag with respect to any dramatic changes in current
rates.

TABLE il. I
Balance Sheet Of All FSLIC Insured Associations
(December 31, 1972)
(Dollars shown in Billions)"

Percent

Percent

Amount

of Total

Liabi 1 ities

Amount

of Total

Cash and Liquid

Passbook Savings

$101.6

43 . 0%

Assets

$ 19.0

8.0%

Certificates &

FHA & VA Mort-

other Savings

99.3

42.0

gages

28.6

12.1

FHLB Advances

8.0

3.4

Conventional

Other Borrowings

1.7

0.7

Mortgages

172.2

72.9

Loans in Process

6.1

2.6

Other

16.5

7.0

Other

k.S

2.1

TOTAL

$236.3

100.0%

Reserves and

Surplus

14.7
$236.3

6.2
100.0%

"Amounts may not add to totals du e to rounding.
Source: Federal Home Loan Bank Board.

Another characteristic of the mortgage loan portfolio held by the sav-
ings and loan association is that it has poor marketability. In periods of
financial stress, when associations are in need of liquidity, they find it
difficult to convert their mortgage assets into cash for several reasons.
First, savings and loan associations have a preference for conventional mort-
gage loans. The conventional mortgage loan, however, has no we 1 1 -developed
secondary market, as opposed to FHA and VA mortgages where a more fully

6

101

developed secondary market has been developed. Secondly, a secondary mar-
ket for mortgages would not be an entirely satisfactory solution to the
liquidity needs of the savings and loan association. This is because during
periods when the rate structures move up rapidly, any earlier loan acqui-
sition made at lower interest rates must be marketed at a discount to sell.
Associations have not built up a large reserve position, as indicated in
Table ll-l. Therefore, should they desire to sell existing loans in the
secondary market, this would, in most cases, not be possible without seriously
depleting the reserves of the association. As a result, associations are
generally "locked in" with respect to their holdings of mortgages made in
prior periods.

The liability structure of the savings and loan is the antithesis of
the asset structure. As shown in Table ll-l, roughly 50% of the total sav-
ings liabilities of the savings and loan are passbook accounts. These are
assets held primarily by households which are payable on demand at full
principal value. The remaining 50% of the savings are primarily in the form
of certificates with maturities averaging substantially less than k years.
This is because few associations have had success in marketing these long-
term liabilities to savers, an indication that the saving customer is pri-
marily interested in return and high liquidity of his asset. Also, most
associations cannot afford to pay the going rates for long-term funds because
the spread between their asset yield and the cost of these funds is insuf-
ficient. When the saver is interested in longer maturing assets, it appears
that he is attracted to the primary security markets where he purchases
common stock, corporate bonds, municipal or government securities. Equally
important are life insurance reserves, pension fund reserves and real

property.

7

102

This liquidity requirement of the savings and loan associat ioncustomer
is reflected in the volatility of the savings account. Each year the total
withdrawals of savings in associations average over 30% of total savings
balances, as shown in Table 11-2, This indicates a high turnover and move-
ment of accounts as well as a high transactions use of the savings account
by households,

TABLE 11-2

Percent of Savings Withdrawals To Beginning

of Year Savings Balance 1966-1972

(DoI lars in Bill ions)

^ . ,,.^. . 1 Beginning of Year Percent of Savings
Year Savings Withdrawals .=' . ='„ , ,,-,.uj

^ Savings Balances Withdrawn

$ 110.4 36.3%

114.0 31.7

125.5 31.5

131.6 35.5

135.7 37.7
146.7 33.0

172.2 35^6

Source: Federal Home Loan Bank System, "Monthly Operating Statement of
all FSLIC Insured Associations, 1966-1972".

The four major attributes of the associations asset and liability
holdings include: (1) the fact that associations are very dependent on the
relative demands for credit in the residential mortgage market as evidenced
by the regulatory constraints which govern their permissible operations;
(2) the fact that associations bear a significant degree of interest rate
risk because of the nature of their asset-liability structure; and (3) the
fact that association assets, with the exception of a small proportion of
liquid holdings, are relatively unmarketable both because of the fact that a
relatively undeveloped secondary market exists for conventional mortgages,

8

1966

$ 40.1

1967

36.2

1968

39.2

1969

46.7

1970

51.2

1971

48.4

1972

61.3

103

but primarily because it is not possible for associations, due to their low
reserve position, to take large capital losses on their mortgages during
periods of rising rates; and (k) the fact that the liability structure of
associations has been confined to short-term maturities, primarily as a
result of the needs reflected in the market place by the household saver.

The Effects of Monetary
Instability on Association
Performance

Savings and loan associations derive their profits from performing two
important functions. One is the assumption of financial risk and the other
is the assumption of interest rate risk. By far the most potentially haz-
ardous of these has been interest rate risk.

Interest rate risk may be defined, for our purposes, as the uncertainty
concerning the future market value of a fixed return instrument. For the
lender, the interest rate risk concerns the probability that he will lend
funds with a known rate of return and a known series of cash inflows, but
with an unknown market value over the life of the contract. Savings and
loan associations profit from the assumption of interest rate risk by bor-
rowing (i.e., offering liabilities to households) in the short-term market
and lending in the long-term market. Gurley and Shaw provide a succinct
statement of this function.

"What is the business of financial intermediaries? They
lend at one stratum of interest rates and borrow at a
lower stratum. They relieve the market of some primary
securities and substitute other — indirect securities or
financial assets — whose qualities command a higher price.
This margin between yields on primary and indirect
securities is the intermediaries' compensation for the
special services they supply. "(2

The assumption of a positive margin between the two interest rate stra-

tums by Gurley and Shaw is particularly important for savings and loans.

9

104

More pointedly, savings and loans must rely on the probability that the
yield curve relevant to the savings and loans supply of and demand for
funds will be, on the average, positively-sloped. If this is not the case,
the investment media which compete for households' savings balances --
commercial and mutual savings bank deposit rates, and short-term open mar-
ket investments such as Treasury bills -- will be able to attract deposits
away from the associations.

The hazard of assuming interest rate risk by savings and loans has
been described by Rueben Kessel as:

"Converting long-term assets, such as mortgages, into
short-term liabilities is not arbitrage. It is not a
risk-free undertaking in a world in which future inter-
est rates are not known with certainty. Any uncertainty,
however small, about future rates implies that unantici-
pated changes in interest rates must occur. Given the
way that the money and capital market revises its esti-
mates of future interest rates when new knowledge is
acquired, the returns — income flows plus capital-value
changes — derived from long-term securities are more
variable than the returns on short-terms. Returns are
more variable for long-terms because of the greater
instability in the prices of long-terms which more than
offsets the greater yield-to-maturity variability of
short-terms. Reasoning symmetrically, the returns on
mortgages are more variable than the costs of deposits;
deposits have virtually zero term-to-maturity, and hence
exhibit less variability in realized returns than mortgages.

The propositions (1) interest rate changes are not per-
fectly anticipated, and (2) the market revises its esti-
mates of expected future rates in a manner that leads to
greater variability in the economic returns associated
with holding long as compared with short maturities,
imply that savings and loan associations have greater
variance in the economic returns on their assets than
in the costs of their deposit liabilities. Unantici-
pated increases in rates produce a fall in the market
value of assets that is not offset by a commensurate fall
in the value of liabilities. Therefore, equity, which for
savings and loan associations is reserves, falls. Converse
implications hold for an unanticipated decrease in rates.
In summary, savings and loan associations are long on
long-term money (mortgage) and short on short-term money

10

105

(deposits). Hence, they lose when there is an unantici-
pated rise in rates and gain when there is a fall."^-*

Prior to the mid- I96O' s , the assumption of interest rate risk by
associations had been a profitable one. During this entire period, with a
few exceptions, the level of interest rates in the short-term market, from
which associations compete for funds, was below that of the long-term mar-
ket, the interest rate strata from which associations buy their assets.
Moreover, this period was characterized by relative stability in the abso-
lute level of interest rates. As shown in Graph ll-l, prior to the mid-
1960's short-term rates moves in a narrow range of 0.8% to 4.3% following
the Federal Reserve - Treasury accord in 195', and long-term rates moved
in a range of 2.2% to 4.2%. Furthermore, it is not at all surprising that
the term structure have a favorable upward slope to it. Namely, short-term
rates tended to be well below long-term rates.

During the decade of the 60 ' s the economic and competitive environment
in which savings and loans operated underwent significant changes. This
marked the beginning of the period when savings and loan associations first
experienced the disruptive effects of a dramatic shift in the interest rate
structure. This period from I965 through the present could best be charac-
terized by the periodic use of restrictive monetary policies resulting in
tight credit conditions in the financial markets, and interest rate cycles
in which rates rose to record levels. The extent of these cycles is clearly
reflected in Graph ll-l after 1964. During this later period, short-term
rates moved within a range of 3.2% to 9.1%. Also, on three occasions short
rates rose well above long-term rates. These periodic rises in rates and
shifts in the term structure from one of upward-slope to downward-slope
severely taxed the liquidity, growth, and prof i tabi 1 i ty posi t ion of the

II

106

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12

107

industry.

It was the first of these periods, in 1966, during which association
management first became fully aware of the significant interest rate risk
they assume as a result of the inflexibility in their asset-liability struc-
ture. The experience of late 1965 and 1966 dramatized the potential size
of the interest rate risk assumed by associations as a consequence of their
asset-liability structure. In the 1969 and early 1970 and again in mid-1973
a similar situation occurred with comparable results — profits fell, liquid-
ity positions neared critical levels, and savings growth declined sharply.
The imposition of rate ceilings on savings and loan associations and
the continuation of constraining ceilings on commercial banks makes it
impossible to evaluate what could have happened to savings and loans during
this tight year period had the intermediaries been free to set rates. One
would have expected, however, that commercial banks with a shorter term
asset portfolio and variable prime rate on their assets, would have been in
a better position to raise rates on savings accounts than savings and loans.
It is not surprising that the greatest source of concern of the savings
and loan business, having experienced the economic upheavals of the last
decade, has centered around the evaluation of the appropriateness of its
asset-liability structure. This is with good reason since a secular unex-
pected rise in the level of interest rates together with a shift of the term
structure putting short-term interest rates above long-term rates has put
the industry in a critical earnings, profitability and liquidity position.

The Structural Dilemma and
the Need for Asset-Liability
Restructur i ng

Clearly there are costs to the savings and loan business and the housing

13

108

market and mortgage market of maintaining the constraints on the asset and

liability structures of the business. Irwin Friend stated it this way:

"While the available data are not adequate for assessing
the costs of the disruption in the housing and mortgage
markets induced by reliance on monetary stringency to
curb general inflationary pressures, it is clear that
these costs to home purchasers and sellers, to the
building industry, and to mortgage lending institutions,
are not negligible. The costs to young families and' to
disadvantaged groups looking for homes may be particu-
larly large. In addition to very real inconveniences
to prospective purchasers and sellers, the shift of
idle resources obviously is not complete or instantane-
ous and the operational efficiency of the construction
industry may be reduced significantly as a result of
major unplanned fluctuations in output. Moreover, the
profit requirements of the savings and loan as well as
the construction industries may be inflated by these
fluctuations in the volume of their business. For the
savings and loan industry, a prolonged period of infla-
tionary pressure contained mainly by monetary policy
and rising interest rates could be disastrous."
(underlining mine)^^

Certainly the savings and loan business would prefer to trade any
potential asset-liability freedom for a return to a period of economic and
monetary stability that existed prior to the early 1960's. Unfortunately,
such stability apparently is not within our grasp without risking the far
more hazardous result of experiencing excessive rates of unemployment,
under-uti 1 ization of resources, and general economic stagnation. The ten-
dency, however, during the last decade has not been to chance such a situa-
tion developing. Rather, most authorities would prefer to err on the side
of high employment and inflation. This expectation was clearly articulated
in the Report of the Commission on Financial Structure and Regulations
when they wrote:

"Projections of economic conditions in the United States
indicate a continued shortage of capital. When problems
of inflation arise, monetary policy will be used to
restrict the availability of credit. Occasional periods
of high interest rates will occur in the future. A con-

14

109

tinuation of the constraints that force deposit thrift
institutions to invest their funds in long-term assets
will cause a repetition of their recent experience. "'5

It is interesting to note that this statement was written less than
two years before tight money appeared on the scene again in .Tiid-1973.
Without the assurance that long-term monetary stability will reappear on
the horizon, it has become clear to many academic, governmental, and indus-
try spokesmen that the potential costs of too high a degree of specializa-
tion in the mortgage market have become excessive. To correct for these
intermittent periods of monetary stress, some restructuring of the asset
and liability powers of savings and loans has been deemed necessary. This
was the solution arrived by the Commission on Financial Structure and
Regulations when they wrote:

"Without changes in their operations, there is serious
question about the ability of deposit thrift institu-
tions to survive. "(6

Before that Irwin Friend concluded:

"Another lesson both of the 1966 crunch and the protracted
inflation of recent years is the need for introducing
greater flexibility into the asset-liability structure
of savings and loan associations (and other specialized
savings intermediaries) to the extent that this can be
done without undermining housing policy objectives . • .

A more promis i ng approach seems to be a judicious modifi-
cation of the present asset-liability structure of special-
ized intermediaries to alleviate the problems associated
with specialization; but this does not preclude further
measures toward integration of specialized and diversified
deposit intermediaries at some later time. "(7

The current structure of the savings and loan business makes it very

clear that it is not sufficiently adaptable to perform optimally in the

environment of monetary and economic instability such as that experienced

in this nation during the last decade. A major problem with the business

15

no

structure concerns the very high degree of specialization in long-term
residential mortgages. With such a high proportion of assets in mortgages,
associations are forced to assume a high degree of interest rate risk.
Although the introduction of long-term savings certificates has helped to
relieve this situation somewhat, the performance of the business in 1969-
1970 and mid-1973i suggests that some alteration of the asset structure is
also required. Certainly as long as the general economy is subject to
recurring periods of protracted inflation, followed by monetary restraint,
the costs of too high a degree of specialization in the mortgage marl<et by
associations will be too much to bear for the business and the mortgage and
housing market at large.

16

Ill

III. LEGAL AND OPERATIONAL PROBLEMS OF MORTGAGE MARKET SPECIALIZATION

In addition to the inflexibility of the savings and loan asset- 1 iabi 1-
ity structure, these institutions have traditionally had to bear high finan-
cial costs which result from various legal, regulatory, social, political
and competitive constraints on their operations. Such legal barriers as
state usury ceilings on mortgage rates, regulatory and political prohibi-
tions on the use of variable rate mortgages and competitive and social forces
that have liberalized mortgage lending terms to the consumer have resulted
in substantial financial costs and a loss of management flexibility for
the specialized mortgage lending intermediary.

This section will review several of these facits of mortgage invest-
ment as they effect the financial performance of savings and loan associa-
tions.

Us ury Cei 1 ings on
Mortgage Rates

In a number of states usury ceilings, dictating the maximum rates which
can be charged on residential mortgages, have existed, in one form or
another, for many years. The use of such ceilings is based on the proposi-
tion that in insufficiently competitive markets the establishment of maxi-
mum interest rate ceilings will prevent the most extreme form of borrower
exploitation. The justification for such ceilings may have been sound many
years ago when many markets had an insufficiently developed mortgage lend-
ing business. Today, however, the competition between savings and loans,
commercial banks and mutual savings banks, all of whom participate in the
mortgage market, have made the mortgage market one of the most competitive
of any of the credit markets.

17

112

The effect of usury ceilings on those associations located in states

where the maximum rates are set below the free market can be devastating.

Rueben Kessel, writing in the Friend study, explained it this way:

"Whether or not these ceilings have any economic effects
depends upon the level of interest rates in the market
and the ability of mortgagees and mortgagors to transact
business legally at economic rates in excess of ceiling
rates.

From the point of view of a financial institution, effec-
tive ceilings induce it to invest either in media not
subject to the ceiling, or buy mortgages in the secondary
market which are typically originated out of State, or
buy participations in our-of-state mortgages. Even if
a financial institution were willing to forgo higher
yields available in the secondary market in order to
lend locally at ceiling rates, it would lose its share
of the market to institutions that did not forgo higher
secondary market rates. "(°

The problem with Kessel 's statement is that while associations in usury
states do tend to invest in out-of-state mortgages during periods when the
ceiling rates are set below free market, there exist regulatory constraints
which prohibit associations from placing a large proportion of assets in
other than locally-originated mortgages. As a result, associations in these
states are forced to originate and hold a larger volume of mortgages with
commensurately low yields. This in the long-run causes them to lose a sub-
stantial share of the savings market since they are unable to compete for
savings at the market rates required. Moreover, during periods of tight
money these institutions, already in a weakened condition, are susceptible
to significant financial stress that has on occasion resulted in near finan-
cial insolvency and forced merger.

Those mortgage lenders who have greater asset freedom, however, do not
face similarly hazardous results. Commercial banks and mutual savings banks,
for example, are able to divert their funds into non-mortgage assets such

18

113

as corporate bonds, business loans, and consumer credit.

The high cost of subjecting associations to usury ceilings has caused

the Friend Study to conclude:

"Rate ceilings on mortgages are not generally desirable
since normally it is not possible to set them at compe-
titive rates, with the result that they seem to have the
effect more of restricting and distorting supply than of
protecting borrowers."^"

More recently, the Presidential Commission on Financial Structure and

Regulation recommended that:

"States remove statutory ceilings on allowable interest
rates on residential mortgages, unreasonable restrictions
on loan-to-value ratios for all lenders and, as required,
remove legal imped iments to the use of variable rate mort-
gages." (10

Effects of Consumer Oriented
Loan Terms on Associations

As discussed in the previous section, the asset-liability structure of
savings and loan associations is such that during protracted rises in interest
rates the portfolio yields for associations does not increase fast enough
to match the increases in savings rates required to remain competitive.
One would expect this phenomena to work in reverse during periods of declin-
ing interest rates. Unfortunately for associations, however, declines in
the interest rate structure create substantially smaller "windfall gains"
when compared to the capital losses incurred during periods of rising rates.
This is so because few associations have legal authority or the competitive
ability to write mortgages with restricting prepayment penalties. For exam-
ple, the Federal Home Loan Bank Board's Regulation S'+S.^-IZ stipulates that
a mortgage on an owner occupied house must permit a prepayment up to 20%
per year on the unpaid principle without penalty and then precludes a

penalty greater than 6 months interest on the amount of prepayment exceed-

19

114

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20

115

ing 80% of the unpaid balance. As a result, during periods of declining
mortgage rates a larger percentage of loans made during earlier periods at
higher than current rates are prepaid or refinanced.

Table lll-l shows the results of an analysis designed to estimate mort-
gage loan prepayments, that portion of the repayment of principle of mort-
gage debt loans resulting from earlier than contracted payments on the
mortgages or ref i nancing. (' ' These payments tend to be an extremely vola-
tile source of funds to mortgage lenders. Notice that during periods of
falling mortgage rates, such as from I96O-I965, when the FHA secondary mar-
ket rate fell from 6.8% to 5.^6%, the volume of prepayments rose substan-
tially. The opposite also took place from 1965 through 1969, a period of
rapidly rising interest rates. During this period, the FHA rate rose from
5.^6% to 8.26% while the estimated prepayments declined from $8.0 billion
to $2.5 bi 1 1 ion.

These data confirm the contention that savings and loan associations
find their earnings and liquidity problems exaggerated as a result of their
generally liberal lending policies, i.e., generally small prepayment penal-
ties on mortgages and the lack of acceleration clauses (a clause requiring
refinancing of the mortgage if the property changes hands) on many of their
mortgages. The result is that during periods of rising mortgage rates, when
association performance would be enhanced by early pay-off of the older,
generally lower-rate loans made in earlier periods, they find that these
loans remain on the books closer to maturity. When mortgage rates decline,
however, and associations stand to reap wind-fall profits from their large
holding of mortgages made at higher than current rates, they find that the

average life of these loans diminishes significantly and many of their

/

higher rate loans are refinanced or prepaid.

21

99-855 O - 73 - pt. 1 -- 9

116

The fact that the estimated prepayment figure has been close in magni-
tude to the savings receipt figure, also shown, indicates the importance of
prepayments as a source of cash for associations. Again, prepayment exper-
ience tends to exaggerate the liquidity and earnings problems and, thus,
savings and loan performance by declining during periods of peak mortgage
rates and loan demand and rising during periods of relatively low mortgage
rates and ample credit.

The traditional practice for associations to make mortgage loans which
are callable at any time by the borrower, with generally small or no penalty
at all, creates significant earnings problems for the business during per-
iods of economic instability, such as we have experienced during the last
decade. Moreover, consumer resistance to greatly increasing prepayment
penalties has been substantial. This has resulted in ever greater costs
for the business of residential market mortgage specialization in an unsta-
ble economic environment.

Legal and Social Constraints
Against the Use of Variable
Rate Mortgages

The variable rate mortgage has been suggested as a means of providing
the thrift institution with the ability to adjust the earnings on its loan
portfolio as its cost of funds varies. As its name implies, a variable
rate mortgage is a mortgage whose stated rate of interest varies as econo-
mic conditions, and hence interest rates in general, vary.

The introduction and wide-spread use of the variable rate contract
would not cure all of the problems of the thrift industry. If the contract
were a cure-all, competition would eventually dilute its advantages. It
does, however, provide a method for transferring a large portion of the

22

117

interest rate risk from the institution to other parties. This, in itself,
would be a major step forward in relieving the recognized imbalance in the
asset and liability structures of thrift institutions. Also, the variable
rate contract would not be expected to relieve the business of the problems
of overspecial izat ion in an asset whose yield may fall in relation to
others. Nevertheless, it could provide institutions with some protection
from cyclical and secular increases in interest rates such as were exper-
ienced during the 1965-1973 period. It is for this contingency that the
variable rate concept has been proposed and recommended.

Despite the salient features of the variable rate mortgage, there is
little use of the contract today by the savings and loan business. This is
primarily the result of legal, regulatory, social and political constraints
against using this contract. Very recently, in fact, the Federal Home Loan
Bank Board refrained from issuing regulations specifically permitting the
use of variable rate mortgages by savings and loans, in part, because of
the operational problems of writing such contracts but primarily because
of the social and political pressures brought upon them against its use.
Moreover, the FHA and VA mortgage contracts, which compete with conventional
mortgages, do not permit the variable rate alternative. This adds to the
difficulties of the institution that would like to offer this contract to
his customers.

Although the variable rate contract has been viewed skeptically by

many groups, its use can be easily justified. First, it is clear that the

borrower has been the major beneficiary of the interest rate risk born by

the lender. He profits through the appreciation on his property during

periods of inflation and rising interest rates. In addition, during periods

of declining interest rates he is able to terminate his mortgage through

23

118

refinancing and thereby limit his exposure to any significant portion of
this risk.

A second justification for the use of the variable rate mortgage relates
to the differing abilities of thrift institution managers to discern the
magnitude of future interest rate risk. An institution which has signifi-
cantly different expectations from the consensus regarding the degree of
interest rate risk which will be realized in the future has few options
available to protect itself. This is particularly true under the present
legal and tax constraints which force the institution to invest heavily in
long-term mortgage investments. The variable rate contract provides one
method for increasing the flexibility of management and spreading some por-
tion of the interest rate risk to another party.

In a recent independent study done for the Federal Home Loan Mortgage

Corporation, George M. von Furstenberg wrote:

"Once price level risks are recognized as substantial in
any economy, many forms of financing are bound to change.
For instance, level premium permanent life policies and
endowment policies with fixed fact amount will eventually
become obsolete. Similarly, private pension plans will
have to provide for cost-of-living adjustments or escala-
tor clauses of the kind now proposed for the social secur-
ity program.

The introduction of variable rate mortgages would change
this prospect no matter what the future course of inflation.
They represent an imaginative form of institutional adaption
to changing competitive conditions in the capital markets.
The desire for self-help rather than implicit subsidies
ultimately extracted from policyholders, pensioners, or
the general public motivates the plea for the introduction
of variable rate mortgages. If only fixed rate mortgages
are used, mortgagors and mortgagees are forced to specu-
late on the long-run course of prices in an environment
of almost complete uncertainty — and with potentially ser-
iously inequitable results. If expected outcomes can only
be forecast within wide confidence intervals, the borrower
or the lender will normally be disappointed by actual events.
Under conditions of significant inflation, the two parties

2k

119

will therefore be averse to fixed-rate contracting and
require premiums which restrict both the demand and the
supply of mortgage credit. "(12

Clearly the social and legal constraints against using the variable rate

contract on residential mortgages has helped to exacerbate the liquidity and

earnings problems of associations. Having only the fixed-rate mortgage

alternative has perpetuated the problems resulting from the asset-liability

imbalance of the business, thus, increasing the exposure to the serious

effect of excessive interest rate risk.

Summary

The legal, regulatory, and social and political environment in which
savings and loans operate has resulted in significant financial costs and
the loss of important management options for the business. Usury laws in
various states, together with geographical limitations on the amount of
loans that can be held out of state by an association, have subjected large
numbers of institutions to significant financial stresses. Regulatory and
competitive constraints, forcing the business to write their mortgage con-
tracts with prepayment penalties and other clauses that allow the borrower
to renegotiate or refinance his loan during periods of falling interest
rates with minimal penalties, have also substantially reduced the ability
of the industry to receive capital gains during periods of falling rates.
Yet, the industry must pay the price of large capital losses and liquidity
problems during periods of rising rates. Finally, legal, regulatory, and
social and political constraints, which have minimized the use of variable
rate mortgages for most of the business, have exacerbated the liquidity and
earnings problems of the industry during periods of protracted rises in
interest rates.

25

120

IV. THE UNEXPECTED COSTS OF GOVERNMENTAL
INTERVENTION IN THE MORTGAGE MARKET

During the last several decades, providing adequate shelter for the
American people has remained a top social priority item for our government.
During the depression of the 1930's, for example, there was as much signi-
ficant legislation passed effecting the housing and mortgage markets as
during any period of American history. But even with the many changes in
the techniques of housing finance and the growth of the institutions ser-
vicing the mortgage market prompted by the 1930 legislation, the role of
the federal government in the mortgage and housing markets has increased
and even accelerated in recent years.

The 19^9 Housing Act called for "...a decent home and suitable living
environment for every American family." This statement has been reiterated
many times since 19^9 and in some sense was responsible for the important
1968 Housing and Urban Development Act and subsequent legislation which
has significantly effected the institutions servicing the mortgage market.
This section will review the tremendous efforts made by the federal govern-
ment to provide a decent home for every American family. To do so, an analysis
will be made of changes which have occurred in the form that governmental
subsidies have taken in the housing area. We will do this since it is our
contention that this shift in subsidy method has had a profound detrimental
impact on the viability of specialized mortgage lending institutions serving
the mortgage market.

The Governments Role in the
Mortgage Market During the
Post War Period

The Housing Act of 19^+9 clearly articulated the high social priority

26

121

attached to housing in the United States. Throughout most of the post-war
decade until the late 60's, however, the relative impact of the government's
housing activities was relatively innocuous. Although many housing acts
were passed, most of them dealt minor changes such as liberalizing FHA and
VA insurance and guarantee programs and increasing the activities of the
Federal National Mortgage Association (FNMA).

Probably the most important reason for the relative lack of govern-
ment activity during this period was the fact that housing did not seem to
have any critical problems. The economy during this period was character-
ized by relative price stability and relatively high rates of unemployment
as compared to current social goals. This resulted in an upward sloping
term structure which lasted for almost an entire two decades. As a conse-
quence, the private mortgage lending sector, made up primarily of thrift
institutions, found it easy to attract funds in the short-term sector and
make long-term loans in the mortgage market at very attractive spreads. It
was during this period that savings and loan associations became the fast-
est growing financial intermediary and the most profitable, a condition
which continued through the early 60's. It was not until the mid-60's that
the war induced inflationary pressures and high employment acted to restrict
the ability of private financial institutions to meet the needs of mortgage
demanders.

The decline in housing starts in 1966, although the fourth notable
cyclical decline in the post-war period, was by far the most serious. This,
combined with the liquidity and earnings problems of thrift institutions,
prompted Congress to develop new ways to achieve their housing goals. The
Housing and Urban Development Act of I968 was a landmark piece of legisla-
tion and suggested the magnitude of the commitment that Congress was willing

27

122

to extend in the housing area. This act provided for: (1) two important
new programs to subsidize mortgage interest for low and moderate income
families; (2) the establishment of special ,high risk insurance fund for
certain FHA mortgages; (3) the conversion of FNMA to privately owned cor-
poration; (k) the establishment of the Government National Mortgage Corpora-
tion, and (5) the authorization for the Farmers Home Administration to make
direct and insured loans available to low and moderate income families in
rural areas and small towns with interest rates as low as 1%.

Subsequent to the Housing and Urban Development Act of 1968, additional
legislation has been passed to increase the federal government's and its
agencies role in the mortgage lending area. These include the Housing and
Urban Development Act of 1969, which created the Government National Mort-
gage Association's pass-through security programs; the Emergency Housing
Finance Act of 1970, which created the Federal Home Loan Mortgage Corpora-
tion, provided the authority for FNMA to purchase conventional mortgages,
and created the Super-Tandem Plan to enable FHA rates to be subsidized at
below market rates, and the Rural Development Act of 1972, which liberalized
the Farmers Home Administration mortgage lending powers through the elimina-
tion of the debt limit on FmHA notes, and the authority for FmHA to make
non-residential loans in cities with populations up to 50,000.

This series of legislative changes since 1968 has already grossly

altered the structure of the mortgage market and has the potential of more

significantly affecting it in the future. As a result of this legislation,

demanders of mortgage credit have found the supply of credit greatly expanded

through the increased capability of these government agencies to tap the

money and credit markets at preferred rates and to make virtually an unlimited

28

123

volume of loans available to low and moderate income stratas of American
families and through the conventional loan purchase programs upper income
fami 1 ies.

The importance of the preferred borrowing position of the federal agen-
cies should not be underestimated. These agencies have a definite borrowing
advantage over the private sector which is evidenced in Graph IV- I showing
the relationship between the privately issued notes and debentures of sev-
eral of our country's largest finance companies, the securities of several
Federal agencies, and the risk-free Treasury security rate. The graphs
represent two periods, one of generally "easy money" (April 1, 1971) when
the term structure had a significantly positive slope and "a period of
monetary constraint" (January 1, 1970) when the term structure had a signi-
ficantly negative slope.

Although the negatively sloped term structure is usually associated
with booming economic conditions and the relatively low perceived default
risk, the spread between the privately issued securities and the government
agency rates average nearly 100 basis points, except for the short-term
maturities where the premium was 25 to 50 basis points. The premium paid
by federal agencies over the Treasury, however, remained near or below 50
basis points throughout most of the maturity range.

The advantage of the agencies becomes even more apparent during easy
money periods, however. Here the additional interest paid by the private
sector ranged from 125 to 200 basis points. Also, the premium paid by the
federal agency over the Treasury falls to about 25 basis points over most
of the maturity range.

The techniques used by the federal government to enhance the supply of

mortgage credit are varied, but in each case the recent federal efforts

29

124

GRAPH IV- I

9%

BOND YIELD CURVES
(Yield To Maturity)

APRIL 1, 1971

1%

5%

3%

X

X

X

«

X

X

X

r I i I

o c

J I I J,, I I I J L_3

9.5% I ^

JANUARY 2, 1970

8.5%

7.5%

X

o o

X

X

X

X

• X

6.5%

tu.

Key: ... U.S. Treasury securities
XXX Agency issues
ooo Finance company "A" Bonds

J-U L

o o c

J t I u

0 3 6 9 12

Years To Maturity

Source: "The Bond Buyer" and Standard and Poor ' s Bond Guide.

30

15

125

involve some sort of direct or indirect social subsidy to the home buyer.
Basically, these subsidies fall into four categories:

(1) The use of the federal guarantee and insurance to
lower the default risk premium on mortgages,

(2) The use of the preferred borrowing position of the
federal agencies to increase the quantity of mortgage
credit available at favorable rates,

(3) The use of the "full faith and credit" provisions,
generally associated with treasury securities, to
increase the volume of mortgage credit available at
favorable rates,

(^) The use of direct federal subsidy to lower the

mortgage interest costs to home buyers and renters.

The effects of this significant increase in federal activity in support
of the mortgage market is quickly seen by glancing at Table IV-I which shows
the growth since I960 of several of the major federal agencies and govern-
ment sponsored enterprises. Of particular interest is the fact that the
largest growth in federal support has occurred in the last three years, a
period in which the private sector has been in its best position to meet
the needs of mortgage demanders. This recent growth in federal involvement
suggests a significant question relating to whether these agency activities
are having harmful external side effects on private mortgage lending insti-
tutions. Furthermore, their growth poses a question of how much direct
and indirect social subsidy should be granted to mortgage borrowers and,
equally important, the form that the subsidy should take.

In this regard, it is our contention that recent legislative efforts
to support housing goals have resulted in social costs which are both enor-

31

126

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32

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mous and at the same time extremely difficult to measure because of the
indirect nature of many of these subsidies. Furthermore, it is our conten-
tion that because of the form that these subsidies take, the federal involve-
ment is having serious external side effects on the long-run growth and
earnings prospects of private specialized mortgage lenders. In order to
verify this contention, we will develop a short scenario of how these recent
government efforts have and may continue to serve to crowd out the private
sector.

Effects of Government Programs
to Support Housing on Private
Specialized Mortgage Lending
Inst i tut ions

If It is true that recent federal efforts in support of residential
housing are having harmful external effects on the viability of private
nrartgage lending institutions, then we would anticipate that these efforts
will tend to reflect themselves in changes in the form of the mortgage
instrument used, in the relative rates earned on the mortgage loan, in
changes in the relative holdings of mortgage assets by various institutions
and in the aggregate level of federal agency credit used to support the
mortgage market. Before we determine whether these changes have indeed
occurred, it is necessary for us to show how the form of the direct and
indirect subsidy programs used by the federal government can significantly
alter the distribution of benefits, inherent in any subsidy programs
between the various suppliers of mortgage credit and the home buyers, the
ultimate benefactor of the subsidy.

Prior to the last few years, the three major subsidy methods used by

the federal government to support the mortgage markets were:

(1) The ability given to Federal Home Loan Bank member

33

128

associations to tap the money and credit market
for funds to expand their lending operations at
preferred market interest rates,

(2) The provision given to specialized mortgage lending
thrift institutions (in return for constraints which
forced these firms to specialize in mortgage assets)
of important tax advantages which greatly lowered the
effective tax rate of these firms, and

(3) An indirect subsidy in the form of mortgage guarantee
and insurance provided to a specific income strata of
the mortgage borrowing public.

It can be shown that the effects of these types of subsidies will also
benefit specialized mortgage lending institutions. As is the case in any
housing subsidy, its benefits are divided, depending on the relative
elasticities of the supply and demand curves for mortgage credit, between
the producer - the mortgage lender-and the consumer - the mortgage borrower.
As in the case of the first two of these major subsidies - the ability for
Federal Home Loan Bank member associations to borrow and the tax advantages
given to specialized mortgage borrowers - the subsidy flows through the mort-
gage producer to the borrowing consumer. Thus, the thrift institutions have
historically benefited along with the borrower.

The major exception to this was the widespread use of FHA insurance
and VA guarantee mortgages. The wide use of these instruments, as mentioned
above, lead to increased standardization of the mortgage contract, resulting
in increased average maturities and loan-to-value rat ios on loans offered by
all mortgage lenders. This tended to increase the interest rate risk expo-
sure of thrift institutions. In addition, the high degree of standardiza-

129

tion of these mortgages gave apparent advantages to mortgage banking compan-
ies who specialize in the origination and servicing of this unique type of
mortgage instrument. Insofar as the use of these instruments resulted in
an indirect subsidy to the borrower, this subsidy did not aid the thrift
Institutions, but instead flowed through the mortgage banking companies,
who play the predominant role in their origination and servicing.

The period of the late 60's, however, witnessed significant changes
in the form of subsidies provided by the federal government and as a result
a redistribution of their benefits among the various producer and consumers
of mortgage credit. In 1962 and again 1968, as shown in Table IV-2 for
example, the federal tax law regarding thrift institutions was altered,
thus el iminating most of the federal tax subsidy which flowed through the
thrift institutions to the mortgage borrowers. As a consequence, one of
the major types of indirect government subsidy to mortgage market borrowers
and its resulting benefits to thrift institutions was significantly dimin-
ished.

More importantly, the legislation fostering the growth of FmHA and
FMNA and creating the FHLMC, the GNMA pass-through security program, and
the government subsidy housing programs also greatly altered the distribution
of implicit government subsidies between the various producers and consumers
of mortgage credit. This occurred because each of these subsidy programs
operate rather independently from the group of specialized mortgage lending
institutions. In other words, these programs work to provide subsidies which
do not flow through private mortgage lending institutions, but instead flow
around them. Thus, as a result of these new programs, the private mortgage
lenders do not now receive any portion of the subsidy benefits which are
normally divided between producer and consumer. Further, the change in

35

130

TABLE IV-2

Average Effective Tax Rate of FHLB Member
Savings and Loan Associations
1950-1972
(Dollars in Thousands)

Net Income After

Dividends But

Federal Income

Average Effective

Year

Before Taxes

Taxes Paid

Tax Rate

(1)

(2)

(1-2)

1950

$ 164.817

$ -0-

0.0%

1951

178,390

-0-

0.0%

1952

194,404

-0-

0.2%

1953

236,498

4,783

2.0%

1954

289,567

5,509

2.0%

1955

360,962

5,505

1.5%

1956

391,800

5.070

1 .3%

1957

232.037

4,225

1.8%

1958

481,880

5,625

1.2%

1959

555,787

5,346

1.0%

i960

563,703

4,160

0.7%

1961

727,334

3,758

0.5%

1962

832,189

3,330

0.4%

1963

775,759

93,598

12.1%

\9ek

950.148

132,787

14.0%

1965

963,369

135,366

14.1%

1966

759,569

98,376

13.0%

1967

736,952

95,488

11.4%

1968

1,040,936

150,083

14.4%

1969

1,267.268

195,975

15.5%

1970

1,165,920

216,152

18.5%

1971

1,748,108

359,847

20.6%

I972^v

2,504,000

545,000

21.8%

NOTE: The significant step increases in the average effective tax
rates for the years I963 and I968 reflect respectively, the
1962 and 1968 changes in the tax law.

"Estimated

SOURCE: Federal Home Loan Bank Board, Combined Financial Statements
(Washington, 0. C. ), various issues.

36

131

thrift institution taxation has el iminated most of the benefits they had in
the past.

Government involvement in the mortgage and housing markets during the
last several years has not been limited to the federal government. State
governments, as well, have significantly escalated their role in the subsi-
dization of housing through the formation of state housing agencies. These
agencies, whose activities are implicitly subsidized by the federal govern-
ment through the provision given them to issue tax-exempt securities, have
been growing rapidly to play a large role in the financing of residential
housing.

As recently as 1968, there were only 9 state housing agencies, most
of which had not been in business long enough to have any impact on their
local housing markets. As of mid-1972, however, the number of state-spon-
sored agencies with powers to enter the housing and mortgage markets had
blossomed to 29, representing 2k states. Table l\/-3 shows a list of the
debt outstanding for those agencies established and gives a good indication
of the extensive growth of their activities in a short span of a few years.

The creation of new governmental and quasi-governmental institutions
and the growth of existing ones during the last few years raises the more
important question of whether or not private specialized mortgage lending
thrift institutions can compete with these new institutions for both assets
and funds. This further suggests that these specialized thrift institutions
will find it increasingly difficult to compete for funds against intermedi-
aries who have broader asset diversification authority.

Although answering this question is not easy, some evidence concerning

the problems that specialized mortgage lending intermediaries are having as

a result of this new found competition is available. This evidence comes

37

132

TABLE IV-3

Financing Operations of State Housing Agencies
(Dot lars in Hi 11 ions)

Authorized
Bonding
Established Capacity

Outstanding

Alaska Housing Finance Corp.
Connecticut Housing Finance Authority
Delaware State Housing Authority
Georgia Development Authority

for Housing Finance
Hawaii Housing Authority
Idaho Housing Agency

Illinois Housing Development Authority
Kentucky Housing Development Corp.
Maine Housing Authority
Maryland Dept. of Economic 6-

Community Development:

Community Development Admin.

Div. of Home Financing

Maryland Housing Fund
Massachusetts Housing Finance Agency
Michigan State Housing

Development Authority
Minnesota Housing Finance Agency
Missouri Housing Development Commission
New Jersey

Housing Finance Agency

Mortgage Finance Agency
New York

Mortgage Agency

State Housing Finance Agency

State Urban Development Corp.
North Carolina Housing Corp.
Ohio Housing Development Board
Pennsylvania Housing Agency
South Carolina Housing Authority
Vermont Home Mortgage Credit Agency
Virginia Housing Development Authority
West Virginia Housing Development Fund
Wisconsin Housing Finance Authority

1971

Unl imited

70. I4

1969

Unl imited

26.2

1968

Unl imited

None

1972

Unl imited

None

1970

60

None

1972

Unl imited

None

1967

500

55.0

1972

205

None

1969

Unl imited

19.7

1972

Unl Imited

None

1971

10

None

1970

7

None

1966

1000

21.6

1966

800

90.0

1971

150

None

1969

100

12.9

1967

Unl imited

106.5

1970

Unl imited

91.2

1970

750

N/A

I960

2500

939.1

1968

1500

397.5

1969

200

None

1972

N/A

None

1971

Unlimited

None

1971

N/A

None

1968

30

None

1972

Unlimited

None

1968

130

12.2

1972

150

None

cies and

Standard & Poor

's

SOURCES: Various reports of the state agencies
"Municipal Bond Selector".

/■

38

133

In the form of empirical substantiation of several of the changes we would
expect to occur as a result of federal intervention. These include changes
in:

(1) the relative holding of mortgage loans among the
various institutions;

(2) the relative rates they earn on these assets as
compared to other competing debt instruments; and

(3) the susceptibility of thrift institutions to tight
money conditions.

Each of these expected changes will be considered separately below.

Shift in Relative Holding
of Mortgage Loans by
Various Lenders

We would anticipate that if federal government intervention is making
important inroads into the mortgage market that holdingsof mortgage loans
would become concentrated in two basic groups. These are the specialized
mortgage lenders and the government agencies. This would occur because
the specialized mortgage lenders must hold mortgages, having few options,
while the more diversified lenders would tend to move out of the mortgage
market in response to higher returns available elsewhere. Table IV-'+
substantiates this pattern. It shows the distribution among various lend-
ers of total mortgage loans outstanding.

The table indicates that over the last several decades the holding of
total mortgages have increasingly become concentrated in the hands of thrift
institutions and the government agencies, while other lenders either hold
significantly less of the total or have unchanged positions. Even the

mutual savings banks, who may purchase corporate bonds and several other

39

134

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135

assets, have not increased their relative share, but have shifted to other
assets in recent years. These trends are also substantiated when one looks
at the percent of home mortgage loans to total assets of the respective
lenders.

Shift in Relative Rates

Earned on Mortgage Assets

Probably the most significant structural change which has occurred in
the mortgage market has been the substantial decline in mortgage loan inter-
est rates relative to other long-term debt instruments. Table IV-5 shows
the average effective interest rate on conventional home loans, the average
rate of AAA corporate bonds and the spread between the two rates from mid-
1965 to mid-1973. Of particular interest here is the substantial decline
in the spread the mortgage rates have had over corporate bond rates during
this short span of years.

Although mortgage rates have declined relative to corporate bonds rates
since the late 40'5, the decline has accelerated in recent years. This
decline can be attributed to two causes. First, the ex ante risk of a
mortgage loan may have been improperly evaluated on the high side, causing
the return earned on mortgages to be higher than justified given the default
losses which occurred. No doubt this hypothesis has merit and accounts for
some portion of the decline. The second reason, however, is probably that
the tremendous efforts made by the federal government to attract funds for
mortgages through the use of the preferred borrowing position of the govern-
ment and its agencies has resulted in mortgage credit becoming available at
lower rates than would have been the case without this indirect subsidy.

The significance of this structural change in rate spreads cannot be

k2

136

TABLE IV- 5

Levels and Spreads Between the Conven l Iihi.tI Mortgage Rate

and AAA Corporate Bond R.iln.'-

(1965-1973)

SPREAD BETWEEN

MORTGAGE

YEA« AND

EFFECTIVE MORTGAGE RATE

TRIPLl

AAA CORP.

RATE AND

QUAIUEK

ON HOME LOANS

BONI

HATE

CORP. RATE

1961.

1 1

5.76%

4.

'iW,

1 . 26%

196^

V

5.78

4.

(.1

1.17

1966

5.85

4.

(II

1.04

1966

6.03

5.

00

1.03

1966

1 1

6.17

5.

y/

.85

i960

V

6.39

5.

.«!)

1.01

196/

6.'+3

5

IZ

1.31

1967

6.31

5

?(.

1.05

1967

1 1

6.35

5

(.z

.73

1967

V

6.45

6

OJ

.42

)96B

6.59

6

IJ

.46

1968

6.86

6

'^',

.61

1968

1 1

7.22

6

OH

1.14

1968

V

7.22

6

?4

.98

1969

6.59

6

13

.46

1969

6.86

6

2>,

.61

1969

1 1

7.22

6

OH

1.14

1969

V

7.22

6

24

.98

1970

8.41

7

H'J

.52

1970

8.45

8

I'l

.31

1970

II

8.50

8

22

.28

1970

8.Mt

7

'Jl

.53

1971

7.92

7

2?

.70

1971

7.49

7.4/

.02

1971

1 1

7.74

7

'J>

.18

1971

IV

7.80

7

30

.50

1972

7.64

7

Vi

.41

1972

7.53

7

2lt

.25

1972

III

7.57

7

?!

.36

1972

IV

7.64

7

14

.50

1973

7.69

7

22

M

19/3

1 1

7.73

7

31

.42

5VRates shown are quarterly averages of monthly figures.

Sources: Federal Home Loan Bank Board; Federal Reserve lui.uil.

43

137

underestimated. Since specialized mortgage lenders intermediaries must
compete for funds against agencies, with their preferred borrowing posi-
tions, and with other intermediaries with their broader asset acquisition
authorities, it is clear that if they do not earn a commensurate return
on their assets they will find it increasingly impossible to grow and gen-
erate adequate profits. ('3 The evidence here seems to suggest that compe-
tition from federal agencies is indeed having harmful external side effects
on the private specialized mortgage lending intermediary.

Role of Federal

Agencies Accelerates

Additional evidence that federal involvement in the mortgage market is
posing a serious competitive threat to other lenders is verified by their
sheer growth. As shown earlier in Table I V- I , the advantage inherent in
the agencies preferred borrowing position has prompted them to grow even
when adequate funds are available from the private sector. During 1971 and
1972 the thrift institutions had high liquidity and record savings flows.
Nonetheless, these agencies continued to borrow and supply a record volume
of funds to the mortgage market, in most cases, competing for the same assets
that thrift institutions were attempting to acquire. The evidence here
seems to indicate that federal agencies will continue to provide an increas-
ing proportion of mortgage credit, either directly or indirectly. Their
major advantage being their ability to borrow funds in the money and capital
markets at preferred rates in order to make funds available to the mortgage
market. Since only one of the agencies works in such a way as to benefit
thrift institutions, i.e., the FHLB, it is likely that thrift institutions
will find it increasingly more difficult to compete for funds and assets
at acceptable rates of return.

138

Thrift Institution Susceptibility
to Tight Money

The significant growth in these agencies which have access to the
credit markets also presents additional problems to thrift institutions
during periods of tight money. Unlike the major depository intermediaries,
these agencies have no constraints in the rates they can pay for funds.
Consequently, during periods of tight money, they are in a pcsit.ion to
out-compete all thrift institutions for funds and mortgage loans. This
occurred in 1969 and 1970 when the agencies provided over 30% of the net
new funds reaching the mortgage market. Furthermore, they even have the
advantage of being able to out-compete many corporate borrowers for funds.

The inherent advantages of the agencies in supporting the mortgage
market will probably lead to greater instability of the thrift industry in
the future. As money market rates surpass Regulation Q ceilings, thrift
institutions will begin to lose money. Then as the agencies move aggres-
sively to meet mortgage demand, the result will be even greater disinterme-
diation pressures on thrift institutions. Borrowing will rise to a high
percentage of total liabilities and together the agencies will be the major
contributors of new funds to support the mortgage market at the exclusion
of the thrift institutions.

Summary

Our review of governmental activities in the mortgage market indicated
that important alterations in the techniques used by the government to sup-
port the mortgage market have been made during the last decade. Generally
speaking, the method of subsidy and support, which consisted of tax and
other advantages given to thrift institutions to support housing, has been

replaced with a new group of agencies and subsidy methods that operate

45

139

Independently of the private specialized mortgage lenders. This means that
the thrift intermediaries specializing in mortgage loans are receiving far
less in benefits to compensate them for the constraints put on their asset
and liability structures and the high risk they face in acquiring long-term
mortgages with short-term liabilities.

More importantly, recent federal programs to support housing currently
pose a significant competitive threat to thrift institutions. This compe-
tition is the result of a preferred borrowing position of the agencies and
an accelerating trend toward greater standardization of the mortgage. In
addition, the more recent move of FNMA and FHLMC to create standardized
conventional mortgage contracts has largely resulted in contracts that are
very favorable to borrowers, i.e., most lack prepayment penalties and accel-
eration clauses. These contracts, which will be offered by mortgage bankers
among others in the conventional market, pose a type of non-price competition
for thrift institutions so long as the secondary market firms are willing to
purchase them at favorable rates, a situation which seems quite likely.

To summarize the recent efforts of Congress to limit the exposure
of the mortgage market to periodic declines of great amplitude appear on
the surface to be successful. The method used, however, has resulted in
high direct and indirect costs to society in the form of subsidy. More
Importantly, however, the form that the government's efforts have taken
has largely abandoned the presently operating thrift institutions who must
bear the costs in terms of forced specialization. The evidence accumulated
during the last few years indicates that thrift institutions will increas-
ingly find it difficult to compete for funds and mortgages against these
agencies. Furthermore, it appears that the rates they earn on their new

140

loan acquisitions, as a result of their competing with these agencies, will
not be commensurate with the rates they will have to pay to attract funds
from intermediaries with broader powers. Finally, there is cause for con-
cern that during future periods of tight money the thrift industry will find
themselves in a more unstable position, where agency efforts to bolster the
mortgage market will take its toll in terms of more hazardous disinterme-
diation, liquidity and earnings problems for the thrift industry.

141

V. CONCLUSIONS

Dramatic changes in the economic, competitive and political environment
within which savings and loan associations operate have prompted serious
questions about the advisability of maintaining the historically rigorous
constraints on the allowable investment activities of associations. This
paper is an attempt to evaluate the costs to the consumer, the savings and

loan business and the financial markets in general of restricting the business'

investment powers to the mortgage market.

The paper focuses on three major areas of consideration. These include:
(1) the question of whether the existing asset-liability structure of the
business is sufficiently adaptable to changes in the aggregate economy such
as we have experienced in the last decade and the attendant costs of main-
taining this structure to the consumer, the housing industry and the financial
performance of the savings and loan business; (2) the effect of specific laws
and regulations and traditional consumer motivated mortgage financing prac-
tices on the financial performance of associations and their ability to
serve the public; and (3) the unanticipated side effects of the substantial
changes in the form and level of government participation in the mortgage
market on the specialized mortgage lending intermediary.

The review of the asset-liability structure of associations indicated
quite conclusively that it is not viable in an economic environment of per-
iodic waves of inflation and monetary restraint. The major problem with the
business' structure is its high degree of specialization in the mortgage mar-
ket. This has resulted in the institution being forced to assume excessive
interest rate risk because of its insufficient reserve structure and asset

inflexibility. As a consequence, the business is periodically unable to op-

k8

142

timally service the mortgage and the over-the-counter savings markets. More-
over, the best informed opinion has held that the economic problems of the
last decade were not expected to be isolated cases. Quite the contrary, the
best expectation is that periodic problems of inflation will be with us for
the foreseeable future and that restraining monetary policies will be called
upon frequently to arrest these pressures. Under such a set of conditions,
the primary recommendation of many academic, government, and industry spokes-
men was for relaxation of the asset constraints currently imposed on the
business .

In addition to the problems caused by structural imbalance of the busi-
ness' balance sheet, certain legal, regulatory and socially sanctioned prac-
tices and prohibitions have imposed significant financial costs of the busi-
ness as well as resulted in the loss of important managerial options. The
use of usury laws in various states, together with geographical limitations
on the amount of loans that can be held out-of-state by an association, have
subjected large numbers of institutions to significant financial stresses
during periods of rising interest rates. Regulatory and competitive con-
straints, forcing the business to write their mortgage contracts with liberal
prepayment penalties and other clauses that allow the borrower to renegotiate
or refinance his loan during periods of falling interest rates with minimal
penalties, have also substantially reduced the ability of the industry to
enhance their profits during periods of generally falling rates. Neverthe-
less, the business has had to pay a large price in the form of large capital
losses and liquidity problems during periods of rising rates. Finally, le-
gal, regulatory, and social and political constraints, which have minimized,
and in some cases prohibited, the use of variable rate mortgages for most of

the business, has exacerbated the liquidity and earnings problems of the in-

49

143

dustry during periods of protracted rises in interest rates.

Finally, our analysis of the impact of a changing role of government
in the mortgage market suggested significant and potential hazardous effects
on the private specialized mortgage lending intermediaries. To summarize,
the method of governmental subsidy and support, which consisted of tax and
other advantages given to thrift institutions to support housing, has been
largely replaced with a new group of agencies and subsidy methods that operate
independently of the private specialized mortgage lenders. This means that
the thrift intermediaries specializing in mortgage loans are receiving far
less in benefits to compensate them for the constraints put on their asset
and liability structures and the high risk they face in acquiring long-term
mortgages with short-term liabilities.

More importantly, recent federal programs to support housing currently
pose a significant competitive threat to thrift institutions. This competi-
tion is the result of a preferred borrowing position of the agencies and an
accelerating trend towards greater standardization of the mortgage. One ob-
served and particularly harmful effect of these government mortgage lending
activities has been to produce a sustained and substantial relative decline
in mortgage rates as compared to other long-term interest rates. The decline
in these rates has acted to exacerbate the earnings problem of savinqs and
loans and seriously weaken their ability to compete for savings against more
diversified intermediaries.

The evidence and analysis presented in this paper strongly suggests
that some restructuring of the activities of savings and loans is necessary.
The suggestion has been made repeatedly that a partial solution to the prob-
lems discussed in this paper would be to liberalize the asset and liability

freedom of savings and loan assets. Such a solution follows directly from

50

144

this analysis and appears highly preferable. The costs to the consumer,
the business, and the financial markets generally of maintaining the
rigorous constraints of association activities have been high. Moreover,
the best estimate of future economic conditions suggests that the problems
of protracted inflation and intermittent periods of monetary restraint of
the last decade will be repeated. Unless appropriate alteration of the
structure of associations takes place, the costs may well be too high to bear.

51

145

FOOTNOTES

1. Large portions of this paper were adapted from the author's doctoral
dissertation: Kenneth J. Thygerson, "The Effect of Governnicnl
Housing and Mortgage Credit Programs on Savings and Loan As'jociat ions"
(unpublished doctoral thesis, Northwestern University, 1973), passim.

2. John G. Gurley and Edward S. Shaw, "Financial 1 ntermed iar ic ond the
Savings-investment Process", Journal of Finance, XI (May ]9'jC>) ,

p. 259.

3. Reuben A. Kessel , "The Allocation of Mortgage Funds", Vol. II, Study
of the Savings and Loan Industry, (Federal Home Loan Bank Bo.ird,
July 1969), pp. 661-662.

k. Irwin Friend, "Summary and Recommendations", Vol. I, Study of the

Savings and Loan Industry. (Federal Home Loan Bank Board, July 1969),

pp. 7-8.
5- The Report of the President's Commission on Financial Structure and

Regulation. Reed 0. Hunt, Chairman, (U.S. Government Printirxj Office,

December 1971), p. 27.

6. Ibid. . p. 27.

7. Irwin Friend, o£. ci t . , p. I5.

8. Ibid.

9- Reuben A. Kessel, o£. c_i_t . , p. 67O.
10. Irwin Friend, o£. c i t . , p. I9.

' ' • The Report of the President's Commission on Financial Strucliire and
Regulation, op. ci t. , p. 64.

12. Kenneth J. Thygerson, "Business and Real Estate", Savings and Loan
News, XCII, No. 9, (September 1971), pp. 28-29.

13. George M. Von Furstenberg, The Economics of Mortgages with Variable
Interest Rates. FHLMC Monograph No. 2, (Washington, D. C: Federal
Home Loan Mortgage Corporation, February 1973), pp. 11-12.

52

146

Gas Appliance Manufactxtrers Association Inc.,

Arlington, Va., Aug. 8, 1973.
Hon. John Sparkman,

Chairman, Committee on Banking. Housing and Urban Affairs, U.S. Senate,
Washington, B.C.

Dear Mr. Chairman : Thank you for your letter of July 12, 1973, suggesting
that I submit a statement for the record in lieu of personally appearing in con-
nection with the consideration by your Committee of S. 1614. I am pleased to do
so in behalf of the manufacturers of approximately 95 percent of all of the resi-
dential gas appliances and space conditioning equipment produced in the United
States.

Our interest in S. 1614 is limited to the language used in Sec. 4(a) which would
amend the National Housing Act so as to require a seller to warrant that the
dwelling "(A) is constructed in substantial conformity with the plans and speci-
fications .... and (B) has no structural or other defects which could seriously
affect the use and livabiUty of the dwelling.'^ (Italics supplied.) The wairanty
would have a duration of three years from the date of conveyance or initial oc-
cupancy, whichever first occurs.

In introducing S. 1614, Senator Percy offered no comments as to the types of
defects, other than structural, if any, which could seriously affect the use and
livability of the dwelling. It is the lack of certainty as to the meaning to be asso-
ciated with this particular provision that concerns me.

I believe it is reasonable, however, to conclude that the intention of the bill is
to embrace all defects of a substantial nature which are derived from the manner
of the performance by the seller of his contractual obligations to the mortgagor.

These would, I presume, relate to either a failure to conform with plans or
specs, or a structural defect not covered by the plans or specs but which would
be covered by accepted building practices.

If this is correct, the provision in question should not be interpreted as embrac-
ing appliances or comfort space conditioning equipment which are invariably
accompanied by a manufacturer's warranty. To require a seller to give an appli-
ance or equipment warranty duplicating or different in nature and scoi)e from
a manufacturer's warranty is unnecessary, and would in effect make a third
party responsible for the contractual responsibilities of a manufacturer. While
I feel reasonably certain that this is not intended, the language is not sufficiently
precise as to make that intention certain and is therefore discomforting.

It is my understanding that the Department of Housing and Urban Develop-
ment has interpreted warranty provisions of existing housing statutes so as to
limit the coverage of warranties to plans and specs non-conformance and to other
structural defects, a precedent which seems soundly based.

My recommendation is that Section 3 of S. 1614 be amended by deleting the
words "or other" on line 15 of page 37 and that the Committee Report, if one is
issued, make clear that the bill is not intended to require a seller to \yarrant appli-
ances and equipment which are othe^v^^se warranted by a manufacturer to a
mortgagor.

Your consideration of the foregoing will be sincerely appreciated, and if a
further expansion of the views expressed above would be helpful please let me
know.

Sincerely,

Wynne A. Stevens, Jr.,
Director of Legislative Services.

U.S. Senate,
Washington, B.C., July 16. 1973.
Hon. John Sparkman,

Chairman, Committee on Banking, Housing and Urban Affairs, U.S. Senate,
Washington, D.C.

Dear Mr. Chairman : I am enclosing a copy of a letter from a constituent,
Mr. Paul A. Flynn, City Manager, City of Providence, Rhode Island, in which

147

he states some pertinent and timely views on the bill, S. 1743, the Better Com-
munities Act, on which hearings are now being held before your Subcommittee
on Housing.

I ask that the Subcommittee take Mr. Flynn's suggestions under consideration
in finalizing S. 1743, and that you make his letter a part of the hearing record.
Warm regards.
Sincerely,

Claiborne Pell.

City of East Providence,
Providence, R.I., July 9, 1973.

Hon. Claiborne Pell,

Old Senate Office Building,

Washington, D.C.

Hon. Senator Pell : Allow me one moment this morning, on behalf of the citi-
zens of East Providence, to discuss with you the proposed "Better Communities
Act." The Act, as presently working its way through the House and Senate, ap-
pears to be a mechanism to cut back funds on the programs and policies that we
have grown to know as the human side of government.

In the past, urban renewal, neighborhood development, relocation and the
other programs that had as their main thrust the betterment of living conditions
for our unfortunate citizens, now find themselves being held in disrepute by the
administration. It would seem that regardless of the name or the alphabetical
acronym that the various programs are given their main thrust should be people
and the betterment of people and not the squandering of funds with administra-
tion hoopla. I do not believe that anyone would suggest that all the programs
were ideally conceived or thoughtfully carried out, but much good has been
accomplished that without the programs could never have happened.

Therefore, with the betterment of life for our citizens foremost in mind and
on behalf of the citizens of East Providence, I would ask you to give serious
heartfelt concern towards the passage of some kind of act which will apparently
replace the various categorical grants of the past. It is our citizens that we have
dedicated our life and talent to and it is to this end that the new "Better Com-
munities Act" should address itself.

Thanking you for your consideration and waiting ready to assist in whatever
way possible, I am

Very truly yours,

Paul A. Flynn,

City Manager.

Statement of Pete V. Domenici, U.S. Senator From the State of New Mexico

Mr. Chairman, it is my custom, when imjwrtant bills are considered before this
body and time permits, to request comments from those in my home state who
are experts on the matter under consideration.

Accordingly, I have sought the advice of New Mexico experts on S. 1743, the
Better Communities Act. I would like to share their views with you so each mem-
ber of this committee may be aware of them.

The opinions in question are those of the members of the Local Government
Needs Committee of the New Mexico State Legislature, expressed to me by its
chairman. Representative Raymond Sanchez ; and of the executive director of the
New Mexico Municipal League, Mr. Frank Coppler.

For the sake of brevity, I shall combine their opinions into a single statement.
Of course, I shall also add some observations of my own.

The first problem we discern with the bill in its present form is its peremptory
exclusion of all cities of less than 50.000 population. The choice of this arbitrary
cut-off point has greater than average significance for New Mexicans because in
one fell swoop it excludes every city in our state but one — Albuquerque.

Naturally we feel the Senate should weigh the advantages and disadvantages
of this exclusion most seriously. If it is included, all cities in our state except Al-
buquerque must look to the Rural Development Act of 1972 for aid — and it may
be as long as 18 more months before that Act is fully implemented and accepting
applications for funds.

99-855 O - 73 - pt. 1 -- 11

148

Even though the "hold harmless" clause in the bill will protect for five years
those smaller cities which have Urban Renewal or Model Cities programs, fund-
will end in five years whether their programs are completed or not. In our state
the decline in funds, even with this protective clause, is dramatic : from $15.1 mil-
lion in the first year to $4 million in the fifth, when only Albuquerque will be
eligible.

Further, those who studied this bill at my request point out that its list of ac-
ceptable uses for special revenue sharing funds is unduly restrictive. They propose
that the aim of this portion of the bill be achieved simply by providing that the
funds may be used for any purpose authorized by local law except for eligible
activities under the general revenue sharing act. This ingenious solution would
have the effect of making general revenue sharing and special revenue sharing ex-
actly complementary — just as the Better Communities Act and the Rural Devel-
opment Act should be.

Somewhat along the same line, my observers suggest most strongly that the
provisions for reporting, accounting, auditing and restrictions in this special
revenue sharing act should all be handled in the same way as, or at least in a
manner consistent with, the general revenue sharing act.

To demonstrate that this "tracking" is desirable, let me quote some strong lan-
guage from one of the communications I have had on this subject :

"There is no problem more maddening, perplexing and sometimes unsolvable
than the one of conflicting laws or regulations on the same subject. Nothing is
more dismaying than to have two audits, two reports, two plans or two trips to
Washington when one would suflice."

In sum, there are real difficulties in this act for New Mexico municipalities —
and, I believe, for those in many other parts of this great land.

I would urge the members of this committee to consider these observations as
they consider this bill. I reserve my right to offer such floor amendments as I
believe may be necessary to correct what I consider its inequities or to improve its
application in my state and in all other states.

U.S. Senate,
Washinfftoti, D.C., Aug. 21, 1973.
Hon. John Spabkman,

Chairman, Senate Cotnmittec on Banking, Housing and Urban Affairs, Wash-
ington, D.C.
Dear Mr. Chairman : Enclosed is correspondence I received from the Mayor
of Pocatello, Idaho, in which he relates possible difficulties his city may have in
obtaining funds under the Better Communities Act currently pending before
your Committee. After looking over this proposed legislation, I. too, share his
concern that certain provisions in the bill would be discriminatory to cities in
marginal status, qualifying neither for urban nor rural aid.

Thus, I ask that your Committee give full consideration to the case that Mayor
Roskelley makes on behalf of Pocatello as I feel it is representative of how many
marginal towns across the Nation will be affected by this bill. I also ask that this
letter be made a part of the Committee Hearing Record.
With best wishes,
Sincerely,

Frank Church.
Enclosure.

City of Pocatello,
Pocatello, Idaho, July 25, 1973.
Hon. Frank Church,
Hon. James McClure,
U.S. Senators,
Washington, D.C.

Gentlemen : The purpose of this letter is to present the views of the City of
Pocatello concerning the Administration's proposed legislation known as the
Better Communities Act. We note testimony is now being presented to the sub-
committee on Housing and Urban Affairs of the Senate committee on Banking,
Housing and Urban Affairs.

The city supports the local determination feature of the Better Communities
Act and the other variations of the so called Special Revenue Sharing Acts

149

previously proposed. Because of low assessed valuation the city's revenue posi-
tion was a major community problem that was solvetl to a significant degree by
the General Revenue Sharing Act of 1972.

However, we see two critical deficiencies in the proposed Better Communities
Act. First, the 50.000 population criterion for participation leaves Pocatello out
as well as many other cities in the area. Second, it is our interpretaticm of the
act that funding levels are established for the future based on previous HUD
projects, namely Urban Renewal and Model Cities which makes verj- little money
available to cities that did not participate in Urban Renewal or Neighborhood
Development.

Pocatello has an official 1970 census of 40.036. This means under the act
Pocatello would participate only in the non-pass through or .state administered
discretionary funds and as will be mentioned later this would mean little money
and would lie an administrative and iwlitical nightmare for state government.

It should be noted that in Region 10 encompassing the states of Alaska, Idaho.
Oregon and Washington, there are 3,631.586 people living in cities of more than
2,500 population. There are no cities over 50.0(K) in Alaska, (me in Idaho, three in
Oregon, and five in Washington and they encompass 43% of the region's urban
population of 1,572,903 people. The other 57% are in cities under 50,000 and this
represents over 2.000,000 (2.058,683) who will not benefit directly from the act.
It should be noted that 718,826 live in cities under 10.000 and over 2,500; the
Rural Development Act when funded will do many of the things for these cities
that the Better Communities Act envisions for cities over 50,000 population.

Of the 217 cities in the Region over 2,500 population only nine or 4% will be di-
rectly affected by the 50,000 category presented in the Better Communities Act.
In Idaho only one city out of the 37 cities over 2.500 population will directly
benefit. Some 143 cities or 65% has available the Rural Development Act. but
there are 65 cities or 31% which have neither. It would appear appropriate either
the Rural Development Act or better yet the Better Communities Act should
be expanded to cover the population ranges over 10.000 and under 50,000.

To further explain the second concern, that of future funding levels for cities,
the act uses HUD programs committed between fiscal years 1968 and 1972 as
the basis for funding. Here the local determination principal may as in Poca-
tello's case work to the disadvantage of the city.

Pocatello in the period covered by fiscal years 1968-1972 did not have either
Urban Renewal or Neighborhood Development programs. Under the present
funding level of the proposed act 6.9 million dollars would come to the State of
Idaho. Because Boise. Lewiston, Twin Falls, and Idaho Falls and Urban Re-
newal or Neighborhood Development projects the act establishes a basic funding
level for those cities, not only to fund current commitments to these projects,
but it is our interpretation that this would be the basis to fund our activities yet
to be decided by these cities. It was fortunate that these cities selected these
particular programs, but for those cities that did not the Better Communities
Act will mean very little. For example it would appear the State of Idaho will
have but $166,000 to distribute to all the other cities and counties in the State.
No Governor or Legislature even in a state with as few cities and counties as
Idaho would want or should have the responsibility for dividing up that few of
dollars when the results would not be significant.

In Pocatello during the base period of fiscal 1968-1972 the citizens chose to
bond themselves for over one million dollars for street improvements and fire
protection facilities. This of course was a local decision, but it would appear a
million dollars for Urban Renewal would have in terms of the Better Communi-
ties Act of 1973 been a much better choice, but of course no one knew or guessed
the implication of that local decision.

The City did choose to select a HUD projtvt for water improvements, but
after the ba.se fiscal year period and again it appears water and sewer grants
are one of the HUD programs apparently not included in the funding level
established for the next several years.

Pocatello was also a victim of the current HUD program freeze. Housing au-
thority money was frozen within what was stated later to be a week from ap-
plication approval. The city's Workable Program was recently certified for an-
other two year period developed in preparation for a renewal project in the
core area. Code enforcement efforts and local funds were committed for a hous-

150

ing rehabilitation program, but this program is included in the Better Commu-
nities Act.

Certainly the so-called hold harmless features of the act should fund existing
projects previously approved by HUD. but if we have interpreted correctly to use
the funding level established in past years for only two grant programs, Urban
Renewal and Neighborhood Development is a major deficiency of the Better
Communities Act. In recent testimony before the Senate sub-committee Secretary
Lynn of Housing and Urban Development did state the basis for distributing
funds on past experience would be for a two year period only. It would again be
our contention that the hold harmless provision should be only for those com-
mitted projects.

In summary, cities of a population under 50,000 to 10.000 are orphans inider
the Better Communities Act and second the funding level for certain cities that
had or have two HUD programs give such cities a community development re-
source advantage that cannot be met by cities who by local determination felt
that community priorities were not Urban Renewal or Neighborhood De-
velopment.

The backbone of Federal-City relations for the next decade may well be rep-
resented by this act or something close to it. Your attention to the points pre-
sented would be appreciated.
Sincerely,

F. W. ROSKELLEY,

Mayor.
Charles W. Moss,

City Manager.

U.S. Senate,
Washington, D.C., August 11, 1973.

Memorandum
To : Senator Sparkman.
From : Senator Gravel.
Subject : Community development legislation.

I strongly support the Housing Subcommittee's reevaluation of community
development programs. These programs were developed to meet specific needs of
communities that are faced with a myriad of problems. Some have been very
effective, while others have wasted taxpayers' money. However, the problems
still exist and justify continued Federal assistance.

One of the best ways to make community development funds more efficient
and effective would be to increase local decision-making in deciding the use of
such funds. I therefore support efforts to replace some of the categorical programs
with a block-grant or revenue sharing approach. However. I am deeply concerned
about methods that might be used to allocate funds under such programs, partic-
ularly the approach proposed by the xVdministration in the "Better Comnuuiities
Act."

Community development programs funded by the Department of Housing
and Urban Development should not be restricted to helping only large, urban
metropolises. Many small urban centers and towns also need assistance. The
funding allocation formula proposed in the "Better Communities Act" would
result in our turning our backs on small towns until they become large urban
metropolises with commensurate problems. We must help them now, before it is
too late, and before we must solve major problems with a continued massive com-
mitment of funds. Perhaps a better name for the "Better Communities Act"
would be the "Bigger Communities Act."

One of the most important aspects of our economic system is that, exclusive of
government where decisions are not determined by the market, funds flow to the
most efficient use. The market "automatically" functions to insure the best use
of capital determined by consumer preference. In allocating its funds, Congress
must be careful in order to not subsidize inefficiency. However, setting up a per-
manent program which discriminates in favor of large cities over small does just
that.

Let me explain this reasoning. Ideally, the cost of state and local government
services and the cost of maintaining a viable, healthy community should be borne
by that community. The costs of living there should equal the benefits or one

151

should move to another community where they do. This system of free choice
is disrupted wlien part of the costs of living in a community are paid indirectly
by a third party such as the Federal government. Not only does this result in a
misallocation of funds as one group of communities subsidizes another, but it also
results in a weakening of the incentive to move out of the community. Thus
instead of solving a problem or lowering the costs of living in a community, which
might be solved in part by migration, the problem is aggravated. I firmly believe
that small communities should not subsidize the added costs of living in large
urban centers.

Basic to the above reasoning is the assumption that subsidies are permanent.
When this assumption is removed, there is another justification for Federal ex-
penditures— to help ex'adicate problems that have arisen as a result of neglect.
Many community development problems are a result of inadequate planning and
deterioration over time for which it is too late to collect from those that bene-
fited from not paying the costs of adequate maintenance at the time or for which it
is imfair to make them pay the total amount of a social cost that was not recog-
nized previously. Government must step in to assist in solving the problem, but
there must be adequate planning and controls to assure that this is the case in
which many cities have found themselves today, and this is one of the major
reasons that I support community development programs.

The problem, however, is not unique to large, urban centers alone. Small towns
have them also. While the problems may be larger in the larger cities because of
their size, it is important to remember that the smaller towns must solve their
"smaller" problems from a smaller tax base. Small towns need community devel-
opment assistance. This is particularly important for small towns that are grow-
ing. Planning and building public facilities for future growth requires money,
and a small town may not be able to finance facilities that are needed and will be
needed to handle a larger population. They should build a water and sewer treat-
ment plant that has enough capacity to handle population increases, but they
may not be able to .afford it. A small town should plan ahead to provide adequate
parks, but they may not be able to afford that either. Federal assistance is needed
and justified if they are not to turn into the inner city slums of tomorrow.

Thus any community development program should not discriminate against
any commimities because of population size. The effects of such discrimination
could be disastrous for many of our small towns. My own state, Alaska, serves
as a good example of what can happen if there is discrimination. Alaska has
many cities in need of community development ,assistance. We have some of
the poorest towns in the country, small Eskimo and Indian villages in need of
adequate sewerage disposal facilities. We have small fishing towns, that by U.S.
standards not only have a slum, but are ,a slum. The Department of Housing and
Urban Development, in recognition of the problems in Alaska, is spending over
$4 million a year for community development assistance. This may not seem
like a lot compared to other areas of the country where one city may be getting
more than our entire state, but the funds are sorely needed.

The Department of Housing and Urban Development has finally responded to
my request of four months ago and supplied me with their five year projection
of how much funding would go to Alaska under the "Better Communities Act."
In the first year, with a full hold-harmless provision Alaska would get $4.4
million. By the fifth year, when the hold-harmless provision has expired. Alaska
would receive only $996,000. Seven cities which would be allocated $3.6 million
in the first entitlement year would have no allocation in the fifth year, but
would be competing with the rest of the cities in Alaska for only $187,000 of
discretionary money allocated to the state for statewide use. I am unalterably
opposed to this approach to community development revenue sharing — which
only provides assistance to the "better" communities.

I would also like to call attention to a provision in the State and Local Fiscal
Assistance Act of 1972. which established the general revenue sharing program.
Section 106, in recognition of the higher cost of living in Alaska, provided for a
cost of living adjustment for the noncontiguous states. This should certainly be
included in any block-grant or revenue sharing program for connnunity develop-
ment assistance. It is particularly important for financing the added costs of con-
struction work in Alaska. The latest BLS Urban Family Budget Study shows
that the cost of living in Anchorage, Alaska is 50% higher than the U.S. urban
average for the lower budget. The cost of living in rural areas, for which data is
not available, is even higher.

152

Statement of the American Jewish Congress

The American Jewish Congress welcomes this opportunity to present to this
Committee its views on S. 1743, the proposed "Better Communities Act," which
represents one aspect of the Administration's special revenue sharing program.

The American Jewish Congress is an organization of American Jews formed
in part "to help secure and maintain . . . equality of opportunity ... to safe-
guard the civil, political, economic and religious rights of Jews everywhere"
and "to help preserve and extend the democratic way of life." In recent years,
along with many other civic organizations, it has been increasingly concerned
about the deterioration of the core areas of the cities of our country, about
the decline in both the quantity and quality of housing available to lower-income
families and about the confinement of such families in the core city areas. It
has been concerned also with the impact of these developments on minority
group families. We Iwlieve that the security of all Americans is threatened as
long as these developments continue unchecked.

Accordingly, we have supported measures designed to deal with these prob-
lems, particularly through the use of the powers of the Federal Government. In
this statement, we discuss S. 1743 from that point of view.

THE administration's APPROACH TO HOUSING AND COMMUNITY DEVELOPMENT

The revenue sharing provisions embodied in S. 1743 cannot be evaluated
properly without considering the Administration's approach to housing and
community development generally, and the impact it has already had on existing
programs. The American Jewish Congress believes that the budget proposals
submitted this year by the Administration, together with the moratorium on
further commitments for .subsidized housing which it has ordered, are having
a profoundly harmful effect on the national housing program and particularly
on the effort to end the shame of urban slums. It is essential to halt further
damage as soon as possible.

The Administration has justified these moves in part on the ground that
existing housing programs are faulty. The shortcomings of these programs,
however, are not so gross as to justify a meat-ax approach — an approach that
invites disa.'^ter. What is to be done with the blocks of rubble in cities all over
the country, cleared for housing programs that have now been halted'.'' These
blocks have offered thousands of families a hope that they would some day
acquire decent, safe and sanitai-y housing. Now they are being told that the
rubble will remain rubble.

We agree that the working of the national housing program must be studied
and that its faults must be corrected. For example, it is by no means certain
that direct subsidies are the best way of obtaining housing for low- and motler-
ate^income families, either in the cities or in the suburbs. We need to find and
attempt new programs and policies tliat will deal more effectively with the
nation's housing problems. There are few signs, however, that such a meaningful
review of the housing program is taking place. Even if it is, it is plain that no
new housing legislation is to be proposed this year. Meanwhile, the "pipeline" for
funds under existing programs has been plugged and. at best, it will take years
to catch up on the resulting lag.

The I'resident would replace a number of the most important of the existing
housing programs with the revenue sharing arrangement propo.sed in S. 1743.
under which money would be turned over to state and local governments for
community development. Assuming adoi)tion of this liill, the money would .still
not be available before July, 1974. Meanwhile, a number of existing programs
have been halted under a presidentially declared "moratorium," effective for
up to 18 months starting on January 1, 1I>73. which bars all new commitments
for subsidized housing and a number of other programs. (I^ower court decisions
uniformly condemning the hou.sing moratorium and other forms of presidential
"impoundment" of funds voted by Congress have not so far been accepted as
final l)y the Administration and the moratorium has therefore continued.)

The "Better Communities" bill is one of the four revenue sharing proposals
the Administration is making in the areas of conununity development, educa-
tion, manpower and law enforcement. It is supposed to take the place of seven
Federal grant programs which are to be dropped from the budget — urban re-
newal, model cities, neighborhood facilities, water and sewer grants, open space,
rehabilitation loans and public facilities loans. T'nder the existing "categorical
grant" legislation, these programs are funded for each project after the Federal

153

Government has found that it complies with standards laid down in Federal
laws and regulations. The theory behind the revenue sharing proposal is that
the various states and localities will be able to use the money they receive to
continue some or all of the terminated programs.

THE SUBSTANTIVE PROVISIONS OF 8. 1743

Section 6 of S. 1743 would authorize the appropriation of unspecified sums
of fiv^e years beginning on July 1. 1974, for the purpose of carrying out its
terms. Statements by Administration spokesmen indicate that 2.3 billion dollars
will be asked for the first year.

The appropriated funds would be turned over to states and to local govern-
mental units under a complicated formula set forth in Section 7, the details of
which have been fully described in other statements to this Committee. The
recipients units could use the funds received for any or all of a broad range of
purposes set forth in Section 4 under the general heading of "Community Develop-
ment Activities Eligible for Assistance." These purposes parallel the seven
existing Federal grant programs that would be dropped from the budget under
the Administration proposals.

It is important to point out (1) that these purposes include many that have
no relationship to the urgent problems of urban blight and inadequate housing for
the poor, and (2) that the grantees could use all of these funds on any of the
stated purposes. Thus, a governmental unit could devote all of its shared revenue
to acquisition of property in scenic areas, preservation of historic properties or
the construction of pedestrian malls. As long as it operated under the broadly
defined concept of "community development." it would be freed of any respon-
sibility to the Federal Government to use the Federally granted money to amelio-
rate conditions that are generally recognized as being of national concern.

THE THEORY UNDERLYING S. 1743

The "Statement of Findings and Purpose" set forth in Section 2 of the bill
makes it clear that its purpose and intended effect is to transfer from the Federal
Government to the localities most of the power to regulate the use of Federally-
provided housing funds. It insists that Federal operations have been ineffective
and declares that community development can best be achieved through local
management. The American Jewish Congress submits that these findings betray
a gross misunderstanding of the housing problems faced by this nation. They em-
body an inaccurate assessment of the existing programs and the real needs in the
area of housing and community development. And. in our view, they fail to pro-
vide a basis for embarking on a program of revenue sharing in housing.

We ask this Committee whether it is prepared to find that, as stated in
Paragraph (a) (2) of Section 2, the existing program as a whole "has become an
ineffective use of the Federal funds devoted to assistance for community develop-
ment." Despite many shortcomings that can and should be corrected, is it not
true that the Federal Government has been funding valid and vital programs?

This Committee should also examine carefully the assumption made in Para-
graph (a) (3) that granting 'Ibroad discretion" to local governments would make
the funded programs more relevant to the national problem of halting urban
blight and housing the underprivileged. We outline below the reasons why we
believe that it would have the opposite effect.

Finally, we submit that the present programs, which produce their results
through cooperation of Federal and local authority, are not properly described
in Paragraph (b) as "inflexible" and we suggest that use of such pejorative
terms does not contribute to understanding of our housing problems. Would not
programs determined by the unreviewed discretion of local authorities be at least
as "inflexible"?

FOR A TRULY FEDERAL HOUSING PROGRAM

The transfer of power proposed in S. 1743 raises the fundamental question
whether we are to have a truly Federal housing program or separate programs in
each of the states and localities, financed largely by Federal money but operating
free of, or with a minimum of. Federal supervision and control. We believe
Federal supervision and control are necessary if the nation's most acute needs
with respect to housing are to be met. The revenue sharing approach as embodied
in S. 1743, however, would probably result in deflection of needed funds from

154

the core city areas where they are most needed. And there is little reason to hope
that dispersion of low-income housing to the suburbs would be encouraged.

Slum clearance and the building of housing for low- and lower-middle-income
families still require government support. Without it. the slums will remain slums
and the underprivileged will remain unhoused. For good reasons or bad, private
capital will not do this job. It has not done it in the past and the recent steady
climb in interest rates and scarcity of money strongly suggest that it will be even
less able or willing to do it in the future.

Furthermore, we believe that, if we are to end the concentration of minorities
and poor in the central cities, we must continue efforts to obtain low- and lower-
middle-income housing in suburban areas. This, too, requires the firm establish-
ment and enforcement of Federal guidelines.

Both of these objectives would be seriously threatened under the revenue
sharing proposals of S. 1743. Housing for underprivileged groups is unpopular
with the majority of taxpayers, whether it is placed downtown, uptown or out of
town. Experience teaches us that state and local authorities are far less likely
to insist on such housing than the Federal Government. Thus, when the Model
Cities program was first set up, only six of the 150 programs submitted by local
authorities met the requirements of Federal law designed to insure that the
purposes of the statute were being met. National criteria and Federal supervision
are still needed to insure that whatever funds become available are used to deal
realistically and effectively with the national problems of slums and ghettoes.
At the same time, we believe that provision should be made for meaningful par-
ticipation by local groups in the devi.sing of programs.

ENFORCEMENT PROVISIONS OF S. 17 4.3

The intent to minimize if not to eliminate Federal action to insure that
national needs are dealt with is made clear by the enforcement provisions of
S. 1743. Thus, Paragraph (a) of Section 5 would require would-be recipients to
file for each fiscal year a "statement of community develpoment objectives and
projected use of funds." Paragraph (c) would require recipients to file and make
public a repoi't concerning the projects financed under the Act which were started
or carried out during each year. These provisions are east in the most general
terms possible and the Section grants no power to the Federal Government to
review or pass on the manner in which the money is to be .spent or has been spent.

Section 15 of the bill covers remedies for noncompliance with whatever re-
straints are contained in the program. It would permit, in Paragraph (a) (1),
the withholding of funds from an agency conducting programs in violation of the
statute.' This, of course, is an essential provision.

However, the Section as a whole strongly suggests the u.se of other procedures.
Thus, the balance of Paragraph (a) authorizes use of the far more limited sanc-
tion of withholding funds only to the extent that they were misspejit. Only the
bravest administrator, in the most aggravated case, would be lik-iy to use the
broad (and effective) sanction in the face of language permitting milder meas-
ures. Furthermore, under Paragraph (b), the Secretary may eschew withholding
altogether and simply refer the violation to the Attorney General for the initia-
tion of a civil suit. This process is likely to take so long as to have no restraining
effect whatever.

Even more serious, it appears that the Federal Government would not have
power, under this bill, to review proposed expenditures in advance to determine
whether they fell within the piirposes set forth in Section 4. and to withhold
the funds if they did not. Section 5 reqxiires the advance filing of a statement of
objectives and proposed use. But there is no provisicm that grants must be
denied if the i»roposals made in the statement are iucongnient, or even totally
at odds, with the requirements of Section 4.

Presumably, under the enforcement provisions of Section 15. grants would
l>e withheld if no statement of objectives were filed. It seems, however, that
action could not be taken, before tlie grants were made, if the proposals set forth
in the statement were unacceptable. The provisions in Section 15 authorizing

1 Wt» note, however, that this paragraph would authorize termination of payments "to
such State." although the rest of Section l.""). and the hill generally, speaks in terms of
"recipients." We suggest that this must he an error. It can hardly be intended that
violation by a local unit would require or permit termination of payments throughout
the State. But if that is what is meant, then it must be that termination is authorized
a.s to states but not as to local units. We cannot believe that that is intended.

155

termination or reduction of payments in ease of noncompliance would go into
operation after the money had been misspent. Moreover, under Paragraph (c),
these sanctions could be invoked only under a procedure involving 60 days notice
to the offender, followed by court review. (V)mmon sense tells us that such a
procedure would eliminate Federal restraint except in the most extreme cases
of disregard of the law.

RACIAL DISCRIMINATIOJiT

^Ve note, further, that the prohibition of discrimination on the basis of race,
color, national origin or sex contained in Section 9 is placed under a special
limitation. Whereas the Secretary, under Section 15, can act promptly and di-
rectly as to otlier violations, infractions of Section 0 must first be referred to
the Governor of the affected state or other chief executive, who must be given a
"reasonable period of time," up to 60 days, to secure compliance before Section
15 is invokefl. ^ye see no reason why infractions of the anti-bias provision should
be treated more gingerly than other infractiojis.

SUGGESTIONS FOB THE BILL

The American Jewish Congress is not convinced that a persuasive case has
been made out for revenue sharing in the area of housing and community develop-
ment. It is our position, therefore, that the attention of this Committee and of
Congress should be devoted not to finding some way to make revenue sharing
work but to improving Federal housing programs designed to meet national needs.
Recognizing, however, that this Committee may reject that view, and believing
that some of the dangers in revenue sharing can be ameliorated, we suggest (1)
that the bill be amended to contain a clear statement of national objectives ;
(2) that Section 5 be changed to insure that the Federal Government has power
to disapprove in advance programs that conflict with such national objectives ;
and (3) that Section 5 be further amended to insure community participation in
the preparation of programs. We discuss these three suggestions seriatim.

(1) We recommend that the bill contain a clear statement of national housing
objectives on such subjects as eradication of slums, settlement patterns, land
use and environmental equality. In particular, it should be made clear that
significant steps must be taken to provide housing for the poor and to insure
dispersal of such housing, particularly to areas where jobs are available. ( Similar
statements of national objectives have been included in separate pieces of legis-
lation previou.sly enacted by Congress, including the various housing acts.)
Applicant communities could then be required to make clear in the statement
called for by Section 5 not only how they intend to use the funds they will re-
ceive from the Federal Government but also how such use will contribute to,
and be consistent with, the achievement of the stated national goals. (We sug-
gest that this Committee consider the possibility that such statements should in-
clude whatever use is being made by the community, in the area of housing and
community development, of funds received under the general revenue sharing
act now in effect. )

(2) It should be made clear in the bill that plans submitted'^by applicant gov-
ernment agencies must be consistent with the stated national objectives and that
they must be rejected if they are not. The purpose of this provision would not be
to substitute the judgment of the Federal Government for that of the local
agency as to how the fiuids should be used but solely to insure that national
objectives and policies are not ignored, let alone flouted. Such a flexible arrange-
ment could eliminate whatever red tape has built up under the categorical grant
programs while guarding against obvious misuse of Federal funds. We believe
that these procedures are necessary to insure that local agencies do not disre-
gard their responsibility to deal with the hard problems which have become
national in scope.

(3) Section 5 of S. 1743, in its present form, requires publication of a proposed
statement of community development objectives 60 days prior to its being cast in
final form and requires applicant governmental units to consider any comments
on the draft that may be submitted. We believe that more detailed requirements
of ccmnnunity participation should be included. At the least, there should be a
requirement of a public hearing on the draft statement, at which all interested
groups or parties would have opportunity to appear. The bill should also require
consultation with interested groups prior to the preparation of the draft
statement.

156

THE HOUSING FREEZE

Finally, even if revenue sharing is adopted, it would not make any money
available before July 1, 1974. Meanwhile, the freeze is in effect. Thus, many
community development programs are halted as of June 30, 1973 and would not
be resumed again nuder revenue sharing before July 1, 1974. We regard it as
essential that government aid for building and rehabilitating housing in cities
continue while new approaches are being developed.

To stop and wait for new approaches to be fully in place or for communities
to act under any special revenue sharing program would be disastrous. The loss
in lead time, in a breakdown of the machinery that keeps projected units in the
pipeline, etc., etc. will make for a loss of time and units that just will not be
made up. In the long run, it will probably add to costs exceeding the savings
that are supposed to result from the new approaches. The bill should therefore
provide for a phasing-in period with some overlap between existing programs
and whatever new national approaches may be proposed, including the policies
to be adopted with regard to housing programs by the states and localities using
the options that will be available to them under the kinds of arrangements
envisaged in the bill.

Aside from the insertion of such a provision in S. 1743, we believe it essential
to state our view that the housing moratorium should be terminated at once,
without awaiting final determination by the courts of the question of presi-
dential power, and existing housing programs allowed to continue until a substi-
tute has been provided, through the terms of S. 1743 or otherwise.

CONCLUSION

The American Jewish Congress therefore urges this Committee to call for
an end to the housing moratorium and continuation at least for the present of
existing housing programs, coupled with careful scrutiny of their operations
with a view to correcting them where they are faulty and terminating them
or replacing them where they are unsound. We hope that it will oppose any reduc-
tion in the total amount of money made available in the Federal housing pro-
gram. With respct to S. 1743, we urge that the need has not lieen shown for
adoption of revenue sharing in the area of housing and community develop-
ment but that, if any special revenue sharing plan is adopted in that area, it
must be drawn so that, together with general revenue sharing, it provides for
effective participation by local government in the decision-making process but
without allowing local decisions about the use of Federal funds to weaken
safeguards designed to insure that funds for housing and community develoi>
ment are used where they are needed most- in accordance with national goals
and policies.

Respectfully submitted.

Paul S. Berger, Co-Chairman,

Commission on Law, Socal Action.

and Urban Affairs.
Seymour Mann. Chaii^ian.

Committee on Housing,
American Jcirish Congress.

The League of Woman Voters of the United States,

Washington, B.C., Aug. 16, 1973.
Hon. John Sparkman.

U.i^. Sen-ate, <

Washington, B.C.

Dear Senator Sparkman : Enclosed is a copy of the statement by the League
of Women Voters of the United States on housing and community development
legislation pending before your Subcommittee on Housing and Turban Affairs. Tn
general, the League is pleased with the "Housing Act of 1973" (S 21S2) and the
"Community Development Assistance Act of 1973" (S 1744). Taken together,
the two bills should facilitate closer coordination between community develop-
ment and housing programs and provide more eflffK'tive federally subsidized
housing for people with low incomes.

The statement deals with the broad aspects and goals of the program, rather
than with details of the mortgage program revisions. Reconmiendations are
made as to ways to strengthen the programs for people with the lowest incomes,

157

to insure maximum flexibility for communities and metropolitan areas in plac-
ing low- and moderate-income housing and public housing in areas where actual
need is greatest, and to create positive incentives for communities to accept
such housing.

Attached to the statement are two addenda : a collection of pertinent excerpts
from statements and reports to the naional League office from local and state
Leagues, and an excerpt from my letter to HUD Secretary Lynn setting forth
League housing goals. I respectfully request that the statement and addenda
be included in the official hearing record on the housing and community develop-
ment bills.

Sincerely,

Lucy Wilson Benson,

President.

Statement of the League of Women Voters of the United States

"We have supported the federal leased housing program in Marin, and, in spite
of some snags, we know that this program has made a significant contribution
towards solving some of the housing problems of the low-modcratc income pop-
ulation in our community .''

— California

"It is bad enough that these programs — all of ichich were sorely needed — ivill
be at best delayed, at ivorst scrapped. What is worse is that we are quickly losing
the momentum we have so painstakingly built up bit by bit over three years."

— Illinois

''If action is taken at the federal level within the next si<c months or so to
substitute new programs, the impact of the break (the 18-month moratorium)
in continuity may be minimized."

— Connecticut

Members of the League of Women Voters are convinced, from first hand ex-
perience, that the federally-assisted housing and community development pro-
grams are serving people for whom they are intended — sometimes imperfectly
and inadequately, but nonetheless significantly. The League wants the programs
continued, expanded, and adequately funded, with closer coordination and greater
attention to meeting the social and physical needs of the lowest income groups.
Careful adherence to quality standards of construction, efficient and humane
management, adequate and timely funding, and increased testing through dem-
onstration programs can, we are convinced, assure more rapid movement toward
national goals in housing and community development.

The above-cited quotations are the merest sampling of a continuing stream
of reports from state and local Leagues over the nation. In addition to the
commitment to special federal programs, the League reports reflect a sharp sense
of urgency about the necessity for the federal government to move ahead rapidly
with housing and urban development assistance. League members are heartened,
therefore, by the fact that this committee began hearings without waiting for
the Administration to present its detailed plans for housing programs. In the
92nd Congress, this subcommittee did much significant groundwork and developed
a highly commendable bill simplifying and unifying housing and community
programs. The League urges the committee to build upon that "head start" and
the hearings held thus far this year, and to report legislation at the earliest
possible time. We shall be urging the "other body" to move ahead exi>editiously
as well, because we deem it highly imi>ortant that the 93rd Congress enact new
legislation by the end of this firs-t session.

In April, Mrs. Erwin Hannum testified before this subcommittee on behalf
of the League about the impact of the executive-branch moratorium on housing
and the cancellation of community development programs. Summaries of a few
League reports dramatically illustrated the short- and long-term damage in every
section of the country. This recent re-examination by Leagues of housing and
community development programs (and reports to the national League office)
make it possible for this statement to the subcommittee to be based on new in-
formation. The message has come through loud and clear from the grass roots
that the League position taken in 1968 to support federal programs designed to
provide equal opportunity for, and access to, decent housing still has high mem-

158

hership priority. To illustrate that point, a brief addendum of excerpts from
I/eague reports and letters is attached.

This statement deals primarily with three bills under consideration : S. 2182 —
the "Housing Act of 1973", S. 1743— the "Better Communities Act", and S. 1744—
the "Community Development Assistance Act of 1973". The League's position
centers around the broader provisions and implications of subsidized housing and
community development programs, wA around details of the proposed simplifica-
tion of the mortgage system or of technical matters.

We are aware of several other important bills, including : Sen. McGovern's
Emergency Rural Housing Act" ( S. 361 ) , Sen. Taft's "Home Preservation Act"
(S. 971), Sen. Brock's bill to promote improved technology in federally assisted
housing (S. 118) : Sen. Percifs "Home Buyer and Home Protection Act of 1973"
(S. 1614), Sen. Proxmire's bills to provide direct financing of low and moderate-
income housing under the sections 235 and 236 programs (S. 2169), to require 20
percent of public housing units to be available for large families (S. 2170), to
encourage low-rise construction for public and elderly housing ( S. 2171), and
to provide funds from the Highway Trust Fund for replacement of housing de-
stroyed by highway construction (S. 2172) ; Sen. Williams' bills to provide dem-
onstration programs for direct financing of government loans for low- and mod-
erate-income housing for the elderly (S. 2179), and to provide additional safety
and security for occupants of multi-family housing financed by HUD (S. 2180).

A brief statement does not comment on each of these latter bills. In general,
however, the League A'iews these bills as commendable in their intent and in
that they would help implement national goals. We trust most of the provisions
will be incorporated into the bill reported by the subcommittee.

League views reflecta a membership, general public-interest point of view, a
concern about the well-being of the overall community, and a specific dedication to
alleviating the handicaps resulting from economic and racial deprivation and
isolation. Large expenditures of money and resources will be required to realize
the national goal of a "decent home in a suitable living environment"for all
American. League members are, therefore, working for a re-ordering of national
priorities and spending policies within the framework of a reasonable federal
budget.

Testimony presented to this subcommittee demonstrates that both the "pro-
fessional" and "people" interests and viewpoints coincide on major issues and
national policy goals. That convergence should give this .subcommittee, and the
full committee, added encouragement and impetus to move ahead with legisla-
tion.

Formulating housing and community development legislation is not easy. Once
devised, programs are frequently unpopular because they involve change of
physical environment, of social and economic status and patterns. And change
shakes up the very tenuous and fragile sense of security and of "place" that is
understandably dear to most human beings. Support for low- and moderate-
income people is not always easy or popular. The leadership expected of U.S.
Senators and of the League is tough and demanding. An example or two will in-
dicate that League members have a keen insight into the difficulties you as leaders
and they as citizens share :

"Our feeling is that in Greenwich it is a matter of attitude rather than funding
which is holding back housing for the low- and middle-income citizens. If the
townspeople were willing to accept change, it could be accomplished financially
one way or another."

— Connecticut

"Local statistics confirm that some 469 families in Midland are in substandard
housing and that available vacant houses [suitable for rehabilitation under the
proposed program] exist. We applaud the appointment by the City Council in
1971 of the Midland Housing Authority, and we commend the Authority for tak-
ing its charge seriously and developing a program to remedy existing condi-
tions. . . . We implore the Council members and the citizens of Midland to join us
in supporting the effort ... to provide adequate housing for the poor." Note : Most
other speakers at the hearings pled for concellation of the proposed purchase and
rehabilitation of housing for low-income rental purposes. Why? People men-
tioned detriment to property values, the importance of private ownership, hav-
ing worked 18-hour days to get where they got, non-working welfare recipients,
and subsidized renters who would "drive to work in Cadillacs."

— Texas

159

"the housing act of 1973" — S. 2182

On the whole, the League applauds the bill, both the "Revised Housing Act",
which includes the Section 402 House Ownership subsidy programs (presently
235) and the Section 502 Multifamily Rental Housing subsidy programs (present-
ly 236), and the "United States Housing Act" which amends the Public Housing
of 1937. In the interest of brevity, we limit comments to a few illustrative com-
mendations, recommendations and questions.

Findings, goals and declaration of policy

Committee members may assume a continued pledge to the housing goals
adopted by Congress in 1968 and renewed in 1970. The League finds it important,
however, to reiterate those findings and goals in view of the recent declaration
by the President that the "urban crisis is over" and of the unprecedented execu-
tive-branch moratorium on new contracts for subsidized housing and the elimina-
tion of categorical community development programs. The Joint Economic Com-
mittee of Congress reported earlier this year that "we can exjject a total of
only about 530.000 subsidized housing starts in the fiscal years 1973, 1974 and
1975. whereas 2,250,000 are necessary to achieve our housing goals. Over this
three-year period, the housing programs will therefore be operated at a rate
which is approximately 77 percent below their intended level. We do not support
such a drastic shift away from the valid national priority of assisting those
families who badly need improved housing conditions." ^ Neither does the League
support a shift away from national housing goals. Many Leagues report the need
for more housing, as can be seen in Addendum #1. and from this quote :

"The Ventura County Housing Element projected a need . . . through 1975 of
12.795 dwelling units for families with incomes less than $7,000. To date (April
1973) there are 2,905 subsidized housing units in the county."

— California

1. Joint Economic Committee, "Housing Subsidies and Housing Policy",
March 5, 1973, page 4.

Allocations of housing assistance appropriations

(Chapter I, Sec. 9) The League appreciates the need to develop a simplified
system of allotting funds to communities for subsidized home ownership and
multifamily rental hou.sing programs. AVe have some uncertainty, however, as
to precisely how and to whom the funds would be allocated under S 2182.

Questions we have include:

With regard to requirement of a three-year housing plan as a condition
for receipt of funds by a state, regional body, or unit of local government:
We recommend revised language to assure that local units of government
cannot avoid a responsibility to provide housing for low- and moderate-
income i>eople simply by failure or refusal to draw up such a plan.

We understand that the liousing and community development legislation
will emerge as one bill, and recommend a firm, but flexible, tying together
of funds for both program.s-— a provision that will provide incentives to
encourage an adequate low- and moderate-income housing supply in core-
city areas and suburbs alike.

With regard to the allotment formula — 60% to metropolitan areas, 30%
for non-metropolitan housing and research and demonstration projects, and
10% of each sume to states and regional bodies for use primarily in non-
metropolitan areas : the bill seems to provide inadequate assistance for
seatter-site housing despite much evidence of the need for low- and moderate-
income housing in suburbs to which industry and commercial centers have
transferred their operations. The league recommends revised language to
assure that the entire (50% of the funds will not go to core-city areas, but
rather that commnuities, metropolitan areas and states will have maximum
flexibility to plan for housing wherever the actual nee<l is greatest.

Section Ji02 — Home ownership, income levels, counseling

The League supported last year's Senate definition of "lower income" as 90%
of the median income of the area, but would also support a revised definition set
at 100%. The excluded income allowances seem reasonable [Sec. -102 (K) (1-7)],
and the requirement that the Secretary of HUD furnish counseling and advice

160

to new homeowners is a very commendable provision — one which must be funded
adequately and administered with maximum efHciency and understanding. [Sec-
tion 402 (m)] IN THIS CONNECTION, THE LEAGUE SUPPORTS INCLU-
SION OF LANGUAGE TO PROVIDE FEDERALLY-SUBSIDIZED HOME
BUYERS PROTECTION AGAINST SHODDY CONSTRUCTION AND/OR IN-
SPECTION PRACTICES.

Section 502 — Multifamily housing rental assistance

The League commends several aspects of these programs, including :

the fact that rental charges are limited to 25% of income at the maximum
[Section 502 (f) (1)] ;

the fact that the HUD Secretary may make additional supplemental pay-
ments for 20% of the dwelling units in which tenants cannot afford to pay the
25 % of income in rent [Section 502 (f) (3)]; NOTE: THE LEAGUE
WOULD SUPPORT AN INCREASE IN SUPPLEMENTAL ASSISTANCE
TO PROVIDE FOR 30% OF SUCH UNITS FOR 'VERY LOW-INCOME
PEOPLE".

the fact that funds are provided to the HUD Secretary to contract for
monitoring and supervision of the management by private sponsors of as-
sisted projects [ Sec. 502 ( m ) ] .

PUBLIC HOUSING ASSISTANCE PROGRAM — CHAPTER II

"Utah was the 49th state to pass enabling legislation for public housing autliori-
ties in 1969. The shortage of low-income housing began to surface only a couple
of years ago. . . . Last fall the Salt Lake League published a study of the low-
income housing situation in Salt Lake City and County. This booklet has l)een and
still is being used to inform officials at all levels of government and other com-
munity leaders about the problem.

"Since the end of the legislative session, the Utah Housing Coalition (on which
the League has a board member) has been reorganizing with a more stable non-
profit corporate structure. . . . The steering conmiittee and board of directors
are hard at work on legislation for the special session of the legislature expected
to be called in October. Governor Rampton and leaders of the legislature are
aware of the low-income housing problem and the coalition is playing a key role
in coordinating efforts to alleviate the situation."

—Utah

Several changes from the current law are commendable, including the fact that
new funds would continue to be authorized for public housing construction and
jrehabilitation. The Sections -102 and 502 housing programs cannot provide a
sufficient supply or an adequate subsidy to accommodate the needs of the lower-
income people. While recognizing the necessity for new design, less crowding to-
gether in high-rises or limited areas of cities, and the necessity for increasing
social services to occupants, many Leagues point to the need for additional public
housing.

Among the provisions the League supports are :

the separation of "annual contributions" [Sec .5(a)] frow "operation"
subsidies [Sec. 9 (a)] : Congress has recognized the need for operating sub-
sidies for maintenance, etc. and has authorized and appropriated funds. The
League has supported the Brooke amendments in recent years and considers
this type of subsidy essential to the national commitment "to remedy unsage
and unsanitary housing conditions and the acute shortage of decent, safe,
and sanitary dwellings for families of low income, . . .". [Sec. 2] HOWEVER,
WE RECOMMEND AN INCREASE TO AT LEAST $500 MILLION IN THE
OPERATING SUBSIDY FUND.

tJie fact that tenants are not barred from service on boards of directors
[Sec. 2] : THE LEAGUE RECOMMENDS A CHANGE TO REQUIRE
TENANT REPRESENTATION ON PUBLIC HOUSING BOARDS OR GOV-
ERNING BODIES.

the requirement that at least 20% of public housing tenant units be oc-
cupied by "very low-income families", and the requirement that "to the
maximum extent possible, in each project there shall be a reasonable cross-
section of income levels of tenants within the low-income range". [Sec. 3]

the fact that "operating" costs of tenant programs and services, are defined
to include development and maintneance of tenant organizations which par-

161

ticipate in the project management, counseling on child care and budgeting,

etc.
THE LEAGUE IS VERY CONCERNED, HOWEVER, AS TO WHETHER OR
NOT THE INCOME REQUIREMENTS AND EXCLUSIONS IN S 2182 ARE
SUCH THAT PUBLIC HOUSING WILL REALLY BE AVAILABLE TO WEL-
FARE RECIPIENTS AND PEOPLE WITH THE LOWEST INCOMES. We ap-
preciate the dilemma created by the high costs of maintenance and operation of
public housing and the low income of tenants. BUT WE WANT TO BE SURE
THAT THE BROOKE AMENDMENTS ARE PROTECTED AND THAT THERE
WILL BE SUFFICIENT FEDERAL SUBSIDIES TO MAKE UP FOR COST
DIFFERENCES. PUBLIC HOUSING IS,. AFTER ALL, THE MAIN ALTER-
NATIVE THAT VERY LOW-INCOME PEOPLE HAVE TO LIVING IN SUB-
STANDARD, SLUM-AREA HOUSING.

COMMUNITY DEVELOPMENT PROGRAMS: S 1743 AND S 1744

"Of increasing concern also, throughout the state, are the community develop-
ment programs. Funds which have been cut off for whatever reason should be
restored so that our towns and cities may proceed with urban renewal, open space
purchases, water and sewer programs and the like."

— 'New iHampshire
"If revenue-sharing for Community Development is channeled to local govern-
ments without strings, what is to prevent federal funding from being used or
misused) to assist affluent suburban areas at the expense of larger central cities —
with the continued polarization of our population into the 'haves' and the 'have-
nots?'"

— Hawaii
The League definitely prefers the "Community Development Assistance Act"
(S 1744) to the "Better Communities Act" (S 1743). We endorse the intent ex-
pressed in both measures to reduce the red-tape and administrative confusion
which have resulted from the complex application procedures prevailing under
strictly delineated categorical grant programs. But we are convinced that the
block-grant approach which requires an application procedure (as in S 1744)
is superior to the revenue sharing approach which allocates funds without any
application requirements. THE LEAGUE SUPPORTS A REQUIRED APPLI-
CATION PROCEDURE AS ONE MEANS OF ASSURING THAT FUNDS WILL
BE GRANTED ONLY WHERE COMMUNITY AND STATE PLANS CONFORM
TO NATIONAL GOALS.

We prefer the "Community Development A.ssi.stance Act" (S 1744) for these
reasons :

the fact that the emphasis of "Findings and Purpose" in S 1744, deals with
basic concepts and national needs, as is illustrated in this statement : "the
Nation's cities, towns, and smaller urban communities face critical social,
economic and environmental problems," which arise in part from urban-area
population growth and concentration of lower-income persons in central
cities, and from "inadequate public and private investment and reinvestment
in housing and other physical facilities, and related public and social scri^-
icesr [Sec. 2 (a) (1) (A)]

the fact that the emphasis of "P"'indings and Purpo.se" in the "Better Com-
munities Act" (S 1743), on the other hand, concentrates on admin ist rat ir<e
factors to justify the need for change, and for granting local communities and
states greater discretion and control over community development needs.
That emphasis is totally inadequate in that it fails to deal with national goals.
— the fact that S 1744 states unequivocally that "the improved program of
Federal assistance provided in this Act is designed to support community
development activities which are directed toward such national goals as :

"(A) conserving and^expanding the Nation's housing stock in order
to provide a decent home and a suitable living environment for every
American ;"

(B) eliminating slums and preventing deterioration of community
facilities ;

(C) achieving more rational utilization of land and other natural
resources . . . :

(D) (E) (F) expanding and improvement of the quality of community
services, restoring historic and other special properties, and eliminating
conditions which are detrimental to health, safety and public welfare,
etc.

162

— the fact that S 1744 provides that Federal funds should not go auto-
matically to states and local governing bodies, but should be granted only
on the basis of annual applications which would include [Sec. 7(a) (1 & 2) ] :

• the fact that S 1744 requires that an outline of community needs,
objectives and actions to be taken during the next three year period is
tied to the goals stated above, and places special emphasis on meeting
housing needs for families with low- and moderate-incomes. THE
LEAGUE IS PLEASED THAT THIS SECTION REINFORCES THE
PROVISIONS OF THE "HOUSING ACT OF 1973";

• the fact that, in S 1744 the required description of activities to be
undertaken over a two year period includes costs, general location and
requirements for federally-assisted housing units ;

• the fact that S 1744 requires certification that the applicant has
determined that proposals are consistent with comprehensive develop-
ment plans and national growth policies, that adequate public hearings
have been held with regard to purchase of private lands, and that ade-
quate opportunity has been provided for citizen participation in develop-
ment of applications and "for meaningful involvement of residents of
areas in which community development activities are to be concentrated,
in the planning and execution of the activities."

In general, the kinds of community development programs authorized for fed-
eral funding in both bills provide a wide variety suitable to local planning and
sufficiently flexible to meet special needs. Overall, we believe that S 1744 repre-
sents a genuine compromise toward the Administration's desire to move away
from categorical grant programs and toward greater flexibility and responsibility
for local governments.

The League has no objection to calling the new program "special revenue
sharing," so long as the goals of the program and the application requirements
are in line with the provisions of S 1744. We are convinced, however that, it is
essential to set forth, and require adherence to, specific national goals in a
federal programs as basic to the people's well-being as our community develop-
ment programs.

The League may wish to submit a supplementary statement when we have had
more opportunity to evaluate both community development programs, and when
the Administration submits its new housing recommendations and legislation.

A final League quotation sums up the urgency for Congressional action on
housing and community development:

"During mid-February, . . . the Housing Authority's request to build 34 more
low-income units was in limbo becaiise HUD had not responded to Beloit's re-
quest for a waiver of the moratorium on housing construction. . . . Tlie city's
urban renewal effort was being jeopardized by HI'D's directive banning further
acquisition of land. Programs that had been flourishing seemed checked ; the
mood was dark."

— Wisconsin

Addendum : Excerpts From League Reports on Housing and Community

Development

To accompany statement filed with the Senate Subcommittee on Housing and
Urban Affairs in connection with legislation on housing and community develop-
ment: S 2192, S 1743 and S 1744. NOTE: all excerpts from local and state
Leagues are from communications after imposition of the housing moratorium
and cancellation of community development programs in January 1973. Even
though many of the reports pertain specifically to the impact of the moratorium
in communities, that information in itself indicates support and need for federally
assisted housing and community development programs.

CALIFORNIA

LWY of Central Marin

"League members in Marin and throughout California have worked hard to
increase the supply of low-moderate income housing. . . . Currently. 261 dwellings
are being provided under this program ; there is a waiting list of applicants who
need housing of this kind.

"However, two other [developments providing housing for elderly and families]
which had progressed through the feasibility study phase will not be built. One of

163

these would have provided 140 units for the elderly and the other 100 units for
families and 45 for the elderly. This is the very type of housing that is most
needed in Marin. In addition to the immediate loss of housing, the moratorium will
make it impossihle for the Ecumenical Association to continue operation.'"

LWV of Diablo Valley

"Without alternative programs in effect, figures developed by Califomians
Against the Moratorium estimate a loss of $355 million to the Bay Area economy
within the next twelve months : low middle income housing units worth $314.-
323,000 (16.600 units) will not be built ; college housing worth $21,091,000 will not
be built; water and sewage facilities worth $7,855,000 will not be built and
$11,881,000 in open space will not be purchased. In addition, in housing construc-
tion alone, the moratorium represents a loss of 26.557 man years of employment.
Further, it ivill take 18-24 months after the moratorium is over before new
federally subsidized housing can be built.

"There are four Housing Authorities in Contra Costa County, one of which
serves the Diablo Valley area. Although central Contra Costa County is one of
the more affluent sections of the Bay Area, our local Housing Authority serves
more than 2700 needy families and has three families waiting for every one
served. Nevertheless, because of cutbacks by the Office of Management and
Budget, the Housing Authority expects to be short $300,000 in operating costs
next year for the 1040 owned public housing units. In addition, the Housing
Authority will need to relinguish 200 of it.s 1704 housing leases in order to pay
market rents on the remaining 1500. Social services available in Public Housing
centers will also be hurt : a day care center will not be built."

LWV of MarysviUe-Yuba City

"Yuba and Sutter Counties have a very high percentage of substandard housing
and also a very definite shortage of adequate housing for low and middle income
people. The study recommended that the need be filled through the use of FHA
235 and 236 programs and the HUD Section 23 leasing program. This conclusion
was fully supported by the local realtors and developers, who realized that al-
though they had tried for years to meet this need themselves they simply couldn't
do it without help. They welcomed the subsidized housing program as a way to
solve the problem and still keep the land on the local tax rolls."

LWV of Ventura County

"The Ventura City Housing Aiithority, which has a waiting list of 450, has
lost 103 units, previously approved by Ventura voters, due to the moratorium.
It now takes approximately 30 months for a senior citizen to get a unit.

"Oxnard has lost 100 units due to the moratorium. Also their modernization
program is being held up. Of $3 million promised bv HUD, they have received
only $150,000.

"Santa Paula, which has a waiting list of 550, is losing the 50 units for which
they have applied. Families on their waiting list must wait two to three years for
housing.

"The freeze on subsidized housing programs cannot be measured just by its im-
pact on the poor and ill-housed. There is an economic impact also. Building trades
representatives have estimated that 150,000 huilding trades members in Cali-
fornia will be out of work by summertime."

CONNECTICUT

LWV of Bridgeport Area

"I think that in Connecticut, the programs have been well conceived and well
administered — almost to an extreme. The time-lag between planning and moving
in is unbelievably long. The funding is obviously inadequate for this area since
none of the projects would have been built without the State tax abatement
program. According to the Assistant Bridgeport Housing Director, none of the
projects in Bridgeport are in trouble at the moment but will be if the State cuts
the tax abatement below $350 per unit.

"Public housing in Bridgeport is in terrible condition. We have more than any
other in the State.

"In Bridgeport, budget proposal phases out :

Model Cities $1, 490, 000

Urban Renewal 2. 600, 000

Low and Moderate housing construction 7,000,000

East End Neighborhood Facility 516.000

Open Space projects 200, 000"

99-855 O - 73 - pt. 1 -- 12

164

LWV of New Canaan (Fairfield County)

"Virtually no low and moderate income housing is being built in this fast-
growing county (the nearest to New York City) by private enterprise. Costs are
so high that it's only feasible with generous federal financing, and then only
with supplementary state help and private contributions or loans. Demand has
been pushed up by a 21% increase in population over the 1960"s, and by 599
manufacturing firms employing about 16.680 workers moving into the county
during that period. Many of these workers and old residents cannot afford the
median rent of $115 or median sales price of $34,700. (New rents average $210
and new sales $50,000.) Five thousand families in the Southwestern Planning
Region are said to be living in overcrowded or substandard housing. With the
federal freeze, the situation will get much worse.

"The impact is wor.st in cities like Stamford. Bridgeport and Norwalk. All
have substantial numbers of low income residents, ilncluding minority groups.
and all have recently been doing a lot of federally subsidized building to catch
up with their critical housing shortage."

ILLINOIS

LWV of Illinois

"The moratorium has occurred at a critical point in time. Many of our sub-
Tirban communities had after much study, begun to acknowledge the increasing
need for low and moderate-income housing, which is not being met. Some of the
communities had begun to seek ways to relieve this problem. . . . Without fed-
eral programs, it is doubtful whether the communities will either be financially
able to assume the burden or be willing to do so.

"The Naperville and Glen Ellyn City Councils had requested leasing programs
for low income families. Naperville applied for 100 leased dwelling units last
July (1972) under Section 23 of the Housing Act of 1937. It took six months to
process the application, and the funds are now frozen. Glen Ellyn requested 100
units early in March. Tliat application is being proce.ssed by the Housing Author-
ity. At least 10 other DuPage County communities are formally considering the
leasing program.

"Elk Grove Village. Mount Prospect, Des Plaines, and possibly Palatine all
had applications for senior citizens projects in process, but preliminary loan
agreements had not been signed by January 5, and so the projects were affected.

"The effect of the moratorium is to terminate the possibility of the federal
government using Community Development funds in such incentive programs."

LWV of Arlington Heights-Mount Prospect Area

"Only those past 12 months have we begim to see signs of ultimate success.
An Illinois Housing Development Authority ( IHD A ) development of three-story
apartments with 324 units (108 of them .subsidized to moderate income rentals
using FHA 236 funds) was built in Mount Prospect. It has been very success-
ful. . . .

"The suburbs are crucial to meeting national housing needs. That's where the
undeveloped land and the industrial employment opportunities are. For 3 years
we have worked to get acceptance of this situation in the NW suburbs of Chi-
cago. The moratorium has severely hampered our efforts. It has showTi that the
Administration backs those public officials and residents who have resisted the
facts of local housing needs."

LWV of Chicago

"We estimate that of the over two million households in the region, about one
quarter million fall in the category of moderate income [11.5% of the house-
holds]. Almo.st one third million fall in the low income category [14.2% of the
households]. This is a total of more than one half million low and moderate in-
come households representing one out of every four households in the region. . . .

". . . More than half of existing low cost housing in the region is substandard,
overcrowded, or priced too high for the budgets of its occupants. We need to
increase the supply of decent low and moderate income housing, regionwide.
until one dwelling unit out of four is suitable for the one household out of four
which has this need. We need to increase the total supply of low cost housing
because our population and economy are growing and because the proiwrtion
of retired persons is increasing."

165

MASSACHUSBHTS

LWV of Massachttsetts

"With fewer living spaces available the law of supply and demand drives up
the price of even substandard housing. If middle-income people must struggle
to provide housing for their families, how much more difficult is the problem for
the poor?"

NEW HAMPSHIRE

LWV of New Hampshire

"You must certainly be aware of the negative effect the moratorium prohibit-
ing new contracts has had on subsidized housing etc. in New Hampshire. The
need for adequate low-moderate cost housing is obvious throughout the state.
Congress must appropriate funds equal to the full 1973 level for subsidized
housing. . . ."

NEW JERSEY

LWV of Montclair-Glen Ridge

"There is great concern by many citizens in Montclair about the reduction
or stoppage of federal funds for services which are urgently needed in our
community.

"There is a serious shortage of housing for low and middle income families
which might be partially alleviated :

(a) by federal funding of housing of an urban renewal project which has
displaced many Montclair citizens;

(b) federal funds for maintenance and improvement of housing which,
without such funds, might create other blight areas in Montclair."

OHIO

LWV of Cincinnati area

"The League of Women Voters of the Cincinnati Area is gravely concerned
with the effect on Cincinnati of the cutbacks in programs and funds for sub-
sidized housing. The process for evaluation and change or deletion of a program
should be built into the plan setting up that program, but it should not be nec-
essary to suspend or do away with progranis in order to evaluate them. Stopping
projects for a lengthy period of time means a great loss to the program in people,
time and money, and makes it virtually impossible to pick up where the program
left off without expenditure of extra time and money."

LWV of Delaware

"Housing. The London Town project of the Delaware Housing Corporation is
not affected, since its funding was committed before the budget freeze. However
the Cori>oration had originally planned to undertake further developments ; Lon-
don Town was the first step. This is no longer possible with the freeze on uncom-
mitted HUD funds. There is still a need for quality low-income housing in Dela-
ware, Ohio; there is very little existing housing that would be suitable for
improvement.

"Neighborhood Center. The construction ftf a neighborhood center in the South-
west section of Delaware has been under consideration for some time. The city
government had just asked that a project proposal be written for HUD fund-
ing, when the freeze was imposed."

LWV of greater Toledo

"Our general opinion is that a deficiency of habitable dwellings for low and
moderate income families still exists in Toledo. We feel that the local federal
housing programs have been moderately successful but that legislation toward a
fair share housing program should be enacted. Opposition in the suburbs might
soften if all communities were obliged to follow the same rules.

"Toledo now has a viable housing code and systematic inspection has begun.
The need for rehabilitation loans and grants is greater now than ever. We there-
fore would like the Federal Government to concentrate on new legislation to
promote programs for rehabilitation. This is an area that we are viewing opti-
mistically as Toledo has many neighborhoods that must be saved and the cost of
rehabilitation would be much less than the cost of new housing."

166

OREGOX

LWV of Central Lane County

"All agencies are strugglin}? to keep their doors open while petitioning for funds
from various sectors — ^with one wary eye on Special Revenue Sharing. Our local
governments, p]ugeue City and Lane County, are proceeding to reorganize and
investigate funding at least some outside agencies from their present revenue
sharing funds until Special Revenue Sharing, or some other form of federal aid
is forthcoming."

TENNESSEE

IjWV of Nashville

"Housing needs continue to be a major problem, and programs to meet these
needs are being curtailed or abandoned, with new ones proposed to replace the
old. We need to dispel the rumors regarding the existing program.s with hard
facts; we need to inform the public concerning the new proposals, and to weigh
their potential effectiveness."

TEXAS

LWV of Houston

"Some of these programs (e.g. Model Cities) may be picked up by Special
Revenue Sharing, but we are facing a lag of at least a year before money would
be available. Our needs still exist. True, some needs may be met under new
federal programs, but it is impossible for a citizen to trace the devious labyrinth
of the budget to discover if a particular need will be re-programmed.

"We plead for continuation of federal monies at the present level until our
local programs can be evaluated or replaced by Special Revenue Sharing or
local funding. The League is not opposed to reducing federal exi>enditures or
sharing federal tax dollars per se. But the League does care about ichat pro-
grams will suffer when expenditures are reduced with no time for transition.
On the other hand, perhaps federal guidelines are the surest method to correct
environmental and iwverty situations that were created or, at least, allowed to
develop by the local authorities."

UTAH

LWV of 8a.lt Lake City

"Neighborhood Development and Urban Renewal — efforts in Salt Lake and
Ogden ax'e being ended. Of special concern is the lack of funding for the Central
City Neighborhood Development Project which was supposed to begin early this
year but has been held up or terminated because of the suspension.

"Code Enforcement and Neighborhood Rehal)ilitation — these programs are be-
ing phased out with withdrawal of Federal support in Salt Lake and Ogden."

WISCONSIN

LWV of Beloit

"The director of the Redevelopment Authority in Beloit told LWV that he
fears that urban renewal is dead as a concept at the federal level, and stressed
that between January, 1974, when the old categorical aids program will end, and
June, 1974. when new community development funds will be relea.sed. Beloit will
be without sorely-needed mcmey for urban renewal. \'ery recentl.v Beloit has
learned that its request for an additional 2.1 million will probably come through
from HUD ; it has been given "highest priority," despite the fact that a large
shoe comi>any did not purchase a site in the downtown renewal area — and the
money was to have been contingent on that purchase. The urban renewal direc-
tor said, though, that our share of Better Communities Act money ($4r)0,(X)0 for
the first two years, $83,000 per year thereafter), will not be adeijuate. A city of
Beloit's size (35.000) cannot hope, he said, to compete for funds with one like
Milwaukee."

LWV of North Shore, Mihcaukce County

"A housing study which our League did in 1970 showed a serious lack of low
and moderate income housing in the North Shore. In a study reported in the
Shorewood Herald on September 7, 1972, Shorewood was found to have the high-
est percentage of persons 62 and over of the 19 municipalities in the county. The
same study revealed that income-wise. Shorewood rated ir)th. Our members
worked for the passage last year of a Fair Share Housing Plan by the Inter-
Governmental Cooperation Council and when the 19 accepte<l it, we saw hope
for more units in our area. In Shorewood. ")46 units of 230 housing were in the
planning stage (i.e. when the moratorium was declared). Now the picture looks
bleak."

167

LWV of Watertown

"Since January 1972, approximately $3,000,000 was brouglit into tlie Water-
town area by tlie FHA 235 and FHA 236 programs. In 1972. 130 FHA 235 and
FHA 236 liomes were built in the Watertown area. This program stimulated
the building industry which had been experiencing a slump. It also provides busi-
ness for the banks and provides housing for middle and lower income people
who otherwise would be unable to buy a new home during this period of high
prices. As a result it relieves the housing shortage, brings money into the com-
munity as provides work for those in the building trades.

"It is clear that the moratorium on new low- to moderate-income housing is
hurting the people in our community."

The League of Women Voters of the United States,

Washington, B.C., May 1, 1973.
Hon. James T. Lynn,

Secretary of Housing and Urban Development,
Washington, D.C.

Dear Mr. Secretary : I am pleased to resi)ond to your request that the League
of Women Voters comment about our views on the "federal government's role
in housing," and how this role can best be carried out. First, let me say that we
are heai'tened by President Nixon's statement in his fifth State of the Union
Message : "This Administration is firmly connnitted to the goal first set forth
for America in the 1949 Housing Act : "a decent home and a suitable living en-
vironment for every American Family.' "

AVe disagree, however, with the belief Mr. Nixon expressed in his radio ad-
dress on community development that "the hour of crisis has passed." Despite
the progress that has been reported by HUD in recent annual reports, the na-
tion still is not meeting the numerical goals for new low- and moderate-income
housing. There is still a high incidence of urban, suburban and rural slums, and
we believe a state of crisis still exists — perhaps not for the more advantagetl
majority of United States citizens, but certainly for the less privileged citizens.
Equal opportunity for access to an adequate supply of sound housing in a
suitable living environment, available without racial or economic barriers, has
been, and continues to be, the League's basic goal for housing. To reach that
goal. League members support such federal programs as the following :

A major fe<leral responsibility for program development, funding, over-
sight, and leadership to assure a coherent nationwide attack on housing
shortagfts and blight in urban, suburban and rural areas. (It has been
clearly established that private industry cannot meet the need for lower-in-
come housing.)

Specific federal programs for lower-income individuals and families, in-
cluding income grants and aids to home ownership and rental, subsidies for
cooperative and nonprofit housing developments, assistance for public hous-
ing that permits an economic mix and is constructed in small enough seg-
ments and on scattered sites so that public housing itself does not con-
.stitute a ghetto.

Tough federal laws, regulations and administrative practices to assure a
positive federal thrust toward, and undergirding of. housing programs which
actually result in breaking down racial and economic barriers.

Strict federal requirements for citizen participation in the development,
planning and oversight of housing programs at the community level.

Federal laws and policies Avhich encourage a flexibility of choice, so that
cities and communities may decide among the federal programs which best
suit their needs, and put the programs into effect without undue administra-
tive entanglement and delay.

A federal role which encompasses a broad range of programs and services,
including :

( 1 ) incentives to cities and communities to enable and encourage them
to provide an adequate supply of sound low- and moderate-income
housing ;

(2) assistance to strengthen the capabilities of state and local agencies
re.sponsible for developing housing programs :

(3) evaluation of programs in terms of the numbers and soundness
of units produced, rather than in terms of benefits accruing to the financ-
ing, insuring and construction agencies or industries ;

168

(4) aids to cities and communities to make possible the acquisition
of land at reasonable prices ;

(5) encouragement of regional and metropolitan planning to prevent
haphazard growth and to ensure that new housing programs are de-
veloped in a context which provides access to employment, to good
schools, to open space and adequate recreation ;

(6) adequate federal administrative and monitoring personnel, and
tough enforcement powers to assure adherence to federal requirements
and high quality standards.

From long experience in their cities and communities League members are
aware that the goals and methods outlined above are not easy to attain. We
know, in fact, that they cannot be attained if the job is turned over completely
to local and/or state governments. Patterns of living and housing are so in-
escapably interAvoven with the opportunities for good health, sound education,
adequately paid jobs, and access to receration that we are convinced that the
federal role in housing lies at the heart of the government's responsibility to
"promote the general welfare" of the nation. . . .

I am sure, therefore, that I speak for our entire membership in urging that
you exert the utmost effort to restore confidence in and the federal government's
commitment to supporting an adequate supply of sound housing to meet the needs
of lower income people, and to achieve socially desirable goals of creating inte-
grated neighborhoods in environmentally healthful areas.
Sincerely,

Lucy Wilson Benson,

President.

The American Bankers Association,

Washington, D.C.
John Sparkman,

Chairman, Senate Banking, Housing, and Urban Affairs Committee, Dirksen
Senate Office Building, Washington, D.C.

Dear Senator Sparkman : The American Bankers Association has 13,000 mem-
lier commercial banks that are heavily involved in making funds available for
housing and related community requirements.

Commercial Banks hold approximately $117 billion in construction and long-
term mortgage loans, of which $76 billion are in residential mortgages — $64 billion
in 1-4 family mortgages, second only to savings and loan associations, and ex-
ceeding substantially the holdings of mutual savings banks and insurance com-
panies.

Mortgage holdings are important, but over emphasis of such holdings may re-
svilt in overlooking the additional vast financial commitments that are required
to produce homes for American families. Commercial banks have substantial
commitments of funds for land acquisition, construction loans and lines of credit
to all other groups of financial institutions. Among financial institutions, com-
mercial banks are a leader in providing financing for the total needs of our
commvmities.

CURRENT legislation

The American Bankers Association has not had an opportunity to study in
depth all bills that are currently before your Committee. However, our Associa-
tion takes this opportunity to express its views on the following legislative pro-
posals.

Last year your Committee reported, as part of the omnibus Housing Bill, and
the Senate passed, a provision designed to simplify, consolidate, and modernize
the law relating to the invesetment by national banks in loans secured by real
estate.

In Congress, Senator Brooke has reintroduced the same provision and the
current number is S. 2175.

As your Committee has already studied and recognized the merits of this
measure our comments will be brief.

In attempting to finance legitimate needs of customers and communities, na-
tional banks have been needlessly hindered by outmoded and cumbersome invest-
ment statutes. In the real estate area, the impediment has been Section 24 of the
Federal Reserve Act which was originally enacted in 1913. If increasing housing
needs are to be effectively served by the resources of the real estate industry

1,69

Section 24 must be amended to provide national banks with the tools that are
required to finance real estate in today's environment.

S. 2228 and S. 2288, are designed to reduce and standardize settlement costs.
In previous testimony our Association has indicated a sincere desire to reduce and
standardize settlement costs because we realize that a reduction in the amount
of money a homeowner must advance at time of settlement will increase the
number of families who can afford home ownership. Nevertheless, we are unable
to support either S. 2228, or S. 2288 as they will expand the Federal regulation
of closing costs so as to apply to conventional mortgages merely because they are
made by an insured lending institution.

We see no reason for Congress to supersede State authority in this manner. We
urge that any Federal regulation of closing costs not be applicable to conven-
tional mortgages.

While the ABA recognizes that S. 2228 is a more moderate bill than S. 2288,
we are concerned that both bills require disclosure of closing costs 10 days in
advance of settlement. This requirement for disclosure 10 days in advance may
delay closing and in so doing injure the home purchaser. Such delay, also, could
mean payment of 10 days' more interest by the builder on the construction loan.

The 10-day period is too long and should be reduced since both the amount of the
cost and the actual services to be performed in the closing may not be determinetl
at this early date. For example, the lender may not know whether a survey will
be necessary prior to completion of title search. We would suggest that the 10-day
advance disclosure period be reduced to 3 days.

In many instances, the settlement attorney or title company is in the best posi-
tion to disclose costs and, therefore, the lender should not be legally responsible
for the correctness of costs disclosed.

S. 2288 imposes on lenders that are financial institutions responsibility for
administering and enforcing compliance with restrictions on closing costs. In
settlement transactions, custom and usage vary throughout the country. In some
instances a lender is not involved in establishing and assessing many of the set-
tlement charges. A uniform requirement imposing responsibility on the lender
for enforcing compliance with ceilings on settlement charges is impractical.
Furthermore, in many cases the lender does not have authority to be certain that
other parties have complied with these requirements.

Both bills impose criminal penalties on any person who in connection with a
settlement involving a Federal related mortgage, accepts or gives anything of
value. We are in sympathy with any attempt to prohibit kickbacks. However, the
language in both bills is so broad and so indefinite as to make interpretation most
difficult.

S. 1329 authorizes FNMA to purchase conventional mortgages in dollar
amounts up to $45,000, increases their permissible loan-to-value ratio from 75
percent to 80 percent, and permits purchase of conventional mortgages that are
insured by non-private insurers. The ABA believes that this liberalization is
needed and recommends its enactment.

The ABA continues to support the parts of S. 2182 which consolidate and sim-
plify the FHA programs. While the Association would prefer a free interest rate
of the type approved by your Committee in 1970, we believe that section 103 of
S. 2182 which would establish a dual interest rate is a worthwhile experiment.
Section 103, until July 1. 1975, would permit HItd to insure loans without regard
to the interest rate if no charges in the nature of discounts or points are made
in connection with the mortgage transaction.
Sincerely yours,

Charles R. McNeill,
Executive Director, Government Relations.

Statement of William F. McKenna, General Counsel/Vice President of the
National League of Insured Savings Associations

The National League of Insured Savings Associations is a trade association
composed mainly of savings and loan associations around the country. It also
includes in its membership many associate members that have an interest in the
operation of savings and loan associations. The National League appreciates the
opportunity to express to the Subcommittee on Housing and Turban Affairs the
following observations in connection with the Subcommittee's current hearings
on housing and community development bills.

170

MOST HOUSING FINAXCED BY CONVENTIONAL MORGAGE LOANS

The attention given by the Federal government to housing financed with the
aid of insurance or guarantee liy Federal agencies has a tendency to obscure the
fact that most housing in the United States continues to be financed through con-
ventional financing without the assistance of housing insurance or guarantee by
Federal agencies. General substantiation of the important role conventional mort-
gage financing plays in residential housing in the United States is provided by
statistics appearing in the Federal Reserve Bulletin. Of the total amount of non-
farm residential mortgage debt outstanding on September 30. 1972, more than %
was financed by conventional means and less than % was financed by mortgage
loans insured by the Federal Housing Administi-ation or guaranteed l)y the Vet-
erans Administration. The table headed "Mortgage Debt Outstanding" on page
A49 of the Federal Reserve Bulletin for May 1973 discloses the following
statistics :

NONFARM RESIDENTIAL MORTGAGE DEBT OUTSTANDING, SEPT. 30, 1972

Amount Percent of

(billions) total'

Type of financing:

FHA-VA underwritten - .-. $129.0 31.5

Conventional . _. 279.9 68.5

Total 408.9 100.0

1 Rounded to nearest )^ of 1 percent.

First, therefore, the National League respectfully urges the Subcommittee not
to overlook conventional mortgage loans as a source of helping to finance the
nation's h(»using goals, in the absorbing nature of the Subcommittee's examina-
tion into the impoi'tant issue of developing suitable Federal legislation for that
portion of the housing market to be financed through Federal assistance.

SAVINGS AND LOAN INDUSTRY'S MAJOR ROLE IN HOUSING FINANCE

Second, the National League respectfully invites the attention of the Sub-
committee to the ma.ior role played by the savings and loan industry in financing
the nation's housing supply.

Of the above total of $408.9 billion of mortgage debt outstanding on nonfarm
residential properties on September 30, 1972, $335.6 billion of mortgage loans
were held liy financial institutions (commercial banks, mutual savings banks, life
insurance companies and savings and loan associations). (See table headed
"Mortgage Debt Outstanding on Residential Properties", Federal Reserve Bul-
letin, May 1973, page A49).

Commercial banks held $59,976 billion of nonfarm residential loans (See table
headed "^Mortgage Loans Held by Banks", Federal Reserve Bulletin, May 1973,
page A 50).

Mutual savings bank held $55,889 billion of such loans ( See table headed
"Mortgage Loans Held by Banks". Federal Reserve Bulletin, Mav 1973, page
A50).

Life insurance companies held $70,195 million of nonfarm mortgage loans
(which a footnote states include some loans secured by land on which oil drill-
ing and extracting operations are in process). (See table headed "Mortgage
Activity of Life Insurance Companies", Federal Reserve Bulletin, May 1973,
page A50).

Even assuming that all of these loans were for nonfarm residential properties,
the sum of those reported held by commercial banks ($.59,976 billion), mutual
savings banks ($.55,889 billion) and life insurance companies ($70,195 billion),
amounts to a total of $186,060 billion compared with the total of $335.6 billion
r)f nonfarm residential mortgage loans held by these three types of financial
institutions and savings and loan a.ssociaticms.

The remainder of the $335.6 billion total, then, may be jjresumed to be held
by savings and loan associations. This amounts to $149,540 billion. These cal-
culations indicate that savings and loan associations on September 30, 1972
held at lea.st 44% of the mortgage debt outstanding on nonfarm residential
properties in the T^nited States.

These data may be summarized in tabular form as follows:

171

Financial Institutions' Holflinr/s of Mnrtr/af/c Drht Outstanding on Residential

Properties as of Septe)iiher .iO, 1912

Holdings
Type of institution in billions

Commercial banks $59. 976

Mutual savings l)anks 55.889

Life insurance companies 70. 195

Savings and loan associations 149. 540

Total 335, 600

In view of the very important share of the residential financing in this
country that is done by the savings and loan industry, the National League
trusts that the Subcommittee will keep in mind the likelihood that the savings
and loan industry will be looked to in order to continue supply financing for
a substantial part of the nation's housing needs. It is requested, therefore, that
in considering housing legislation, the Subcommittee also consider whether
it will be economically feasible for the savings and loan industry to continue
to make the significant contribution it has made in the past as a source of
residential mortgage loans.

SAVINGS DOLLARS VERSUS DEFICIT DOLLARS

The bulk of the funds used by savings and loan associations in such financing
is obtained from the savings of millions of people who have deferred a use
of their money that would satisfy their immediate wants in favor of investing
it in savings accounts that produce earnings for them. These savings funds are
non-inflationary in nature because they represent a conscious decision against
an alternative use by their owners that could well be inflationary in nature
in a period when the production of goods in the United States is coming close to
the capacity to produce those goods.

In contrast, if home financing were to be accomplished by Federal govern-
ment money during a time when the Federal budget is in deficit, the money
required for that pui'pose would be raised through borrowings by the Federal
government, thereby increasing the deficit. The result tends to cause more
inflation.

The National League urges the Subcommittee to keep the foregoing facts in
mind during its deliberations on Federal housing legislation.

THREATS IN NEW RATE CEILING STRUCTURE TO SAVINGS FUNDS IN SAVINGS AND

LOAN ASSOCIATIONS

It is feared that the recent changes in Federal ceilings on earnings rates
payable on savings accounts and deposits will make it more, rather than less.
difficult for savings and loan associations to attract savings funds that beconie
available to make housing loans. Those changes included a removal of rate
ceilings from two classes of accounts or deposits, as follows :

1. $1,000 minimum accounts having a minimum term of 4 years.

2. $100,000 minimum accounts having a minimum term of 30 days.
They also resulted in narrowing the difl'erential in rate ceilings on regular

savings accounts in savings and loan associations as compared to commercial
banks to % of 1% per annum from % of 1% per annum.

Tfie National League advocated that no change be made in the rate ceilings
that prevailed before July 1. 1973. It took that stand for several reasons.

a. Under the old ceilings, savings and loan associations in general were con-
tinuing to attract savings funds, although such associations in some geographic
areas were not attracting savings funds in sufficient amounts to maintain their
former level of lending operations.

b. An increase in rate ceilings comparatively small when compared to the in-
crease in money market rates would not enable savings and loan associations to
attract funds in competition with high-yielding money market instruments, if
the funds are to be employed in making housing loans that in many States are
subject to usury ceilings lower than money market rates.

c. The unfortunate result from the standpoint of housing finance is that sav-
ings and loan associations would be ec-onomically impelled to use in investments
other than housing loans, savings funds for which they pay a high rate, to the
quite limited extent non-housing loan investments are lawfully available to them.

d. Also, unfortunately, the additional cost to savings and loan associations of
attracting savings funds would tend to increase the interest rates charged on resi-

172

dential mortgage loans, when the funds are used for that purpose within appli-
cable usury ceilings.

But National League warnings did not dissuade Federal banking agencies from
increasing some rate ceilings and removing others. The result bodes ill for the
continued aA'ailability of funds to make residential mortgage loans in amounts
adequate to meet the nation's housing goals, particularly in view of the pre-
dominant role the savings and loan industry has played as a supplier of such
loan funds.

Particularly worrisome is the new ceilingless category of savings account or
deposit in a minimum amount of $1,000 for a minimum maturity of 4 years.
During the short time this new category of account has been in effect, the most
commonly quoted earnings rates for the category range l)etween 7 and 7%% per
annum. Higher rates reaching 8%% per annum have been offered by some in-
stitutions. Another institution has introduced sliding .scale formulas tied to a
prime rate of 8%% per annum with no ceiling. Still another financial institution
has linked the interest rate on deposits to the consumer price index, with a ceil-
ing of 10% per annum.

As might be expected, early indications are that banks are outbidding savings
and loan as.sociations for funds in this new category, because banks have high-
yield investment outlets for funds so obtained that are denied to savings and
loan associations.

Although the Federal Reserve Board on July 26, U>73 took action to limit each
member liank to the issuance of an amount of .$1, 000-4-year certificates of deposit
bearing an interest rate higher than 6%% per annum that would not aggregate
more than 5% of the bank's time and savings deposits, this .still presents a po.ssi-
bility of having more than $13 billion of this category of certificates of deposit
outstanding within that limit. Time and savings deposits in Federal Reserve
member banks on a preliminary basis, were stated to be $260.5 billion at the
end of April 1073 (See table headed "Aggregate Reserves and Member Bank
Depo.sits", Federal Reserve Bulletin, May 1973, page A17).

That $13 billion estimate increases to well above $16 billion now that all
commercial banks have been brought within the 5% of time and savings deposits
limit through FDIC action paralleling that taken on July 26 by the Federal
Reserve Board. Time and savings deposits in all commercial banks in the United
States on a preliminary basis, were .stated to l)e $33-">.l billion at the end of
April 1973 (See table headed '•Principal Assets and Liabilities and Number, By
Class of Bank", Federal Reserve Bulletin, May 1973. page A18).

It is fair to predict that much, but not all. of the money raised by banks
through i-ssuing consumer certificates of deposit removed from Federal rate
ceilings will represent money that is now or would be in savings and loan
association savings accounts, in the absence of the new rate ceiling structure.
It ma.v be conceded that with or without that new rate ceiling structure, some
funds that would otherwise find their way into sa^^ngs and loan association
savings accounts will drift to investments in higher yielding money market
issues, U.S. Treasury obligations and Federal agency obligations. But the attrac-
tiveness of deposit insurance ; the assurance of availability of 100 cents on the
dollar for all savings accounts insured by Federal agencies within the coverage
offered by that insurance, regardless of changes in values in the securities
markets : the freedom from payment of purchase or sale fees that prevails in
making or withdrawing depo.sits in depository institutions : and the lack of ne-
cessity of any great degree of financial sophistication in handling deposit trans-
actions as distinguished from ordinary securities investments all combine to
attract certain categories of funds and investors to deixisitory institutions rather
than to other investment media. Within that segment of funds, herefore, it is
essential that savings and loan associations be enabled to attract an appropriate
share if they are to continue to be able to finance the liousing needs of this
country to the extent they have in the past.

The National League is aware that prime jurisdiction over strictly .savings
and loan association Federal legislative matters rests in a different Subcommittee
than the Subconunittee on Housing and Urban Affairs. But members of both
Subcommittees sit on the full Committee on Banking, Housing and Urban Affairs
which has jurisdiction over both housing and savings and loan associations to
the extent that Federal legislation affects either of those segments of the econ-
omy. Therefore, the National League urges the Subcommittee on Housing and
I'rban Affairs to bear in mind what effects their decisions on Federal housing
legislation may have on the ability of the .savings and loan industry to provide
a desirable share of housing finance in the United States.

173

HOUSING LEGISLATION GUIDELINES

As for legislative proposals directly related to Federal housing legislation,
the National League has presented pertinent views to this Suhconiniittee during
its April 1973 oversight hearings on housing and urban development and to the
Department of Housing and Urban Development on May 1, 1973 in resiMjnse
to the deixjrtment's solicitation of comments meant to be useful in its study of
departmental programs.

Rather than repeat any of those views at length, the National League pre-
fers to summarize them succinctly as follows :

1. The Federal government is an appropriate source for ju.stifiable hous-
ing subsidies to the extent they are not obtainable from other sources.

2. Making Federal hcmsing subsidies available through the facilities of
experienced private lending institutions can result in maximum net benefit
to subsidy recipients. It avoids costly duplication of facilities.

3. Direct Federal lending programs for housing, in contrast, contain
hidden costs (decrease of the base of taxable income) and undesiral)le
side effects (increase of Federal deficits).

4. Federal housing subsidy programs should not be potentially so large
in scope as to hold out false hopes to many eligible recipients, when the
government's financial condition will not realistically permit it to honor
the requests of all eligible recipients.

o. Federal housing subsidy programs should aim to .sati-sfy housing needs
as distinguished from housing wants.

6. DiflBculties encountered in housing programs authorized under .sec-
tions 235 and 236 of the National Housing Act seem to be more attributable
to administrative rather than philosophical reasons.

7. It is fitting that the Federal government continue to experiment with
acceptable ways to provide housing subsidies in oi-der that they may best
satisfy the public interest.

8. More attention deserves to be given to orienting recipients of Federal
housing aid in acceptable ways to u.se and care for the housing facilities
thereby made available to them. Compliance with tho.se acceptable ways
should then be enforcetl and non-compliers should be compelled to forfeit
the benefits made feasible for them by the subsidies provided by their
fellow citizens.

9. In areas not involving direct Federal housing subsidies, the Congress
should authorize Federally-chartered financial institutions to provide equity
and debt capital to State housing corporations to help meet housing needs
of low- and moderate-income people. For example, Florida's State housing
corporation will combine direction by a policy board comiwsed of public
and private officials with interest rates on selected mortgage loans that
are below market rates but above the cost of money to the private financial
institutions furnishing the capital.

10. Cooperative housing should be made eligible for mortgage loans from
Federal .savings and loan as.sociations presently available for single-family
dwellings on a maximum loan-to-value ratio of 95%. These loans would
have the extra support of private mortgage insurance for the amount above
an 80% loan-to-value ratio or a si>ecial reserve equal to 1% of the amount
of the loan.

11. The normal loan-to-value limit on loans eligible for purcha.se by
FNMA and FHLMC should be increased to 80% from 75%.

12. The limit on the amount of loan eligible for purchase by FNMA should
be made equal to that a Federal savings and loan association can make
as a normal loan secured by a single-family dwelling. Presently that amount
is $45,000, but should be increased to $50,0(K) to compensate for ground
lost to inflation.

13. Permission for variable interest rates should be granted for mortgages
insurable by the Federal Housing Administration (FHA).

14. A dual alternative intere.st rate limit .should be established for FHA-
insured loans. The alternative rate should be a specific one established by
the FHA with discount allowed or a free market rate with no discount
allowed, with the option in the lender to use either one of the two
alternatives'.

15. Make FHA an independent Federal agency that can again be self-
supporting from mortgage insurance premiums charged in connection with
loans made in accordance with the principle of economic soundness.

174

16. Assign the administration of Federally-subsidized housing programs
to some agency other than FHA.

17. Instill in govrenment employees the realization that they are truly
intended to be servants of the public, rather than masters. Increase the
productivity of any role the government plays in housing or housing finance
by emphasizing to its employees that they are expected to give an honest
day's work to which they devote the best intellectual effort of which they
are capable.

18. Establish a National Institute of Building Sciences to develop accept-
able regulatory standards for housing and thereby help to economize on the
cost of decent housing.

19. Consolidate and simplify Federal housing legislation along the lines
provided in S. 3248 passed by the Senate last year.

20. As an experimental method of ea.sing the difficulty experienced by de-
pository institutions in attracting savings funds during periods of tight
money, support legislation providing a limited Federal income tax deduc-
tion for earnings on savings accounts.

The National League will be willing to discuss in greater detail with any mem-
ber of the Subcommittee or the staff of the Subcommittee upon request any of the
suggestions made in this statement. It appreciates the opportunity of presenting
these views to the Subcommittee.

Office of the Mayok,
Trenton, N.J., July 27, 1973.
Hon. John Sparkman,

Chairman, Senate Subcommittee on Housing and Urban Affairs, Dirksen Senate
Office, Washington, B.C.

Dear Senator Sparkman : It is my understanding that the Senate Subcom-
mittee on Housing and Urban Affairs is currently taking testimony from interested
groups on all elements of the omnibus housing legislation under consideration,
including the 701 Comprehensive Planning Assistance program.

As Mayor of a city in which 701 funds have enabled implementation of basic
management improvements and community development activities which the
City would not otherwise have been able to afford, I support strongly this pro-
gram. The City of Trenton has been able to use more sophisticated management
technologies to review' City services for ways to increase productivity and to
reduce costs. We have, through 701 assistance, undertaken to assess our existing
community participation processes and to design a city-wide process for partici-
pation. With the aid of Comprehensive Planning Assistance, we are also studying
our zoning ordinance to determine how its revision could enhance community
development obectives.

These are some of the projects which Trenton has begun with Comprehensive
Planning Assistance funds, and are but a few examples of wiiat other cities in
need of improved public administration can accomplish with such grants. It is
even more important now, in this period of changing federal-local relationships,
that funds such as Comprehensive Planning Assistance remain available to assist
cities in increasing their own planning and management capabilities.

Programs which have remained flexible and have adapted to changing local
needs, as 701 Comprehensive Planning Assistance has done, are vital because of
their allowance of innovation, to continued improvement of the management of
cities and should be fully supported by the Congress.
Sincerely yours,

Arthur J. Holland.

Maryland Department of Housing and Community Development,

Baltimore, Md., August IJf, 1973.
Hon. J. Glenn Beall, Jr.,
U.S. Senate,
Washington, B.C.

Dear Senator Beall : Thank you for your letter of July 25, 1973 with which
you enclosed a copy of a letter from Senator Sparkman regarding Bill H.R. 8102,
now pending before the House Banking and Currency Committee. You requested
additional information which might be included in the record for the considera-
tion of the Committee and, in this regard, we wish to submit the following :

The Bll states that it has. as its purpose : "to amend the United States Housing
Act of 1937 to improve the financial condition of low-rent housing projects by

175

establishing a more realistic formula for the determination of rentals, and for
other purposes." In our letter of July 9, 1973, we exijressed the opinion that the
enactment of this legislation would require public housing tenants to make up
public housing deficits through increased rents, thereby negating the progress
made by public housing tenants under the Brooke Amendment. Not only in this
sense do we consider the Bill to be regressive, but it does not address itself to
the failure of HUD to meet its obligations to provide subsidies commensurate
with demonstrated need.

From our review of the proposed legislation, it appears to us that not enough
indepth consideration has been given to its effect on the families served by the
public housing program, the majority of w^hom are already forced to exist on
extremely meager incomes.

Under the present HUD regulations, carrying out the "Brooke" Amendments,
there is an exemption of $300 for each Secondary ^Yage Earner, before arriving
at a Family Income Figure on which to base a tenant's rent. This can apply to
the spouse or any other employed family member who Is at least 13 years of age.
(Income of a person under 18 years of age, other than the head or spouse, is
totally exempted). Obviously, there can be more than one Secondary Wage
Earner in the family, and it has always been a recognized fact that employed
children, of any age, do not use all of their earnings in contributing to their
family's support ; therefore, their total earnings should not be included in setting
rent. Under the Widnall Bill (page 3(B), lines 4 and 5), the Secondary Wage
Earner exemption is only applicable to the earnings of "the spouse of the head
of the household." We are in total disagreement with this. Again, as is common
to many Housing Authorities throughout the country, the cast majority of our
families are "broken" families, headed by the mother. The Widnall Bill makes no
provision for a Secondary Wage Earner exemption in such family situations, and
this must also be rectified.

Bill H.R. 8102 (page 3 (C), lines 5 through 11), is restrictive in the De-
pendent exemption of $300. Under "Brooke" regulations, $300 is allowed for each
Department (other than head or spouse) — adult or minor — dependent on the
family for support. The AVidnall Bill, while continuing to allow the $300 exemp-
tion for persons who are under 18 years of age or a full-time student, restricts
the exemption to person of 18 years and older only if they are "disabled or handi-
capped." We are in disagreement with this restrictive definition since, obviously,
there are and will be family members, aged 18 years and older, neither handi-
capped nor disabled, who are dependent on their families for support. In this
area, also, there is need for clarification of a "Dependent." Is this a i>erson with
"no income"? What constitutes a "handicap" or "disability"? These reflect some
of our concerns in this area. Additionally, the Widnall Bill makes no provision
for the "elderly," who presently receive a ten percent deduction before arriving
at an income figure on which to base their monthly rent. This omission requires
consideration and correction.

In the Bill's reference to rents paid by residents who receive welfare assistance
(page 2, lines 8 to 14), we interpret this to mean that such residents would be
charged, for rent, either: (1) one-fourth of the family's income, or (2) the maxi-
mum amount included in the welfare grant for "shelter" expenses, whichever
is the greater of the two. If we are correct in this interpretation, the Widnall
Bill would adversely affect thousands of welfare assistance residents in public
housing throughout the country, in that rental increases across-the-board would
be engendered. The "Brooke" Amendments permit public assistance residents to
pay no more than one-fourth of their assistance grants for rent, without suffer-
ing a decrease in their grants if the one-fourth rent is less than the "shelter"
allowance included in the grant. These residents have become accustomed to the
little excess money they can apply to necessities other than "shelter," and we can
foresee widespread tenant unrest if the Widnall provision is passed into law. As
far as this Authority is concerned, some 67 percent of our total residents
(12.753) or 8.583 families receive public assistance of one kind or another. At
the present time, these families pay an average rent of $38.83 per month. Under
the provisions of the Widnall Bill, these families would be required to pay an
average monthly rental of ,$65.86. a 70 i)ercent increase over their present rentals.

For nonpublic-assistance families, the Bill provides (page 2, lines 5 to 8),
that "in no case shall the rental be less than an amount equivalent to 40 per
centum of that part of the cost of operating and maintaining the project which
is attributable to the dwelling unit." In this Authority's Operating Budget for
fiscal year 1974, HUD approved our overall operating expenses at $90 per unit,
per month. Using the 40 percent provision quoted in the Widnall Bill, a minimum

176 ■

rent of $36 per unit, per month, is produced for nonwelfare families. This Au-
thority presently houses 4,170 nonwelfare families, of which 952 (22.8 percent)
are paying an average rent of $24 per month. In order to reach the $36 minimum
rent, these families would experience rental increases ranging from $1 to $23
per month, or an average increase of $12 per family, per month.

Page 2, lines 14 to 23, refer to payments of Annual Contributions, and qualifies
a public agency for such contributions in any year only if aggregate rentals
charged by the agency, in that year, "are not less than an amount equal to one-
fifth of the sum of the incomes of all such families." Family income and, there-
fore, the rents collected by a local authority are flunctuating figures, as are the
Operating and Maintenance Costs in administering the low-rent housing program.
It is our feeling that a local housing authority should receive Annual Contribu-
tions, in any year, based on the following formula : Annual Operating and Main-
tenance Costs less Total Rental Income equals Annual Contribution.

It is our opinion that lines 14 to 23, page 2, be stricken from the Bill and that
new language be inserted to the effect that "The Secretary shall make annual
contributions to a public housing agency for the operation of low-rent housing
project in any year in an amount equal to the difference between Annual Operat-
ing and Maintenance Costs and Total Rental Income." To us, this is the only way
to insure the solvency of the low-rent housing operation.

Present Deductions and Exemptions permitted by the "Brooke" legislation have
drastically reduced the operating income of all local Housing Authorities. How-
ever, its intent was to benefit public housing families, long forced to pay too large
a proportion of their meager incomes for rent, and, in this, it was successful. It
has improved the financial condition of these families, and they rightfully expect
to continue to benefit from this legislation.

The Widnall Bill, on the other hand, appears aimed at improving the financial
situation of local housing authorities, but at the cost of the tenants. We do not
agree this is the solution to the problem and again request that you exercise
your influence in postponing consideration of Bill H.R. 8102 until HUD and Mr.
Widnall's advisors thoroughly study its overall impact on those most affected by
the proposed legislation — low-income families, already on reduced incomes.
Sincerely yours,

R. C. Embry, Jr.,

Commissioner.

1973 HOUSING AND URBAN DEVELOPMENT

LEGISLATION

TUESDAY, JULY 17, 1973

U.S. Senate,
Subcommittee on Housing and Urban Affairs,
Committee on Banking, Housing and Urban Affairs,

Washington^ D.C.

The subcommittee met at 10 :15 a.m. in room 5302, Dirksen Senate
Office Building, Senator John Sparkman, chairman of the subcommit-
tee, presiding.

Present : Senators Sparkman, Tower, Biden, and Johnston.

The Chairman. Let the committee come to order, please.

I apologize for being late, but things pile up on us sometimes ; I had
some constituents.

Our first witness this morning is James Abourezk, U.S. Senator
from South Dakota.

You know that Senator McGovern was supposed to be here. He is not
here yet ; so we will go ahead with you, if that is OK. We are very glad
to have you.

STATEMENT OF JAMES ABOUREZK, U.S. SENATOR FROM THE

STATE OF SOUTH DAKOTA

Senator Abourezk. Thank you.

I would like to thank the chairman and Senator Tower and Senator
Biden for holding hearings on this bill which was just recently in-
troduced, as you know.

The Chairman. By the way, let me say this, and this applies to all
the witnesses : we have your prepared statement and that will be placed
in the record in its entirety. You may present it as you see fit.

Senator Abourezk. Thank you, Mr. Chairman.

[S. 361 is printed at p. 190.]

Senator Abourezk. If we are truly intent upon providing a decent
home in a suitable living environment for every American family, then
the time has passed when the needs of rural America can be put on
the back burner.

It would be unreasonable to expect a national policy to succeed if
the needs of a third of the population were overlooked during the
design of that policy. But, too often in the design of our major social
legislation, that is what happens. Rural America gets overlooked.

The statistics tell the story : rural America has a third of the popu-
lation, 60 percent of the housing need, median family income which
is 77 percent of that in metropolitan areas, 44 percent of the Nation's

(177)

178

poverty families and has received possibly only one-fourth of total
Federal housing resources.

Across the board, from housing to health care to education and
transportation, from the location of Federal facilities to the distribu-
tion of employment opportunities, rural America has been getting the
short end of the stick.

Rural America is poorer and older. It has fewer doctors, less in-
door plumbing, higher infant mortality rates, a more severe nutrition
problem and triple the incidence of substandard housing when com-
pared to urban America. Nearly every social index shows rural Amer-
ica trailing behind the cities.

These facts seem to be understood and, likewise, it seems to be under-
stood that all of America is paying the human and social cost of
rural America's stepsister status, yet somehow these understandings
are rarely translated into Federal policy. Housing is a perfect ex-
ample.

On the one hand you have the Department of Housing and Urban
Development, which is overwhelmingly urban-oriented but which has
somehow managed to put 21 percent of its assisted units in rural
America.

On the other hand you have the Farmers Home Administration,
which has responsibility for a dozen other diverse programs in addi-
tion to housing, which is limited to places of less than 10,000 popu-
lation and which has never had the full range of tools available to the
cities through HUD.

To put it bluntly, the cities have a single agency which is responsi-
ble for seeing that the promise of a decent home for every family is
attended to, but in rural areas the policy is fragmented, the agency
which one might suppose to be in charge has many other things on
its agenda as well and labors under debilitating administrative and
statutory limitations.

To be even more blunt about it, urban America has a very sophisti-
cated housing delivery system. Rural America does not.

Mr. Chairman, I think in view of the chairman's statement that
the statement will be accepted into the record, I will summarize as to
the thrust of my statement.

The Chairman. Very well.

Senator Abourezk. I will ask that the entire statement be entered
in the record.

The Chairman. Yes; it has been (see p. 190).

Senator Abourezk. This bill has a number of cosponsors and we
hope to have more.

I would just like to say, Mr. Chairman, and members of the com-
mittee, that this is an entirely new concept in housing assistance
programs. It is something I believe that not only the agricultural
and rural part of America, but all of rural America will benefit by.
It is something that is needed very seriously and very desperately
in my opinion.

It will establish a new kind of housing concept similar to the
Rural Electrification Administration. It will establish a Rural Hous-
ing Administration, allow local rural housing authorities or associa-
tions to be set up to take care of the programs, to make loans so far
as rentals are concerned, so far as establishing housing projects, and
it will establish a direct loan system from the Government to people

179

wanting; to build housing out in rural America, rather than having
Government-insured loans or Government-backed loans as has been
the case, and it is in the opinion of people, the economists and so on
who have worked in this program, that it is much cheaper for the
Government to make a direct subsidized loan rather than to insure
one, and it is not a necessarily radical new departure, because, as I
said, it is patterned after the Rural Electrification Administration.

It is something that has worked in this country. It is something
that is needed. And, of course, I don't guess a lot more needs to be
said about the need for housing out in the open spaces of this country.

We do need, roughly, probably, 2 million more homes which this
program will finance and undertake to accomplish.

I guess to conclude my testimony I just want to say that there is
no cheap way to provide housing in this country, especially for rural
America. There is going to be no way to do it so that it will cost
almost nothing.

We have a gross national product in this country of over $1 tril-
lion. I think we can easily provide a decent home for every American
family, including those people who live in rural America.

With that, I will thank the committee for its kind attention, and
for the opportunity to testify at these hearings and urge action on
this piece of legislation.

The Chairman. Thank you very much. Senator Abourezk.

Senator McGovern has come in now. Suppose you just stay at the
table and we will hear Senator McGovern and then we will have some
questions to put to you.

Senator McGovern, we are very glad to have you here

Senator Abourezk. I do want to offer this booklet as part of the
record.

The Chairmax. That will be made part of the committee files. It
will not be printed in the record.

STATEMENT OF GEORGE McGOVERN, TJ.S. SENATOR FROM THE

STATE OF SOUTH DAKOTA

Senator McGovern. Thank you very much, Mr. Chairman.

I am glad to join with Senator Abourezk, my colleague from South
Dakota, in expressing our thanks to you and the members of the com-
mittee for setting aside this particular time to look into the problems
of rural housing.

In 1970, Congress specifically recognized the need to develop a
policy :

To encourage the rational, orderly, eflScient, and economic growth, develop-
ment, and redevelopment of our States, metropolitan areas, cities, counties, towns,
and communities in predominantly rural areas . . .

Congress called upon the President to assist in the development of
such a growth policy through biennial reports to Congress. The first
of those reports declined, in effect, to accept the assignment and ex-
pressed doubt that we could arrive at an agreed-upon national growth
policy or that the Federal Government ought to attempt to do so. In
short, it rejected the congressional finding of need and declaration of
purpose.

Debating whether we can or cannot agree on a national growth policy
ignores the basic fact that we have a growth policy already. It could
perhaps be best characterized as an unthinking, piecemeal approach

99-855 O - 73 - nt I -- i:?

180

which operates without any real overall guidance and will continue to
do so for as long as we allow it to. So the real question we are faced
with is not whether or not we should have a growth policy, but whether
we are going to continue this slipshod nonpolicy or replace it with a
carefully studied and comprehensive set of programs geared to meet
what we know to be the long- neglected needs of our constantly growing
and shifting population.

In order to better illustrate the need for comprehensive programs
such as the Emergency Rural Housing Act, we should spend some time
reviewing the present nonpolicy in order to point out the many ways
in which the needs of rural Americans are neglected. To begin with,
it implicitly endorses continued concentration in metropolitan areas,
and within those areas, continued stratification and segregation by race
and income. In doing so it accepts the continued weakening of rural
and small town America, leaving it disproportionately the residence
of the young and the old and more importantly of the poor. With only
31 percent of the Nation's population, nonmetropolitan areas account
for 32 percent of the children under 15, for 36 percent of the adults
over 65, and for 44 percent of the poverty population. Per capita
personal income in nonmetropolitan areas is only 73 percent as large
as per capita personal income inside metropolitan areas.

Underlying this implicit policy of population concentration and
stratification has been a willingness to allow the market mechanism
an economic activity to dictate human and social values. The forces
which have contributed to our de facto growth pattern have obviously
been complex, and they have been both positive and negative in char-
acter. But we should not kid ourselves that public policy has been
neutral and that Government programs have had no effect. I would
suggest that among the more important impacts on growth and migra-
tion patterns have been a Federal farm policy which has long favored
bigness and corporate agriculture more than the family farm ; a Fed-
eral tax structure which did the same; and Federal housing policies
which catered to urban developers and the almost total suburbiniza-
tion of America.

To document a pattern in which Federal programs and policies dis-
criminate against rural and small town areas, one need only look at
the data compiled for Senator McClellan's Committee on Govern-
ment Operations — data showing that 83 percent of our massive ex-
penditures on defense, space, and atomic energy go into metropolitan
areas; that 81 percent of our spending on health services goes into
such areas ; that nonmetropolitan areas with 46 percent of the low in-
come elderly receive only 38 percent of social security and old age
assistance benefits; and that overall per capita Federal expenditures
in nonmetropolitan areas are only 85 percent as large as in metro-
politan areas.

For additional evidence on the same pattern, we can look at the
data compiled for the Joint Economic Committee on the distribution
of the whole range of Federal welfare benefits. That study found the
families at the rural sites ranked below those at the urban sites on
almost every score, from health benefits to housing assistance.

In short, our implicit national growth policy, as reflected in the pat-
tern of Federal programs and expenditures, has consistently shown
rural and small town Americans to be the forgotten Americans. No-

181

where is that more evident than in our housing policies. With less than
a third of the Nation's households, nonmetropolitan areas contain
more than half of the Nation's woret housed. The incidence of sub-
standard housing in metropolitan areas is 4 percent. In nonmetropol-
itan areas it is more than three times that — 13 percent. And in the
most rural areas it is almost four times that — 15 percent. But the de-
livery of Federal housing assistance has been bent the other way.
HUD statistics indicate that, through the end of last year, less than
QA: percent of all the public housing units under annual contributions
contract were in nonmetropolitan areas. A rural housing alliance
study released last year reported that nearly half the Nation's coun-
ties, containing almost one-fifth of its population, had no public hous-
ing program at all. Other housing assistance programs, except for
Faraiers Home Administration, do little better. HUD program sta-
tistics for the 30-month period from January 1970 through June
1972 — a period of record achievements in the volume of Federal hous-
ing assistance — show that less than one-fourth of the units were in
nonmetropolitan areas. Even when one adds in the Farmers Home
Administration program, rural and small town areas accounted for
less than one-third of all Federal housing aid.

Obviously, the assistance doesn't always go where it is most needed.
Neither does it always go to those who most need it. Census figures
indicate that more than 60 percent of the households which are worst
housed — those that occupy substandard units or units which are
severely overcrowded — had incomes of less than $5,000. In nonmetro-
politan areas ; such families accounted for more than 68 percent of the
worst housed. But the figures on those benefiting from Federal housing
programs show that less than half of them — in both rural and metro-
politan areas — had incomes of less than $5,000.

Let me turn for a moment to some statistics that concern me greatly
because they represent the situation in my home State of South Dakota.
I might preface these figures by saying that similar figures— equally
distressing — are available for every State in the Union. To begin with,
27.8 percent of the State population lives in substandard housing;
19.8 percent of all housing units in South Dakota are substandard and
20,310 housing units lack some or all indoor plumbing.

Obviously, decent housing is a crying need that concerns a very
sizable portion of the population. When you consider the fact that 68
percent of South Dakota's families earn less than $10,000 per year and
15 percent of the families in the State earn less than $3,000 per year,
the need for Federal subsidy also becomes obvious. But the figures I
quoted earlier in this statement show that the Federal housing policy
has not been geared to the needs of low-income families. You might
say, then, that in South Dakota we have a classic example of the effect
of a Federal policy of benign neglect. That the need is so obvious and
the response so pitiful is a painful reminder to all of us who form the
laws and policies of our country that great inequities continue to exist,
whether in the form of conscious policy or benign neglect.

It is in the hope of rectifying some of these great inequities, that
Senator Abourezk and I, together with more than 20 other Senators,
have proposed an Emergency Rural Housing Administration. We
think it would offset at least partially the effects of our failure to
deal more rationally than we have with the issue of national growth

182

policy. Instead of assuming that programs and institutions designed
for urban environments can be administered so as to serve rural ones
as well, our proposal squarely faces the fact that they have not and
they will not and proposes instead a program designed for the rural
and small town environment. Like Planners Home Administration
programs, it would clearly recognize the credit gap which afflicts that
environment ; but unlike the Farmers Home Administration programs
it would use direct Federal credit rather than saddling the taxpayers
with the cost of subsidizing private investors on behalf of those in need
of housing assistance. Like the public housing program, it would rec-
ognize that housing those at the bottom of the income scale frequently
requires a subsidy of both capital and operating costs ; but unlike that
program, it would not leave the Federal commitment to a decent home
for all to the vagaries of local will and local ability. And, unlike either
of these existing programs, it would seek to offset the institutional gap
in rural and small town America by seeing to the establishment of local
housing delivery systems which utilize the potential of the people most
concerned — ^those in need of housing assistance.

Beyond its recognition that special action is required to counter the
fruits of past discrimination, our bill has some basic underlying themes
which I think are an essential part of what we are proposing; it ac-
cepts, frankly and realistically, the principle that the commitment to
a decent home for every American family is a national responsibility.
At the same time, it follows the example of the successful rural elec-
trification movement in calling on local people themselves to play a
critical role in solving their housing problem. It also focuses on those
most in need and, in effect, says to the private sector and to the existing
housing programs and institutions : "You serve all those you can ; we'll
start with those we know you can't serve and let's work our respective
ways down and up until we meet in the middle." And finally, it asks
Congress to make more than a rhetorical commitment — to do the thing
that we have cause and will and strength and means to do — to under-
write a serious effort to wipe out indecent liousing in rural and small
town America.

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

The Chairman. Thank you. Senator McGovern.

I think I can safely say that this committee is interested in the ques-
tion of rural housing, and I think it has demonstrated tliat interest. I
would like to call your attention to the fact that the first rural housing
program that I remember was one that I sponsored in 1949, and that
was a direct loan program at 4-percent interest rate for 33-year term.
It was at that time limited to farm housing. Only those living on
farms were eligible. We authorized a direct borrowing authority of
$250 million for these loans.

Later, it was converted over to an insurance program. Most of our
direct loan programs, and we have had other direct loan programs, col-
lege housing, for instance; and housing for the elderly and various
other programs, but over the years, all of those, I believe all of those,
such as veterans housing, which was direct loan, over the years, all of
those, I believe, have been changed to an insured or guaranteed
program.

183

It is true that — it may be true, you don't know — ^but Senator
Abourezk stated in his statement it would be cheaper to have it on a
direct loan basis.

But there are budgetary reasons for preferring the other, and I think
that is the reason that Congress has agreed to the proposal over the
years of converting these government direct loan programs to insured
programs.

The act of 1949, that is, title V of the Housing Act of 1949, that was
written into the bill in the Senate Committee upon an amendment that
I offered, has worked very well through the years. It has not been as
large a program as I should like to see. There are certain dollar limi-
tations to it. But in 1968, 1 believe it was, we provided a program for
rural housing very similar to the 235 subsidized housing program and
the 236 housing that were provided in urban areas.

It was that same year. We actually patterned rural housing pro-
grams after the 235 and 236 subsidy provisions that we wrote into the
law.

I cannot cite the figures, but I have a feeling that it has been quite
successful throughout the country. There may be some difficulties with
it. It may not work as it should. However, Senator Abourezk, you, and
both of you, I believe, made reference to the fact that most of the
housing — you indicated that it went primarily to people of incomes
over $6,000, 1 believe you said.

I was of the ojDinion that the 502 housing, under the home ownership
program, I have felt all along that it went to low income people. In
fact, I remember the first contract that was signed. It was right after
the signing of the Housing Act of 1968. The act was signed on
August 1, and the first contract was on August 19. 1 was there. It was at
Triana, Ala., in my home county, and I know that it was for a low
income family, and I have been under the impression that the program
served the low income people quite well.

I am in favor of strengthening it all we can, but I do want to call
attention to the fact that we have had housing programs for rural
areas, and they have been getting better as time has gone along.

Senator Abourezk. Mr. Chairman, I wonder if I might just make a
comment. As Senator McGovern indicated in his testimony, this is, I
guess, called in the trade a residual housing program, intended to take
up the slack anywhere that another Government agency is not oper-
ating to its fullest extent or not operating at all.

In other words, this program will operate only where something else
is not happening. So, I would agree with the chairman that there are
some good programs, but not nearly enough, and this one would take
up that slack.

The Chairman. As I said, I realize that it may be that^ — in fact, I
am sure — more is needed. That is our experience all along. We write a
housing bill every year. We do it in order to strengthen those provisions
which have shown themselves not to be adequate and also to adopt new
ideas as they come along.

I did not want the record to rest on the statement, or understanding
that we have not had some good rural housing programs. We have had
one ever since 1949.

Senator Tower?

184

Senator Toa\t:r. I just want to venture a comment, Mr. Chairman,
and I think we realize on this committee that a lot of the urban prob-
lems are precipitated by our rural problems that create the flight of
people from rural areas into the cities, and when we attack the rural
problem we are also trying to mitigate what has turned out to be an
urban problem.

I know in my own State so many young people go into town because
they think there is greater economic opportunity there and find out
when they get there that there is not. It think we should do all we can
to keep people in the rural areas.

I would like to ask you about your definition of a small community,
which I say is a subdivision that has a population of less than 25,000
people. I assume that could be a county or incorporated municipality —
either one.

Senator McGovern. Yes.

Senator Abourezk. It would mean any one city or municipality. I
myself had not intended to mean a county. I don't know if anybody
else places a different interpretation upon it.

Senator Tower. So you actually meant any city under 25,000 ?

Senator Abourezk. Yes ; that is my own personal interpretation of
that.

Senator Tower. Yes. What has occurred to me is that we have 254
counties in Texas. A couple of them don't have any corporate cities, or
corporate towns, in them.

Senator Abourezk. They don't have incorporated towns in the
counties ?

Senator Tower. No.

The Chairman. I believe that generally in the past, we have followed
pretty much the census count on population and limited eligibility to
the smaller towns and open country areas.

The population limit for a town used to be 2,500, and then went to
5,500, and I think 10,000 was the figure we agreed on last time.

Senator Tower. I wondered if 25,000 wasn't a little outside. Perhaps
it should be smaller, really, than that.

Senator Abourezk. If I might invite Senator Tower's attention to
subsection 7 of section 3 of the bill, it also defines rural area, which
means any open country or any other such place in the United States
and also the small community which is not more than 25,000.

Senator Tower. Right; thank you. I have no question, Mr. Chair-
man.

The Chairman. Senator Biden ?

Senator Biden. Thank you, Mr. Chairman.

For either of the Senators, I wonder if you could help someone
who doesn't have the experience of my two colleagues, of watching
how these other programs have worked in the past. Give me an
example, if you could, a specific example of how "John Smith," who
is living in a substandard home in "Podunk, Del." — I was going to
say South Dakota, but I figured you would resent it — is going to go
about this? How will he go about the mechanics of his getting that
home brought up to snuff, or a new home, under your bill ? What will
he do?

Senator Abourezk. We have to go to the rural housing association
that has been formed. We have rural electric co-ops in Delaware

Senator Biden. Yes, we do.

185

Senator Abotjrezk [continuing]. So it would be similar to that —
local people forming the association who would deal with applica-
tions of the individual, who would come in with an application to
purchase the home, and if they met the eligibility requirement stated
in the legislation and which would be further defined by regulation,
then they would either make the loaii. or if he wanted to improve
his home, they would go in that direction as well.

So, it is a relatively straightforward setup.

Senator Biden. Does that differ from the Farmers Home Admin-
istration housing programs that now exists It has been pointed out
to me that the housing, the Assistance Council, Inc., has published a
report, May 1, 1973, and pointed out several things, and I refer to that.

It says that the most obvious benefit of the Farmers Home Ad-
ministration housing programs is that they are meant to serve rural
areas. Since its establishment in 1948, the FMHA has assisted 1
million rural families to obtain housing. Then it says that the farmers
home program offers a model for Federal administration.

Foreclosure rate is less than 2 percent per 1,000 units, and dollar
losses are less than one-half percent of loan funds. It says that much
of the success of the farmers home program can be attributed to the
direct loan financing.

Senator Abourezk. They make a direct loan, except it is not done
through an association. It is done by local farm home people who
work directly for the Federal Government.

If I am not mistaken, I think the eligibility requirements are
higher than this bill contemplates.

Senator BmEN. I apologize for being slow on this, but how will
your bill make it easier for that John Smith to be accommodated?

Senator Abourezk. As stated in the bill, the Emergency Rural
Housing Administration has the duty to provide minimal liousing
facilities for all eligible persons in rural areas in small communities,
and then eligible persons as defined in the bill is up in subsection 5 and
section 3, as an individual or family which lives or desires to live in
a rural area or small community and cannot with reasonable certainty
obtain minimum housing facilities by any other means, or by any
means other than assistance under this act within 2 years after the
date.

In other words, if he can't get help from Farm Home or a bank
then he can come to this agency.

For the record, I think the bill, the intent of the bill, the statement
of purpose, I don't see how it can be argued with.

Senator Biden. My only concern is whether or not we are — and I
have no idea whether we are or aren't, and I am not passing a judg-
ment— but the question is whether or not we are doing what seemed
to be done here on occasion, and when I say here I mean the Congress,
and that is overlapping on administrative functions that, rather than
going in and cleaning up the old legislation to make it run better,
sometimes we tend to try to, you know, make a new agenc}^, a new
facility by which we can accomplish our ends.

I don't know enough about the existing programs to ask you more
incisive questions about how this differs.

Senator Abourezk. This would be contemplated as a separate agency
within the Government. I don't see any danger of overlapping because
it is such a great area for housing assistance to happen in that I am

1S6

certain that this Kural Housing Association or Administration would
jfind plenty to do without interfering with the functions of either
FHA or Farm Home.

Senator Biden. And you think it is best to get this, it might be
referred to as a fresh start, rather than beef up FHA or Farm Home ?

Senator Abourezk. Would you have to change the statutory author-
ity for Farm Home if you want this kind of setup ?

You are, in essence, changing it by establishment of a new agency
with a different kind of authority.

Senator McGovern. Senator Biden, could I comment further on
that ? I think it is important to note that the bill that Senator Abourezk
and I and other Senators are offering is an emergency program. It is
at catchup program that recognizes the great inequity in the progress
we have made in urban areas on housing as over and against what has
been done in the rural areas.

It is just a fact, recognizing what Senator Sparkman has said
about the efforts that have been made in rural America, that they are
still falling behind the housing effort we have made in the cities.

I don't know how else we explain the fact that with over half of
the substandard housing in America in rural areas only one-third of
the existing Federal housing program is reaching rural America,
even if you add in the Farmers' Home Administration, plus HUD
and everything else.

The fact remains that those rural areas that have the greatest need,
over half of all the substandard housing, are getting only one-third
of the Federal housing assistance.

So even recognizing there may be some validity to the points you
make that this does seem to add on another Federal effort, it is an
effort that is urgently needed and needed on an emergency basis to do.

Catching up over the next few years

Senator Biden. Senator, I have no argument with you. I agree. I
can see that even in my small State there is a drastic inequity that is
apparent between the efforts we have made with regard to urban
housing in our metropolitan area in the northern part of the State
and the super substandard housing that exists in the rural southern
parts of our State.

I was just questioning the procedure.

Senator McGovern. I think the problem with adding more funds
to the existing structure still leaves that imbalance.

We may need more money in both rural and urban America. Simply
enlarging the overall housing authorization is not going to deal with
the imbalance between urban and rural America. We need in my
opinion a real crash program to catch up.

As Senator Tower said, this is a benefit to the cities, too, because
it is not in the interests of our metropolitan areas for people to con-
tinue to flock into congested urban areas.

It costs more to deal with the problems after we export them there
than it does to provide attractive alternatives in the rural areas.

Senator Biden. I agree Thank you very much.

I have no further questions, Mr. Chairman.

The Chairman. I don't want to belabor this point because I don't
think anyone is more interested in seeing good rural housing than I
am, but you made the statement to the effect that you were getting a

187

great deal more housing in urban areas, and I am talking about lower
income people, than in the rural areas.

Actually, in 1972, the number of Government-supported units in
rural housing — that is, the Farmers Home Administration housing —
exceeded the amount in urban areas under section 235.

I don't believe many people would realize that is true, but that is
what the statistics show. That is there were more under the similar
program applied to rural areas than in the urban areas.

Senator McGovern. Mr. Chairman, if that is true it is an abrupt
change from what the figures show up until 1972. The census figures on
which at least part of my statement was based, the 1970 census figures,
show that half of the counties have no Federal housing at all, and a
high percentage of those are concentrated in the rural areas.

The Chairman. I agree with you as to the need, and I am for get-
ting it done just as well as we can, but I don't want the impression
given that we have not accomplished anything in rural areas.

Senator Abourezk. Was that more than the 235 program ?

The Chairman. That is correct.

Senator Abourezk. I wonder if your staff would know what part
of the entire housing program in urban areas 235 provides. What j)art
of the entire housing program is that ? I don't know. I am just asking
perhaps the staff.

The Chairman. Well, of course, that is difficult to tell. First of all
this program was set up only in 1968, and so it is relatively new. But
there are so many different housing programs that it is very hard to
get a comparison. I don't know how many.

Senator Abourezk. The statement I read out of that pamphlet could
be entirely accurate, but still with the plethora of housing programs it
could still mean a very small percentage when we go to rural America.

Senator Biden. Mr. Chairman, a fellow named Disraeli once said
there are three kinds of lies: lies; damned lies; and statistics.

I think our argument about who is doing better or worse does not
shed as much light on the problem as the reality of the situation.
Everyone admits that rural housing is really in bad shape, and I don't
know what that says, except confuses the issue.

Senator McGo\'ern. I do think it is important to clarify the chair-
man's point here, and I think Senator Abourezk is on the right track,
that while there may have been more low cost units assisted by FHA in
rural areas than were built in urban areas under section 235, the fact
is that under both programs less than half the money went to people
with incomes of $5,000 a year or less.

In other words, whether you are talking about the cities or the rural
areas, the low income families are getting less than half of the bene-
fits of the total housing assistance.

The Chairman. I have not argued with any of that, and I have said
we need a whole lot more, but I just don't want the record to indicate
that we have neglected rural housing in the past. We haven't.

We have built programs and they are functioning, but they need to
function to a much greater extent.

Senator Abourezk. I think we agree with that, Mr. Chairman.

The Chairman. All right. Thank you very much.

Senator McGovern. Thank you, Mr. Chairman, and members of the
committee.

188

[Complete statements of Senators McGovern and Abourezk, and
material from Governor Kneip of South Dakota follow :]

Statement of George McGovern, U.S. Senator From the State of

South Dakota

Mr. Chairman, I want to thank the Housing Subcommittee for setting aside
this day to investigate the problems of rural housing and in particular the solu-
tion Senator Abourezk and I have proposed. And I want to commend you, Mr.
Chairman, for your continuing commitment to solve the many problems faced
by rural Americans.

In recent years, we have begun to talk about national growth policy — whether
we should have one, what it should be, how we should implement it. In 1970,
Congress specifically recognized the need to develop a policy "to encourage the
rational, orderly, efficient, and economic growth, development, and re-develop-
ment of our States, metropolitan areas, cities, counties, towns, and communities
in predominantly rural areas. . . ."' Congress called upon the President to assist
in the development of such a growth policy through biennial reix>rts to Con-
gress. The first of those reports declined, in effect, to accept the assignment and
expressed doubt that we could arrive at an agreed-upon national growth policy
or that the Federal government ought to attempt to do so. In short, it rejected
the Congressional finding of need and declaration of purpose.

Debating whether we can or cannot agree on a national growth policy ignores
the basic fact that we have a growth policy already. It could perhaps be best
characterized as an unthinking, piece-meal approach which oiierates without
any real overall guidance and will continue to do so for as long as we allow
it to. So the real question we are faced with is not whether or not we should
have a growth policy, but whether we are going to continue this slipshod non-
policy or replace it with a carefully studied and comprehensive set of programs
geared to meet what we know to be the long-neglected needs of our constantly
growing and shifting population.

In order to better illustrate the need for comprehensive programs such as the
Emergency Rural Housing Act, we should spend some time reviewing the present
non-policy in order to point out the many ways in which the needs of rural
Americans are neglected. To begin with, it implicitly endorses continued con-
centration in metropolitan areas, and within those areas, continued stratification
and segregation by race and income. In doing so it accepts the continued weak-
ening of rural and small town America, leaving it disproportionately the resi-
dence of the young and the old and more importantly of the poor. Witli only
31 per cent of the nation's population, nonmetropolitan areas account for 32 per
cent of the children under 15, for 36 per cent of the adults over 65, and for 44
per cent of the poverty population. Per capita personal income in nonmetro-
politan areas is only 73 per cent as large as per capita personal income inside
metropolitan areas.

Underlying this implicit policy of population concentration and stratification
has been a willingness to allow the market mechanism and economic activity
to dictate the shape of our society — a willingness to let dollar values take prece-
dence over human and social values. The forces which have contributed to our
de facto growth pattern have obviously been complex, and they have been both
positive and negative in character. But we should not kid ourselves that public
policy has been neutral and that government programs have had no effect. I
would suggest that among the more important impacts on growth and migration
patterns have been a Federal farm policy which has long favored bigness and
corporate agriculture more than the family farm ; a Federal tax structure which
did the same ; and Federal housing policies which catered to urban developers
and the almost total suburbanization of America.

To document a pattern in which Federal programs and policies discriminate
against rural and small town areas, one need only look at the data compiled for
Senator McClellan's Committee on Government Operations — data .showing that
83 per cent of our massive expenditures on defense, space, and atomic energy go
into metropolitan areas ; that 81 per cent of our spending on health services goes
into such areas ; that nonmetropolitan areas with 46 per cent of the low income
elderly receive only 38 percent of Social Security and Old Age As.sistance bene-
fits ; and that overall per capita Federal expenditures in nonmetropolitan areas
are only 85 per cent as large as in metropolitan areas. For additional evidence
on the same pattern, we can look at the data compiled for the Joint Economic
Committee on the distribution of the whole range of Federal welfare benefits.

189

That study found the families at the rural sites ranked below those at the urban
sites on almost every score, from health benefits to housing assistance.

In short, our implicit national growth policy, as reflected in the pattern of
Federal programs and expenditures, has consistently shown rural and small
town Americans to be the forgotten Americans. Nowhere is that more evident
than in our housing policies. With less than a third of the nation's households,
nonmetropolitan areas contain more than half of the nation's worst housed.
The incidence of substandard housing in metropolitan areas is four per cent.
In nonmetropolitan areas it is more than three times that — thirteen per cent.
And in the most rural areas it is almost four times that — fifteen per cent. But
the delivery of Federal housing assistance has been bent the other way. HUD
statistics indicate that, through the end of last year, less than 24 per cent of
all the public housing units under Annual Contributions Contract were in non-
metropolitan area. A Rural Housing Alliance study released last year reported
that nearly half the nation's counties, containing almost one-fifth of its popula-
tion, had no public housing program at all. Other housing assistance programs,
except for Farmers Home Administration, do little better. HUD program sta-
tistics for the thirty month period from January 1970 through June 1972 — a
period of record achievements in the volume of Federal housing assistance —
show that less than one-fourth of the units were in nonmetropolitan area. Even
when one adds in the Farmers Home Administration program, rural and small
town areas accounted for less than one-third of all Federal housing aid.

Obviously, the assistance doesn't always go where it is most needed. Neither
does it always go to those who most need it. Census figures indicate that more
than 60 per cent of the households which are worst housed — those that occupy
substandard units or units which are severely overcrowded — ^had incomes of
less than $5,000. In nonmetropolitan areas, such families accounted for more
than 68 per cent of the worst housed. But the figures on those benefitting from
Federal housing programs show that less than half of them — in both rural and
metropolitan areas — had incomes of less than $5,000.

Let me turn for a moment to some statistics that concern me greatly because
they represent the situation in my home State of South Dakota. I might preface
these figures by saying that similar figures — equally distressing — are available
for every state in the union. To begin with, 27.8 per cent of the State's popula-
tion lives in substandard housing. 19.8 per cent of all housing units in South
Dakota are substandard and 20,310 housing units lack some or all indoor
plumbing. Obviously, decent housing is a crying need that concerns a very
sizeable portion of the population. When you consider the fact that 68 per cent
of South Dakota's families earn less than $10,000 per year and 15 per cent of
the families in the State earn less than $3,000 per year, the need for federal
subsidy also becomes obvious. But the figures I quoted earlier in this statement
show that the Federal housing policy has not been geared to the needs of
low-income families. You might say, then, that in South Dakota we have a
classic example of the effect of a Federal policy of benign neglect. That the
need is so obvious and the response so pititful is a painful reminder to all of us
who form the laws and poliices of our country that great inequities continue to
exist, whether in the form of conscious policy or benign. I am reminded of the
words of William Shakespeare as spoken by the most famous of all tragic char-
acters, Hamlet :

"Whether it be bestial oblivion Or some craven scruple of thinking too
precisely on the event — a thought which quartered hath but one part wisdom
and ever three parts coward — I do not know why yet I live to say this
thing's to do. Sith I have cause and will and strength and means to do
it." (IV, iv)

It is in the hope of rectifying some of these great inequities, and perhaps
avoiding some of the pitfalls experienced by the fictional Prince of Denmark,
that Senator Abourezk and I, together with more than twenty other Senators,
have proposed an Emergency Rural Housing Administration. We think it would
offset at least partially the effects of our failure to deal more rationally than
we have with the issue of national growth policy. Instead of assuming that
programs and institutions designed for urban environments can be administered
so as to serve rural ones as well, our proposal squarely faces the fact that they
have not and they will not and proposes instead a program designed for the
rural and small town environment. Like Farmers Home Administration pro-
grams, it would clearly recognize the credit gap which afflicts that environ-
ment ; but unlike the Farmers Home Administration programs it would use
direct Federal credit rather than saddling the taxpayers with the cost of sub-

190

sidizing private investors on behalf of those in need of housing assistance. Like
the public housing program, it would recognize that housing those at the bottom
of the income scale frequently requires a subsidy of both capital and operating
costs ; but unlike that program, it would not leave the Federal commitment to
a decent home for all to the vagaries of local wuU and local ability. And, unlike
either of these existing programs, it would seek to offset the institutional gap
in rural and small town America by seeing to the establishment of local housing
delivery systems which utilize the potential of the people most concerned —
those in need of housing assistance.

Beyond its recognition that special action is required to counter the fruits
of past discrimination, our bill has some basic underlying themes which I think
are an essential part of what we are proposing ; it accepts, frankly and realis-
tically, the principle that the commitment to a decent home for every American
family is a national responsibility. At the same time, it follows the example
of the successful rural electrification movement in calling on local people them-
selves to play a critical role in solving their housing problem. It also focuses
on those most in need and. in effect, says to the private sector and to the
existing housing programs and institutions : "You serve all those you can ; we'll
start with those we know you can't serve and let's work our respective ways
down and up until we meet in the middle." And finally, it asks Congress to
make more than a rhetorical commitment — to do the thing that we have cause
and will and strength and means to do — to underwrite a serious effort to wipe
out indecent housing in rural and small town America.

Statement of James AsotmEZK, U.S. Senator From the State of South Dakota

Mr. Chairman, if we are truly intent upon providing a decent home in a suit-
able living environment for every American family, then the time has passed
when the needs of rural America can be put on the backbumer.

It would be unreasonable to expect a national policy to succeed if the needs
of a third of the population were overlooked during the design of that policy.
But, too often in the design of our major social legislation, that is what happens.
Rural America gets overlooked.

The statistics tell the story : rural America has a third of the population, 60%
of the housing need, median family income which is 77% of that in metropolitan
areas, 44% of the nation's poverty families and has received possibly only a
fourth of total Federal housing resources.

Across the board, from housing to health care to education and transportation,
from the location of Federal facilities to the distribution of employment oppor-
tunities, rural America has been getting the short end of tJie stick.

Rural America is poorer and older. It has fewer doctors, less indoor plumbing,
higher infant mortality rates, a more severe nutrition problem and triple the
incidence of substandard housing when compared to urban America. Nearly
every social index shows rural America trailing behind the cities.

These facts seem to be understood, and likewise it seems to be understood that
all of America is paying the human and social cost of rural America's step-
sister status, yet somehow these understandings are rarely translated into
Federal policy. Housing is a perfect example.

On the one hand you have the Department of Housing and Urban Development,
which is overwhelmingly urban-oriented but which has somehow managed to
put 21% of its assisted units in rural America.

On the other hand you have the Farmers Home Administration, which has
responsibility for a dozen other diverse programs in addition to housing, which
is limited to places of less than 10,000 population and which has never had the
full range of tools available to the cities through HUD.

To put it bluntly, the cities have a single agency which is responsible for
seeing that the promise of a decent home for every family is attended to, but
in rural areas the policy is fragmented, the agency which one might suppose
to be in charge has many other things on its agenda as well and labors under
debilitating administrative and statutory limitations.

To be even more blunt about it. urban America has a very sophisticated
housing delivery system. Rural America does not.

Rural America lacks an adequate supply of mortgage credit. It lacks the
institutional setup to deliver that credit. It lacks local financial institutions
willing or able to deliver assisted housing credit on the scale necessary ; we

191

are limited not only by the lack of those institutions, but by their conservative
lending policies and their geographic distribution. If you take the sum total of
rural America's housing delivery system, including its enlightened private
institutions, its nonprofits, its housing authorities, and what state and local
efforts there are, you still come up with an incredible gap.

When you take into consideration the additional factor that there are
nearly one million inadequately-housed rural American families with an esti-
mated average rent-paying capacity of $14 a month, the gap becomes even
more incredible.

Federal housing policy has not taken these gaps into account. Now that we
are undertaking to overhaul two decades of housing programs, I respectfully
submit that the time has come to do something about it.

Rural America needs a comprehensive housing delivery system. It's as simple
as that. We do not have one now, and we ^^^ll not be able to fulfill the 1949
promi.se until we do have one.

On Monday, July 16, Senator McGovern and I introduced the Emergency
Rural Housing Act of 1978 with Senators Gale McGee, Ted Moss, Dick Clark,
Jennings Randolph, Edward Kennedy, Mark Hatfield, Hubert Humphrey, Lee
Metcalf, Ernest HoUings, Dan Inouye, AVilliam Hathaway, Mike Mansfield,
Marlow Cook, Harold Hughes, Phil Hart, Quentin Burdick, Birch Bayh, Frank
Church, Ed Muskie, and John Tunney as co-sponsors.

It is similar to S. 361, which we introduced earlier this year and which Sen-
ator McGovern introduced last year. It is similar to the original version which
I introduced last Congress in the House.

What this bill does is establish a housing delivery system for rural America,
for rural areas and towns of under 25,000 population.

It borrows from the model of the REA to establish a housing delivery system
in rural America. It would cause the creation of Rural Housing Associations —
very similar to REA co-ops — at the local, area or state level— to function as hous-
ing delivery institutions with area-wide coverage responsibilities. Those asso-
ciations, in turn, would have access to direct Treasury credit, subsidies and
direction provided by the Emergency Rural Housing Administration.

The Rural Housing Associations at the field level would be controlled by
those they serve — a principle fundamental to the success of the REA program.
Very simply, people who are eligible for the program and those served by it
would elect the boards of directors which run it. It's the same concept as the
REA co-ops, one of proven accomplishment in rural areas, one highly acceptable
there, one which assures a high degree of local control and citizen participation.

The Associations would have great flexibility to work with any and all exist-
ing institutions — including Farmers Home, including HUD, including existing
non-profits and local housing authorities. The Associations would simply agree
to serve those families in need who would not be served by the existing institu-
tions. This, too, is a basic REA concept — areawide coverage. The associations,
in effect, would have a residual responsibility to fill our present gaps, by using
a full range of tools and broad flexibility.

HUD has already spent over $100,000 on a project which indicates the work-
ability of this kind of delivery system concept in rural America. Two years
ago, it made a research grant to Basin Electric Power Cooperative in Bismark,
North Dakota, to see if that cooperative which generates and wheels electric
power to more than 100 member rural electric cooperatives in the upper mid-
west, could function in the kind of catalytic role we invision in this legislation.
The results are phenomenal success. Working through the local REA co-ops
and laboring under all of the present shortcomings and constraints in present
housing programs that one project, with only two full-time people, has been able
to bring more than 2500 new housing units into being.

I ask permission to insert the final report of that demonstration project in
the record of proceedings of this Committee. If you read the report, you will learn
that the kind of delivery system we are talking about has been tested and I would
call the results a striking success.

Basically, all they were doing in that project was spreading the word about
housing, educating, and matching local organizations to what limited federal
resources were available. Our legislation seeks to expand on that experience
by creating this sort of delivery system all over the country, and by equipping
it directly with capital and subsidy mechanisms to provide what the existing
system lacks.

192

At the national level, the bill creates the Emergency Rural Housing Adminis-
tration. We called it '■emergency" because we stipulated a five-year deadline for
it, and wrote borrowing authority and appropriations adequate to meet the esti-
mated need into the act. Now, I realize that may trouble some people, but we
wanted, in this legislation, to define the scope of what it would take to do the
job.

It is to be an independent agency, because this is the quandary we were in :
if you give it to HUD, you are up against that overwhelming, dominating urban
bias, which characterizes the agency ; if you give it to Farmers Home, you are
in that administrative bottleneck again, and there is little likelihood that you
will ever get out of it. It is a predominantly farm-oriented organization, one set
in its ways, a subordinate agency of still another predominantly farm-oriented
organization.

At this point I would like to quote briefly from that Basin Electric report.
The report said that "HUD operations in rural areas fall basically into the
category of 'unused Federal programs.' " It noted further that the Farmers
Home Administration has a definite bias in favor of those "with better incomes,"
whereas the major problem is shelter for low-income people.

One further comment on the fact that our legislation envisions an independent
agency : we have learned that the consolidation of the executive branch into
fewer and fewer giant departments, while looking good on paper, does not
always function in the best interests of everyone concerned. When the Executive
branch centralizes, power gravitates toward the White House and accoimt-
ability to the Congress diminishes. Moreover, when you have really huge de-
partments, such as HEW, you begin to hear people telling you that no man
alive can administer them effectively.

The legislation creates a Rural Housing Investment Fund capitalized by
Treasury — borro^^ngs to provide capital for rural housing — rental and home-
ownership— financed by the Emergency Rural Housing Administration. We put
this in the bill for three reasons : the taxpayers are entitled to the savings of
direct Treasury financing, as reflected in the recent GAO report about the
expensiveness of the interest subsidy programs ; private capital and private
lending institutions are not in rural America on anything near the scale neces-
sary. To the extent that they are there, this agency does not seek to replace
their function but rather to address itself to that part of the housing need
which they cannot or will not serve. Third, to call attention to the fact that
if this government kept its books on a capital l)udget system, these investments
would api^ear on the books as assets. Any banker would show these housing loans
on his books as an asset. Our thinking is that the taxpayers deserve the same
kind of rational bookkeeping.

The design of the homeo^ATiership subsidy program embodied in the bill is
modeleid after one used in Scandinavian countries, which for want of a better
word we call the Norwegian plan. Suppose you had a family for whom home-
ownership is desirable, and the cost of a modest house for them would be
?12.000 but their income is too low to support a $12,000 note even at 1% interest
In that case, up to half of the principal would be secured by a first mortgage
at an interest rate as low as 1%. The first mortgage would be written for forty
years, and upon payment of it, the second mortgage becomes payable. In case
of death or sale, the full mortgage becomes payable.

No homeowner would be required to pay more than 20% of his adjusted annual
income for principal, interest, taxes, and insurance, but a borrower would be given
the voluntary option to pay more if he so desired. Tliis makes sense, because
many of our poorly-housed poor are already paying much more than that for
inadequate housing.

The bill provides for rehabiliation grants not in excess of $3,500 for homeowners
who are too poor to go under the Norwegian plan, and authorizes a billion dollars
in appropriations for them.

The bill puts a priority on homeownership and in effect reserves rental housing
for the very poorest families, those who incomes are so low that if they were
homeowners and received even the most generous subsidies, their incomes would
not pay operation and maintenance costs. The section is very simple. It says that
rents shall bear a reasonable relationship to the income of eligible persons, and
in no ca.se should rent including utilities exceed 2.5% of income. It authorizes
annual contributions contracts through the Rural Housing Associations, provides
40-year, interest-free financing for the construction of the rental units, and au-
thorizes repayments to the government to the extent that rent collections exceed
operating and maintenance costs of the projects.

193

In short, we have provided the agency with a wide range of flexible tools — in-
cluding homeownership, rehabilitation and rental financing.

I am not unaware of diflBculties in passing legislation of this nature.

I realize that there will be strong opposition to direct Treasury financing of
housing, despite the savings it represents to the taxpayers.

I realize that Congress under pressure not to authorize new spending programs,
particularly if it would appear to involve tax reform.

I realize that urging the creation of an independent agency is swimming up-
stream against the habits of recent decades to consolidate and to centralize power
within the Executive branch.

But I would submit to you, with all due respect, that there are things in this
bill which we absolutely must have and which I think we can achieve in this
year's legislation.

First and foremost among them is the development of a comprehensive rural
housing delivery system. We almost must design a delivery system which
covers the gaps left open by our previous shortcomings and by the very character
of rural America.

That delivery system should Ite equipped with a full range of tools. It should
take into account the generally lower rent-paying capacity of rural America. It
should take into account the disproportionate share of poverty and elderly house-
holds found in rural America. It should have tools at its disposal enabling it to
serve everyone at the lower income levels. It should create a presence in rural
America which is at least trying to work on the problem, and which covers every
nook and cranny of rural America. It should be equipped with its own financing
mechanisms, of whatever kind the Congress deems appropriate, instead of merely
another "add-on"' piggy-back arrangement which creates the local institutions but
has to turn to a third party for its financing and subsidies. And there should be
somebody in Washington, whether he's an Undersecretary of HUD, an Under-
secretary of USDA or the Administrator of an independent agency, who has com-
prehensive and final responsibility for rural housing. We have too many cooks in
the kitchen. My first preference obviously would be a single-purpose agency dedi-
cated solely to rural housing, but please, somewhere, let us put one man in charge
of rural housing and let us equip him with a set of institutions covering every
corner of rural America and with whatever money and mechanisms we finally
make directly available to him.

I do not think it is impossible to write that kind of legislation, I do not think
it is impossible to pass it, and I am sure it can be made to work.

There are three other concepts in this bill which I think are important. One is
giving a prospective homeowner a voluntary option to pay more than 25% of his
income for housing. There are a great many people living in rural shacks paying
half, if not more, of their cash income for housing, and if that same amount
would put them in a decent house, then there is no reason in the world not to allow
them to do it.

The second is allowing a man to build a minimum house if that's all his income
will support. The way it is now. there are too many shack-dwellers, and I could
point to them on any reservation in South Dakota, who do have the income to
support some kind of decent housing, but not enough to support an FHA-type
$25,000 ranch house, who are living in oi)en country or a small community and
who would cry for joy at the chance to get a small, weather-proof, water-tight,
well-heated, safe, solid home with plumbing. We should not force anyone to take
such a minimum home, but it is just plain cruel to insist that he must keep his
family in a rotten shack until he can afford a fancy ranch house. If you make
the minimum home concept a reality, you can count on people to fix them up,
to enlarge upon them, as their income allows. It is happening in Puerto Rico on
a dramatic scale.

The third concept I would argue for is letting a family live where they choose
to live. I reject the growth center sociology. I know of too many elderly people
who would prefer to live where they are. on their land, where they have spent
all their lives rather than move into a growth center to achieve decent housing.
In other words, they would trade their health for the right to live where they
want to live. I do not think we should force them into that choice. I do not think
we need to.

Mr. Chairman, there are possibly as many as three million American families
in housing need who live within range of the Emergency Rural Housing Adminis-
tration as we have defined it.

Perhaps one tenth of them have incomes over $10,000 a year.

194

About a third of them have incomes somewhere between $4,000 and $10,000 a
year.

Roughly 660,000 of them have incomes between $2,000 and $4,000 a year.

And nearly a million of those rural and small town families in housing need
have incomes below $2,000 a year, a group which includes a great many of our
poorly-housed senior citizens.

There is no cheap way to provide housing for all of them ; that is a matter of
reordering our national priorities.

There is no cheap way to provide housing for all of them. We have a gross
national product of over a trillion dollars, and I sulimit that the time has come
to provide a decent home for every American family, including those in rural
America.

Statement of Richard F. Kneip, Governor of the State of South Dakota

Mr. Chairman and members of the Senate Banking, Housing and Urban
Affairs Committee :

I am Richard F. Kneip, Governor of the State of South Dakota. I submit this
statement on behalf of S. 2190, which would create the Emergency Rural Housing
Administration, and respectfully request that my remarks be made part of the
permanent record regarding this legislation.

I first wish to compliment South Dakota's Senator McGovern and Senator
Abourezk for sponsoring this measure : their action serves only to enhance their
fine record of representing the best interests of the people of this State, and
demonstrates again that their concerns are rooted in a quest for a decent,
humane and just society.

As you know, South Dakota is a basically rural State, and as such, is faced
with the full panoply of problems besetting all rural areas of the country and
all areas economically dependent upon agriculture. We have a disproportionately
higher percentage of the population as elderly, we have a disproportionately
high percentage of the population as poor, we have diflBculties in providing and
delivering adequate health facilities and care, we have next to no public trans-
portations, we have a declining farm population. The list goes on and on. In fact.
South Dakota reached its population peak in 1929, and it is only recently that
there is evidence that the State is beginning to grow again in population and
that the economy is beginning to pick up steam.

It has been the policy of my administration to face these problems squarely
and do whatever the State can to provide more adequate services to its citizens.
High among my personal priorities has been the revision of an inequitable tax
system, the reorganization of State government for more effective service, the
promotion of tourism and economic development and the provision of adequate
social services to those in need.

But the problems remain. I am convinced that South Dakota and other rural
States have these problems at least in part not because of any longstanding lack
of concern or effort on the State's part, but because of lack of interest, a lack
of foresightedness, a lack of coherent policy for the rural areas by the Federal
Government. We have had farm policies which too often have fostered and
supported huge, corporate farms to the neglect of small farmers and towns.
We have had urban renewal, but no rural renewal. We have had model cities,
but no model towns. We have had special impact programs, when the Federal
Government makes but a negligible effort to spread Federal facilities beyond
the cities and their suburbs. I have heard this general stance of the Federal
Government referred to as "metropollyana", an apt description.

I am suggesting that the Congress and the executive branch must begin to
distribute Federal resources more equitably and that the redevelopment of rural
America must be a high priority item for Federal action. The States cannot do
it by themselves, any more than can the cities. I do not understand how rural
areas can be treated as a misbegotten foster child when, in fact, they have given
birth, mothered and sustained the values which represent all that is good in
this society.

I can think of no area where the disparity of treatment between urban and
rural areas is greater, nor where needs are more pressing than in housing. I

195

have read where over 75% of all housing assistance provided by the Department
of Housing and Urban Development since the inception of the programs it
administers has gone to the urban areas. That statistic is certainly borne out
in South Dakota's exi>erienee. Of the subsidy assistance provided under the
section 235 program, 74% has gone to Sioux Falls and Rapid City, the State's
only two urban areas. For section 236, the record is worse: 98% of the assist-
ance has gone to these two cities. This disparity in face of the fact that 82% of
the substandard housing is outside these two areas. For public housing, the rec-
ord is nearly as bad : of the units in process and under management, 36% are,
or will be, in Sioux Falls and Rapid City.

(An interesting note: The public housing program has been around for about
40 years, yet South Dakota, while having .5% of the Nation's population, has
received less than two tenths of 1% of the public housing units produced.) With-
in the State, therefore, the pattern is that the urban areas get the assistance, and
the rural areas have the need. As it has been pointed out by others, 60% of the
country's substandard housing is outside the urban areas. South Dakota's sit-
uation and experience conform with the national pattern.

The Farmers Home Administration is the only Federal agency in the State
which is mandated to provide housing assistance only to rural areas. Farmers
home, particularly over the last two or three years, has done a good job of doing
this. The committee and Congress ought to understand, however, that Farmers
Home had, before the freeze on housing subsidy programs (which will have dis-
astrous effects in South Dakota by the time it runs its course), only limited
tools at its disposal. It costs a minimum of $20,000 to build a modest house
anywhere in the State. Utilizing the profoundest interest subsidy available under
Farmers Home's homeownership program, a family of four would have to have
at least $6,750 annual income to buy this house. 36,154 families, or 22.3% of all
South Dakota families, earn less than $4,000 per year. Farmers Home rental
program serves the same general income range as its homeownership program.
Thus, the only programs designed specifically and exclusively for rural areas
are inadequate for the task at hand.

I submit that when 17.4% of all occupied units in the State are substandard,
when over 20,000 units lack some or all indoor plumbing, when the existing
Federal programs will not or cannot do the job, when there is such a disparity
in the distribution of resources between urban and rural areas, there is a
housing crisis in the rural areas of South Dakota. I submit that this crisis
should be treated as an emergency. I therefore support the emergency rural
housing act and urge the committee and Congress to take favorable action
on it, quickly. This legislation will not only provide housing assistance where it
is desperately needed, but will also begin the process of revitalizing rural Amer-
ica. It will begin to redress the inbalance which has existed between urban and
rural areas in terms of Federal assistance.

During South Dakota's 1973 legislative session, I supported the enactment
of the South Dakota Housing Development Authority, out of a recognition of
the problems I have discussed here. My hope was that the authority with the
assistance of the Federal housing programs, could begin to address these prob-
lems. I can envision the authority which is just beginning to undertake its activi-
ties, and the Emergency Rural Housing Administration working hand in hand
to build better communities for the people of South Dakota.

I am attaching, for the record, a copy of a paper produced by my staff, en-
titled "Data on Housing and the Use of Federally Subsidized Housing Pro-
grams in South Dakota."

Data on Housing and the Use of Federally Stjbsidized Housing Pkogeams

IN South Dakota

/. A Statistical analysis of the need

The following data were taken from the 1970 Census :

1. In the chart below, the number of substandard units for each Model Rural
Development Planning District and for the State is arrived at by adding the
total number of units without some of all plumbing to the total number of units
which are overcrowded, but with all plumbing facilities.

99-855 O - 73 - pt. 1 -- 14

196

NUMBER OF SUBSTANDARD HOUSING UNITS IN SOUTH DAKOTA

District

Total
occu-
pied
units

Without some

or all

plumbing

Num- Per-
ber cent

1 or more
per room

1.51 or more
per room

Num- Per-
ber cent

Overcrowded
with all
plumbing

Num- Per-
ber cent

Substandard
units

Num-
ber

Per-
cent

Num- Per-
ber cent

1

30,061

3,264 10.8
3,071 6.8
3,909 13.5
3,636 10.3
3,250 14.0
3,180 8.2

1,537
2,515
1,707
2,140
2,184
2,890

5.1
5.5
7.4
6.0
9.5
7.5

315
480
575
682
1,419
1,602

1.0
1.0
1.0
2.0
6.1
4.1

1,633 5.4
2, 802 6. 2
1,773 6.1
2, 324 6. 5
2,571 11.0
3,411 «.9

4, 897 16. 2

II..
III.

IV..

v..

VI..

State total

45,038

28,875

35,243

22,892

38,354

5,873 13.0
5, 682 19. 6
5, 960 16. 9
5, 821 25. 0
6,591 17.4

. - . 200,463

20,310 10.0

12,973

6.5

5,073

2.5

19,514 9.7

34.824 18.1

2. 27.8% of the state's population lives in the 34,824 substandard units.

3. 49 counties of the state's 67 have between 11% and 20% of their occupied
units as substandard. 9 counties have between 21% and 30% substandard. 5 be-
tween 31% to 40%, 2 between 41% and 50%, and 1 county has less than
10% substandard, and it has 9%.

4. 23% of the state's population lives in Minnehaha and Pennington Counties,
but only 17% of the substandard units are in these areas (this is pre-flood infor-
mation— it is likely that there are fewer substandard units in Rapid Oity now,
since many of them washed away. This is not to say these areas do not need
assistance — they obviously do, particularly Rapid City).

//. Why people have trouble acquiring decent housing

It boils down to a pure case of economics.

1. The federal government and private lending institutions figure that families
should not pay more than 20 to 25% of their adjusted incomes for housing. For
the federal programs, income is adjusted in the following manner :

Example

Gross income $10, 000

Minus 5 percent —500

Minus $300/minor child —600

Multiplied by .20 $8, 900

Plus amount available for housing X.20

$1, 780

2. The current rates on conventional mortgages, generally, are 10 to 20%
downpayment, a twenty year term, and 8% interest. Assuming $500 per year for
property tax and $120 i)er year for insurance, it would cost a homebuyer $2,264
per year for a new modest, 960 square foot, $20,000 house (if he can find one that
cheap), assuming no downpayment. If he paid 20% down, his yearly cost would be
$1,935, excluding maintenance and personal property tax.

3. 68.1% of all families in South Dakota earn le.ss than $10,000 per year.
An additional 10.9% earn between $10,000 and $10,999. Using the adjusted
income formula above, families with children in the $10 to $11,000 category are
only marginally able to afford the $20,000 house. Those families with less than
$10,000 per year would have a tough time buying it if they were able to do
it at all.

The Farmers Home Administration and its Housing Activities in

South Dakota

i. general background

The Farmers Home Administration (FmHA) is an agency of the U. S. Depart-
ment of Agriculture. It was established in 1946 as the successor to the Farm
Security Administration. FmHA administers a broad range of programs,
including farm operating loans, water and sewer systems loans and grants,
recreation loans and housing programs.

FmHA is a relative newcomer to the housing business. In 1949 it was author-
ized to make housing loans to farmers. In 1954, its authority was broadened
to give it the power to make loans to any qualified borrower in rural areas and
it was given more housing programs to administer, including its rental housing
program. It wasn't until 1968, however, that FmHA became involved in housing
in a big way and that it was given authority to administer its major subsidy
programs'.

197

FmHA is authorized to operate its housing programs in communities and rural
areas of 10,000 population or less. The major subsidy mechanism FmHA has
is the interest credit program. (The interest rate, not the cost of constructing
the unit, is the dominant factor in determining housing costs : repayments of
a 30 year loan at 8% interest will total % for interest, % for principal.) The
interest credit program allows FmHA to reduce the interest on a loan to as
low as 1%, gives the ability to pay (using the adjusted income formula) of the
occupant of an FmHA-financed unit.

The two principal interest credit programs are attached to the Section 502
for homeownership and the Section 515 for rental. Under both these programs,
the borrower can buy existing units, build or rehabilitate. The maximum interest
rate is 7^^%, up from the 6i/4% of 1969.

II. NOTES ON ATTACHED DATA, FURNISHED BY FMHA

1. FmHA activity in housing has accelerated rapidly in the last couple of
years : in FY '69, FmHA made a total of 388 502 loans, in FY 72 it made 793,
and in 1/2 of FY '73 it made 617. In fact, in FY '73, it had made i^ of the total
502 loans made in the previous four FYs, as well as y^ of the total interest credit
loans made in the previous four FYs. The same holds true for the 515 program,
where FmHA made loans for 5 units more in % of FY '73 than it did in FY '72.

2. The amount of interest credit subsidy FmHA has provided is not available
in the attached data. FmHA calculates, however, that an average of $593 was
provided on the interest credit loans it made in FY '72.

3. The average loan amount for 502 for FT '69-73 is $9,908. This very low
figure can be accounted for by a combination of three factors : a) the average is
for loans made in 1968, as well as 1973. There has been, obviously, an increase
over the.se years in the cost of land, material and construction, b) these totals
also include the loans made for rehabilitation to existing housing, the amounts
of which would be sub.stantially less than for new construction. The number
of such loans is unascertainable from the data, c) the totals also include the
loans made for the purchase (and repair) of existing housing, the amounts
of which are generally lower than for loans for new construction.

4. The obvious disparities in housing loan activities among counties is not
related to need, and only to population in a minor way. The amount of loan
activity in a county is more closely related to local FmHA officials' interest
in, knowledge of and experience in housing, his work load with farm operating
loans and other programs ; and the degree to which the general public knows
of FmHA's housing services within an area.

SEC. 502 HOMEOWNERSHIP LOANS BY COUNTY— ARRANGED IN PLANNING DISTRICTS

[Loan amounts in thousands)

Fiscal year

1969-72

Fiscal year

1973 to Jan.

12

With interest credit

Total loans

With interest credit

Total loans

County

Number

Amount

Number

Amount

Number

Amount

Number

Ai

nount

1. DISTRICT NO. 1

Brookings

5

$47

89

$681

4

$66

9

$113

Clark.

2

37

43

289

4

47

18

109

Codington

0

0

24

187

1

20

2

33

Deuel

5

76

65

542

3

51

19

241

Grant

6

75

88

930

0

0

9

77

Hamlin

0

0

18

222

0

0

4

25

Lake

1

2

27

252

0

0

5

44

Kingsbury

0

0

24

190

1

11

4

23

Miner

0
0

0
0

21
20

168
168

0
1

0
19

2

4

40

Moody

24

Total....

19

227

419

3,629

14

214

76

729

II. DISTRICT NO. 2

Clay

5

54

23

250

5

70

20

260

Lincoln..

14

196

40

455

3

48

19

157

McCook..

7

104

48

390

2

38

10

72

Minnehaha _ _.

24

372

70

818

13

218

28

394

Turner

9

134

34

379

2

36

12

14b

Union

21

327

77

796

7

102

21

246

Total

80

1.187

292

3,088

32

512

110

1,274

198

SEC. 502 HOMEOWNERSHIP LOANS BY COUNTY— ARRANGED IN PLANNING DISTRICTS— Continued

[Loan amounts In thousands]

Fiscal year 1969-72

With Interest credit

Total loans

Fiscal year 1973 to Jan. 12

With interest credit

Total loans

County

Number Amount Number Amount Number Amount Number Amount

III. DISTRICT NO. 3

Aurora

Bon Homme..

Brule

Charles Mix _

Davison

Douglas

Gregory.

Hutchinson _

Hanson _

Jerauld

Sanborn

Yankton

Total

IV. DISTRICT 4

Beadle

Brown

Day

Edmunds

Faulk

Hand.._

Marshall

McPherson

Roberts

Spink

Total

V. DISTRICT 5

Buffalo

Campbell

Corson

Dewey

Haakon

Hughes

Hyde

Jones..

Lyman

Mellete

Perkins

Potter

Stanley...

Sully

Todd _ _..

Tripp...

Walworth

Ziebach

Total _-

VI. DISTRICT 6

Bennett

Butte

Custer.

Fall River

Harding

Jackson

Lawrence _.

Meade

Pennington

Shannon

Washabaugh

Total...

State total

0

0

19

167

3

41

27

203

2

30

31

300

7

96

44

383

0

0

25

209

2

17

32

250

0

0

30

269

6

64

76

526

n

0

35

225

1

8

31

252

1

5

23

195

0

0

8

35

22

1

14
7

11
2

12
4
7
6

40

104

0
2
1
1
3

10
4
0
1
3

11
1
3
7
1
3
4
0

55

155

261

14

218
82

152
29

153
59
86
76

663

1,532

0

16

8

5

27

162

54

0

18

49

173

11

35

114

11

29

59

0

771

2.583

1

9

8

89

2

20

18

130

0

0 .

6

47

2

33

13

87

0

0

1

5

1

20

3

36

1

9

17

143

0

0

20

148

0

0

5

31

0

0

2

17

0

0

3

11

0

0

3

13

381

3,014

91

39
85
56
97
30
44
44
44
81
86

426
896
523
731
230
339
434
373
581
1,188

606

5,721

19

227

5

14
23
35
20
45
25

6
16
10
31
61
22
33

9

80
14

8

34
109
187
404
124
534
223

79
155
112
393
580
267
337

97
836
176

90

457

4,737

22

327

7

96

35

364

42

673

65

944

4

73

9

115

13

178

62

583

6

100

12

146

1

8

9

192

39

687

54

916

34

604

59

869

9

164

24

343

0

0

2

36

0

0

8

77

339

4,508

27

463

99

127

107

93

757

1

6

4

24

6

109

20

248

0

0

15

127

0

0

12

89

0

0

8

53

1

17

8

44

1

16

16

117

5

66

10

102

4

49

23

227

1

14

11

83

1,132

0

0

0

0

0

0

1

4

0

0

3

34

1

14

8

76

0

0

3

25

3

49

17

218

1

15

4

47

0

0

1

19

0

0

0

0

0

0

2

40

6

108

11

153

1

15

10

95

3

48

5

71

0

0

6

44

0

0

5

88

3

23

23

182

4

55

7

91

0

0

3

34

1,221

1

19

2

41

8

134

16

199

1

18

5

63

0

0

13

119

0

0

1

2

0

0

2

25

7

111

11

130

3

53

18

245

7

128

25

261

0

0

0

0

0

0

0

0

1,085

435

6, 561 2, 494 24, 697

121

1,884

614

6,098

Note: Total 502 loans, fiscal year 1960-73—3,108; total amount loaned— $30,795,000. Total interest credit loans, fiscal
year 1969-73—556. Total amount loaned on interest credit loans— $7,745,000; percent of interest credit loans of total—
17.8 percent. Average 502 loan amount— $9,908.

199

RURAL RENTAL HOUSING LOAN PROGRAM ACTIVITY SINCE INCEPTION OF PROGRAM TO JAN. 8,1972

Interest subsidy loans

Number'

Loan
amount

Noninterest subsidy

Units Number 1

Loan
amount

Units

District I:

Brookings

Clark ,

Codington

Deuel

Grant ,

Hamlin ,

Kingsbury

Lake

Moody

District II:

Clay ,

Lincoln

McCook

Minnehaha

Turner

Union

District III:

Aurora

Bon Homme ,

Charles Mix

Hanson

Hutchinson

Jerauld

Sanborn

Yankton

District IV:

Beadle....

Brown..

Day

Edmunds

Faulk

Hand

Marshall

McPherson

Roberts

Spink

District V:

Haakon

Hyde..

Perkins

Potter

Stanley

Sully

Tripp

District VI: Lawrence.

State total

42, 000

42, 500

102, 000

230, 800

493, 400

45, 000

90,000

47, 500

208,000

247, 640

292, 860
134, 000

57, 500

58, 500

240, 000

149, 600

48, 500

4

4

10

20

40

4

8

4

16

24

$45,000 4 2 $94,750

197,400 16 0

48,000 4 0

41,500 4 0

46,000 4 0

295,220 24 0

188,500 20 2 87,400

50,000 4 0

101,000 8 1 42,000

1 190,000

1 39, 000

1 20, 000

1 180, 000

1 48,450

0

0

1 48, 000

0

0

1 22, 500

1 35, 000

0

0

0

1 35, 350

0

1 41,450

1 36, 000

1 33,000

42,500 4 0

45,000 4 1 45,250

91,000 8 0

1 46,370

50,000 4 0

47,000 4 0

49,000 4 2 19,500

129,000 12 0

3 130,00

47,000 4 0

8 224,100

234,000 16 1 46,000

49 4,277,740 368 33 1,464,120

1
1
1
1

1
4
1
1
1

0 .

1

1

1

2

2

1
1
1
2
2
0
2
2

1
2
3
1
1
0
1
1
2
0

1
1
1
2
0
1
0
1

28
12

4

6

20

12

4

> Indicates number of borrowers.

Source: Farmers Home Administration, Huron, S. Dak.

Current Status of Public Housing in South Dakota

I. GENERAL BACKGROUND

The public housing program is the oldest of the federally subsidized housing
programs, established in 1937 by Congress, and is the program which provides the
profoundest subsidies to low-income families. A necessary prerequisite for the
use of the public housing program is the establishment, by a local unit of govern-
ment, of a housing and redevelopment commission as authorized by SDCL 11-7.

In general, the public housing program operates in the following manner : the
housing and redevelopment commission assesses the need for public housing
within its jurisdiction and submits an application for units to HUD. With HUD
approval of the number, type and location of the units, the housing and redevelop-
ment commission and HUD enter into what is known as an Annual Contributions
Contract (ACC). With the ACC in hand, the housing and redevelopment commis-
sion floats revenue bonds to finance the construction of the units. The ACC from

200

HUD retires the principal and interest on the bonds and, perhaps pays for part
of the operating costs of the commission. Tenants pay no more than 25% of their
adjusted income in rents, which cover the balance of the commission's mainten-
ance, management and operating costs. There are a number of variations and
modifications on this basic theme, including a leasing program, through vphich
ownership of the units remains in private hands and the units remain on the tax
rolls.

If the assumption is made that families earning less then $4,000 per year pro-
vide the major part of the clientel to be served by public housing, then 36,154
families, or 22.3% of all South Dakota families are eligible for the program.

II. NOTES ON ATTACHED DATA

(accurate as of June 1, 1972, provided by HUD)

(A) Of the somewhat more than one million units of public housing produced
in the country since the beginning of the program. South Dakota had, as of June
1, 1972, 2,311 units constructed and under management. This amount represents
2/10 of one percent of the total.

(B) Of the 2,311 units under management in the state, only 742, or 32%, be-
long to non-tribal housing and redevelopment commissions. Of the 3,042 units
currently in process, 1,542 or about 50% will be managed by non-tribal authori-
ties.

(C) Excluding tribal authority units, 150, or 20%, of the 742 units under man-
agement are in Sioux Falls. Excluding tribal authority units, 663 units in process,
or 43% of the total in process are designated for Sioux Falls and Pennington
County. Taking those in process and under management, Sioux Falls and Pen-
nington County have or will have 36% of the total units.

(D) Of the 3,042 units currently in process, 1,398 of them were not under con-
struction, or ACCs had not been signed for them. There is a good chance, there-
for that a significant number of these units will not be constructed (or construc-
tion will be delayed for at least a couple of years) because of the 18 month mora-
torium on subsidized housing production.

MUNICIPAL HOUSING AND REDEVELOPMENT COMMISSIONS

In process

Under management

Elderly

Family

Elderly Fa

mily

Total

Aberdeen .-

Burke

50

50 ...

24"."..".'"."."".

" 28""']"!!!^

-------------

24

4
6

" 94'""::::;"

20

40

"'ie'

18

"ie"

"124"
"80'

100
24

Canton

Clark

DeSmet

20

30

20
30
28

Faulkton.

Gregory

Hot Springs

30

60

30

60

100

Bro wa rd •. . .

24

Kennebec

20

Lake Andes

24

Lead

Lemmon

Lennox

40

40

30

100 .-

140
40
30

Madison

94

Martin.

36

Milbank . ...

40

Miller . .

40

40

Mitchell

124

Norden

Parker

20

28 :::::::::

""70"""" "

20

"30 :::::::::

20
28

Pierre

30

20 ..
"""""167""

50

Redfield

Sioux Falls

50

36

. 50
353

Sisseton

Tyndall

Viborg

45

24

20 .

65
24
20

Webster.

Wessington Springs

40

40
30

TotaK29)

605

337

612

130

1.684

201

COUNTY HOUSING AND REDEVELOPMENT COMMISSIONS

In process

Under management

Elderly

Family

Elderly

Family

Total

Pennington

Corson

Meade_. . ...

200

65

260 ...
75 ...

460
140

Lawrence

Jackson.. . . ._ _ . _

Total(5)

265

335 ...

600

TRIBAL HOUSING AND REDEVELOPMENT COMMISSIONS

Cheyenne River/Eagle Butte.

72

347
93

14
10
22
...

12
29

130
121
520
141
170
78
192
120

563

Fort Thompson/Crow Creek..
Rosebud

224
542

Sisseton/Wahpeton

Standing Rock

Lower Brule

Oglala Sioux

28

71 ...
230

30
629

240
410
120
850

Yankton Sioux

120

Total (8)

100

1,400

97

1,472

3,069

Grand total

970

2,072

709

1,602

5,353

Note: Total in process— 3,042. Total under management— 2,311.
The Federal Housing Administration and Its Activities in South Dakota

I. GENERAL BACKGROUND

The Federal Housing Administration was established in the mid '30s with
the intent of providing a stimulus to a sagging construction industry, as Congress
put it. The operation of FHA's programs depends on the activity of builders
and the private mortgage market. Basically, FHA is an insurance company
which secures lenders from losses on real estate loans they make and FHA
approves. Simply put, the system operates in this manner: i. the builder con-
structs or rehabilitates units, with FHA approval for a specific program ; 2. the
borrower goes to the lender to buy the unit (or units) ; and 3. FHA insures the
loan the borrower acquires.

FHA did not become involved with subsidized housing (although its market
interest rates have traditionally been slightly lower than conventional rates —
it is currently 7%, plus i/^% mortgage insurance premium. The rate is determined
by the HUD Secretary, who adjusts it according to conditions in the conven-
tional mortgage market) until the early 60's. It was authorized to operate the
221(d) 3 rental and cooperative housing program, which had a flat 3% below
market interest rate. In the mid 60's, it was also given the rent supplement
program to administer (see below), and in 1968, the interest reduction programs
(235 for homeownership and 236 for rental and cooperative housing) were added
(see discussion of interest credits under "General Background" in the Farmers
Home Administration section. The difference between FHA's and FMHA's ap-
proach is that FHA pays the private lender the difference between what the
borrower can afford to pay and the market interest rate).

The rent supplement program is attached to two other FHA programs; 236
and 221(d) 3 (the below market interest rate program of 221(d) 3 was sus-
pended a couple of years ago. All 221(d) 3 insured loans now bear the market
interest rate). The intent is to provide assistance to people who otherwise could
not afford to pay rents, even based on 1% interest in the case of 236, for their
units. Under the 236 program, currently about 10% of the units can receive rent
supplement assistance. The rent on these units can be reduced by up to 70%,
depending on the tenant's ability to pay. Under the 221 (d)3, all of the units can
receive assistance, and up to 70% of the rent can be reduced, depending on

202

the tenant's ability to pay. Rent supplement payments are made by FHA on
behalf of the tenant receiving assistance to the owner of the units.

FHA has been riddled recently with scandal, graft and corruption, with public
outcries from coast to coast. The programs in South Dakota, on the other hand,
have been thus far free from taint.

II. NOTES ON ATTACHED DATA (PROVIDED BY FHA'S SIOUX FALLS INSURING OFFICE)

1. The most outstanding and interesting note about the attached data is the
overwhelming utilization of the FHA programs in urban areas. 73.7% of all 235
units, for example, are located in Minnehaha and Pennington Counties. The same
disproportionate distribution of untis under the 236 and 221(d) 3 programs holds
true. This in part reflects FHA's bias toward w^orking with large and sophisti-
cated builders, in part reflects the diflSculties and complexities of managing FHA's
application procedures, and in part reflects the lack of available mortgage credit
from small town lending institutions.

2. The attached data indicate the cumulative total of subsidy money spent
by FHA on units, but they do not reveal the amount of loans it took to build
the units. Nor is there a breakdown of the use of rent supplement money or a
separate accounting of the amount spent on rent supplement assistance, although
the rent siipplement funds are accounted for in the data. According to the Sioux
Falls Insuring Ofl!ice, the total amounts insured under the programs are, to this
date, as follows: 235— $20.488,000 ; 236— $15.539.600 : and 221(d) 3— $43,112,300.

3. Only one project of 221(d) 3 was initiated under the suspended below
market interest rate program.

THE EFFECTS OF THE 18-MONTH MORATORIUM ON HOUSING

At the time these figures were acquired, the production figures for FmHA and
HUD looked like this for FY '72 and FY '73.

Fiscal year Fiscal year

1972 units 1973 units

Farmers Home Administration:

502..

515 -

Total.

HUD:

235, 236, 221(d)3

Public housing to Indian authorities

Public housing *

Total _

Grand totals

Because of the moratorium, then, it appears that subsidized housing production
will decrease by about 66% and Farmers Home was headed for a banner year,
with nearly as much production in lA of FY '73 as in all of FY '72.

The construction costs for these units are as follows :

[In millions)

Fiscal year Fiscal year

1972 1973

Farmers Home Administration $11.80 $7,864

HUD 40.27 9.105

793
160

601
165

953

1,388
526
828 ....

766

318
289

2,742
3,695

607
1,374

Total 52.07 16.969

The difference between construction outlays for the two fiscal years is $35
million, a substantial loss to the state's economy.

203

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206

The Chairman. Next is Mr. Frank B. Elliott, Acting Administrator
of the Farmers Home Administration. "We will be very glad to have
your statement.

STATEMENT OF FRANK B. ELLIOTT, ACTING ADMINISTRATOR,
FARMERS HOME ADMINISTRATION ; ACCOMPANIED BY JAMES F.
NEVILLE, ASSISTANT ADMINISTRATOR, RURAL HOUSING; AND
JENNINGS ORR, DIRECTOR, SINGLE-FAMILY HOUSING

Mr. Elliott. Mr. Chairman, I would defer to your time schedule
and also I would defer to the august Senators who are concerned,
as we are about providing adequate housing facilities to the degree
possible in rural areas. We are dedicated to it.

I think I can document for the record our accomplishments to date,
although we have yet to take the full 100 yards in reaching the objec-
tive of providing adequate facilities and homes in the rural areas of
America.

You may be interested in knowing, as stated in my written testi-
mony, that the total level of activity and responsibility for the Farmers
Home iVdministration has increased in recent years. For example, on
June 30, 1968, we had 383,000 outstanding housing loan accounts
with a principal balance of $4.8 billion. Four years later on June 30,
1972, we had 636,000 outstanding accounts with a principal balance
of $9.6 billion. By June 30 of this year we estimate that the amount
outstanding will have increased by another $2 billion and our total
outstanding accounts will total about 766,000.

We also have some very far-reaching and exceptional legislation
in the Rural Development Act of 1972 providing authorities which,
together with the organic legislation that we possess in the Farmers
Home Administration, will enable rigorous pursuit and fulfillment
of the needs of rural America — such needs as adequate housing, com-
munity facilities jobs, and other developments which will permit rural
residents to enjoy the life and the abundance due them.

We would be the last to argue about the problems and needs that
lie in the rural areas. However, the record will support that great
progress has been achieved in the past 5 or 6 years.

It is true that we have not had time to review the legislation pro-
posed, nor to provide an administration position. But we are always
seeking to improve the delivery of our services through any mechanism
that might be suggested or legislated.

We do have the necessity of maintaining budgetary constraints
while trying to maintain the delivery of our services in the most
efficient manner.

I would like to refer to another section of my written testimony
wherein I state that the largest part of our housing program is in
section 502 loans for adequate single family housing. Under this
program loans are made for low- and moderate-income persons to buy
or build a home or improve one they already own. This authority was
amended in 1968 to authorize loans to lower income families at sub-
sidized interest rates. The current basic interest rate for those who
can afford it is 7^/4 percent.

207

Under the subsidized program, the interest rate for housing loans
may be reduced to as low as 1 percent, depending on the size of the fam-
ily, their income, and the amount of the loan. At present, this subsi-
dized loan program has been suspended. I would like to comment on
that briefly in a moment.

I would not want to belabor you at this point with what our pro-
gram does. I am sure all of you are quite familiar with it. To date,
however, over 750,000 families have received rural housing loans
from the Farmers Home Administration.

We recognize that historically the largest number of low-quality
units has been found in rural areas. In 1970 there Avere 20.4 million
occupied homes in rural areas served by the Farmers Home Admin-
istration, of those about 12.6 percent, or about 2.6 million, lacked com-
plete plumbing. We recognized this problem must be dealt with,
and we have been dealing with it.

I will skip through rapidly in order to give ^^ou time to ask ques-
tions, but during recent years our housing program has been one of
rapid growth. The HUD program, also, is one of rapid growth. We are
not in competition with HUD. We are a companion agency. They
provide the urban support, and we in the Farmers Home Adminis-
tration provide the rural support in areas of 10,000 population or
less.

I would like briefly, in closing, to comment on the suspension of
new commitments on subsidized interest credit at close of business
January 8, 1973. This was part of a governmentwide suspension of
subsidized housing to provide time for study. I am completel}' sym-
pathetic with those who feel the need to determine the various roles
that should be played by the Government and the private sector to
fulfill the obligation of providing the opportunity for rural people to
have proper housing and proper community facilities.

This evaluation of existing programs is now underway. It is due
to be completed by September. The Farmers Home Administration
and others in the Department of Agriculture are involved in this
study. Our FmHA State Director from your State of Alabama, Mr.
John Garrett, has been an active participant in that study at the Fed-
eral level. We have also had people from various counties and States
participating with Assistant Secretary Mike Moskow of HUD, who is
chairing the study. We have full rural input to the results of that
study which will be, as I said, available in September.

Now, I will leave my written testimony, sir, and respond to what-
ever questions you miglit wish to ask.

The Chairman. Thank you very much.

You have an interesting and informative statement.

I have a group of pictures here, and I think we should put them
in the record of this hearing.

I assume these pictures — I haA'e here quite a few pictures of before
and after — I understand they came from some of my builder friends
down in Alabama. The pictures certainly tell a story within them-
selves so far as the appearance of the housing is concerned, and the
adequacy of the housing.

[The pictures follow :]

208

U.S. Department of Agriculture,

Farmers Home Administration,

Washington, D.C., August 7, 1973.
Hon. John Sparkman,
U.S. Senate, Washington, D.C.

Dear Senator Sparkman : During recent hearings held by the Committee on
Banking, Housing and Urban Affairs, you had several pictures showing how
families had improved their housing through the u.se of subsidized housing loans.
You requested that we obtain information about the families and the loans they
received.

We understand your pictures were those used by Mr. Jay Bragg of Dothan,
Alabama, in his testimony before a Senate Subcommittee in January of 1973. The
pictures show the "before and after" homes of families who received HUD Sec-
tion 235 loans. We were unable to obtain information on all the families but the
available information is included on the rever.se of the pictures of the new homes.

We also want to show you some pictures of homes financed by the Fanners
Home Administration. We, therefore, are enclosing another group of photographs
illustrating the type of housing being built and financed by this agency in Wilcox
and Lowndes Counties in Alabama. Since these pictures were furnished by Mr.
John A. Garrett, our State Director for Alabama, we will appreciate your return-
ing them to him if and when you finish with them.

We appreciate your desire to help rural families improve their standard of liv-
ing and your interest in our rural housing program. We hope we have provided
the information you desired.
Sincerely,

James F. Neville,
(For Frank B. Elliott, Administrator).

209

<

Fred Williams : Age 48, Wife 43, 7 in Family. Total Loan, $12,700. Regular
Payment, $1,022. Interest Credit Payment, $454. Annual Income $3,080.

210

ZM>^^^

-«*■■■•■»=»*

^«*«

Houston Pettway — Wilcox County. Alabama : Age 25, Wife 26, 4 in Family,
Loan, $12,700. Regular Repayment, $1,022. Interest Credit Payment, $454. Annual
Income, $3,200.

211

Arwilda Jones — Lowndes County, Alabama : A single woman, 9 in the Family,
Loan, $12,530. Regular Payment. $1,009. Interest Credit Payment, $448. Annual
Income, $2,592.

Andy & Mary Carter— Wilcox County, Alabama : Age 59, Wife 40, Loan, $11,800.
Regular Payment, $947. Interest Credit Payment, $421. Annual Income, $3,380.

99-855 O - 73 - pt. 1 -- 15

212

. *# .^^''i^ f *"v?li

>»-A».

Westgate Subdivision — Wilcox County, Alabama : House picture, Total cost
$12,720 in 1972 same house now costing $13,700. Streets now paved by city of
Camden. City water and city sewerage.

Henry & Carrie Kennedy — Wilcox County. Alabama : Age 74, Wife 69, 2 in
Family, Loan. $12,720 in 1972. Regular Payment, $1,022. Interest Credit Payment,
$487. Annual Income, $2,240.

213

214

AFTER

215

■?t-"5SBS3»^

AFTER

■saXimm

216

217

r-iOTURE* 13
BEFORE

218

AFTER

219

AFTER

220

Annie Bell Morris — Wilcox County, Alabama : Age 38, Single. 7 in Family,
Loan, $12,720 in 1972, Regular Payment, $1,022. Interest Credit Payment, $454.
Annual Income, $2,832. First time to ever live in house with running water.

The Chairman. I have seen houses of this type out in the field, and
I have seen some very fine housing under the rural program that we
enacted in 1968.

By the way, these houses that I have here have a mortgage limit of
$13,200. That was the limit of the mortgage on this housing. But it
would be interesting to know what the income of the family was that
was getting that change and what the monthly payments were and so
forth. Maybe you can prepare some kind of facts for us on that basis.

Mr. Elliott. I would be delighted to do that, sir.

I would be remiss, Mr. Chairman, if I did not point out the fact
that we have not always had startling' successes. We have had some
problems in the Farmers Home Administration resulting from tripling
our housing program in a period of 5 years.

I have testified before the House Subcommittee on Intergovern-
mental Relations that is chaired by Congressman Fountain of North
Carolina on some of our problems. We are rectifying every problem
that we can. We recognize that in the rapid increase of the program
we have made some mistakes, but, as I pointed out in my testimony at
that time, the intent of Congress to provide rural housing and adequate
community facilities has been carried out with great success all across
the United States.

That does not mean to say that we have been successful in all places
under all circumstances. We recognize the need for corrective action

221

and are taking it. I would submit to the chair that the evidence shows
that while we have achieved much, we have more to do.

The Chairman. You mentioned Mr. John Garrett a few minutes ago
in connection with one of these studies. I want to say that Mr. Garrett
has done a fine job in the State of Alabama. I am sure you have a lot
of good men as State administrators, but I don't think you have any
better than he.

Mr. Elliott. I was in Birmingham yesterday, where the organiza-
tion that has done the most for the development of rural areas of Ala-
bama was being recognized by the Chamber of Commerce of Bir-
mingham, Ala. The chamber presented Mr. John Garrett and the men
and women who work for him in your State with the plaque for the
most outstanding achievement.

The Chairman. I am glad to hear that. I was in Shanghai yester-
day. I wish I could have been in Birmingham.

Just one question. You heard this recommendation that we increase
the size of the town in what we call rural areas to 25,000 population.
We set it now at 10,000.

Mr. Elliott. Right, sir.

The Chairman. There was a time when eligibility was limited to
a family actually living on the farm.

Mr. Elliott. That's correct.

The Chairman. Then we increased it, I believe, to rural areas which
included towns with population up to 2,500.

Mr. Elliotf. 2,500 and then to 5.500.

The Chairman. Yes, and then from towns of 5,500 up to 10,000.

Mr. Elliott. Right, sir.

The Chairman. My recollection is that we have kept that level up to
the present.

Mr. Elliott. As I understand it, that is correct.

The Chairman. One other question. I have heard this criticism of
the program : It is not so much a criticism as it is a reason for not
being able to move as fast as we would like to have it move, and that
is that the housing is handled on the basis of — county by county — and
it is handled by the county supervisor, the supervisor of FHA in that
county, and that he does not have an adequate force with which to
handle the applications and keep the program moving.

Have you received any complaints along that line, or any thoughts
along that line ?

Mr. Elliott. Senator, I guess in every pursuit in life the desire for
more resources is always omnipotent. I have been given, by the Sec-
retary of Agriculture, a set amount of manpower resources, and Con-
gress has provided the finances.

I have to figure out ways and means to administer these programs
to the satisfaction of our people in rural areas with the resources al-
lotted. This has always been a problem of an administrator or a
manager.

The Chairman. T don't believe I asked you the question about that
proposal of increasing the size to a city of 25.000. Do you believe that
we should move it to a higher level, or should we keep it geared to the
level that we have had heretofore ?

Mr. Elliott. T would like to make two observations on that. The
Rural Development Act includes authority for guaranteeing housing

222

loans, and we have within existing legislation, authority to make
housing loans in places with population of up to 10,000^ We have
some authority to service communities of up to 25,000 under the Rural
Development Act, and indeed, industrial and business loans to com-
munities of up to 50,000.

Now, if I could make this observation, I would like to see us go
through the year implementing the Rural Development Act with the
present authority and commend to you any recommendations follow-
ing our implementing of these new authorities.

As I pointed out, in our rapid growth we have made some mistakes
for which we have been criticized, so I would rather work within the
existing authorities of the Rural Development Act at this time and
come back to Congress with recommendations after a year of operation.

Until the administration has completed its studies and has made
its recommendations for debate and concern by the legislature, I believe
that it would be best to defer additional legislation.

The Chairman. Of course, one thing I think we should keep in mind
is that the Rural Development Act is not merely a housing program by
itself. It is connected with the idea of creating a community that will
invite people to live there, and some of those who have gone to the
cities to come back there to live.

It involves more than just a single family here and there.

Mr. Elliott. We understand that, sir, and we have read the legisla-
tion and are implementing it. However, one of the bases that we
develop the rural committees on, as we see the legislation directing
us to do, is to bring the housing facilities up to par in those localities.
Housing is a major part of the total commitment.

The Chairman. By the very nature of the program or the fact that
it is scattered throughout the country, big acreage, sizable farms, and
a single house, one here and one there, it is not like a subdivision. Do
you have any difficulty in getting builders to build housing out in the
country where they don't have large tracts of land to work on at a
time, as is true in the case of subdiAdsions ?

Mr. Elliott. I will answer that, but, after I do, I would like to
defer to Mr. James Neville, who is our housing authority. As the
program was geared up, it was difficult to bring capable builders
into rural areas for the construction of community facilities, as well
as for the construction of multiple and individual housing.

The program has started to bring in the needed building capability
as it has increased in scope. I would hope it continues.

Now, I defer to Mr. Neville, if he would like to comment on the
question more extensively.

The Chairman. Fine. By the w\ay, I would like you to — for the
benefit of the record — to identify the other gentleman with you.

Mr. Elliott. Mr. Jennings Orr is the Director of our Single Family
Housing Division and is very familiar with our housing programs.

The Chairman. All right.

Mr, Neville. With the expansion of the rural housing program,
there was evidence of a shortage of contractors in rural America.
Primarily, you had a father-and-son type of operation that produced
the housing that was in demand in those areas.

However, what led the larger builders to participate in the program
was a knowledge of the fact that there was a strong market for housing
in rural America.

223

In addition, there was also aA^ailable financing to provide that hous-
ing under Federal assistance, through the Farmers Home Admin-
istration through its direct lending policy.

Previous to that time, many of them were apprehensive of the fact
that there was a lack of mortgage money in rural America for long-
term financing. It was primarily for short term, and consequently
financing on any basis was a burdensome obligation. But with the new
amendments to the Housing Act which began in 1968 for interest
credit, there grew the expansion in the program as is evidenced by the
production in the last couple of years.

The Chairmax. Well, I am pleased to hear that.

I appreciate your giving us the benefit of your suggestions and in-
formation, all of you, and I certainly appreciate your appearing as
witnesses.

]Mr. Elliott. Thank you very much.

[Complete statement of Mr. Elliott follows :]

Statement of Frank B. Elliott, Acting Administbator, Farmers Home

Administration

Mr. Chairman, members of the committee : I appreciate the opportunity to ap-
pear before this committee to discuss the operation of the rural housing pro-
gram in the Department of Agriculture. This program is designed to provide
housing credit in rural areas for families who are unable to obtain home mort-
gage credit from other sources.

The Congress first enacted special housing legislation for rural families when
it included a farm housing section as title V of the Housing Act of 1949. Loans
were initially authorized only to farmers but the law has been amended to
permit making rural housing loans to nonfarmers for dwellings located in the
open country and small rural towns with not more than 10,000 population.
Other significant changes have been made in the Department's housing program
to better adapt it to the housing needs of rural America. They include au-
thorizations to make :

Loans for rental and cooperative housing.

Loans and grants for farm lal)or housing.

Loans to nonprofit organizations to buy land and develop it into building sites
for low- and moderate-income families : and

Technical assistance grants for self-help housing. (The legislation authorizing
the making of such loans expired J-une 30. 1973. Legislation proposing its exten-
sion is pending H.J. Res. 512) .

Another significant change occurred in fiscal year 1966 when the program was
placed largely on the insured basis.

The Farmers Home Administration originates and insures loans and services
loan accounts and security property. Loans are made with funds advanced to
borrowers out of the rural housing insurance fund. After the loans are closed the
notes are .sold to private investors and insured at the time of sale. Our agency,
througli its loan programs, has the capacity to bring investment capital from big
cities to rural areas. The flow of this type of loan capital to the credit deficit
areas in the country assists in providing the people who live there an opportunity
to have adequate housing and related community facilities.

There has been a substantial increase in the volume of loan activity. The high-
est volume of loans made prior to enactment of tlie loan insurance authoriza-
tion was .$18.^.7 million in fiscal 1963. The amount authorized for the 1973 fi.scal
year was slightly more than .$2 billion. This would have enabled the Farmers
Home Administration to finance homes for about 130,000 families in rural areas
this year.

The committee may be interested in knowing that the total level of activity
and responsibility of the FHA has increased shanil.v in recent years. For ex-
ample, in .Tune 30, 1968, we had 383.000 outstanding accoiuits with a principal
balance of ,$4.8 billion. Four years later, on June 30, 1972, we had 636,000 out-
standing accounts with a principal balance of .$9.6 billion. By June 30 of this year
we estimate that the amount outstanding would have increased by another $2
billion and our total outstanding accounts are estimated at 766,000.

224

Associated with the delivery of credit is counseling service to families and to
developers who want to build homes for the market we serve. The organizational
structure of the agency is well adapted to this type of credit delivery service.
It is a direct line agency with some 1,750 offices to serve families in rural com-
munities. Briefly, the Farmers Home Administration has three administrative
levels ; namely, the National. State, and country offices. The focal point for
delivery of the agency's services is the local county office. County office personnel
receive and process applications for homeo\A-nership loans, determine the ap-
plicant's eligibility, counsel families, make appraisals, review plans and specifi-
cations, inspect construction and service loans. Loans for multifamily housing
are reviewed and approved at the State office level. Some larger, complex loans
require prior review by the national office.

The function of the State offices is to provide program supervision and manage-
ment guidance to county offices.

The national office is responsible for the establishment of policies and
procedures and giving administrative direction to all phases of the programs
for which the Farmers Home Administration is responsible.

Fnancial and program accounting, reporting, computer services and support
services to field offices are centered in the FHA national finance office in St. Louis,
Mo. This office also handles the sale and purchase of insured notes.

The largest part of our housing program is section 502 loans for adequate
single family housing. Under this program loans may be made to low- and
moderate-income families to buy or build a home or to improve one they already
own. This authority was amended in 1968 to authorize loans to lower-income
families at subsidized interest rates. The current basic interest rate is 7^/4
percent. Under the subsidized program, the interest rate may be reduced to as
low as 1 percent, depending on the size of family, its income and the amount
of the loan. At present, this subsidized loan program has been suspended. I will
comment more about this later in the statement.

We also make loans to finance rental housing for elderly and low- and mod-
erate-income families. This program serves families in small towns, especially
senior citizens and young families who are just establishing households. Small
home repair loans for shelter housing are available to owner-occupants for minor
repairs to homes. These loans are made to very low-income families whose
dwellings are badly in need of repair to remove hazards to the health and safety
of the family and the community. Loans are used for purposes such as roofing
repairs, putting in screens, providing adequate water and waste disposal sys-
tems, and making the home structurally sound.

Other programs are farm labor housing loans and grants, technical assistance
grants to qualified organizations to pay administrative and supervisory costs
in connection with mutual self-help housing loans and for building sites.

To date, over 750,000 families have received rural housing loans from the
Farmers Home Administration. Historically, the largest number of low quality
luiits has been found in rural areas. In 1970 there were 20.4 million occupied
homes in those rural areas served by the Farmers Home Administration. Of
these. 12.6 percent or about 2.6 million lacked complete plumbing. This is only a
partial measure of the need for better housing in rural areas. Additional demand
for homes will develop from :

The elderly who now live in rural areas or who want to move there.

Newly formed families who want to live in rural areas.

Industrial development in rural communities.

Families who move from one location to another to seek employment or a more
favorable place to live.

The settling out proce.ss of migratory farm labor.
Tlie modification of overcrowded conditions.

The replacement of homes that are lost or damaged as a result of fire
or natural disasters.

During recent years our housing programs has been in a period of rapid

growth. In addition the area of service was increased to include i-ural places up

to 10,000 population. To handle the increased volume of housing loans we made

a concerted effort to improve the efficiency of our available staff. For example, we :

Introduced the use of conditional commitments to encourage builders

and develoi)ers to participate more actively in the production of hou.sing.

Put into effect a system under which most of the borrowers make their

payments directly to the FHA central finance office in St. Louis.

Authorized the use of commercial credit reports.

225

Introduced a method for packaging applications under which builders,
developers, real estate agents and others may assemble factual information
about the house and the applicant. The judgment de<'isions such as the deter-
mination of eligibility of tlie applicant and appraisal of the property are
made by the Farmers Home Administraticm.

Made more extensive use of our computer to improve the types of reports
to State and national offices, reduce the workload at tlie county office level
and improve the service to borrowers.
Consolidated forms whenever practicable.

Continued to improve our working relationship with the private sector,
especially members of the building trades and the financial community.

Issued comprehensive guidelines for building sites and subdivision devel-
opment.

Adopted HUD's minimum property standards for uniformity.
Required FHA inspection during the 11th month of warranty period.
Put into effect suspension and debarment procedures for contractors,
builders and realtors.

Issued a procedure for handling construction complaints.
Established a technical services division at the national office and
strengthened state office technical skills.

Established an operational review and evaluation system.
Work more closely with State and local health or sanitation officials and
other Federal agency staffs such as the soil conservation service to utilize
technical information available through these sources.

Established a national training center at Norman, Oklahoma, and strength-
ened other national and State office training efforts.

Increased the emphasis on employee conduct and activities to preclude
apparent or actual conflicts of interests.

Emphasized the need to work closely with delinquent and problem case
borrowers.

Revised policy to make use of the county committee optional rather than
mandatory.

Relieved the county supervisor of loan closing responsibilities by making
greaiter use of designated attorneys.

Geared multifamily housing ix)licies to production and streamlined proc-
essing procedure.

Designated multifamily housing specialists.

Established an appeals in-ocedure for individuals, contractors and minor-
ities.

Discontinued periodic inspections on seasoned loans.

Limited ratio of loan to value to 90 percent on new properties not con-
structed under FHA's supervision until after one year.

Included the penalty provisions of section 1001 of tile 18, F.S.C. on all
appropriate documents.
In closing I would like to comment briefly on the susi>ension of new commit-
ments on subsidized interest credits as of close of business on January 8, 1973.
This action was part of a government-wide suspension of new commitments
for subsidized housing to provide time for a study to explore the basic question
of what role the Federal Governniient should play in housing and housing
flnance. The evalua^tion of existing programs is underway. The FHA and others
in the Department of Agriculture are involved in this study and will participate
in an evaluation of the broad housing issues to be considered. Particular atten-
tion will be given to the housing needs of rural families. The following are
specific actions we took in connection with the suspension of new commitments
for subsidized housing loans.

On January 8, 1973, FHA notified its field staff by telegram that after that
date county and State offices could not approve farm labor housing loans and
grants, rental and cooperative housing loans, and section .502 homeownership
loans that involved interest credit. An exception was homeownership loans to
families participating in mutual self-help projects.

Subsequent decisions resulted in modifications of the original notice. All of

these actions were taken to do the best we could to draw the suspension line

at the most equitable point for each progi'am. These actions included :

Restoration of the nonsubsidized rental housing program.

Extension of authority to make housing loans with interest credits to families

to l)uy homes built l)y builders who had received written or verbal commitments

226

from the Farmers Home Administration for the homes before January 9, 1973.
In case of a verbal commitment for a home to be sold to a rural housing bor-
rower at less than full interest, construction of the home must have been started
and footings poured before January 9.

Making loans vdth interest credits to families who applied before January 9,
1973, and owned or had selected a house or site or had been foimd to be eligible
by the Farmers Home Administration before that date.

Completion of applications for farm labor housing loans and grants for which
written commitments were given before January 9 by the national or State office.

Authorized processing of applications that involve loans with interest credits
for rental housing for elderly and others for which either written or verbal
commitments had been made before January 9.

Authorized making loans with interest credits to families whose homes are
being built or repaired under special manpower training programs.

Authorized the making of Section 502 RH loans with interest credits to buy
homes being built in certain subdivisions or sections of subdivisions in which
affirmative action was taken by the builder or developer during the year prior
to January 9, 1973, to develop property based on written or verbal encouragement
from the Farmers Home Administration.

These actions in connection with interest credit loans, together with the
programs that are being continued on a nonsubsidized basis, will provide
for a substantial level of activity while the comprehensive evaluation is being
made.

Mr.Chairman, this completes my formal statement.

I shall be glad to answer any questions the committee may have about our
housing program.

The Chairman. Next we have Mr. George Rucker, research director
of Rural Housing Alliance.

We have three more witnesses, Mr. Rucker ; Mr. David Herlinger,
director of Colorado Housing, Inc., and Mr. John W. Biasucci, ex-
ecutive vice president, West Virginia Housing Development Fund.

I wonder if all three of you gentlemen might come to the table at
one time, and I will tell you why : We are going to be having a rollcall
over in the Senate before very long, and this might enable us to move
along a little faster.

You gentlemen will recall a statement I made — your statements will
be printed in the record in their entirety.

STATEMENTS OP GEORGE W. RUCKER, RESEARCH DIRECTOR,
RURAL HOUSING ALLIANCE; DAVID W. HERLINGER, EXECUTIVE
DIRECTOR, COLORADO HOUSING, INC. ; JOHN W. BIASUCCI, EXEC-
UTIVE VICE PRESIDENT OP THE WEST VIRGINIA HOUSING DE-
VELOPMENT PUND

[The full statements of Messrs. Rucker, Herlinger, and Biasucci
begin at p. 288.]

Mr. Rucker. My name is George Rucker, and I am research director
of the Rural Housing Alliance.

I will attempt to summarize our longer statement which is sub-
mitted for the record.

We have also provided members of the committee with copies of
the paper we submitted to Secretary Lynn earlier this year in response
to his request for comments on Federal housing policies. It will pro-
vide you with our views on the subject in much greater detail than I
shall attempt here today; and, if it is appropriate and you wish to
make that paper a part of the hearing record, we would be pleased
to see you do so.

Basically, we urge you to continue efforts to end the pattern of
discrimination against rural areas and small towns — a pattern of

227

discrimination that has seen those areas get only a third of all Federal
housing assistance, though they account for almost half of the Na-
tion's poverty population and nearly 60 percent of its families which
are living in substandard housing.

As a minimum, greater equity in program authorities between HUD
and Farmers Home Administration are essential. Our paper for Sec-
retary Lynn sets out some specifics on this. Among other things, FHA
has been hampered by inadequate subsidy authority.

It has never had a rent supplement authority, for example — though
I recognize that this committee attempted to correct that particular
inequity last year, and I hope you will perservere in the effort. Farm-
ers Home Administration has not had the rehabilitation grant pro-
gram that HUD had administered — though I recognize that this par-
ticular inequity is not the responsibility of the legislative committees
but of the appropriations process.

Since the subject came up earlier this morning and there is some
debate about the ability of Farmers Home Administration to serve
the poor, I think it is worth noting that a recent study done by the
Department of Agriculture itself, entitled "Inadequate Housing and
Poverty Status of Households," concedes that Farmers Home "has
difficulty in reaching the very poor" and says that its programs "have
not helped very many poor households obtain adequate housing." That
study suggests that those below the poverty line should not even be
considered as the target of Farmers Home Administration housing
programs.

Now, we presume that you in this committee will again be attempt-
ing to consolidate and simplify HUD program authorities. We believe
that title 5 of the 1949 act also needs rewriting and simplification.
Through the years it has been developed through amendments to the
point where we think it lacks some coherence and, like the HUD
authorities, could benefit from rewriting.

But, beyond the rewriting and reforming, we believe that a serious
effort to wipe out indecent housing in rural and small town America
will require something along the lines proposed by Senator McGovern
and Senator Abourezk. We want to make it clear that we don't regard
the Emergency Rural Housing Administration as a substitute for
Farmers Home or existing HUD programs and agencies. ERHA's
assignment, as we understand it, would be to fill the gap; to serve
those that the other agencies can't or won't serve: and in doing so,
to take the ultimate responsibility for seeing to it that the job gets
done.

Now, in trying to estimate just how big a job there is to be done, we
projected a total of more than 2 million households in places of less
than 25,000 population living in housing which lacks minimum plumb-
ing or is severely overcrowded or both, and this is assuming that pre-
vious programs have assisted some 700,000 such households in the pe-
riod since the 1970 census. We estimate, moreover, that almost a million
of those households are so low on the income scale that their average
rent-paying ability is something less than $1-4 a month.

Current programs and agencies, we believe, are just not going to be
able to serve those people, and that is one of the reasons we think
ERHA is needed.

As the legislation is proposed, this agency would have a wide range
of subsidy mechanisms at its disposal, including a deeper homeowner-

99-855 O - 73 - pt. 1 -- 16

228

ship subsidy that has previously been available outside of public hous-
ing, and including the ability to bridge the credit gap in rural areas
with direct Treasury financing — both to save interest costs to the tax-
payers and to avoid any pressure to keep one eye on the ready resale-
ability of the housing it finances.

ERHA would not have to build a minimum two-bedroom, 800- to
1,000-square-foot house for every old person or couple who needed
housing. Tender the program large numbers of families could be housed
decently and safely in housing which private agencies would hesitate
to finance because of its location and resaleability.

Finally, if our experience over the last half-dozen years in working
on the rural housing problem has taught us anything, it is the impor-
tance of the institutional gap in rural areas and small towns — the lack
of people and organizations in a position to effectively hustle the hous-
ing system. Any program that is passive, that reacts rather than ini-
tiates is going to be less than effective. The McGovern-Abourezk bill
proposes to deal with this by fostering the organization under State
law of local rural housing associations which will be responsive to
those who are served on the one hand, but also responsible to the com-
munity at large as delegate agencies of ERHA with area responsibil-
ity, such as the REA Co-ops have an area responsibility.

We would like to remind you that there was a time when it had been
proved to the satisfaction of almost everybody that rural areas could
not be electrified. The power companies, in collaboration with the
American Farm Bureau, conducted studies which purported to prove
that farmers could not afford to pay enough to justify rural electrifica-
tion. But once REx\ came into being, it appeared to be more like mist
of myth.

The co-ops slashed the cost of construction per mile ; they slashed the
cost of meter reading to zero; they brought into being relatively in-
expensive transformers * * * ad infinitum. Once it was decided that
rural areas would be electrified, the vast ingenuity of our society was
brought into play, in a multitude of big and little ways. Would be-
came could.

Rural Electrification swept to a genuinely impressive achievement
because: (1) it was an independent agency with a single purpose; (2)
it was financed out of the Treasury and not mortgaged out to private
money interests whose interests would have perverted the program;
(3) the policies were set as a Federal responsibility; (4) the execution
was local with consumer participation on an unprecedented scale.

Rural Electrification flowed from an assumption of Federal respon-
sibility with local democratic control. We don't pretend that the prob-
lems are identical, but we do contend that the principles will apply,
and that something like that partnership of local responsiveness and
input with a real Federal commitment — in terms of credit resources
and subsidy funds and in the form of an agency with an affirmative
mandate to do the job — is going to be required if we are serious about
eliminating indecent housing in rural and small town America.

Thank you.

The Chairman. Thank you, Mr. Rucker.

N^ow, I am going to have to leave. Senator Johnston has kindly
agreed to carry on.

Senator Johnston, I have asked the last three to come up to the table.
Mr. Rucker has just completed his testimony.

229

[Senator Johnston assumes the chair.]

Senator Johnston, Xext would be Mr. Herlinger. ^Y^ would like to
hear from you.

Mr. Herlinger. I would like to give my statement.

We believe that for a variety of reasons outlined in the statement
that a rural housing administration needs to be created, and should in-
clude at least a statewide or regional delivery system which is public
in nature and thus answerable to the electorate and elected officials.
This type of system based on our experience can provide immeasurable
aid to local citizens. It should include a comprehensive community
development power which would include adequate grant and loan
funds for sewer, water, planning, open spaces, as well as the housing.
It should have the ability to provide deeper and more flexible sub-
sidies, including grants.

In most instances grants from the State has made these programs
economically feasible. The grants have had a leveraging effect of near-
ly 15 to 1. Nearly $440 million of construction and rehabilitation is
occurring due to at least in large part of a quarter of a million dol-
lars that the State has been contributing.

A rural housing administration should have the authority to fund
local housing authorities and other broad-based consumer oriented
housing producers. It should have the authority to provide rent sup-
plement statements •which would be made available to rental agree-
ments. Those payments are presently available only through the Fed-
eral Housing Administration, which is urban oriented.

It should have the ability to contract for studies to prove incapable
organizations already in existence in given States and regions of the
country.

In the State of Colorado, you need an income of at least $6,900 a year
to purchase with interest credit for a farmers home administration
502 house. That is a 1 -percent, 83-year loan, and that is $6,900 which
is not low income. One of the reasons is the property taxes.

Senator Johnston. $6,900 you need ? That is pretty good wages in
my State.

Mr. Herlinger. It is good wages in our State. The subsidy is not
deep enough to get down to the low-income families. As a result of
that the low-income families tend to move to the cities.

I think the relationship has been neglected between urban and rural
problems, and it 'would seem to me that a comprehensive manner of
dealing with this is required through the legislative process, both in
terms of industrial and commercial development and housing develop-
ment, land development throughout the United States.

Senator Johnston. Farmers Home has a program similar to the 235.

Mr. Herlinger. That is the 502.

Senator Johnston. I am afraid that is the bad news. I will go over
and vote and will be back in about 6 minutes.

[Kecess.]

Senator Johnston. The committee will come to order.

Mr. Herlinger, we were hearing testimony from you about rural
housing. Did you have anything else in your statement ?

Mr. Herlinger. Senator, I wanted to clarify the figui-e of approxi-
mately $6,900 a year income. That is based on a home which would
cost, ne^v construction, about $20,000, and because of inflationary
factors, both in the building and labor and also land. That is just about

230

what you can build a new home for in Colorado ri^ht today, even in
rural areas.

So if you can get a builder to build one for $14,000, you can qualify
for the lower income, but the reality is that $14,000 homes are not
around, at least in our State.

One other comment, and that has to do really with testimony
earlier.

Senator Johnston. Would you ^ive us a breakdown on how you ar-
rived at the $6,900 figure ? '

Mr. Herlinger. Yes, sir. I used the factors that the Farmers Home
Administration uses in computing; what the monthly payment or yearly
payment is going to be for principal and interest, and added on an
estimate of taxes, and insurance.

I then multiplied that by 20 percent of income. That is generally
what they say the family needs to qualify, and it gets up to about
$6,900. You use the mathematical process that the Farmers Home Ad-
ministration uses.

Senator Johnston. If it is their figure, if you can have them avail-
able to use, we would appreciate it.

Mr. Herlinger. I would be glad to.

[The following was received for the record :]

Colorado Housing, Inc.,
Denver, Colo., July 26, 1973.
Senator John Sparkman,

Chairman, Committee on Banking, Housing and Urban Affairs, U.S. Senate,
Washington, B.C.
Dear Senator Sparkman : During my testimony on Rural Housing, Senator
.Johnston asked me to supply some additional information regarding the Farm-
er's Home Administration 502 interest credit loan.

I had indicated that it takes an adjusted income of approximately $6,900 to be
able to purchase a home under this program in Colorado. I based this figure on
what new homes are costing in our State ; an average is $20,000. Multiplying $20,-
000 by the 1%, 33 year amortization factor of .03573 you get a yearly principal
and interest payment of $714.60. Add to that figure $600 for real property taxes
and $90 for insurance you arrive at a yearly total of $1,404.60. Farm Home in-
dicates that families should not pay more than 209f of their adjusted income
for housing; multiply $1,404.60 by 5 (20%) and you have a required adjusted in-
come of $7,020.00.

I appreciate the opportunity to discuss our views on housing legislation with
the Committee and urge you to take quick action on a comprehensive housing
bill which is adequately funded.
Sincerely,

David W. Herlinger,

Director.

Home mortgage $20,000

1% — 33 year loan amortization factor X .03573

Yearly principal and interest 714. 60

Real property taxes— 30% of $20,000 X 90 mills 600. 00

Insurance -f-90. 00

Total yearly payments 1.404.60

20% of income X5

Required annual adjusted income 7,023.00

Mr. Herlinger. I had one other comment, and that was the testi-
mony of the acting administrator. On the one hand, he was talking
about increasing programs. It is our understanding from the State

231

office in Colorado of the Farmers Home Administration that the ad-
ministration here in Washin^rton is proposing a 32,9-percent cut in
staff of the Farm Home Administration by July 1 of next year.

I would like to see how they are ^oing to increase programs by cut-
ting the staff by one-third. I don't think those two pomts make a great
deal of sense, At least for our State, they don't.

The Chairman. Mr. Herlinger, we had better move on and hear
from Mr. Biasucci.

Mr. Biasucci. I am executive vice president of the West Virginia
Housing Development fimd.

The Chairman. If you could try to make your statement about 5
minutes in length, because the next time, I won't be able to come back.

Mr. Biasucci. I am pleased to have a few minutes to make comments
about a matter of the deepest concern to us in West Virginia, the
rural housing problem.

First, let me put the development fund in West Virginia in con-
text, however. We are the State Housing Finance Agency for West
Virginia. We have about $46 million of housing now completed or
under construction, or in very active preconstruction development.

These are perhaps not large figures by urban standards, but by the
standards of our State, they are very large. It is almost all 236 hous-
ing, all FHA insured.

My written statement covers four things: The obstacle to meeting
rural housing needs, the applicability of Federal housing programs
to the rural areas, some specific comments on last year's omnibus hous-
ing bill, S. 3248, and more general observations about rural housing.

In view of the fact that my written statement is considered part
of the record, I will very briefly touch on the highlights of the writ-
ten statement. I want to point out also that we have submitted to the
staff of the committee a somewhat lengthier paper entitled "Housing
in the Nonurban Setting," which, if the committee finds appropriate,
we would like to have made part of the record as well.

Senator Johnston. It will be. [See p. 317.]

Mr, Biasucci, My written statement does not go in depth into the
need for more housing in rural areas. I think others have documented
that well. The statistics are gruesome and known to anyone who has
looked into rural housing at all,

I would like t-o focus first on the specific obstacles to why there is
so little housing in rural areas, I think it is really quite a lengthy
catalog. High building costs due to the fact that low volume con-
struction costs more. High land costs. That is something which may
surprise some who think that rural land is cheap, but when we talk of
land costs, we have to talk also of the cost of land improvements, the
sewer, the access roads which go with the land to make it buildable.

In rural areas — particularly in the mountainous Appalachian
States — they are overwhelming, and combined with all land costs,
the total is unbelievable.

Along with that, very much related, are the lack of what are called
residential services, schools, the hospitals, stores, the other public fa-
cilities that are essential if we are to have a viable living environment.

232

Rural areas lack the governmental institutions capable of pro\dding
these facilities and services. They lack the building industry neces-
sary to deliver the homes and the community development facilities.
There is no rental management industry whatsoever, and there is an
inadequate credit industry.

I would like to dwell on that a moment. For example, in 22 of our
55 counties in West Virginia, there are no savings and loans associa-
tions, the traditional source of single family loan moneys. Those banks
that do exist in the rural counties will lend on real estate only at the
most conservative terms.

Surprisingly, we have discovered that many of these banks are not
capital-short. In fact, they are capital-surplus, but they prefer to in-
vest their surplus funds in Government securities or in the more
lucrative investments of urban areas.

Many of these obstacles can be traced to demographic factors such
as very low population density. Declining population itself, in addi-
tion to the low population density, is a tremendously aggravating fac-
tor, especially when it is kept in mind that declining population statis-
tics often reflect the loss of the working age groups.

In West Virginia, between 1950 and 1970, while the State was los-
ing approximately 13 percent of its population overall, the number of
citizens that were 65 or over increased by 40 percent. This means that
those left behind, the very young and the very old, are the ones that
are left to solve these areas' insurmountable problems.

Poverty of the rural areas, I need not go into at all. It is un-
doubtedly the most significant obstacle of all.

When you look to the existing housing stock, which you must look
to when you talk about rehabilitation programs, housing allowances
or leased public housing, you are not at all encouraged in those statis-
tics, and those statistics have been shown by many.

Senator Johnston. Mr. Biasucci, I had better cut you off at that
point so I can make the vote.

We want to apologize for not having as much time as we would like
to, to question you on these most vital issues. My State shares many of
the same problems that you have in West Virginia, and perhaps to
a lesser extent in Colorado, problems of not enough homes in the rural
areas, and urban areas, too, but rural areas as well.

We share the same problems of high building costs and not enough
credit and not enough income to pay what notes there are on whatever
the house note would be.

I am persuaded that we very badly need to do something to provide
housing for the rural areas.

All of your statements have been incorporated verbatim in the rec-
ord and will be available to all of the members of the committee, and
I think it will be very useful to us in formulating some solutions to
this very vital problem.

Thank you, gentlemen, very much, for your testimony today.

The meeting is adjourned until 10 a.m. tomorrow.

[Whereupon, at 11 :55 a.m., the hearing was adjourned, to recon-
vene at 10 a.m. on Wednesday, July 18, 1973.]

[Complete statements follow :]

233

Statemsnt of George W. Rucker,

Pft'">'*r \ .■■^^.■- Rural Housing Alliance»

before Senate Subcommittee on Housing and Urban Affieurs,
Tuesday, July 17th, 1S73

Mr. Chairman, Members of the Committee, my name is George
Rucker and I am the Research Director of the Rural Housing Alliance »
a private, nonprofit, research, information, and technical assi-
stance organisation dedicatee" to the improvement of housing con-
ditions for low-income people in rural and small tovm America.
We appreciate your i-ivitat.ion to appear and give you our views
on rural housing programs.

We have provided members of the Committee with copies of the
paper we submitted to Secretary Lynn earlier this year in response
to his request for comments on Federal housing policies. It will
provide you with our views on the subject in much greater detail
than I shall attempt here today; and, if it is appropriate and
you wish to make that paper a part of the hearing record, we
would be pleased to see you do so.
RURAL HOUSING NEED

The 1970 Census of Housing indicated that nearly 4.3 mil-
lion families were living' in substandard units — about 3.5 mil-
lion of those lacked some or all of the plumbing fixtures we
regzurd as essential in this country, and another 775,000 I have
projected as occupying units which have all of the required
plumbing facilities but are structurally dilapidated. Nearly
60% of those substandard occupancies — some 2.5 million house-
holds — are to be found outside of the nation's metropolitan

234

eureas, America's rural areas which cont£iin only 30% of our
population.

The Census indicated that another 2 to 4 million households
jure in units which are of "standard" quality but are overcrowded
— depending on what definition you use for overcrowding. (The
higher figure results if you consider all occupied units averag-
ing more than 1 person per room as crowded; the lower figure if
you apply that standard to households of less than 6 persons
and a standard of more than 1.5 persons per room for households
of 6 or more persons.) Nearly 30% of those crowded units are
also to be found in nonmetropolitan areas.

Rural and small town America not only suffers from more
than its share of inadequate housing, the fact that income
levels eure generally lower in such areas and that they suffer
from a scarcity of credit and of other essential institutions
meeuis that it is that much more difficult for them to deal with
their housing problcris.
THE FEDERAL RESPONSE

Past programs of Federal housing assistajice have suffered
from some basic defects relative to their ability to serve rural
emd small town areas.

Public housing — the oldest of the direct subsidy programs
and that most appropriate for serving those with the lowest in-
comes — has not only been qua'^titatively inadequate to the needs /
it has been hampered by the fact that it is basically a local-
initiative program, despite itc Federal financing. In short,
its effectiveness is subject to local will and cap£d>ility, both

235

in terms of initiating the use of the program emd in terms of
operating effectively under it. The urbcm focus of the Federal
bureaucracy involved with the program has not helped. Not only
did it respond to initiatives which, until recent years, were
overwhelmingly urban in origin; but it has generally preferred
dealing with leurge, urbein project proposals to handling smaller
ones from rural cureas and small towns — probcibly regarding the
former as a more effective use of their time and resources in
terms of production levels.

Whatever the ccxnplex of reasons, the results are clear.
A study we completed last year found that nearly half of the
nation's counties — containing nearly one-fifth of its popu-
lation — had no public housing progreun. The most recent data
from HUD show that as of the end of last yeeur, the 11 largest
Housing Authorities in the country account for 30% of all the
units. Almost half of all IHAs, those with less than 100 units
each under Contract, account for less than 5% of all units.

Other HUD assistance programs — those tied to Federal
Housing Administration insurance — run into the credit gap and
the lack of institutions to make use of them when they make any
effort to venture out of the metropolitan environment. Design&d
as they are, these progreuns are really harnessed to the chariots
of the private sector — particularly its lenders and developers
— and where those cheuriots aren't or don't go, the assistemce
doesn't go either. Again, the results are only too clear. Dur-
ing the thirty-month period from Jcinuary 1970 through June 1972,
FHA subsidy programs covered eibout 645 thouseind units. Only 136

236

thousand of those — or 21% — went into nonmetropolitan areas.

Title V of the Housing Act of 1949 reflects Congressional
recognition of the inability of FHA programs to operate effect-
ively in rural areas and small towns. It authorized Farmers Home
Administration to bridge the credit gap and it has certainly
served to prevent the inequities in Federal Housing programs
from being far worse than they are. But this agency, too, has
been hampered. For one thing, it has had a tremendous increase
in housing responsibilities in recent years with no concomitant
increase in staff resources to handle them. The total program
level for the agency (including housing) projected for Fiscal
Year 1974 is almost six times the level which it handled in FY
1964; but the total personel resources which will be available
next year are only half again as high as ten years ago!

Farmers Home has also been hampered by inadequate subsidy
mecheinisms. It has not had full comparability with its urban
counterparts. It has never had a rent supplement authority,
for example — though I recognize that this Ccaranittee attempted
to correct that particular inequity last year, and I hope you
will perservere in the effort. Farmers Home Administration
has not had the rehabilitation grant program that HUD had admin-
istered — though I recognize that this particuleu: inequity is
not the responsibility of the legislati"e committees but of the
appropriations process.

237

The point is that, although the FmHA structure is fcu: more
suited to the needs of rural areas and small tovms them the HUD
structure, the program levels permitted Farmers Home have been
only about one-fourth those of the HUD programs, even if you
count all FmHA-financed housing units, and only about one-eighth
of the level of HUD programs if you count only those FmHA units
covered by direct interest subsidies. Moreover, the fact that
Farmers Home has been almost completely limited to the interest-
subsidy mechanism, which is inadequate to the needs of really
low-income families, has meant that its housing assistance has
been unable to keep up with rising housing costs. Between FY '68
— before Congressional authorization of the interest credit pro-
gram — and FY '72, the average income of a Farmers Home Admin-
istration borrower rose by 12%, though the size of the house he
got went down by 9% (its cost went up by 40%) . Finally, the
pressure to handle substantially increased program levels with
minimal increases in staff resources, is forcing FmHA to become
more eind more like its urban counterpart, FHA, and to depend
increasingly on the private sector — a development which we
believe will erode further its ability to serve those most in
need wherever they may be.

We are especially concerned about efforts to enable Farmers
Home to hire private appraisers, building inspectors, and loan
servicers. We believe that if these duties pass from the hands
of Federal employees to those in private sector, the road will be

238

open to the kind of chicanery that nearly wrecked the Federal
housing programs in many cities.
BASIC PRINCIPALS

This recital of past shortcomings indicate, it seems to

that
us, some of the essential elements for a housing policy /Ls ap-
propriate to the needs of rural and small town America.
People's Rights Are National

There must be a real acceptance of Federal responsibility
and an end to the practice of leaving the national commitment
in housing at the mercy of local will and ability, or at the
mercy of the private sector's needs. In the past, all Federal
programs — whether administered by HUD or by FmHA — have been
essentially passive in character. What is needed, especially
to do the toughest part of the job, is rffirraative action.
What is needed is a program that attempts to determine the
need (where it is, who it is, and what portion of that need
is likely to be met in the near future by existing programs
emd institutions) and then to move affirmatively to see that
the gaps are filled and the job is done.

This is not to say that local initiative and local control
should be ignored. We want to see the kind of local input that
comes right from the people most concerned — those now living
in bad housing. But we feel there should be a powerful Federal
agency that can give support to local institutions to the extent
of taking over the job should local, effective, people-oriented
groups fail to materialize.

239

Housing People Is Expensive

There must be a genuine acceptance of the fact that —
given the pattern of income distribution which exists in this
nation, and has existed decade-upon-decade — our national
housing commitment cannot be met on the cheap. Those most
consistently left behind by the private market forces smd by
government programs are the households at the bottom of the in-
come scale, and they are the people that it costs most to
serve. That cost is substantial — there is no point in pre-
tending that it isn't. But, it is certainly not prohibitive
in an economy as potentially productive as ours.
Public Financing is Essential

Serving housing needs in a rural and small town environment
demands the availability of credit, and private institutions
can not be depended on for that availability. In addition,
since the task is to serve those who require subsidy, it is
far more economic and equitable to use direct Federal credit
rather than paying the premium required to lure private credit
where it would not otherwise go.
Subsidies Required To Reach The Poor

Adequate subsidy beyond credit resources is also an
essential element — and this is as true or truer for rural
and small town areas as for the urbanized environment. A full
range of subsidies makes the most sense in terms of permitting
program flexibility to meet differing needs and possibilities.
The greater relative stock of vacant, though substandard, hous-

240

ing in nonmetropolitan areas and the somewhat • higher ratio of
ownership there adds to the importance of program resources to
upgrade and rehabilitate existing housing. But, as urban public
housing has made crystal clear, capital subsidy is not enough
for those at the bottom of the income ladder. The Census
figures indicate that nearly half of the worst-housed have in-
comes of less than $3,000 a year and can't afford, out of those
resources, the continuing costs of decent housing services,
much less the initial acquisition cost of an adequate unit.
Effective Delivery System Needed

Finally, as we have tried to stress, the availability of
a responsive housing delivery system is a particularly essential
element in a housing policy that is to work in a rural environ-
ment. The public housing program has always reflected a reco-
gnition that the private sector can't be expected to respond
to the needs of those most in need of housing assistance. In
rural areas and small towns, that truism is even more to the
point. Such success as Farmers Home Administration has had
results in part, we believe, from its provision of an additional
dimension to the real estate institutions in rural areas —
from its direct participation in the delivery process, counsel-
ing families, helping them find land, housing or a builder,
carrying out inspections and appraisals at no cost of the
borrower, etc. But, it remains true that the agency has a
basically passive stance. What is needed are more in the way

241

of local institutions to work with whatever Federal programs
are provided. Such institutions will not always create them-
selves — they must be encouraged and assisted and, occasionally,
even established directly.

In short, no housing assistemce mechanism can operate any
more effectively thein the institutions which must see to the
availability of the housing and the provision of the assistemce.
A housing policy which is to be effective in rural and small
town America must take cognizance of that fact.

242

Ri;ORDLRIUG FLJtJlVJj nOUSII^G POLICY

/e are convinced that no ariount of tiukorinq ^.'itl*
ti;e ^->rcsent ;iousing Gyateri or ^iroqrar.is rill .'e trvily
effective in. proviuinr; aue'^iuate housing to ?_nerica ' g rural
poor. Vo accomplisn taat, major refonas '..ill Iiavc to be

made in Feueral liOusiiic; ;jolicy rufonas wliic-i effectively

ciialleuge tiie i^revaiiing nytixology au. '. nisccmceptions to
wtucli ruucu FeUciral mousing activity iias ueen tied.

i^aviiig ouscrveu auca of tuis activity in rural areas
ciuriiig recent years, \7c I^elitjve tliat '..viat is neeue". ir, the
estauli:^li:'ient of a coiapreuexxsive iiatiooal iiousing pro^raa
'./liich equitaj-ly serving the full range of liousing needs
and uiiicu tioes uot leave tiie national ■.jurpoae at tue raexcy
of local will or capacity, or private initiative and
interest, liie present i^atcn.'jork of Federal iiousiaxg assist-
ance prograxas for tlie rural poor reflects our failure to
ectajjlisu sucii a conprehensive progra'a, ana results in
neglect of jaillions of American families, anJ the eiirich-
nent of a fev/ ^jJ^ivate interestsat an uiuiecessarily high
public cost.
PR0P03LJ ALVLPuuVriVLS

The bill ijcfore this Conmittee I'hicL \'Ould establish
an Lnergency Rural iiousinr; :i.v^air.istration is clearly an
atter.ipt to .vove in the direction of a conprehensive rural
nousing program. In vie'j of the fact that it contains
elenents directly relating to the basic principles '.fe iuive

243

outlined aoove, I v/oulu like to devote the renaining part
of i.iy stateraent to an analysis of tloat qeneral approach
to the problems of iiousing ti^e rural poor- I aope that

our cor.inents viiicli cjroii out of our exi^eriance over

tije past seven years r-m je of assistaiice to this

Cormittee as it coiisiders this proposed legislation.

1. Lstablisiment of a Separats Agency Tiie i^easure
proposes to establish a separate and iniiepenJsnt agency
with specific responsibility anc mandate for neetinc; the
basic shelter needs of the nation s rural population, and
proviueu v/itii sufficient resources to deal \'itii the credit,
subsidy, and institutional gaps in rural America. It
lias be^i clear to us for sonetirae that such a need exists.
The new structure snould be dominated neither by the
commercial agricultural interests of the "IJepartnent of
Agriculture nor by the overwhelming metropolitan/real
estate/banker/builder interests of tae Department of Housing
and Urban Development.

jy tliis, v.'e do not see an agency created to compete
with or duplicate the functions of the Farmers lome Admini-
stration. Over tae years, I believe v/e liave taken full
cognizance of the broad range of credit and institutional
needs affecting nonraetropolitan areas. Clearly, the v;ell
being and reconstruction of out rural areas are dependent

u^xin the existence of an effective rural credit agency

an agency v/ith responsibility for meeting a broad range
of rural needs, including housing, community facilities.

99-855 O - 73 - pt. 1 -- 17

244

agriculture, anJ community and econonic developmsnt. The
Farmers uome Auninistration slioulc. continue to serve a
unique anu vital role in ti:is regar-i, and \;e '.raulc'. urge
tiiat tliat role be strengthened.

i.ouever, it is ecually clear tiiat the agency is un-
suited to tue imeciate tasJ; of rehousing the rural :^oor,
since it iias neither the resources, mandate, nor operational
structure to undertake a conorehensive rural housing pro-
gram. And, as a result of factors associated -./ith the
agency '3 evolution. Farriers hone i^s exhibited neitaer
tile initiative nor tae inagiijation in dealing -'ith la
largely lov; income rural housing oroblen. tTS* SSf^- this out
'*iSf!^\^ experience of . severs ls;^eai'.s'.-in \>orking -botll. with
"tlte a'^ency §ndv/ith: local groupiST. ittemptin^to get it".
jto' \it^i.z^,jDor«f f ull^.' the .:pro9zam.^uthorXtie)SrXh&£ -i t ' ha s —
including self-help and fam labor housing. The fact is
tliat serving low^incooe people requires iiard decisions by
the local FnliA staff. It requires working vrith cases
tiiat are more difficult to process than average — requiring
more in the way of clearing up credit records and checking
out employment and income experience. It requires taking
the risks involved in lending to those with marginal credit
records. All too many FmtiA Supervisors find this goes
against the grain.

You don't have to take our \rard for this shortcoming
in the FmiiA housing record. x\ nexvly releaste study done
by USDA personnel — Inadecuate liousing and Poverty

245

Ctatus of tiOuseiiolJs notes at tiie outset ti'iat FmlJ^ lias
difficulty in reaching tlie very poor" and that its programs

have not hel^^ed very many poor uouseholls obtain adequate
iiojsing. Vais stucy 3uc7g3sts that those belo'.r the poverty
line Siiould not even be considered as the target of Farners
home Administration's housing programs.

.."e vould see the need for an independent agency \rith
the responciuility of providing raininurn adequate housing,
clean vater, and sanitary facilities to the vrorst-housed
of the nation's rural areas^ and directed to ascertain
the neeu for such housing in all areas ^.'itii a population
of 2i>,(jiu or less, to mobilize the resources of other
agencies in developing a five-year plan for meeting those
needs* and to act directly to insure that tiiose people
not being served Ly other agencies and programs are, in
fact, served.

2. Provision of /idequate Subsidies: Tlie proposed
legislation v;oule make available a range of subsidies
designed to meet the needs for family ownersiiip, iiome
repair, and rental programs. For home oimership, the
neasure autiiorizes an imaginative subsidy neciianism which
\'Ould allov7 pa^Tients on up to 50 percent of the principal
to De deferreu while protecting tlie investment interests
of the governiuent. As noted earlier in this statement,
existing subsidy arrangements lii-iiting assistance to ti'.e
reduction of interest charged to the borrcer, do not have
the capacity to reach Iot? income families.

246

With regard to families without sufficient income to
acquire, operate and pay taxes and insurance on their ovm
homes, the Emergency Rural Housing Administration Act
vrould authorize the construction, operation, and maint-
enance of adeqviate rental housing, utilizing a sliding
subsidy mechanism dependent upon a family's rent paying
ability. In our viev;, such a program is most essential
in light of the large number of families currently excluded
by even the subsidized housing market. In the attached
analysis of the bill (Item A) which we have prepared,
we estimate that at the present time there exists over
1 million families in rural areas with an average monthly
rent paying ability of only $14. For the most part,
these families would be ineligible for public housing even
if it were available. Consequently, a comprehensive
approach such as that advocated in the proposed legis-
lation would seem essential if v/e are serious about meeting
the needs of the lov/est income families.

And finally, the measure authorizes the provision of
grants and loans for the purpose of bringing existing
housing units up to an adequate level to insure a family's
health, safety, and dignity. Such a provision is extremely
important, particularly in Appalachia and Southeastern
areas of the United States, where large numbers of families
currently own their own homes and land but which lack tlie
most basic amenities.

247

We believe that a major advantage which would flow
from an agency funded directly out of the Treasury would
be to free the taxpayer from the burden of providing housing
facilities far more expensive than is necessary. In all
of the housing programs, public and private, one of the
standard preconceptions which control the type and cost
of housing is its ready resaleability. That is considered
essential for private investors whether it is in fact so
or not. But a Treasury financed agency would not have
to build a minimum two bedroom, 800 to 1,000 square "foot
house for every old person or couple who needed housing.
Under the program proposed here, large numbers of families
could be housed decently and safely in rehabilitated housing
which private agencies would hesitate to finance because
of their location and resaleability. Modest, durable,
attractive houses half the size of the standard FIIA/FmHA
house could be built, quite adequate to the needs of
couples or small families. Properly planned these houses
would be economically expandable, but the cost of future
expansion in the hands of more affluent ownership would
not be a public expense.

This is not unjustifiable criticism of the private
insured or uninsured lending programs. They are what they
are. But there is no reason why the taxpayer should pay
twice as much for satisfactory minimum shelter as the
fcunily requires.

248

3. Establishment of a Rural Housing Delivery System;
One of the .most significant and innovative features of
the proposed legislation is the establishment of an effec-
tive rural housing delivery system responsive to local
needs. Local rural housing associations, chartered under
state law but serving as delegates of a Federal agency
would serve to decentralize the basic administration and
create, an'i'important institutional structure in
rural communities. Patterned after the rural electric
cooperatives, they would be controlled by those they serve —
those who have the most direct interest in effective
implementation of the rural housing program. These local
agencies would also be required to enter into area.res-
ponsibility agreements, in order to assure equitable geo-
graphic and racial service, and to assure fulfillment of
national policy objectives in meeting the housing needs
of "every American family."

The rural electrification program was established to

fill a gap left by the private sector to offset an

obvious deficiency in the market mechanism. It did so
by utilizing the initiative of those most directly affected,
the rural people themselves. The Federal government
provided them with the necessary resources, in the form of
credit and technical supervision, and it required, as a
condition, that the local organizations operate as res-
ponsibly as if they were true public bodies.

249

Rural housing need reflects an obvious deficiency
in the market mechanism. The logic of again tapping the
initiative of those most directly affected seems to us
compelling. The wisdom of again combining substantial
Federal resources and responsibility in a partnership with
state and local bodies seems to us appealing. The approach
appears to offer the possibility of a housing assistance
program which can be fully responsive to local needs and
desires without abandoning the national concern for decent
housing to local will and capability.

We would like to remr.nd the C'-'-^gress that there was
a tine when it had been proved to the satisfaction of almost
everybody that rural areas could not be electrified. The
power companies in collaboration with the American Farm
Bureau had conducted studies which purported to prove
with all objectivity that farmers could not afford to pay
enough to justify rural electrification. Once REA came
into existence the objectivity began to appear more like
mist or myth than fact. The co-ops slashed the cost of
construction per mile; they slashed the cost of meter
reading to zero; they brought into being relatively in-
expensive transformers ... .ad infinitum. Once it was
decided that rural areas would be electrified, the vast
ingenuity of our society was brought into play, in a
multitude of big and little ways. VJould became could.

250

This leads us to another general comment, regarding
the creation of an independent agency. There have been
some comments indicating that an independent agency has
become an undesirable thing. We submit to you that if REA
had been made a part of the Department of Commerce or the
Department of Agriculture in its early years, the rate at
which the program grew would have been tragically slowed,
or the program might have died altogether, leaving
marginal areas unserved to this day. In the Department
of Commerce the power companies would have unlimited
sway and would have crippled or destroyed the program.
In the Department of Agriculture, the Extension Service
would probably have had influence enough to achieve the
same ends.

Rural electrification swept to a genuinely impressive
achievement because (1) it was an independent agency with
a single purpose; (2) it was financed out of the treasury
and not mortgaged out to private money interests whose
interests would have perverted the program; (3) the
policies were set as a Federal responsibility; (4) the
execution was local with consumer participation on an
unprecedented scale. Rural electrification flowed from
an assumption of Federal responsibility with local demo-
cratic control. We do not pretend the problems are
identical. We do propose that the principles will apply.

251

4. Provisions for Direct Financing; Under the provisions
of this bill, there would be established a central, public
financing institution for rural housing and community
facilities. The rural housing investment fund would be
established by means of direct borrowings from the Treasury,
with the funds to be used for the acquisition of land and
construction of housing for all lower income people living
in rural areas. Grant funds and other housing subsidies
would be made from direct Congressional appropriations.
On the basis of our experience, and as we have pointed out
before, the Federal government can borrow money and lend
it more cheaply than it can subsidize others to make credit
available. But the present mythology which makes all
public financing look like a "cost" rather than an invest-
ment has been utilized to block direct Federal lending.
The funds to finance the construction, rehabilitation,
and operation of subsidized housing should come out of
the Treasury, from either tax revenues or Federal borrowings,
and be applied as directly as possible.
CONCLUSION

Mr. Chairman, as is probably apparent, we believe
that the introduction of the Emergency Rural Housing Admini-
stration Act and its consideration by this Subcommittee
are most historic events in the evolution of the nation's
rural housing policy. For too long, the basic needs of

252

our rural people have been seriously neglected. ' The
results of such neglect and discrimination are widespread
rural poverty and human misery. However, this society

has the capacity both the resources and the knowledge *

to alter the indecent housing conditions which currently
exist in rural America. I hope we have the commitment.

Thank you once again for the opportunity to contribute
to these hearings.

253

Attachment

RURAL HOUSING ALLIANCE ANALYSIS OF
COSTS OF THE PROPOSED EilERGENCY RURAL HOUSING ADMINISTRATION

prepared for siobmission to

SENATE SUBCOMIIITTEE ON HOUSING AND URBAN AFFAIRS

"Estimate" is a polite word for "informed guess." The degree to which
the "guess" in any given "estimate" is "informed" will vary according
to how much is known in the first place and how much must be assumed
in the process of making the guess. Estimating the costs of a not-yet
existent Federal agency obviously involves an inpressive (if not ap-
palling) number of assun^tions amd those presented in this paper make
no claim to great precision. On the other hand, they reflect an hon-
est effort to arrive at approximate magnitudes of the costs involved
in meeting the housing needs of the worst-housed in rural and small
town America.

T^ie beginning point for our estimates was the census data on house-
holds in units which lacked essential plumbing facilities, were sev-
erely overcrowded (averaging more than 1 1/2 persons per room) , or
both. Since the proposed ERHA would serve all rural areas and places
of less them 25,000 population (both inside and outside of Standard
Metropolitan Statistical Areas) , we assumed that this territory in-
cludes 90% of all households outside SMSAs and 80% of all households
within SMSAs but outside of their central cities.

Factors critical to the cost of serving households must include both
their size and their incomes. Published data of the kind we were
seeking are available by each of these characteristics separately but
not by both together (i.e., we know how many of the households lack-
ing plumbing or severely overcrowded had incomes of less than $2,000
emd how many were 1-person households, but we do not know how many of
those with incomes of less than $2,000 were 1-person households, or ,y
how many of the 1-person households had incomes of less than $2,000).-'
This type of cross-tcibulation was projected from the published data,
in accordance with the assumption that, at a given income level, the
larger the household the more likely it is to be in poor housing. The
totals from the census data and our projections of the con^ionents by
both income level and household size are presented in Table 1. The
census data indicate nearly 3 million households in the proposed ERHA
territory in housing need as we have defined it. They show one- third
of that need accounted for by households with income below the $2,000

1/ The necessary cross-tabulations can be obtained from special runs
of the Public Use San^le tapes, but the cost is in excess of $1,000
and funds were not available to secure those runs for this paper.

254

mark, and nearly ono- fourth of it in 1-person households. We would
guess that 15% - 17% of the total ^\ms accounted for by 1-person house-
holds in that lowest income category , and (at the other end of the
spectrum) , between one-fifth and one-fourth by households of 3 or more
persons in the $7,000 cind above income category.

To allow for the impact of Federal programs since the 1970 Census / we
had to make similar projections on the basis of program levels in the
intervening period. 1^/ Here, other assumptions were also necessary —
estimating the distribution of assistance under the various programs
between the territory to be served by ERHA and more urban areas, for
excuuple.3/ A major implicit assumption is that all of the households
served by ti*-o various programs were drawn from the ranks of those in-
cluded in our initial estimate of need. This is almost certainly eun
assumption contrary to fact. At the same time, we have no way of
guessing what portion would have been; nor do we have any estimate of
how m£my households might have improved thejr situation without reli-
ance on the programs .

Data in the Fourth Annual Report on National Housing Goals indicate that
scMne 1.4 million luuseholds were served by Federal housing assistemce
programs between the last quarter of Fiscal 1970 (the time of the cen-
sus) and the end of cr7endar 1972. Our guess is that nearly half of
this went into places of less than 25,000 population — the areas to be
served by the proposed ERHA. In addition to this allowemce for the
impact of prior prograTn?, we have excluded from the remaining constitu-
ency of the proposed ERHA households with income presumably sufficient
to achieve adequate housing without ERHA assistance. 4/ The results are
presented in Table 2.

Not surprisingly, our projections indicate that prior programs have
been most effective in me'^tirg the needp of Lhcse in the $4,000-$7,000
income range, and least ?5ffpctivc in meeting the reeds of those in the
bottom income category. v:e ectim^tc an exir-ting need for ERHA assist-
ance of more than 2 million householdr. . More than two-thirds of that
need is concentrated in households v/ith incomes of less than $4,000
a year, and we would guess that nearly hr.lf is in 1- euid 2-person house-
holds with incomes of less than $4,000

57 Cross-tabulcticns by household size and income are availed>le for
public hovising occupants but not for the cthar assistance programs.

3/ Based on the fragmentary indicators available, we estimated that
56% of public housing, 36% of rent supplement housing, and 27% each
of other HUD-assisted housing went into ERFA's proposed territory.
All FmHA assistance was included.

4/ Excluded were 1-person households with incomes of $4,000 and above,
^person households with income of $7,000 and above, all 3-to-4 person
households with incomes of $10,000 and above, aind half of the larger
households wit^ incomes of $10,000 or more.

255

AssistcUice to Upgrade Units

Based on tenure patterns reflected in the '70 Census, we estimate that
990 thousand of the households to be served are already homeowners
(though of inadequate units) . We arbitrarily assume that two-thirda
of those eire units which could be brought up to the required minimum
standards. The proposed legislation authorizes grants of up to
$3,500 where appropriate and if we assume that half of these current
owners would require such grants, averaging $3,000 each, the total
cost of the rehabilitation grant feature is projected at $990 million.
The proposed legislation authorizes up to $1 billion for this author-
ity.

Let us (just as arbitrarily) assume that one-third of those eligible
for grants will also require loans to carry out the necessary rehabil-
iation work. Together with those not requiring grants, this would
mean 440 thousand rehab loans in all, and if they averaged $5,000 in
size, that would represent $2.2 billion in credit extended for upgrad-
ing of existing owner^occupied units. Assuming an average term of
such rehab loans of 15 years and an average ability on the part of
the borrowers to pay 3% interest on them, the annual interest subsidy
costs on this part of the program would be $45.9 million a year (for
15 years) .

Other Homeownership Assistance

be
To estimate the number of households which might/eligible for hcxneown-
ership assistance (in addition to those included above) , we set cer-
tain income minimums, below which it was assumed that rental assist-
ctnce was more appropriate. 5^/ On this basis, we projected some 508
thousand households to be served under the regular homeownership as-
sistance proposed (including the deferred amortization of up to 50%
of the loan where income requires it) . Assuming further that the av-
erage acquisition cost of the housing required ranges from $12,000
for a 2-person household to $17,000 for households in the 5-or-roore-
persons category, this indicates a gross credit requirement of $7.7
billion to meet the needs of those households.

Based on our projected income levels and the formula proposed in the
legislation for computing adjusted income, we have estimated that the
averac|e household being served under this part of the ERHA progrcun
would have the ability to pay 2 1/2% interest on the full amount of
the loan required, assuming a 40-year term. (This includes many
households that would be able to pay higher effective interest rates

57 It was assumed that 2-person households would require $2,500 or
more income to qualify for homeownership assistance, 3- and4-person
households would require $3,700 or more in yearly income, emd that
larger households vruld require at least $4,000 a year incomes.

256

but also many that would require deferred amortization of part of the
loan and a 1% interest rate on the remainder.) This indicated that
the cost to ERHA of bridging the gap between that interest return and
the cost of money to the government would approximate $197.2 million
a year. 6/

Rental Assistance

The remaining 889 thousand households we assume will require rental
housing assistance. Since these are the households at the bottom of
the income ladder (too poor for homeownership) , they require the deep-
est subsidy. In fact, we project their average rent-paying ability
at less than $14 a month!

Assuming an average per unit acquisition cost for the required hous-
ing which ranges from $10,000 for a 1-person household to $17,000
for households of 5 or more persons, we project total capital require-
ments for rental housing at $11.0 billion. The annual amortization
costs for that amount (at 6 1/4% over 50 years) would be $723.5 rail-
lion and the potential rent from the households to be served reduces
that by only $146.4 million, leaving $577.1 million to be made up by
government subsidy. In addition, if one assumes an average of $1,200
per unit annually in operating costs (taxes, insurance, utilities,
and maintenance) , the 889 thousand units involved would require a to-
tal of almost $1.1 billion more annually to meet those costs.

Summary of Cost Estimates

In combination, these various estimates aggregate as follows:

(1) Gross capital costs for housing under the proposed ERHA
are projected at $20,938 million. Most of this is expected to ccme
back to the government eventually (either by repayment of the borrow-
ers or when the housing involved changes hands) . The low incomes of
those to be served under the rental assistance progrcim, however, indi-
cates that something close to $4 billion in capital costs will have to
be written off there.

(2) In the interim, the carrying costs which we have assumed
represent the difference between amortization at the full cost of
money to the government and amortization at the interest rate estima-
ted as within the capability of the average household in each program.
This difference we have projected at $820.2 million a year (including

^7 Throughout this paper an average of 6 1/4% is assumed as the cost
of money to the government.

257

amortization of that part of the capital costs of the rental housing
which we estimate v/ill not be recoverable) .

(3) Operating subsidies for rental assistance, in addition
to the subsidy of full interest costs and a portion of the capital
costs) are estimated as amounting to an additional $1,067 million per
year .

(4) One-time rehabilitation grants totalling $990 million
are contemplated.

One Last Caveat

In the event that the repetition of such terms as "estimate", "pro-
ject," and "assuming" have not sufficienty reinforced our intial com-
ments, we repeat that what has gone before is our "best guess" based
on published data and in the absence of any sophisticated econometric
model and related computer calculations. It should be regarded as
little more than general magnitudes subject to substantial margins of
error. Any attempt at such estimates is bound to suffer from that
characteristic, dependent as it must be on assumption multiplied by
assumption. The best basis for determining program costs will be ac-
tual program experience. In the meantime, our "best guess" indicates
that the sums contemplated by the proposed legislation are at. least
recilistic.

*******

258

Housing Need in ERHA Territory as of 1970 Census of Housing
(in thousands of households)

Household Size

Income Level

1 Person

2 Persons

3 or 4

5 or More

I All

Persons

Persons

Households

Under $2,000

417-510

233-285

107-130

125-153

980.0

$2,000 - $3,999

144-176

203-248

121-148

126-154

660.2

$4,000 - $6,999

63-77

141-172

110-135

269-329

648.8

$7,000 - $9,999

5-7

17-21

110-134

190-233

358.6

$10,000 and over

0-1

0-3

98-120

197-241

327.7

All Incomes:

750.0

660.2

€C7.1

1,008.0

2,975.3

Source: Totals based on Tables D-4 and E-4, Metropolitan Housing Characteristics;
included were 90% of nonmetropolitan households and 80% of metropolitan households
outside central cities; households in "need" being defined as those in units lack-
ing essential plumbing facilities and those in units averaging more them 1 1/2 per-
sons per room. The cross-tabulations by both income and household size were pro-
jected on the eissumption that, at any given income level, the larger the household
the more likely it is to be in "n^jed." In each case, a range is indicated reflect-
ing plus-or~minus 10% of the projection.

TABLE 2
Estimated Need for ERHA Housing Assistance as of 1973

(in thousands of hou
Househol

iseholds)

d Size

Income Level

1 Person

2 Persons 3 or 4

5 or More

All

Persons

Persons

Households

Under $2,000

382-468

219-267

96-118

121-148

910

$2,000 - $3,999

106-129

155-189

78-96

101-124

488

$4,000 - $6,999

80-98

31-37

179-218

322

$7,000 - $9,999

65-80

141-172

229

$10,000 and over

„.

97-119

108

All Incomes:

542

504

301

710

2,057

Source: Estimated by subtracting from Table 1 projections of households served
by Federal housing assistance programs during the fourth quarter of FY' 70, all of
FY '71 and '72, and the first half of FY '73. Total program levels taken from data
in the Fourth Annual Report on National Housing Goals; distribution between places
of less than 25,000 and places of 25,000 and above estimated on basis of dat^ in
HUD Statistical Yearbook (56% of public housing, 36% of rent supplements, and 27%
of other HUD-assisted housing is cissumed to go into ERHA areas); distribution among
income levels emd household sizes projected on basis of occupancy cheiracteristics
reported for programs by HUD Statistical Yearbook and by Farmers Home Administra-
tion.

259

GOVERNMENT AND HOUSING:
CITIZENS' RIGHTS AND FEDERAL RESPONSIBILITIES

(A Contribution to the Current Housing Policy Review,
Submitted Pursuant to HUD Notice 38 FR 8685)

Prepared by Rural Housing Alliance

1346 Connecticut Avenue, N.W.
Washington, D.C. 20936

May 1973

99-855 O - 73 - pt. 1

260

GOVERNMENT AND HOUSING;
CITIZENS' RIGHTS AND FEDERAL RESPONSIBILITIES

A Contribution to the Current Housing Policy Review,
Submitted Pursuant to HUD Notice 38 FR 8685

Any evaluation of public policy should begin with a
discussion of the goal. Thereafter, an assessment of the avail-
able evidence will hopefully permit us to judge whether current
programs and policies are achieving the desired results or if
the gap between goals and results is of such magnitude as to
warrant public intervention. (In the case of housing policy,
we are really discussing whether we should modify the forms of
public intervention and if so how, rather than discussing whether
or not to intervene. The intervention in housing, as in most
parts of the economy, is long-established and many-faceted, and
only a few selected aspects of it — specifically those provid-
ing direct assistance to low- and moderate-income households —
have been suspended as a companion to the current review.)

In housing, the rhetorical goal is the achievement of
"a decent home and a suitable living environment for every
American family." This goal has been endorsed by Congress and
President in two basic pieces of legislation. The present
Administration has specifically reaffirmed its concurrence in
recent months. Obviously, there can be substantial differences
in definitions of what constitutes "a decent home," but those
differences affect the magnitude of the gap between rhetoric
and reality, rather than the existence of such a gap.

Dimensions of the Need

If we limit our definition of indecent housing to
that which either lacks the normal plumbing facilities character-
ized as "essential" by the Census Bureau or is so severely crowded
that it averages 1 1/2 persons per room, we find that the 1970
Census figures report 4.4 million households occupying such hous-
ing. 1^/ Some 2.5 million, or 56% of those, were located in non-

1 / These and succeeding figures, linless otherwise indicated, are
from Metropolitan Housing Characteristics, Final Report HC{2)
-1.

261

metropolitan areas (though such areas account for only 31% of
the population) .

Thus, by our most restrictive definition of indecent
housing (lacking normal plumbing facilities and/or severely
overcrowded) , there is a gap of more than 4 million households
between what is and our agreed-upon goal. A gap of that magni-
tude is, we submit, clearly sufficient to justify public inter-
vention, especially in the world's richest society and especially
since it is a minimal measure of need.

The traditional definition of "substandard" extends
beyond the lack of plumbing and includes the structural con-
dition of the unit. If this broader definition is utilized and
the threshold for crowding is lowered to the more common figure
of more than one person per room, then the 1970 statistics sug-
gest that about 8.5 million households lacked decent housing. 1 /
Again, nonmetropolitan areas account for a disproportionate share
of substandard and crowded units compared to population — 43%
of the total (some 3.7 million units) is to be found in those
areas.

Alternatively the question of housing need can and
ought to be approached from a different direction. It can be
assumed that those whose income is insufficient to meet the
Bureau of Labor Statistics Lower Budget figure for the cost of
adequate housing are either not living in adequate housing or
are paying an excessive price to do so — therefore needing
assistance in either case. We have estimated that 17 million
households are in that situation. 2 / Again, the nonmetropol-
itan areas, with 37% of that (6 million households), account
for more than their "fair share."

1 / Due to a revision in methodology, a special estimate of

"substandard" housing is being prepared by the Census
Bureau. Prior to their availability, we prepared our own
estimates which appear in Rural Housing Alliance, OEO and
Rural Housing, Table 1.2., pp. 16-17.

2 / Ibid. , pp. 20-22. The fact that this estimate of the in-

come gap is of a magnitude four times the size of our first
figure (based on plumbing facilities and extreme overcrowding)
is testimony to the degree to which incomes are maldistri-
buted in our society.

262

The Nature of the Need for Public Intervention

The same evidence also serves to indicate some major
aspects of what is required in the way of public intervention.

(1) Income Maldistribution; There is a clear inverse
relationship between income and decent housing. Less than 5%
of households reporting incomes between $7,000 and $10,000 were
in housing which lacked plumbing or was severely overcrowded;
more than 15% of households with incomes of less than $4,000
lacked decent housing. 1 / This unsurprising fact merely under-
lines the accepted truth that housing need is, to a large extent,
an aspect of inadequate income. What public intervention must
do, therefore, is offset the gap between income and the market
cost of decent housing. (This, of course, has been the major
focus of most recognized housing assistance programs.)

(2) Geographic Distribution; Beyond income, however,
there is a clear relationship between geography and decent hous-
ing. Here we have in mind not only the differences from one
region of the country to another, but the difference between rural
areas and small towns and the nation's more urbanized communities.
For families in the $4,000 to $7,000 income bracket living in
metropolitan areas, the incidence of housing lacking plumbing or
severely overcrowded was just over 6%; for families in the same
income category living in nonmetropolitan areas, the incidence
was nearly 14%. This disparity is characteristic of every region
of the country. 2 /

The disproportionate size of the housing need in rural
and small town, America is in part due to the low incomes there,
but it is also the result of a broader institutional imbalance

1 / For summary national statistics see "Income and Housing,"
, Low-Income Housing Bulletin, February 1973, pp. 3-4.

2 / See, for example, estimates in OEO and Rural Housing, Table

1.2, pp. 16-17.

263

which affects not only housing, but virtually every sphere
of public policy. So ubiquitous is this imbalance that it has
led us to coin the term "metropollyana" as a shorthand for
the mindset which unconsciously perpetuates it.l_/

Crucial to housing policy is the credit gap which
reflects the greater availability of housing credit in metro-
politan areas, as well as the lack of other institutions to
"hustle" the housing system, which results in a level of hous-
ing starts in nonmetropolitan areas only 85% as high as in
metropolitan areas (after adjusting for population differences) ,
even though the need is in fact greater in the former.

The point pertinent to the present discussion is that
the private sector cannot be depended on to close the housing
gap wherever it is, even if the income gap is compensated for.
Indeed, the record of public programs makes it clear that they
too do not necessarily go where the need is. We have estimated
that even at its recent peak. Federally-assisted housing output
in non-metropolitan areas approximated only 34% of need, while
in metropolitan areas it was approximating nearly 53% of need. 2 /
In short, far less recognized than the need for public inter-
vention to bridge an income gap is the need for public inter-
vention to bridge an institutional gap and to assure geograph-
ical as well as income equity.

(3) Racial Discrimination: Finally, and again gen-
erally recognized, is the fact that housing quality is related
to race. In non-metropolitan areas, 49% of Black families with
incomes in the $4,000 to $6,000 bracket occupied housing which
lacked plumbing and/or was severely overcrowded; but only 12%
of the non-Black families in the same income category were in that
situation. 3 / The third major aspect of the need for public inter-

1 / For a discussion of rural/urban differences and the evidence

of the institutional gap, see ibid . , pp. 8-11 and 23 ff . For
additional discussion of metropollyana, see Richard Margolis,
"Metropollyana and Rural Housing," New Leader , February 5, 197 3;
and "Welfare and Metropollyana," Low-Income Housing Bulletin,
April 1973, p. 3.

2 / OEO and Rural Housing, Table 1.5, p. 3. Even if one wishes to

argue with our estimated level of real need, the metro/nonmetro
disparity is evident.

3 / This disparity is not, of course, limited to nonmetropolitan

areas. In metropolitan areas, 12% of Black families in that
income category occupied housing lacking plumbing or severely
overcrowded, compared with 5% of the non-Black families in
the same income group .

264

vention then is to secure racial equality and the integration
which has long been recognized as essential to that equality.

Citizens' Rights to Housing Are National

If the need for public intervention is conceded, the
question may remain: is Federal intervention required? The
fact that housing is a basic need and ours an interdependent
society makes it obvious that the matter is one of national
concern, and the Administration's reaffirmation of the legis-
lative goal is an endorsement of that fact. The argument then
must turn upon the question of whether or not the national con-
cern can be satisfied without Federal intervention — and the
degree of Federal intervention required can be judged on the
basis of its necessity to assure that the national concern is
satisfied.

The point can be discussed in terms of the three major
aspects of intervention outlined above. Can state and local
governments, for example, be relied on to offset the gap between
income and the cost of adequate housing? Certainly not out of
their own resources. The size of the task alone precludes that.
The current reassessment of Federal housing policies includes
a fresh look at the numerical goals endorsed by Congress and the
previous Administration in the 1968 Act and initially endorsed
by the present Administration,—'^ though that endorsement has
now been withdrawn, at least tentatively. We would suggest that
the total production goal of 26 million units is probably too
low. — ' The goal of 6 million assisted units is clearly inadequate
to the task of providing subsidy to all those whose income is .
insufficient to purchase it on the private market without subsidy. -

1 / In the Second Annual Report on National Housing Goals, p.iii.

2 / The projection of new household formations, for example, has

been characterized as "hopelessly inaccurate" by the Committee
on Trends and Economic Policies of the United States Savings
and Loan League (see Savings and Loan News, February 1973,
p. 29). The projection of losses from the inventory is also
probably too conservative (a comparison of the 1960 and 1970
Census figures with estimated starts during the decade suggests
that net losses from the inventory approached 5.4 million units;
if only 60% of these were in standard condition, that would be
more than 3 million units in the decade, instead of the 2 mil-
lion used in the goals projections) . If one includes crowding
in the definition of inadequate housing to be eliminated, the
total production required probably averages 3 million starts a
year, rather than 2.6 million. (On this, see OEO and Rural
Housing, pp. 26-29.)

3 / Our own estimate is for 13 million assisted starts, with 5 mil-

lion of those to be xn non-metropolitan areas. See ibid. , pp. 31-32,

265

Not only are state and local resources inadequate to
the task, they are certain to be maldistributed in a way that
matches (or mismatches) the least resources with the greatest
need. Indeed, there seems to be general recognition that Fed-
eral resources are required for housing assistance and the
debate should focus on how these are administered and by whom.

In this respect the other two aspects of the need for
intervention take on increased importance. Can state and local
government be relied on to intervene in such a way as to over-
come the geographic imbalances? Since all the evidence, both
statistical and anecdotal, suggests that they are themselves a
major aspect of the institutional imbalance which we have cited
as a factor in the problem, the answer is clearly negative.
Moreover, the historical record of reliance on state and local
governments to act in such a way as to assure the national rights
of those of limited political power are hardly reassuring —
a point which brings us to the third aspect.

Can state and local governments be relied upon to
intervene in such a way as to end racial discrimination and
achieve racial integration? Again, the answer is clearly
negative. Appropriate intervention requires not only Federal
resources, but Federal responsibility.

266

Federal Intervention in Perspective

As noted earlier, there has long been Federal inter-
vention in various ways to provide housing assistance either
directly or indirectly. A review of the major forms of this
intervention as well as an evaluation of other possible forms
of intervention is the subject of the remainder of this paper.
Our analysis and recommendations are designed to serve as a
guide to public policy in housing assistance -- a guide which
will focus on the need to: 1) be more effective in dealing
with all three of the special problems we have indicated,
2) be more equitable than either the private sector or previous
forms of intervention, and 3) operate more economically than
in the past. 1^/ Throughout the discussion, we will attempt to
give particular attention to the matter of geographic equity,
of offsetting the effects of metropollyana. Our particular
interest and experience in the housing problems of rural areas
and small towns and makes us acutely aware of the need to
emphasize the special problems there. 2^/

Homeowners ' Deductions

The oldest and largest Federal housing subsidy is
that provided indirectly by the deductibility from taxable in-
come of mortgage interest payments and property taxes on owner-

V On this point we are not referring to a desire for parsimony,
but rather a search for equity to the taxpayer, both in mini-
mizing the cost per unit of assistance and in assuring the
most equitable distribution of the burden of the cost of that
assistance. See the discussion of this in Clay Cochran and
George Rucker, "Every American Family: Housing Need and Non-
Response," Papers Submitted to the Subcommittee on Housing
Panels, Vol. 2, especially pp. 531-5. (A revised version of
this paper will appear in Donald Reeb (Editor) , Housing the
Poor, to be published this year by Praeger.)

2/ It also makes us acutely aware of the tendency of HUD officials
~ to forget about that part of the problem — the most recent

example being the failure to make clear in the Federal Register
notice of April 5th that the public was being invited to
comment on rural housing programs as well as those adminis-
tered by the Department of Housing and Urban Development.
(We have commented on this in a letter of April 12th to
Secretary Lynn.)

267

occupied housing. IJ The estimated cost to the Treasury is more
than $5 billion a year. 2/ This subsidy dates back some six
decades. It is neither equitable nor economic. Even if one
waives its discrimination against renters as justified by
some social value attaching to homeowner ship, there remains
the gross inequity of increasing the subsidy as income in-
creases which results from the form of subsidy. This same
deficiency makes the intervention unnecessarily expensive.
Based on figures presented in the Fourth Annual Report on
National Housing Goals 3/ we estimate that replacement of the
present system of allowing deduction of the full amount of
interest and property taxes with a tax credit system which
would give the homeowner a credit equal to 7 1/2 % of his
payments to mortgage interest and property taxes would provide
those with incomes below $7,000 with greater assistance than
they currently get, but would reduce by 35% the total drain on
the Treasury. V Inequitable and excessively costly, this

1./ To question (as Secretary Lynn did recently) the appropriateness
of terming this a "subsidy" seems to us disingenuous at best.
Under this provision of the tax law, we in effect tell citizens:
'If you will buy your housing instead of renting it, we will
reduce your tax bill somewhat, thereby giving you more money
to spend on your housing or on other things.' Under Sec. 235
of the National Housing Act, we tell citizens: 'If you will
buy housing under this specific program, we will reduce your
interest bill somewhat, thereby giving you more money to spend
on housing or on other things. ' The only discernible differences
are that the former appears in a different part of the code,
applies to everyone rather than only to those with limited in-
comes (indeed, favors most those with the most income) , and
reduces their tax payment instead of reducing their interest
payment. These differences certainly distinguish the mechanisms
involved — we don't see that they change the character of what
is being done.

2 ./ Joint Economic Committee, The Economics of Federal Subsidy
Programs, Staff Study, p. 152.

3_^/ See p. 48,

4 ./ If we wanted to go another step away from the regressivity of
the current system, we could provide a tax credit of a fixed
amount (rather than one tied to the actual expenditures for
interest and taxes) which would improve the tax situation of
those in the lowest income brackets the most, leave those be-
low the $10,000 level at least as well off as currently, and
still reduce the net cost to the Treasury by more than 40%.

268

subsidy has relatively little impact on the major factors

we have cited as resulting in housing need: inadequate income,

geographic inequity, and racial discrimination. In fact,

it probably aggravates the system's shortcomings from those

standpoints.

FHA Mortgage Insurance

The second oldest form of Federal intervention in
housing is the Federal Housing Administration (FHA) mortgage
insurance program enacted in 1934. As is generally recognized,
the primary purpose of this intervention was to revive the
housing finance sector (in major disarray at that point) and
through it the housing construction industry — in short it
was and is an intervention designed to assist private market
operation. Though never accounting for more than a minority
share of housing credit, the program stimulated a new pattern
in the industry. Socializing the risk demonstrated the
practicability of longer-term, lower downpayment, lower interest-
rate financing and thereby expanded the private market without
direct subsidy. The FHA insurance program made money over
the years and has now stimulated a growing private insurance
industry. \_/

While contributing to at least a marginal reduction
in the annual cost of housing (by encoxoraging a longer amorti-
zation period for capital costs) , the dependence of FHA in-
surance on the private market has meant acceptance if not
intensification of market inequities. Thus, for example, 80%
to 90% of the units covered by FHA insurance are consistently
inside Standard Metropolitan Statistical Areas. 2/ Even within
metropolitan areas, the "red lining" of minority and mixed
neighborhoods was prevalent until recent years. Racial minori-
ties fail to benefit from the program in fair proportion to
their numbers. 3/ In short, the intervention has not been

!_/ Which, if matters run true to form, will probably "skim the
cream" of the market, leaving FHA with the least lucrative
and most risky portion.

2_/ Figures for the most recent decade appear in the 1971 HUD
Statistical Yearbook, Table 173, p. 171.

2/ A HUD survey covering subdivision development in the mid-
1960's was reported by the U.S. Civil Rights Commission (in
Federal Civil Rights Enforcement Effort) to show less than
4% of the units covered by FHA insurance going to Blacks,
though the latter constitute 11% of the population.

269

equitable, nor has it been effective in terms of directly
impacting the goals of housing assistance outlined earlier.
It can be argued that it has had a marginal impact, through
an expanded housing finance and construction industry, in
stimulating the "filtering down" of housing -- which has
traditionally been the fortuity most relied on for meeting
the housing needs of lower income households. It can also
be argued, however, \/ that the filter process itself is
the main contributor to our socially undesirable pattern of
racial and economic segregation.

Public Housing

The earliest national recognition that direct
Federal intervention is required to meet lower income housing
needs is reflected in the public housing program enacted in
1937. By underwriting the capital costs of the housing (and,
more recently, part of the operating costs), this program
enables local public agencies to provide housing to low-
income families at rents within their means. Judged purely
in terms of the incomes of people served, it has been the
most effective Federal program, approached only by the more
recent rent supplement program combined with interest-subsidy
financing (discussed below). 2_/ The program's effectiveness
in this regard has not been matched by its effectiveness in
going where the need is. A recent study showed that non-
metropolitan areas, with 44% of the nation's poverty house-
holds, had only 22% of the public housing units under Annual
Contributions Contract. One-third of a century after the pro-
gram's inauguration, it still had not reached nearly half the
nation's counties containing nearly one-fifth of its popu-
lation. 2/ '^he program's failure in furthering racial equality
and integration is mored widely recognized. This failure is
reflected in contrasting ways. On the one hand, while Blacks
constitute 30% of the poverty population, they account for nearly
half of the tenant families in public housing. 4/ (To a very great

1^/ And is, for example, by Anthony Downs, in "Are Subsidies the
Best Answer for Housing Low and Moderate Income Households,"
Urban Lawyer, Summer 1972. See also his Federal Housing Sub-
sidies : THeir Nature and Effectiveness and wnat we snouiQ uo
About Them, Summary Report, pp. 5-6.

2/ See the average incomes of families moving in during 1972 for
various programs presented by HUD to the House Appropriations
Committee in that year's hearings, cited in Cushina Dolbeare,
Federal Tax Rip-Of f s ; Housing Subsidies for the Rich, Table 1,
p. 4B.

V Rural Housing Alliance and Housing Assistance Council, Public
Housing: Where It Is and Isn't.

4/ See "Public Housing: A Statistical Profile," Journal of
Housing, August-September 1973.

270

extent, this has been the result of the geographic distortions
in the program.) On the other hand, the program's tendency to
concentrate its projects in racially segregated neighborhoods
has led to major court decisions aimed at breaking that pattern.—'
For all races, the limited scale of the program producing units
sufficient to house less than 15% of the nation's poverty house-
holds) , has given it that lottery aspect emphasized by some
critics .— '

The relative economy of the public housing subsidy
mechanism is a matter of dispute, and difficult to determine in
the absence of more agreement than we now have on the costs to
be counted and the objectives to be achieved. Assistant Secretary
Norman Watson reported last year that operating costs in public
housing were, on the average, significantly below those for
operating comparable private housing. Similarly, figures furnished
by HUD to Congress indicated that the annual per unit subsidy
cost for leased public housing is substantially less than for
rent supplements in private housing, though the latter was serv-
ing a higher income level.— ^' One aspect of the program which is
seldom commented on seems clearly uneconomic — its utilization
of tax-exempt local revenue bonds for financing. This approach is
superficially appealing, since it results in an interest rate
on IjHA bonds which is significantly below that on even Federal
securities. But the price of that lower interest rate is a tax
subsidy to the investors which dwarfs its advantages. The Trea-
sury loses up to twice as much in tax revenues on such bonds as
is saved by the lower interest rate.i^/ Since, in the public hous-
ing program, the Federal government underwrites both principal
and interest on the LHA bonds, this means that the Treasury is
giving up $2 in tax revenues for every $1 it saves in interest
costs on public housing financing, hardly a rational proposition.

1 ./ Most notably, the Gautreaux case.

2 ./ For example, Richard Muth, Public Housing: An Economic Evalu-
ation and Irving Welfeld, "Toward a New Federal Housing Policy,"
The Public Interest, Spring 1970. The program's pattern over
most of its existence has meant that the rural and small town
poor have not even been given a chance to participate in the
lottery.

3 ./ See Dolbeare, op.cit. , Chart III, p. 2C. The figures for owned
public housing are even more striking in terms of a lower per
unit annual subsidy cost, but presumably are biased by the in-
clusion of projects dating back as much as two or three decades.

4 ./ Estimates cited by Philip Stern, The Rape of the Taxpayer, p. 66.
As in other tax incentive devices, the diseconomy is compounded
by the inequity. Stern notes (p. 64) that 96% of the benefits
from the exclusion from taxable income of interest on local
government bonds goes to the richest 8% of the taxpayers.

271

Farmers Home and Rural Housing

The Housing Act of 1949, in addition to its state-
ment of the much quoted national goal and its short-lived at-
tempt to call into being a public housing program of substan-
tial magnitude, provided a small but significant recognition
of the need for special intervention to offset the credit gap
in rural America. Title V of the Act authorized the entrance
of the Farmers Home Administration (FmHA) into the field of
housing, though direct loans for farm housing. FmHA's auth-
ority, which was expanded in the 1960 's to include non-farm
rural housing, was in recognition of the need to substitute
a Federal institution where the private market was inadequate.
In addition to using Federal credit to fill the rural credit
gap, FmHA provided a si±)stitute for other aspects of the in-
stitutional gap. Its 1,700 county offices serve an essential
outreach function (for which HUD's FHA has to depend on the
real estate agents, builders, and lenders). This has meant,
among other things, savings of 10% to 15% or more in the ac-
quisition cost of housing to borrowers. 1/

Though the use of direct loans has since been re-
placed (in the interest of budgetary appearances — discussed
below) by an insured loan system, FmHA credit continues to func-
tion much like a direct loan from the borrower's standpoint,
since FmHA originates and services the loan. FmHA has also pio-
neered in a small but significant way, by fostering the self-
help approach to housing, under which lower income households are
allowed to substitute their labor for a portion of the capital
costs of housing — a program which, with added encouragement by
the Office of Economic Opportunity, has brought homeownership to
families even below the poverty line.

1/ With increasing pressure of program levels and restricted
funding for administrative staff, FmHA has, in recent years,
been forced into increased reliance on the builders and has
come to copy FHA in significant ways. However, its program
structure has retained the direct contact between consumer and
Federal staff.

272

In short, FmHA has played a unique role in off-
setting at least some of the factors resulting in geographic
imbalance. As will be noted below, its program levels have
more clearly accorded with regional needs than those of FHA. 1 /
The agency's record of housing loans to Blacks, at least in re-
cent years, has been creditable. 2 / That it has not been singu-
larly effective in reaching very low-income families is largely
to be explained by the fact that it's available subsidy is
largely limited to lower interest rates (discussed below). 3 /

Tax Shelters

With extension, in the mid-1950 's, of accelerated
depreciation to real estate investment, yet another feature
of indirect intervention on the housing market appeared. Once
again, it was an intervention keyed to the private sector's
operations rather than one designed to offset that sector's
inadequacies. Its cost is substantial ($275 million a year,
according to Joint Economic Committee estimates 4 /) > and it is
highly regressive in its impact (with 70% of the tax saving
going to the top 5% of the taxpayers 5 /) . As a means of over-
coming the income gap in housing, it seems ineffective as well
as inequitable and uneconomic. A monitoring of syndication
offers ser es to impress one with the predominance of luxury
apartment projects. As one builder notes, the provision distorts
the industry by stimulating housing not primarily to meet hous-
ing needs, but to meet the demand of high-bracket investors for
tax write-offs, a proposition that can easily mean housing of
the wrong type, built at the wrong costs, in the wrong places
for the wrong people. 6 /

It should be noted, however, that this element of effective-
ness varies significantly from state to state within regions.

2 / See "FmHA and Minorities," Low-Income Housing Bulletin, Jan-

uary 1973, pp. 6-8.

3 / Lest this be mistaken for an uncritical endorsement of FmHA,

we call special attention to our statement before the House
Banking and Currency Committee in 19 71, which details short-
comings both in legislative authorities and in the administra-
tion of them. See also Clay Cochran, "The Scandal of Rural
Housing," Architectural Forum, March 1971.

4_/ Joint Economic Committee, op. cit.

5 / See "Real Estate Tax Shelters: A Builder's Blast", Low-Income
Housing Bulletin, April 1973, p. 2.

6_/ Ibid. Builder George Deffet cites particularly the study
done by Taubman and Rasche for the Joint Economic Committee
which suggests that the impact on production and rent levels
of the tax shelter is marginal.

273

Its "front-loading" of the advantages to investors is not nec-
essarily consistent with an interest in long-term effective
management, as is frequently pointed out. In short, it appears
to have slight impact (and that not well focused) at substantial
cost and to leave unaffected the questions of geographic and
racial inequity.

Interest Subsidies for Moderate- Income Families

Just prior to the decade of the 1960 's, Congress
moved to broaden significantly the focus of Federal intervention
in housing, by turning its attention to what has come to be
called to "moderate-income" sector — households with incomes
too high to be served by the direct assistance of public housing,
but inadequate to achieve housing on the private market at rea-
sonable portions of that income. Assistance to the moderate-
income sector began with the elderly and was later broadened to
the non-elderly. The chosen mechanism was reduction in the in-
terest cost of financing housing (a logical choice since the
interest component is generally the largest single element in
monthly housing costs) . At first, the below-market-interest-rate
(BMIR) financing was made available through direct loans (e. g..
Sec. 202), and then through Federal "take-out"of private loans
(e. g., purchase by the Federal National Mortgage Association
(FNMA) of Sec. 221 (d) (3) loans) . Because of the budgetary
impact of these approaches,!^/ they were, in the late 1960 's,
replaced by the device of paying part of the interest costs on
behalf of the borrower. This spreads out the cost of the subsidy,
but at the price of increasing that cost considerably, as the
General Accounting Office and the Joint Economic Committee point
out. V

There can be little question but that interest subsidy
programs have played a major role in stimulating housing pro-
duction and in making available to families improved housing at
lower cost to them.

T/ Which results from our irrational system of Federal account-
ing, and its refusal to take appropriate cognizance of outlays
which are in truth investments rather than expenditures. A "Truth-
in-Accounting" capital budget approach could be a major element
in housing reform.

2/ The latter estimates the potential saving from direct lending
at as much as $4 billion over the next six years (Housing Subsidies
and Housing Policy, p. 8) .

274

Criticism that the programs have not served the poor is, in
a sense, unfair — they were not designed for the poor.l/
The limited scale at which they operate results in the ^lottery"
effect previously noted with regard to the public housing pro-
gram. This is compounded in the case of FHA programs by the
fact that a family need only qualify on income grounds, it need
not demonstrate that its current housing is inadequate. Farmers
Home Administration programs are superior on this count, since
they are limited to those who can demonstrate the need for
assistance to secure adequate housing (not a requirement under
Sec. 235) .

Again, dependence on the private market mechanism re-
duces the ability to achieve geographical equity. As the GAO
has noted, 2/ the Northeast region received only 11% of the 235/
236 units in the first few years of the program, though that re-
gion accounted for 18% of the housing which either lacked plumb-
ing or was overcrowded (or both). 3/ On the other hand, the West,
with only 14% of the inadequate housing, accounted for 20% of the

235/236 units. It is significant that Farmers Home Administration
programs did not reflect the same regional mismatch. £/ This is
indirect evidence of the relative advantages of FmHA's program
structure. Even more striking than the regional imbalance re-
flected in FHA's interest-subsidy program is its failure to
serve those in rural areas and small towns. HUD reports only 15%
of its Sec. 236 units going to nonmetropolitan areas, 5^/ and the
proportion of Sec. 235 units in such areas is probably even lower.
Finally, reliance on the private sector requires intervention in
kind as well as in financial assistance. The scandals in FHA
programs are testimony to the need for consumer counseling and
consumer protection through adequate inspection and appraisal .£/

IT Whether these moderate-income assistance programs have been
given undue emphasis at the expense of the low-income programs is
another question.

2/ Opportunities to Improve Effectiveness and Reduce Costs of Home-
ownership Assistance Programs, Report B-171630, Appendix I, p. 59.

V We» have used Census data on housing need rather than the HUD
estimates used by GAO for its comparison.

£/ The GAO compared FmHA program levels with rural population. We
have, as we did for HUD programs, compared it with Census data on
housing need in places of less than 10,000 population (as tabulated
in Economic Research Service Statistical Bulletin 492, Housing Con-
ditions in Areas Served by Famers Home Administration Programs,
Table 5) . At least regionally, the distribution of program levels
did not vary more than 1% from the distribution of need.

5/ See 1970 HUD Statistical Yearbook, Table 174, p. 165 (this break-
down seems to have been dropped by the 1971 edition) .

6/ Which FmHA provides as a public service to its borrowers.

275

Another aspect of this is the need to keep costs down
while keeping quality up. There is a tendency in the industry,
candidly recognized by those familiar with the programs and in-
directly reflected in the statistical evidence,^/ to "build to
the top of the market," in price terms.

Rent Supplements

In the mid-1960 's, while expending assistance to mod-
erate-income households. Congress added a new mechanism for low-
income assistance, rent supplements. £/ It is like leased public
housing in some ways — it relies on privately-owned housing, and
the subsidy is deep enough to cover all of capital costs and part
of operating costs. On the other hand, rent supplements do not
involve a local housing authority and they are tied, to a degree
not characteristic of leased housing, to new construction. (This
latter point may be a factor in the somewhat higher annual per
unit subsidy costs reported for the rent supplement program. 3/)
From the standpoint of rural areas and small towns, rent supple-
ments have a special disadvantage; they are limited to housing in-
sured by FHA, FmHA having no comparable authority to subsidize rental
housing for low-income families. V Thus, although rent supplements
are less concentrated in metropolitan areas than the Sec. 236 pro-
gram, we estimate that more than 61% of all rent supplement units
are to be found in such areas. Regional disparities are substantial
also, since five states account for nearly 40% of all rent supple-
ment units. 5/

T7 See, for example. Rural Housing Alliance, FmHA's Interest
Credit Program; The First Two Years, especially p. 6.

2/ Ironically, it was initially proposed by the Administration as
a moderate-income program.
ZJ See Dolbeare, op.cit.

V The only FmHA program with a deep subsidy is its small farm
labor housing program; and even here, only 90% of capital costs can
be covered — less than in public housing or rent supplements. For

a discussion of the special housing needs of farm labor and of
program recommendations, see Lee Reno, Pieces and Scraps.

V See "The Geography of Rent Supplements," Low-Income Housing
Bulletin, November 1972, p. 2. The five states are California,
Florida, New York, Ohio, and Texas.

99-855 O - 73 - pt. 1 -- 19

276

To summarize, Federal intervention in housing has been
largely indirect and largely for the benefit of upper income
groups, with tax subsidies accounting for two-thirds of all sub-
sidy costs (and this fails to count the cost of tax-exempt inter-
est on public housing bonds) . Benefits from the direct subsidies
are, according to one analysis, \J about evenly split between low-
income and moderate-income groups, though the latter accounts for
a rapidly increasing share. Most intervention, both direct and
indirect, has sought to expand the operations of the private sec-
tor (a reflection of our basic — if unconscious — reliance on
the filtering mechanism to serve the poor) . They have therefore
failed to adequately offset the deficiencies of that sector, and
instead have perpetuated (possibly even intensified) patterns of
geographic distortions such as that between rural and small town
areas and metropolitan America, while doing little to eliminate
patterns of racial discrimination. If the failure of housing
programs to serve more fully those most in need is really a matter
of concern to this Administration, they would do better to take a
hard look at the indirect assistance mechanisms than to terminate
the direct ones. Reform of the tax subsidies could, just inci-
dentally, provide a substantial portion of the revenues needed to
expand the direct assistance programs which, though certainly cap-
able of improvement, remain far more related to housing needs
than do the indirect interventions.

V Henry Aaron, "Federal Housing Subsidies," The Economics of
Federal Subsidy Programs, Part 5 - Housing Subsidies, Tables
3-5.

277

Proposed Alternative Forms of Intervention

We have discussed major shortcomings of past programs.
What about the alternatives being proposed?

Housing Allowances

One of those being given the greatest consideration
is the housing allowance. It is often contrasted with the current
"production-oriented" programs as if it would be self-operating
and thereby free of corruption and scandal. But, as one commen-
tator puts it: "If swindlers have so readily exploited a pro-
gram based on the government's mere agreement to underwrite the
credit of the poor, who can doubt that they will be quick to
exploit a program that puts cash right into the hands of the
poor?" 1/ Though designed to bridge the income/cost gap, it
ignores the other purposes of intervention. By leaving all
major decisions to the market mechanism, it will not only mean
that, in the absence of supply intervention as well, costs are
likely to go up unchecked, but gives no assurance of geographical
or racial equity. 2_/

We note that the current experiments to test the
housing allowance exhibit no evidence of concern about the special
problems of small towns and rural areas — most notably their
lack of an adequate delivery system to provide the housing which
the allowance will theoretically purchase. 3/

Expanded Tax Shelters

Enamored of the reduction in budgetary outlays, a
number of people are suggesting more use of the indirect subsi-
dies available through the tax structure. As is surely clear by

V Joseph Fried, "Housing Allowance: The New Panacea," The
Nation, March 5, 1973. Only the roles need change: builder
to landlord, fee appraiser to building inspector, etc.

2/ It suggests the image of Uncle Sam saying to Black households;
"Here's a few bucks. Now you go integrate the suburbs."

V Only one of the tests designed to monitor various administra-
tive mechanisms appears to have any rural aspect.

278

now, we regard that as a call for more of the worst features
of the present system. Open subsidies are far easier than
hidden subsidies to direct at specific objectives, and to
evaluate in terms of their cost-effectiveness.

Trailers

The continuing boom in "mobile homes" \/ is leading
an increasing number of people to suggest them as the answer
to low-income housing needs. This is, in fact, a variant of
the search for a technological "holy grail" — but combined
with an unspoken willingness to lower the definition of a
"decent home." It is our contention that mobile homes are
not significantly cheaper than conventional housing in terms
of space afforded; and that much of the differential is ex-
plained in terms of less quality. 2/ When one includes the
higher costs of financing, the costs of site rental, and the
depreciation factor, the mobile home becomes even less of a
comparative bargain. The degree to which mobiles now dominate
the market in housing selling for less than $15,000 is testi-
mony primarily to the general abandonment of that market by
the conventional housing industry. 2/ There may be a need for
intervention to assure production of decent housing at the
lower-end of the market. If so, however, let us establish
the Minimum Property Standards that should govern and then the
mobile home industry, or any other technological approach, can
compete on the basis of those standards. Otherwise, mobile
homes remain not an alternative resource but a substitute for
decent housing.

Block Grants

Proposals for some sort of "housing revenue sharing"
are difficult to deal with in the absence of more specific de-
tail. While the idea of strengthening the ability of local
agencies to respond to housing need is appealing and the use
of some sort of a rational formula for the distribution of
resources according to need might aid in offsetting the current

\/ We are tempted to argue that the old name is superior since,
in our view, they are neither "mobile" nor "homes" but
rather a "trailer" to an inadequate public policy on housing.

2/ See Richard Margolis, Mobile homes and the Rural Poor: An
Alternative Non-Solution, and OEO and Rural Housing, pp.
194 - 201.

2/ See "It's Time to Take tlie Low-Price Market Back from the
Mobiles," House and Home , April 1971.

279

inequities of geography, it is clear that the Federal govern-
ment must do substantially more than mail out the money. If
our experience in the search for equality of educational oppor-
tunity have taught us anything, it is that national concerns
are not safely left to the will of local government. And, as
we have argued earlier in this paper, institutional inade-
quacies at the local level are a part of the housing problem.

I

I

280

CONCLUSIONS AND RECOMMENDATIONS

Introductory Notes

1. Rural Housing Defined — The term "rural housing",
herein, is intended to refer to housing for people in towns

of 25,000 population and below, including strictly rural
areas. This general definition results from our experience
in research on housing programs, including the frank admission
of the HUD/USDA Task Force in October, 1969, that by and large
HUD programs did not serve the residents of such areas.

2. Role of Private Market — The private market in
housing includes a complex array of agencies and functions
ranging from the real estate speculator through the land de-
veloper to suppliers, to contractors, realtors and money lend-
ers of all varieties. We believe in facilitating the opera-
tions of the private market to enable it to serve as many peo-
ple as it can serve with decent housing, e.g., FHA and FNMA,
GNMA. But we insist that some of the confusion over housing
need and housing s\±isidy be cleared away. The most "social-
ist" housing program, public housing, still relies on the pri-
vate market for land acquisition, architects, materials, con-
struction, and sometimes maintenance, garbage removal and
other services. We consider such practices given. But when
the government undertakes to meet housing needs by subsidy,
this is an assertion by action that the private market cannot
serve part of the people. At this point, we insist that equity
to the taxpayer and the persons needing housing take total
precedence over the private business community insofar as there
is a conflict of interest. For example, it is vastly more ex-
pensive to subsidize interest payments to private lenders than
it is for the government to lend tax revenues or borrow and
lend to the housing agency or family. We insist that equity
requires the government to act on behalf of the taxpayers, not
the mortgage banker.

Basic Principles

1. Housing People Is Expensive — This nation, par-
ticularly the Presxdent and the Congress, should face up to
the fact that there is no costless way to solve the housing
problem. That nauseously repeated goal of the Housing Act of
1949, nearly 25 years later, smells to high heaven and affects
socially sensitive people like a rusty blade cutting living
flesh.

281

To talk, as Secretary Romney did last fall,l/ about
"programs that will simultaneously meet the housing needs of
all, especially the poor" while having a "low annual Federal
budget impact, present and future," borders on charlatanism.
If we are truly serious about providing decent housing to all
at a reasonable share of income, we will either have to redis-
tribute income in a major way 1/ or prepare to provide $7 to
$10 billion a year in subsidies. 3/ In a full-employment econ-
omy with a tax structure more attuned to ability to pay, this
would not be an unbearable burden by any manner of means . 4/
If our real intent is less than our rhetorical flourish, the
price is still substantial. We would guess that merely pro-
viding adequate housing for all those in towns of less than
25,000 population who are currently living in units which lack
plumbing, are severely overcrowded, or both, would require a
capital investment in the neighborhood of $20 billion {up to
half of which may be recoverable) , plus continuing annual sub-
sidies of $1 or $ 2 billion. This is far less than we are used
to paying for the space program, and much of it could be re-
captured by the tax reforms we and others have urged.

2. Citizens' Rights Are National — Where local or
state governments fail to act, the Federal government must
intervene, both to provide housing and to protect civil rights.
It is no accident that the housing conditions of rural Blacks
and other minority Americans are shockingly worse than those
of whites: It is the direct result of centuries of discrim-
ination. We call for an end to Federal laws and policies, in-
cluding local government approvals of subsidized housing,
which allow unresponsive state or local governments to inter-
pose their powers to block residents of their areas from re-
ceiving the benefits of Federal programs. Need, not the ini-
tiative or acquiescence of local government, should be the pri-
mary consideration in the distribution of housing subsidies.
The Federal government must have and use the power to override

"1/ In his speech to the Mortgage Bankers Association.

2/ Hardly an immediate prospect.

V See Cochran and Rucker, op. cit. , pp. 539-40. Estimates
of similar magnitude were arrived at by far more sophisticated
methods by the Urban Institute. See Frank de Leeuw, "The
Housing Allowance Approach," in the same compendium, pp. 541 ff.

£/ See Leon Keyserling, The Coming Crisis in Housing.

282

local government and assxime control where discrimination on the
basis of income or race can be demonstrated or where it can be
demonstrated that local entities are not meeting housing needs.
If a citizen can be taxes, policed, and drafted into the mili-
tary, those responsibilities and duties must be balanced by
equivalent rights to food and security and shelter. 1/

3. Reliance on Tax Gimmicks Is Undesirable — Utili-
zation of tax gimmicks, like limited dividend corporations, ac-
celerated amortization and other devices is inefficient and
wasteful, tends to be inequitable and misses the goal of meet-
ing the need. The results are difficult to measure and the
distribution of benefits haphazard and nearly impossible to
police.

4. Federal Responsibility and Funding Should Be
Joined With Maximvim State and Local and Citizen Participation —
We believe the basic initiative and funds for solving the hous-
ing problem must come from the Federal government, but states
and local governments should be given maximum opportunity for
participation, which is not the same as sabotage, road block-
ing, or the imposition of racially discriminatory patterns.
Equally important is participation by consumers present and
potential.

5. Counselling Housing Consumers — Counselling serv-
ices should be tied as closely to existing housing or housing
credit as possible. For example, FmHA has demonstrated (with
regrettable exceptions) that the most workable and responsible
means of providing credit and counselling is through a Federal
official, located at the local level and responsible for both
coianselling and credit. FHA/HUD, on the contrary, has tended
to counsel only the processors of consumers. The contrast is
of the utmost significance.

Recommendations for Reordering Federal Housing Policy

We are convinced that no amount of "tinkering" with
the present housing system or programs will be truly effective
in providing adequate housing alternatives for the submerged
third to half of the nation's poor. To accomplish that, major
reforms, will have to be made in Federal housing policy — re-
forms which effectively challenge the prevailing mythology and

1/ "A Legal Right To A Home...", Resolutions of the Second Na-
tional Rural Housing Conference, November 30, 1972, page 5, No. 8.

283

and misconceptions to which Federal housing activity has been
tied. We have sximmarized below a few of the more fundamental
changes which appear to be essential to a meaningful attack
on the problem of indecent rural housing.

1. Comprehensive National Housing Program — We urge
the establishment of a comprehensive national housing program
which equitably serves the full range of housing needs and
which does not leave the national purpose at the mercy of local
will or capacity, or private initiative or interests. The pres-
ent patchwork of Federal housing assistance programs reflects
our failure to establish a comprehensive program, and results
in the neglect of millions of American families, and the enrich-
ment of a few private interests at an unnecessary high pxoblic
cost. The primary purpose of Federal policy should be to pro-
vice adequate housing assistance for all who cannot obtain safe
and decent housing through the private market at a reasonable
portion of their income.

2 . Department of Rural Affairs — We urge the crea-
tion of a Department of Rural Affairs, a~~new Federal depart-
ment with responsibility for meeting rural needs, including
housing, commiinity facilities, food and nutrition, health, and
other services. The new structure should be dominated neither
by the agri-business interests of the Department of Agriculture
nor by the metropolitan/real estate/banker/builder interests

of the Department of Housing and Urban Development. We are op-
posed to the transfer of any rural housing responsibilities
from the Farmers Home Administration to some new, super-HUD. 1^/

3. Emergency Rural Housing Administration--As an in-
terim measure, we urge the creation of an Emergency Rural Hous-
ing Administration with the purpose of providing minimum ade-
quate housing, clean water, and sanitary facilities to the
worst-housed of the nation's rural areas, and to do so within

a five-year period. The agency would be directed to ascertain
the need for such housing in all areas with a population of
25,000 or less, to mobilize the resources of other agencies in
developing a five-year plan for meeting those needs, and to act
directly to insure that those people not being served by other
agencies and programs are, in fact, served. 2^/

1/ Consider the public outcry that would greet a proposal to
shift all existing HUD housing programs to the Department of
Agriculture.

2/ See Statement of Clay Cochran, National Rural Housing Coali-
tion before Senate Select Committee on Nutrition and Human Needs,
October 7, 1970. A simmiary of the statement appears in Archi-
tectural Forum. March 19 71.

284

4. Rural Housing Development Bank — We urge the es-
tablishment of a Rural Housing Development Bank as ^ central,
public financing institution for rural housing and community
facilities. The bank would be established by means of direct
borrowing from the Treasury, with the funds to be used for
the acquisition of land and construction of housing for all
lower income people living in rural areas .

5. Federal Capital Budget — Much of the waste and
nonsense in Federal credit agencies derives from the system of
superstition surrounding the Federal budget. We need a "truth
in accounting" law for the Federal government, a capital bud-
get that requires and permits a distinction between public ex-
penditures for wealth producing things like housing and the
cost of body servants for the military "brass", currently cost-
ing $22 million a year, 19 percent of the cost of administering
the total FmHA program.

6 . Financing and Subsidy Arrangements — We urge the
adoption of adequate finance and subsidy arrangements designed
to bring decent housing within the means of everyone, with a
choice of location and tenure. In order to satisfactorily meet
the needs of lowest income families, adequate subsidies will

be required to cover the following costs: (1) the cost of new
or rebuilt housing; (2) the cost of adequate maintenance or re-
habilitation of existing housing; (3) operating costs, includ-
ing insurance and utilities; and (4) taxes.

We further urge the use of capital subsidies to pro-
vide genuine opportunities for homeownership. We recommend
that this be done through enactment of a loan program which
would allow that up to 50 percent of a loan be made as interest-
free, nonamortized second trust, on which no payments would be
made before retirement of an interest-bearing, amortized first
trust.

7 . Local Housing Delivery System — We urge the crea-
tion of an effective new housing delivery system responsive to
local needs. We suggest that the successful rural electrifi-
cation program provides a useful model. Local rural housing
associations, chartered under state law but serving as dele-
gates of a Federal program could serve to decentralize the ba-
sic administration of that program. Like the rural electric
cooperatives, they should be controlled by those they serve —
who, after all, have the most direct interest in effective im-
plementation of the housing program. These local agencies

285

should also be required to enter into area responsibility agree-
ments, so as to assure geographic and racial equity of service
and to assure satisfaction of the national concern in meeting
the housing needs of "every American family."

The rural electrification program was established
to fill a gap left by the private sector — to offset an obvious
deficiency in the market mechanism. It did so by utilizing
the initiative of those must directly affected, the rural peo-
ple who were in that gap. The Federal government provided them
with the necessary resources, in the form of credit and techni-
cal supervision, and it required as a condition of those re-
sources that the cooperatives operate as responsibly as if they
were true public bodies. Rural housing need reflects an obvious
deficiency in the market mechanism. The logic of again tapping
the initiative of those most directly affected seems to us com-
pelling. The wisdom of again combining substantial Federal re-
sources with the requirement to act responsibly seems to us ap-
pealing. It also offers the possibility of a housing assistance
mechanism which can be fully responsive to local needs and de-
sires without abandoning the national concern for decent housing
to local will and capability.

RECOMMENDATIONS FOR IMPROVING RURAL HOUSING PROGRAMS

In the absence of fundamental alterations in our
national housing policy, changes in existing housing programs
need to be made which will expand the delivery of decent hous-
ing to rural people. The following recommendations point to
immediate steps, both administrative and legislative, that can
and should be taken to expand and improve assistance available
under the present system. They are by no means a solution to
the rural housing crisis, and should not deter us from efforts
to fundamentally reorder national housing policy, but their
cumulative impact would improve opportunities for a signifi-
cantly greater number of lower income rural people to be served.

286

1. End Moratorium; The freeze which has been
imposed on existing housing and community facilities programs
administered by both the Farmers Home Administration and HUD
should be lifted immediately. We also urge the release of all
housing funds impounded by the Administration. The housing
moratorium declared earlier this year should be immediately
reversed, since it seriously discriminates against both low
income and rural people.

2. National Housing Goals: We recommend that the
national housing goal for the decade of the 1970 's be at least
30 million additional adequate units, and that at least 10
million of those units be for rural and small town communities.
At least 13 million units built during the decade will require
Federal assistance, with a minimum of 5 million assisted units

in non-metropolitan areas. Additionally, in meeting these goals,
trailers should not be substituted for adequate homes suitable
to the needs of families.

3. Rural Housing Goals; A legislative goal of at
least 350,000 housing units per year should be established for
the Farmers Home Administration. At the present time, FmHA
makes housing loans for approximately 115,000 rural households
annually. Congress should establish a $6 billion level for
FmHA insured housing loans for the next fiscal year.

4. Rural Housing Appropriations; We urge full
funding for all housing programs which might serve low income
people which are currently authorized, and urge upon the Presi-
dent the importance of spending the funds available for community
facilities and housing.

5. Increasing FmHA Personnel; Present FmHA staff
resources are clearly inadequate to cope with the existing
housing need in rural areas. Over the past decade. Farmers
Home's program responsibilities have been increased manifold,
but the agency has been deprived of adequate personnel with
whi di to administer its housing programs. Furthermore, the
existing staff is not depJoyed on a basis consistent with
rural housing need. We recommend, therefore, that Farmers
Home's administrative funds be increased from $113 million

in the present fiscal year, to at least $183 million initially
requested by the agency, and that FmHA be directed to allocate
the new staff resources on a proportional basis corresponding
with rural housing need.

287

6. Expanding FmHA Service Area; The Farmers Home
Administration is currently restricted to operating in towns
and communities with a population of 10,000 or less. It is
common knowledge that HUD programs are geared to the presumed
needs of metropolitan areas, and that the agency's record of
housing delivery in towns below 25,000 has been poor. Con-
sequently, we recommend appropriate changes in Title V of the
Housing Act of 19 49, extending Farmers Home's authority to
make loans and grants in towns of up to 25,000 population.

7. HUD and Rural Housing: In view of the recog-
nized breakdown in the delivery system of certain HUD programs
in rural areas, ways should be sought to expand HUD ' s housing
assistance efforts in non-metropolitan communities. At a
minimum, an Assistant Secretary should be appointed to oversee
the agency's rural housing activities, and specific goals for
each HUD-assisted program should be established annually to
insure a more equitable distribution of services.

8. Expand Subsidy Mechanisms: Farmers Home loan
programs under Sections 502, 504, and 515 are limited in
their subsidy provisions to reducing the effective interest
rate to as low as one percent. Without deeper subsidy pro-
visions, the capacity of these programs to reach low income
families is extremely limited. We recommend appropriate
changes in FmHA's authority under Title V, broadening and
deepening the subsidy mechanisms to include provision for
the deferred payment of up to 50 percent of the principal
for Section 502 and 515 loans, and up to 90 percent for
loans under Section 504. The deferred principal would be non-
interest bearing and non-amortizable for a certain period of
time. In addition, rent supplement assistance should be made
available for all rental, farm labor, and cooperative housing
units financed by FmHA, to cover part or all of the operating
and maintenance costs.

9. Community Facilities: In view of the absence
of adequate community facilities in many small towns and rural
areas, FmHA's authorization for annual appropriations for
development and planning grants for rural water and sewer
systems should be raised from $115 million to at least $230
million. Additionally, all funds appropriated for these pur-
poses should be released by the Administration and utilized
by Farmers Home. It has been estimated recently that over
55,000 rural communities lack minimally acceptable water and/
or sewage facilities, and their absence serves as a major block
to the provision of decent housing for rural poor people.

288

10. Public Housing; The public housing program,
as the only major Federal housing program with sufficient sub-
sidies to reach the lowest income families, should be provided
with funds of a magnitude commensurate with the real require-
ments of rural people. We further urge the Administration

to release all public housing funds currently appropriated.
Our estimates call for the annual production of at least
150,000 units of public housing in rural areas alone, assuming
that FmHA receives adequate subsidies to meet an equivalent
amount of the low income housing need. Additionally, all
public housing legislation should be amended to permit nonprofit
housing development organizatins or cooperatives to borrow funds
and receive subsidies under the same terms as are available to
public housing authorities. Such an alternative to existing
public housing arrangements is considered necessary in view of
the acknowledged failure of many rural communities to assume
responsibility for the development and expansion of the public
housing program.

11. Home Repair Program; Currently, Farmers Home
has authority under Section 504 to make loans and grants up to
$3,500, for the purpose of making modest home repairs. Present
legislative language limits the interest rate on the loan portion
of the program to one percent, and administratively FmHA has
limited the loan repayment period to 10 years. Except for a
brief period during the 1960 's, FmHA has been prohibited by

the Appropriations Committee from expending authorized personnel
funds to administer the grant portion of the Section 504 program.
We suggest the following changes; (1) that Section 504 be
amended to provide for a maximum grant and loan combination of
at least $4,000; (2) that the loan repayment period be extended
up to 20 years, and (3) that the Appropriations Committee eli-
minate the prohibition on implementing the grant program.

12. Rural Rental and Cooperative Housing: We recommend
that the Rent Supplement program be extended to programs which

are financed directly by FmHA, and that sufficient rent supple-
ment funds be made available in view of the existing need.
Additionally, there is a need for a thorough examination of
Farmers Home's administrative policies and practices with regard
to the rental program.

For example, we find that Farmers Home is currently
requiring rental housing sponsors to put up 2% of the project
funds in advance as start up money. The agency has ruled that
these funds cannot be provided for out of the mortgage. For
all practical purposes, this prohibition will eliminate community
based nonprofit groups from rental sponsorship. Administrative

289

or, if necessary, legislative relief is required to insure
that HDCs can effectively sponsor or develop such projects.
Additionally, as documented in a recent study by the Rural
Housing Alliance, there appears to be serious variations
between the way FmHA administers the rental program in
different states. In Wisconsin, for example, most of the
rental housing funds go to profit making sponsors, and the
interest subsidy provisions have barely been utilized. In
Missouri, on the other hand, nonprofit sponsors have been
able to utilize the program and reach considerably lower
income families through the much more liberal use of in-
terest credits. Individual state offices of Farmers Home
should be forced to administer the rental and other pro-
grams in a consistent and uniform manner, making full use
of subsidies under the law. 1/

(continued on next page)

1/ See RHA publication. Three Studies in Rural Rental Housing.

290

13. Permanent Funding for HDCs; At the present time,

HUD is autnorizea unaer section 1U6 (a) of the 1968 Housing Act
to provide grants to cover the operating costs of nonprofit
housing development corporations. However, only $1 million a
year has been made available to the agency for those purposes,
and HUD has perverted the act by arbitrarily limiting grants
to groups engaged in self-help housing activities or to those
providing technical assistance and support to local, nonprofit
sponsors. Except for grants to self-help sponsoring organizations,
Farmers Home does not have grant funds with which to support
HDCs. We recommend the following changes: (1) that at least
$10 million to be made available to HUD to carry out the Section
106 (a) program, to be increased as fundable requests are sub-
mitted; (2) that HUD be instructed to make grant funds available
to both organizations working directly with low income families and
those providing technical assistance to others; and (3) that Farmers
Home be authorized to make grants to public and private nonprofit
organizations providing housing assistance to low income families
under any Federal state, or local housing program in rural areas,
comparable to Section 106 (a) authority.

14. Seed Loan Funds; Farmers Home should be authorized to
make interest-free loans to nonprofit organizations for necessary
expenses prior to construction, with the funds to be repaid from
permanent project financing. This would be comparable to the
existing HUD Section 106(b) program. At present. Farmers Home's
site development program permits loans at 7 1/4 percent interest
to nonprofit sponsors, but limited to the acquisition and develop-
ment of land.

15. FmHA County Committee; Currently, three-man County
Committees, usually consisting of farmers, are employed by a
majority of FmHA County Supervisors to review loan applications
and determine applicant eligibility. There is ample evidence
that the use of the committee system is an unnecessary element
in the housing process, and is actually a constraint. We know,
for example, that it permits farmers to block loans to farm
workers; it causes delay; and it enables some County Supervisors
to play a sleight of hand game when reviewing lower income ap-
plicants .

We recommend an appropriate amendment to Title V, restricting the
use of county committees to determining the eligibility and amount
of loans of applicants for farm ownership loans or other loans
dealing with farming operations.!/

\J The Congress has already made the use of Credit Committees on
housing discretionary with the Secretary of U.s.D.A. who has now
delegated the discretion to State FmHA directors.

291

16. National Homestead Exemption; We urge Federal govern-
ment action to secure tax exemption for all homes with a modest
market value. Locally imposed property taxes on modest homes
are regressive and should be reduced or eliminated. Such taxes
are frequently a burden to low income families and a barrier

to home ownership.

17. Land Title Insurance; Frequently, rural families are
unable to obtain title insurance on land they own or are proposing
to acquire because of remote outstanding claims or incumberances
on title. Since Farmers Home currently requires that the title

of all land to be used as collateral for FmHA loans be insured
by a private title insurance company, many rural residents are
effectively excluded from receiving Federal housing assistance.
This is a particular problem in areas where land is hard to buy
because of racial prejudice. Sometimes, the only land available
is in the hands of minority families with shaky titles. As one
approach to the problem, we recommend that the Secretary of
Agriculture be authorized to insure titles to land using funds
from the Rural Housing Insurance fund.

18. Discrimination Against Farm Workers; We insist that
Farmers Home immediately abandon all attempts to establish quotas
on the number of farm workers served by self-help organizations
utilizing Section 523 grant funds. Farmers Home has attempted to
restrict the number of farm workers served by self-help sponsors
using 523 technical assistance funds.

19. Appeal Procedures; We note that existing Farmers

Home regulations have been improved recently, but we urge inclusion

of language under Title V, requiring the Secretary of Agriculture

to establish a system of appeals whereby an applicant denied assis-
tance would be affcJrded a due process hearing.

20. Escrow Accounts: We find that under existing FmHA
authorities, the agency cannot collect payments for taxes and
insurance along with monthly mortgage payments from borrowers.
This works a particularly severe hardship on lower income families
who are forced to make annual or semi-annual payments directly

to taxing authorities, and discriminates against rural people
since borrowers under FHA administered programs are able to con-
solidate monthly payments. We recommend changes in Title V to
require the Secretary of Agriculture to establish a system of
escrow accounts whereby borrowers may make periodic payments
for the purposes of taxes, insurance, and other necessary expenses.

21. Loan Defaults; We find that Farmers Home's present
loan servicing procedures and practices do not include adequate
provisions for informing borrowers when loan payments are overdue.
As a result, many families are not aware of the seriousness of

99-855 O - 73 - pt. 1 -- 20

292

of the situation until they are hopelessly behind in their
payments. We advocate both administrative legislative
remedies which will require Farmers Home to notify borrowers
in writing when their loan payments are overdue. This service
can readily be combined with the record keeping required for
the escrowing of accounts described above.

22. Eligibility Determination; We find that in deter-
mining eligibility for loans under Section 502, Farmers Home
frequently discriminates as to the source of a family's income,
with welfare income often considered unreliable for purposes
of loan repayment. Additionally, we find that a family's re-
payment ability is generally determined only after making allow-
ances for other living expenses. We recommend changes in Section
502 regulations to insure that an applicant's eligibility be
determined solely on the basis of income derived from any

legal source, and that FmHA be instructed to eliminate the
practice of viewing of a low income person's housing need as a
residum.

23. Rural Housing Research; FmHA should be provided with
funds for research involving problems which hamper or restrict
housing development and delivery in rural areas. An example is
the lack of small scale waste disposal facilities. Research needs
to be undertaken in this and other areas, and FmHA should be
authorized to contract with public and private organizations for
such purposes.

24. Standardizing FmHA Procedures; We believe that Farmers
Home should standardize its regulations and procedures. Operating
procedures frequently vary from county to county and from state

to state, making it difficult for housing development organizations
to work effectively with FmHA.

*******

293
Colorado Housing, Inc.

1540 Vine St.

Denver, Colo. 80206 ■» "E mm^ ^ (303) 321 -7260

STATEMENT OF DAVID W. HERLINGER, EXECUTIVE DIRECTOR
COLORADO HOUSING, INC.

SENATE HOUSING SUBCOMMITTEE
July 17, 1973

Mr. Chairman and Members of the Committee:

I appreciate this opportunity to comment on proposed housing
legislation, and I am particularly interested in the rural aspects
of any proposed legislation.

Colorado Housing, Inc. is a statewide rural Housing Develop-
ment Corporation funded by OEO and has been in existence for nearly
two years. We have a staff of eight people, and a board of fifteen
members. We provide technical assistance, including seed money,
to local elected officials, local housing authorities, potential
nonprofit sponsors, builders and others.

During this two-year period we have aided in the creation
of some 37 Local Housing Authorities, construction or fiinding of
1400 units of housing for low- income people. Despite this, the
rural areas of Colorado today require an additional 30,000 units of
housing for low- income elderly and families, according to a recent

294

study completed by the Colorado Division of Housing. Rural
Colorado with some 21% of the state's population has 37.51 of the
state's substandard housing. We have used Department of Housing
and Urban Development, Federal Housing Administration and Farmers
Home Administration programs. Presently in Colorado, there are
55 Local Housing Authorities, with 44 of them being rural in
nature. Of these 44, 26 are not funded for several reasons; among
these are of course, the President's housing moratorium and HUD's
orientation to urban housing problems.

Prior to two years ago, HUD's ftmding of Local Housing
Authorities (public housing) in Colorado consisted of Denver and
Pueblo for a total of approximately 4000 units, while six smaller
communities received only 250 units. Funding was mainly a matter
of larger communities being able to hire staff who could deal
with HUD and fill out the necessary papers. Colorado Housing, Inc.
has attempted to fill the gap by providing skilled staff to local
communities at no charge to them.

In addition, HUD has resisted funding of LHAs in communities
with a proven need of less than 100 units. We have, to some extent,
responded to this problem by aiding in the formation of area wide
management cooperative agreements as our state enabling legislation,
does not allow area-wide local housing authorities. The only
housing programs directed to rural areas and small towns have
emanated from the Farmers Home Administration and of these, few
have reached low- income families. In our state, as an example.

295

the real estate property taxes on a home assessed at $16,000 are
$500 per year. Even with a loan of 1%, poor families are unable
to purchase a home.

Rural rental programs through Farmers Home have not carried
with them rent supplement payments and those units that have been
developed can be afforded only by moderate income families, those
with incomes over $6500 per year.

Because of HUD's orientation to urban areas, the Federal
Housing Administration's orientation to urban and suburban areas
and due to the inadequate programs administered by the Farmers
Home Administration, we feel it is necessary to create a separate,
independent Rural Housing Administration. This administration
should include at least the following:

1. A statewide or regional delivery system which is
public in nature and thus answerable to the electorate
and elected officials. This type of system, based

on our experience, can provide immeasurable aid to
local groups of citizens and elected officials, given
adequate ongoing funding for capable staff and pro-
gram development.

2. Comprehensive community development powers which
would include adequate grant and low interest loan
funds for sewer, water, planning, open space, as
well as housing.

3. The ability to provide deeper and more flexible
subsidies, including grants and more creative ways
in which to finance housing. Existing federal

296

housing programs respond to an individiial's ability
to pay, not his need for housing. Most "housing
poor" families cannot qualify for federally sub-
sidized housing under the Federal Housing Admini-
stration or the Farmers Home Administration pro-
grams. As an example of expanded opportunities via
grants, the State of Colorado has provided the
Colorado Division of Housing, with which we work
very closely, $250,000 for grants to be used in
Farm Labor Housing programs. Using Farmers Home
Administration programs and private funds, there are
now nearly 800 units of Farm Labor Housing being
lived in or under construction. In most instances
a grant from the state has made these programs eco-
nomically feasible. The grants have had a lever-
aging effect of 15-1. $250,000 has generated nearly
$4,000,000 in construction and rehabilitation.

4. A Rural Housing Administration should have the authority
to fvind Local Housing Authorities and other broad-
based, consumer-oriented housing producers.

5. Rent supplement payments should be made available to
rural communities through nonprofit organizations and
LHAs; presently, these payments are available only
through the Federal Housing Administration which is
almost totally urban and suburban oriented.

297

6. Have the ability to c^ontract for services to
proven, capable organizations already in exist-
ence in given states and regions.

The present housing moratorium, which will apparently last
for a total of 18 months is drastically effecting both the rural
and urban areas of Colorado. Since no subsidized housing can be
produced, small towns and rural areas have great difficulty in
attracting new industries, and because there are no available jobs,
the poor and imskilled migrate to the urban centers, compounding
not just the housing problem but the ability of the schools, public
services, health and welfare institutions to function effectively!
as well. Today, in Denver, Pueblo and Colorado Springs, there are
literally thousands of families who would like to move to the
Arkansas Valley, San Luis Valley and other rural areas but who are
unable to do so because of non-existent or inadequate housing re-
sources. The problem is circular in nature and must be dealt with
in a comprehensive manner.

The decline of rural America and the dilemma of urban decay
are closely related. The manner in which institutions have been
developed and funded by the federal government has forced rural
residents into the midst of a strange and decaying urban environ-
ment. The future magnitude of urban problems, including housing,
is dependent to a great extent upon the responsiveness of federal
policy in rural America.

298

I urge that the Committee act positively upon legislation
which will create permanent institutional frameworks to deliver
housing and related services for the rural poor; to provide ade-
quate funds for public housing; deeper and more flexible sub-
sidies, including grants, for new construction and rehabilitation
in both rentals and homeownership.

Only in this way, will we begin to balance the historic
inequities which have deprived rural America, and more particu-
larly, the rural poor, of their rightful share of the American
dream.

299

REMARKS OF JOHN W. BIASUCCI
EXECUTIVE VICE PRESIDENT OF
THE WEST VIRGINIA HOUSING DEVELOPMENT FUND

BEFORE THE

SUBCOMMITTEE ON HOUSING AND URBAN AFFAIRS

OF THE

SENATE BANKING, HOUSING AND URBAN AFFAIRS COMMITTEE

July 17, 1973

300

Mr. Chairman, Members of the Committee, I am John Biasucci,
Executive Vice President of the West Virginia Housing Development Fund.

Let me first say I am pleased to have a few minutes to talk
with you about rural housing problems — and to express some of the
deep concerns that we in West Virginia have about these problems.

I hope to talk about four things this morning:

— the obstacles to meeting rural housing needs

— the applicability of existing federal housing programs

to rural areas

— some specific comments on last year's Omnibus Housing

Bill, Senate Bill 3248, and

— some more general observations about rural housing

and community development difficulties.

BACKGROUND — WEST VIRGINIA HOUSING DEVELOPMENT FUND

First, let me put the West Virginia Housing Development Fund,
the organization I represent, into context so that you can better understand
the background from which my comments have come, and better assess my biases.

The Housing Development Fund is the state housing finance agency
for West Virginia. It was created by statute in 1968, and presently has
approximately $26 million of housing completed or under construction, with

k

301

about $20 million more almost ready for construction or in active pre-
construction processing.

These are not large numbers by urban standards, perhaps, but
they are very large numbers by the standards of our state. Almost all
of this housing is 236 subsidized rental housing, all FHA-insured.

We have previously submitted to the staff of the Subcommittee
a paper that we prepared, entitled "Housing in the Non-Urban Setting: An
Initial Report on Problems and Programs." Much of what I have to say
this morning is said better and with more detail in that paper.

OBSTACLES TO MEETING RURAL HOUSING NEEDS

I don't plan to discuss in depth rural housing needs today. We
all know the severity of these needs and many others have laid bare to
all of you, I am sure, the ghastly statistics ... and the personal misery
that they quantify but can't begin to convey.

Rather, I want to start with a discussion of the obstacles to
meeting rural housing needs, as wc have come to know them in our work in
West Virginia.

West Virginia, by the way, is almost the most rural state in the
nation. By some standards it is the most rural state — with over 60%
of its citizens living outside of urban areas.

The barriers to development of new housing in non-urban areas

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are many. A principal one, of course, is the high cost of building.
Higher costs are understandable, since building at lower volume, necessary
in these areas, costs more. High transportation costs drive up materials
costs. And there is an overwhelming scarcity of the skilled workers
necessary for housing construction. In some areas there is more than

a scarcity, there are none.

•

. The high cost of land for housing is another major barrier.
This may surprise some, perhaps, who think of rural land as cheap. But
if you add the cost of land improvements to the raw cost of acreage,
the total cost of buildable land becomes extreme, at least in our state.
Heavy improvement costs are certainly the rule for us — long access roads;
cuts, fills and retaining walls; extensive outlays for sewer and water;
etc. Further, the cost of raw land itself is critically dependent on the
infrastructure, the sewer, water and other public facilities — or lack
thereof — needed to support housing. Where you can find buildable land
in rural areas that has such infrastructure, you pay dearly.

But beyond the lack of sewer, water and similar infrastructure,
rural areas critically lack what are often referred to as "residential
services" — the schools, stores, public transportation, health care
facilities — that are necessary to support housing. Lack of these resi-
dential services does more than drive up land costs in rural areas lucky
enough to have them. It makes impossible the provision of a suitable
living environment elsewhere, even if you can provide a dwelling structure.

This lack of residential services is, in turn, grounded on a
more fundamental lack: the lack of governmental institutions capable of

303

providing these facilities and services. The typical rural governing
body lacks the staff and resources to build or supply these facilities
or services in the first place, or to maintain them thereafter. These
bodies may even lack the ability to organize adequately to lobby and agitate
for a fair share of the grants and other assistance necessary to make
these facilities and services possible.

The non-urban area typically lacks as well what can be called a
"building industry." At best it may have a few small homebuilders, mostly
around the more urbanized areas; in some counties there are even none of
these. And the homebuilders themselves are caught in the cost spiral of
labor and materials. They are unable to do the development work — the
market studies, financial analyses, projections and "packaging" —
needed for anything but the simplest of projects. And, most are unfamiliar,
or suspicious, of governmental programs, and totally unable, financially,
to withstand the delays connected with government processing.

There is no housing management industry whatsoever in many rural
areas, to carry out the function of rental management that we are all at
last realizing is critical to the success of rental housing.

Rural areas lack as well an adequate credit industry, vital to
a healthy home construction industry. For example, savings and loan
associations are found in only 22 of West Virginia's 55 counties. Those,
banks that are in rural areas rarely lend for housing on terms other than
the most conservative.

304

Surprisingly enough, many of these rural banks, we have
found, are not capital short. On the contrary, many of them have
surplus capital — which they invest in government securities or
happily export, often out of state, to share in the more lucrative,
and perhaps safer, investment opportunities available in urban areas.

In addition to the foregoing types of barriers to housing
development, and as partial explanation of some of them, we can look
to demographic factors. Low population density, for example, causes
much of the trouble. The housing market is spread very thin. There
are few population clusters that can support rental housing of any
kind. Those that can, can support only the smallest of developments,
with the reverse economies of scale that that implies.

In addition to a sparse population — and in some of our
counties we have fewer than ten persons per square mile — the rural
population is often a declining one. In our state, population declined
13% overall between 1950 and 1970. A declining population does little
to encourage businessmen and investors to commit more to these areas.
This is especially true when the decline in population reflects mostly
the loss of working age groups. For it is mainly the old and the young
that are left behind — while West Virginia was losing 13% of its
population between 1950 and 1970, the number of persons over 65 within
the state increased 40%. Those left behind are the ones least capable
of overcoming the obstacles to rural housing problems, of bolstering
the needed industries or paying the taxes needed to support the necessary
community services.

305

The poverty In rural areas, of course, is the most fundamental
cause of all. And the extent of poverty is extreme. Our per capita
annual income in 1971, for example, was $3228 - 78% of the national
average. Even this figure is misleading as a measure for the rural
areas of our state, since it is a statewide statistic, and includes urban,
wealthier areas. Thus, by 1970 Census figures, 29 of our more rural
counties had per capita income of less than $2000 per year. And in one
of our southern coal counties, 45% of all households earned less than
$5000 per year.

If we turn to the existing housing stock in these areas, we
are not more encouraged. But it is precisely existing housing stock
that we must turn to when we talk of using rehabilitation programs,
leased public housing, and housing allowances. I won't go into the
gruesome statistics of how much substandard housing is in rural areas.
It is well known.

Almost as well known, I would hope, is that rural areas have
received less than their fair share of public housing. In West Virginia,
for instance, approximately 188,000 households qualify for public housing,
by income standards, yet only 8,000 public housing units exist in the
state. That is one for every 24 substandard units, versus a national
average of one to eight. Even this ratio is misleadingly favorable
because it includes the state's urban areas, which have a more favorable
ratio of public housing units to substandard units.

Lastly, in this catalogue of obstacles to rural housing

306

solutions, we must consider some of the cultural realities. Some might
call this cultural heritage, rather than barriers to meeting housing
needs. And with reason. For I think it understandable that so many rural
West Virginians are unwilling to give up their independence, to leave
their isolated hollows or mountain homes, to cluster into a garden apart-
ment or townhouse complex — much less a highrise — regardless of how
much more safe and s itary it is supposed to be.

Another cultural fact is that, traditionally, rural residents,

at least in our state, have paid far less than 25% of their meager incomes

for shelter. This is explainable on grounds other than mere preference.
For example, transportation ... the need for a car or pickup truck to

get to the doctor, or church or stores ... or the mine . . . has long had

to claim a larger share of income than is true for many of the urban poor.

APPLICABILITY OF EXISTING FEDERAL HOUSING PROGRAMS TO NON-URBAN AREAS

I think it relevant to the Subcommittee to examine how existing
federal housing programs have fared In meeting rural housing obstacles.

. The paper we have submitted, which I referred to earlier, goes
Into considerable detail about our experience at the West Virginia Housing
Development Fund in using these programs, particularly the Section 236
program.

Section 236 Program. Our agency has found the Section 236
program useful, and, I believe we have performed a valuable role in furthering

307

the use of the program in our state.

The drawback is — and it is a most crucial one — the program
has been workable only in the most urban areas of the state. It has done
nothing for the non-urban areas of this non-urban state. The reasons
are many.

•
It is virtually impossible, under the 236 program, to develop

less than 50 units feasibly. Yet a 50-unit apartment development is huge

for many of our small towns and villages, and out of the question, of

course, in open countryside.

The rent levels that result under the program, even though
heavily subsidized, are too high for the rural market. Even with the
subsidy, 236 generates some of the most expensive housing available. In
one of our projects, for example, basic rentals that average $125 per month
are higher than rents charged for over 96% of the existing rentals in the
entire community.

The higher rents result, in part, from the requirement of paying
prevailing wages. This requirement in fact, by itself, just about excludes
the use of 236 in rural areas, especially when combined with the market
rent comparability requirement. "Prevailing wages" inevitably turn out
not to be what truly prevail in the community — they in fact are generally
far higher (25% to 50% higher) than typical rates paid for residential
tradesmen. Small wonder that the projected market rents for proposed 236
housing built at such higher rates compare unfavorably with the comparable
market rents of conventional housing built at much lower rates.

99-855 O - 73 - pt. 1 -- 21

308

The strict application of urban oriented minimum property
standards to rural areas is another major criticism. I am not talking
about the health and safety features of these standards, though even
these far exceed local practice. But other features, such as minimum
room sizes, and mandated use of sidewalks, curbing and closed pipe
storm sewers, put 236 housing in 'a class all by itself in the rural
community — a 'class that is too expensive to be feasible, even with
the subsidy, in these areas. And there are other adverse results.
The requirement of using grade mark lumber, for example, means that, in
counties such as we have in our southern coal fields where there are many
independent sawmills producing good quality, but un-grademarked lumber,
independent mills are excluded from participating in supplying this
housing except by selling to large dealers who will do the grade marking,
with appropriate raise in prices.

My staff has estimated that the use of urban oriented minimum
property standards increases the costs of land development up to 40%,
and the costs of structures up to 10%, of what would be quite satisfactory
housing compared to conventional units currently being built in non-urban
areas .

I might remark parenthetically that the Farmers Home Administration,
for its programs, seems to apply minimum property standards in a more flexible
way to make them work better in the rural context.

Processing delays in the 236 program are well known, and I won't
dwell on them. To some extent they might be avoided, however, if the
processing system were modified so that all projects, regardless of merit.

309

are not treated basically the same, to allow for more expeditious
treatment to projects of higher quality, or which satisfy more urgent
needs .

More fundamentally, however, we object to the processing
system because it is purely reactive, purely dependent on what happens
to walk into tHe FHA door. Projects are built where developers find
it convenient to build them, not where they are most needed. There is
a drastic need for a way of setting priorities in the application of
these vital, expensive federal subsidies. Our major accomplishment
at the State Housing Fund, I believe, has been to start supplementing
FHA in this regard by improving the quality of 236 projects that are
proposed for the State, and causing them to be proposed in areas with
greater needs.

Section 235 Program. Similar comments could be made about
the Section 235 program. The processing delays, especially likely where
there is only one insuring office for the entire state, as in West Virginia,
so that builders and banks have a severe logistical problem in using the
program, and inappropriate minimum property standards, adversely affect
the use of 235 in West Virginia just as much or more than they affect the
use of 236. The net result is that very little 235 has ever been built
within our State.

Public Housing. The public housing program should be the
program most applicable for rural areas, because only public housing has
deep enough subsidies to reach the poor that are so prevalent in these areas.

310

But the program has not been adequately used, as I have mentioned earlier,
and as many have documented. The reasons are many, but include such
major difficulties as the lack of an adequate public and private delivery
system, reverse economies of scale, the problem of ownership and manage-
ment of small, scattered projects, and the intrinsic resistance in these

areas to rental housing.

«

. Farmers Home Programs . Significantly, our experience has been
limited mainly to the HUD-insured, subsidized programs because the Farmers
Home programs allow little or no involvement by a state agency such as
ours. Farmers Home is the direct lender, the underwriter, the processor,
the construction inspector, and the servicer. There is no role for us.
The only way we could involve ourselves would be to try to muscle in to
the system as a "packager" or technical advisor or consultant — something
we have not been encouraged to do, nor had the grant funds necessary to
support ourselves in doing.

Since our experience with Farmers Home programs has been indirect,
I won't dwell on them. Nevertheless, it's clear that many of them have
been less than successful in meeting the truly rural housing needs of our
state. For example, in 1972, only 93 home repair loans — the 504 program —
were made in the entire state. ' Only 36 of these were made in the 30 most
rural counties of the state. Also in 1972, of the less than 2200 Section 502
loans made in the state, only 161 were made in the ten most rural counties.
In some of our southern coal producing counties, where housing is desperately
needed, no 502 loans were made at all. And only three Section 515 rental
projects have ever been done in the state.

311

SPECIFIC RECOMMENDATIONS

Having described the extreme obstacles to meeting rural housing
needs, and the less than successful federal programs that have been applied
to them, the task in our view is to design a completely new set of federal
housing programs that will work better. Let me turn, then, to a few
specific commei\ts on last year's Omnibus Housing Bill (S . 3248), to see
what it did from the viewpoint of a non-urban state.

Chapter V, entitled "Rural Housing," does little. It mainly
makes a few modifications of the existing Farmers Home programs.

Chapter V of last year's House Bill (H.R. 16704) does a little
better. It incorporates most of the items from the Senate Bill, plus it
includes a few useful provisions, such as

— enlarging the FmHA rehabilitation, loan and grant program

— encouraging research and study of rural needs

— broadening the geographic areas for which FmHA programs
are available

— authorizing a new FmHA program of grants and contracts for
private and non-private organizations for technical and
supervisory assistance to aid low income rural families.

Beyond Chapter V of the Bill, however, changes should be made in
the other Chapters to reflect greater sensitivity to the particular ob-
stacles that exist for rural housing.

Here we can draw upon the experience we have had in West Virginia

312

with the shortcomings of the existing federal programs to the extent they
have been carried forward in the Bill. For example, at least in the case
of rural areas, we recommend increasing Rent Supplement above 20%, modifying
the applicable minimum property standards to be more in keeping with local
standards, and narrowing the application of the prevailing wage requirement.

Within the next several weeks, I hope to submit to the Subcommittee
a listing of the specific recommendations of this type, based on what we
believe to be proven as drawbacks in the predecessor programs, from our
rural bias.

More difficult to catalogue are specific suggestions not based
on criticisms of the old programs, but on new ideas to overcome rural
obstacles. We have a few preliminary ideas, such as:

- programs to encourage consolidation of housing authorities
in rural areas

- techniques to aid in aggregating rural rental markets

- methods to combine HUD processing of batches of small,
scattered projects

- extra allowances for the higher costs of' managing small,
scattered rental projects in rural areas, perhaps a
special operating subsidy

- funds to help write down the high cost of land, including
land development, in non-urban areas.

We could go on like this for a considerable time, and I hope
to be able to do so through detailed suggestions submitted later to the
Subcommittee or to the Subcommittee staff.

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GENERAL OBSERVATIONS

I would like to finish, however, with some more general
observations.

For whenever I leave the topic of specific recommendations

on housing programs for non-urban areas, I must confess to some deep

«

dissatisfaction with what I wind up saying — to a strong feeling that
the specifics don't begin to sketch out a solution to rural housing
needs that is likely to be successful. Something much more ambitious,
more drastic, seems essential.

What that drastic remedy is, I don't know, I regret to say.
All I can think through to are a few principles that appear to me to be
sound — and that must, in my opinion, shape any truly effective solution,
if there is one, to rural housing problems. I don't pretend that these
principles are brilliant insights, or original in any way. I can only
say that we, in our work in the hills of West Virginia, have come to feel
that they are true.

1. The probleiiE of housing in the rural setting cannot be solved in

Isolation. They must be handled together with problems of community
development.

You cannot build housing successfully without regard to water, sewer,
schools . . . the whole envelope of essentials and amenities that
support and surround the dwelling structure and which make it livable.
Even more fundamental, housing where there are no jobs to support

314

the Inhabitants is a waste. And most jobs, other than agricultural
ones, are in or near communities.

2. The private institutions necessary to deliver housing and
community development are largely missing in rural areas.

The building and financing industries needed for housing and community
development are either nonexistent or inadequate In rural areas, and
their counterparts in urban areas are either unable or unwilling to
serve the rural needs.

3. The public institutions necessary for housing delivery and community
development in non-urban areas are inadequate to the task.

The complexity and cost of providing the infrastructure and services
for modern living are too much for the local governmental structure
and resources of many rural places. Building, financing and main-
taining a water and sewer system to meet today's standards, or a
modern educational or public housing complex, all demand far more
money and skill than are usually available.

4. A political solution is needed to solve the immense problem of
deciding where public resoulrces and investment should be placed.

Unless everything requested by everybody everywhere is to be built .;.
every school, dam, hospital, civic center, industrial park . . . some-
body must decide who gets and who doesn't. Giving everyone just a
little will not work at all, especially in the rural areas, because
many won't receive enough to accomplish anything. Yet deciding

315

who gets and who doesn't, or devising a mechanism to do the deciding,
is a political problem of the first magnitude.

5. Clear guides for development and public investment are needed for
these decision-makers.

This is no more, or no less, than a national growth, or no-growth,

«
policy.

6. The programs, both for housing and for community development, that
are ultimately designed must be matched to, and capable of carrying
out, these growth or no-growth policies.

For example, a governmental subsidy program for new construction
(like the standard public housing program) , which is designed to
build structures that will last half a century, seems appropriate
perhaps for a growth area, where investment of public resources will
serve needs for years to come, but seems quite inappropriate for a
declining town that will all but disappear in a decade or two. For
that town, something other than new construction may be a far wiser
investment of public funds. Yet we have had far too few programs
that are not directed to new construction.

7 . This leads in the direction of the obvious need for far better
planning of governmental investment and development.

I share the skepticism of many that planning so often results in
nothing but plans. Nevertheless, more than just "production" is
needed. We have produced too much of what we don't want, and not

316

enough of what we need. The task is to combine the two effectively.

8. Lastly, the programs and the planning must also be sensitive to
the unique problems of the non-urban setting.

They must be sensitive to the obstacles that stand in the way of

meeting rural housing needs, which I described earlier. Indeed,

«
they must be aware of the realities of rural America.

Thank you for the opportunity of expressing these thoughts
to you today.

317

HOUSING IN THE NON-URBAN SETTING:
AN INITIAL REPORT ON PROBLEMS AKD PROGRAMS

TABLE OF CONTENTS

Page No.

I. Introauction to the Dilemma of Housing

in the Non-Urban Setting 1

II. Obstacles to Meeting Rural Housing Needs ... 4

- On the Demand Side 4

- On the Supply Side 6

III. Applicability of Existing Federal Programs

to Non-Urban Areas 11

- Section 236 11

- Section 235 16

- Public Housing 17

- FHA Conventional Mortgage Insurance Programs . 19

- Farmers Home Administration 20

- Land Development Programs 21

- Rehabilitation Programs 22

IV. Suggestions for Future Government Policies and

Piograms for Non-Urban Areas 24

318

I. INTRODUCTION TO THE DILEMMA OF HOUSING
IN THE NON-URBAN SETTING

Perhaps no other -aspect of the social and economic realities
of post World War II America has received as much attention as has
housing. Indeed, inquiry leads one to a truly amazing array of material
on housing, and housing-related matters, written by economists, policy- .
makers, and administrators. Equally amazing, however, relatively little
of this outpouring has been devoted to the non-urban, or rural, housing
situation, in spite of the fact that, in many ways, housing problems are
decidedly more severe in rural areas than in urban areas.

Although there was little doubt about it beforehand, the 1970
Census confirms that we are an urban nation: over 70% of the American
people live in urban areas. Conversely, one-half of all poor people
live in rural areas, and nearly two-thirds of all people inhabiting sub-
standard housing live in rural areas.

That being the case, it is perhaps only a slight oversimplifi-
cation to suggest that resources and attention have gone to where the
people are, rather than to where the problems are. That this imbalance
should exist is understandable: the urban disturbances of the 1960s
riveted attention on the cities, and gave rise to two landmark presidential
commissions (The President's Committee on Urban Housing, or Kaiser Committee;
and The National Commission on Urban Problems, or Douglas Commission),

319

both of which made greater attention to urban housing conditions a
focal point of their recommendations.

If the American political system functions as a melange of
interest groups competing for an ever greater share of attention and
limited resources, the rural poor suffer a distinct and perhaps in-
surmountable disadvantage: their dispersal and remoteness make it very
difficult for them to lobby in an effective way. That being the case,
and resources apparently becoming ever more scarce, perhaps the rural
poor are doomed to permanent third-class citizenship — to institution-
alized neglect, as it were.

Dispersal, remoteness, ever more scarce resources, third-
class citizenship, institutionalized neglect. Such are the essence of
the rural poor. Such explain why successful efforts to effect substan-
tive improvements in their lot form such a short list — why failure
is so largely foreordained, why even the smallest improvements are so
costly and difficult, and why there is such encouragement to abandon
the effort. Even the plight of the urban poor, as grim as it is, seems
not as hopeless in comparison.

Our focus is on housing — housing for those of low and
moderate income. In many urbaH areas, the housing problem for them is
largely one of money — although the racial issue "greatly complicates
the issue for many. Given increased income for housing, many urban
families presently forced to occupy substandard housing could be ex-
pected to make those changes in their housing arrangemencs that they

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320

would require in order to be satisfied; this satisfaction could be
found largely as a result of the functioning of the private housing
sector, whose record indicates a responsiveness to housing demand
when that demand has been accompanied by purchasing power. Similarly,
given subsidies and financial incentives comparable to those of recent
years, the housing industry has shown it will produce at record levels
even new construction to meet low and moderate income needs. Whether
the rate* at which the need was being met was adequate, or whether the
return on the public investment in the subsidies was sufficient in the
face of other national priorities are separate questions. Nevertheless,
direct and indirect supplement of the purchasing power of the urban
lower income family seems the main ingredient to improvement of its
housing condition.

In the rural milieu, the situation is far more complex. This is
because, in the non-urban setting, there is far more lacking than mere
purchasing power. The rural areas are starved for resources of every
kind — not only personal resources, but also public and private resources
in general — and this starvation manifests itself in the glaring absence
of the entire range of residential services: transportation, water and
sewer facilities, decent schools, stores, fire and police protection,
medical resources, parks and other community facilities and services.
The rural areas represent considerable underinvestment in economic and
social overhead capital — the (public-sector) infrastructure that is
the basic requirement for rising standards of living. Nor is this under-
investment the result of deliberate, callous public policy. Resources

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321

continue to be critically limited, and population dispersal and low
density in the rural areas force on government the equally unattractive
alternatives of continued underinvestment or extremely high gross unit
investment costs and/or quite low returns on that investment.

II. OBSTACLES TO MEETING RURAL HOUSING NEEDS

Those unaccustomed to struggling with housing problems in this
context — the context of rural poverty — might wonder which of the
factors — ruralness or poverty — is the greater impediment to a solution
to the housing problem that we are becoming ever more aware is synonymous
with rural poor areas . It could perhaps be argued that ruralness is the
more consequential factor, with poverty an aggravating addition. In
any event the consequence of the two in tandem is a housing problem that
has defied, not only solution, but even substantial mitigation, with the
tools and programs heretofore at our disposal.

On the Demand Side.

Poverty causes the demand side of the equation to be weak: a
great many rural people simply do not have the purchasing power without
which demand for goods and services cannot be made effective demand, to
which the marketplace might be expected to respond. One can see this in
the low per capita annual income of the West Virginia population state-
wide: the 1971 figure was $3228 per capita, which is only 78% of the
national average and lower than all but four other states. Highly impor-
tant to recognize, however, is the distortion of this figure by the

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322

inclusion of such relatively affluent urban areas as Charleston,
Morgantown and Huntington. According to 1970 Census data, twenty-nine
of West Virginia's fifty-five counties had average per capita income
of less than $2000 per year, and these twenty-nine counties account
for approximately 27% of all West Virginia households. But even these
data do not tell the whole story. In Logan County, for instance, which
the 1970 Censiife determined to have an average per capita income of $2004,
that same survey found that 45% of all households earned less than $5000
in 1969, and that 30% of all households earned less than $3000.

Moreover, cultural complications abound. The legendary inde-
pendence of the Appalachian mountain people predisposes them against
multi-family housing: the single-family, detached house (if only a shack),
and the plot of ground (if only a patch of clay that seems to spawn
nothing but rocks, and therein to be quite prolific) are the very center
of his life style, and ideally will be located near the upper end of a
nearly impassable hollow.

Additionally, we have been told repeatedly of the low priority
such people place on housing; and, even where their income would permit
otherwise, of their corresponding unwillingness to spend, for shelter, a
percentage of income consistent with the national average.

The demographic profile of West Virginians is a further im-
pediment to an improvement in the housing situation. Over the course of
the 1960s West Virginia's population declined by 6.2% (only two other
states actually lost population over the decade). This gross decline

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was accompanied by an increase in the number of persons age 65 and over,
from approximately 172,500 to about 194,500 (a 13% increase), or from
9.3% of 1960 population to 11.2% of 1970 population. From 1950 to 1970,
despite an overall decline of 13% in the State's population, the number
of persons 65 and over increased 40%. Yet the elderly represent a segment

of the population especially unlikely to upgrade their housing standards.

«
On the Supply Side.

In addition to these weak demand factors, in the rural setting

a major additional consideration — perhaps the hallmark of rural, poor

areas — is the weakness or absence of the supply side of the equation.

The housing stock itself is an incredible array of inadequacies,
as the following chart shows :

U.S.

All W.Va.

Rural W.Va.

Year round units lacking one or

more plumbing facilities

6.9%

18.3%

28.3%

renter occupied units lacking one

or more plumbing facilities

8.3%

18.1%

23.1%

occupied units overcrov/ded

8.2%

9.1%

11.8%

renter occupied units overcrowded

10.8%

12.6%

17.7%

median value, owner occupied units

$17,000

$11,300

$8,500

Median rent, renter occupied units

$89.00

$52.00

$37.00

Source: 1970 Census data

Moreover, West Virginia, where incomes make public housing the
most appropriate of the subsidized housing programs — approximately one-
third of all West Virginia households qualify for public housing — has

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99-855 O - 73 - pt. 1 -- 22

324

been grossly under-represented in the distribution of public housing
units :

Total U.S.

West Virginia

Substandard units per

public housing unit

8

24

Poverty-level persons

per public housing unit

23

65

Elderly poverty-level persons

per elderly public housing unit

19

32

But beyond the inadequacies of the housing stock, the gross lack
of supply extends to severe lack of those resources necessary to provide
even a minimal level of residential services — not only units of standard
housing, but also schools, stores, transportation facilities, water and
sewer facilities, and leisure and recreational opportunities. Scarcity of
these resources presumably results from population dispersal and low density.
And dispersal and low density describe West Virginia. For instance. State-
wide average population density is approximately 72 people per square mile,
based on 1970 Census data. Some of our counties have densities of fewer
than 10 people per square mile (PPSM) ; nine of our fifty-five counties (16%)
have densities of fewer than 20 PPSM; and 28 (50%) have fewer than 50 PPSM.

The consequence of this is that residential services are either
extremely costly, both in gross- or unit-cost terms, or are not provided,
and more often than not the latter is the situation. An excellent case
in point is sewage treatment. A study by the State Department of Health

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325

concludes that approximately 50% of the State's population is NOT served
by sewage treatment facilities, even though the soil and underlying strata
generally make alternative arrangements very poor alternatives indeed.
Nor is the 50% without treatment facilities confined to the most rural
areas: presently further development of potentially a leading growth area
within the State — the Charleston-Huntington Corridor — has been placed
under a moratcfrlum because the absence of sewage treatment facilities has
caused severe problems for the area's various water supplies.

Extend this situation to other essential services — schools,
jobs, transportation, health care — and at least a notion of the realities of
non-urban America begins to emerge. Coupled with this is the general absence
of local government units to provide effective delivery of those services
available, or, more importantly, to agitate and lobby for increased resource
flow to the rural areas. In West Virginia 55% of the population live
outside incorporated areas, and a drive through the State produces a seemingly
endless litany of communities, the identifying sign for each hastening to
add that the community is unincorporated.

Further, if the situation in West Virginia is any measure, the
housing "industry" that confronts the home buyer or prospective home buyer
in the non-urban area is anything but reassuring. In much of West Virginia
there simply is no building industry. Our involvement with multi-family
projects has demonstrated that, even in the most urban areas of this rural
State, there is virtually no housing management industry. Moreover, that
Scime Involvement has pointed up the lack of a development industry. Almost

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326

without exception the development of multi-family projects has been
done by out-of-State developers — often a sore spot with West Virginia's
builders. In the exceptional case where the developer is local, the
burden on the staff of the Housing Development Fund to guide the developer
through the intricacies of 'multi-family development — doing the developer's
job for him — is enormous.

Finally, the "credit" industry runs true to form. The traditional
bulwark of the residential mortgage financing industry, the savings and
loan associations, are found only in twenty-two of West Virginia's fifty-
five counties. In many cases, the would-be mortgage borrower is thus
dependent on commercial banks ; and commercial banks in non-urban areas
prove the accuracy of the observation that banks want to lend money to
people who don't want to borrow, or who don't need to borrow. The terms
on which rural banks — at least rural West Virginia banks — are willing
to make mortgage loans show that FHA hasn't been uniformly successful in
changing the mortgage lending industry to high loan/value, relatively
long-term loans. There are numerous instances where banks will not lend
for as long — really as short — as ten years ; and a loan/value at 70
or 75% can be quite high by local standards.

* * * *

This is the context within which the Housing Development Fund,
the housing finance agency for West Virginia, was created in 1968.

State housing finance agencies (HFAs) trace their ancestry to
1960, and the creation of the New York State HFA. The Massachusetts HFA

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327

was created in 1966; the Michigan State Housing Development Authority
that same year. 1967 saw the birth of the Illinois Housing Development
Authority, and the New Jersey HFA. In 1968 the New York State Urban
Development Corporation was added to the growing list. So was the West
Virginia Housing Development Fund, strange company for a club made up —
with that one exception — of states that are industrial, affluent, and
urban.

West Virginia is none of these. It isn't industrial. Manufacturing
contributes only 20% of the State's total jobs. Nor, of course, is it
affluent or urban.

Yet, the principal program tool the Housing Development Fund
has had at its disposal over the several years of its existence, the Section
236 program, is urban-oriented, and does not produce rents low enough to
be relevant to much — if not most — of West Virginia. We hope that
out of the present moratorium and re-assessment will come programs that
will be a substantial improvement on that situation, and to that end should
like to discuss our experience with those programs heretofore at our disposal,
with some additional, more limited, discussion of other programs that we
have not been able to use, but which we have observed others use within
the State.

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* 328

III. APPLICABILITY OF EXISTING FEDERAL
PROGRAMS TO NON -URBAN AREAS

Section 236: The problems we have encountered in attempting
to mold the Section 236 program into an acceptable tool to use in address-
ing West Virginia's housing problems fall into two broad categories —
those problems which arise from and are attributable to the rural nature
of the State, and those problems which are a direct result of the nature
of the Section 236 program. .

The previous section has provided a vivid description of the
setting in which we are attempting to produce housing — a setting which
holds true for all rural states, and the rural areas of even the most
urban states. Within this setting we have attempted to construct housing
using Section 236 - a program designed and administered to function in an
urban atmosphere where the economies of scale upon which the program is
based are available.

The initial problem to be faced in rural areas is the low popu-
lation density. The housing market is spread very thin and there are few
population centers which can support a rental housing development of any
scale. Under the Section 236 program, however, as the size of the develop-
ment decreases the per unit coSt of the development and the monthly rent
Increase due to the fixed costs built into the program (i.e., fees, BSPRA,
land development costs and management). We have found that it is virtually
Impossible to produce a development of less than 50 units in West Virginia
because the Increased cost per unit at such a reduced scale becomes infeasible.

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329

Adding to and aggravating this problem is the low average
family income in rural areas. Not only is it lower than the corres-
ponding income of the urban family, but the rural family has historically
paid a very small percentage of its income for housing - much less than
the HUD guideline of 25%. Moreover, we have found 20% Rent Supplement
in a 236 project to be far too low. As a minimum, 40 or 50% — if not
higher — shodld be standard.

Another very real factor is the cost of land and land improvements.
The casual observer might think West Virginia the ideal spot for housing
development with miles of sparsely populated mountain area. The realities
are, however, costly and difficult. Buildable land is at a premium due
not only to the absence of utilities but also to tremendous costs associated
with land development. Almost all of our developments are burdened by
site improvement problems not usually associated with multi-family con-
struction in urban areas - cuts, fills, retaining walls, rock formations,
erosion and long access roads. Raw land costs average $638 per unit which,
although comparable with urban land costs,* is not an unworkable cost, but
to that we must add site development costs of from $1,200 to $3,400 per unit.
We are, therefore, expending from $2,000 to $4,000 per unit for land and
land improvement costs before we even start on the building - in an area
where the surrounding atmosphere and the predilection of the tenants dictate
a low density development so that the costs cannot be mitigated by building
at a higher density.

* On twenty representative developments the per unit land cost experienced
by the New York Urban Development Corporation was $690.

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330

TABLE I

Land and Land Improvement Costs Experience
(On a Per Unit Basis)

Land Improvement
Cost Per Unit Total

Land Cost

Development

Per

Unit

City Park Village

$

308

Unity Terrace

728-

Green Acres

320

Bridgeport Gardens

663

Berkeley Gardens

848

Hillcrest Apartments

732

Oakwood Terrace

549

College Park Apts.

820

Southmoor

752

Pinewood Village

1

,096

$ 1.718

$ 2,026

1,750

2,478

1,701

2,021

2,460

3,123

1,555

• 2,403

1,182

1,914

3,405

3,954

1,501

2,321

3,327

4,079

2,387

3,483

Average $ 682 $ 2,099 $ 2,780

The Section 236 program requires that tradesmen be paid prevail-
ing wages and that the housing be designed and constructed to meet Minimum
Property Standards (MPS 2600) . In rural areas prevailing wage generally
is from 25% to 40% above what the tradesmen would earn on a conventionally
financed multi-family development, and construction in accordance with
MPS 2600 produces a building far superior to any of the surrounding con-
ventionally financed multi-family structures. All of these added costs are
reflected in the construction costs and rental rates of the federally
assisted units. A local builder in Kingwood, West Virginia who developiad
a very successful 58 unit development under Section 236 was appalled when
he had to pay the same tradesmen he used on his single family construction
crews 150% of their normal hourly wage in accordance with the prevailing
wage rates. In comparing multi-family developments constructed under
Section 236 with conventionally financed well constructed units of similar

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331

size and amenity level we have found that the construction techniques
and material specifications required by MPS 2600 added from 30% to 40%
to the land development costs including roads and sidewalks and from
8-10% to the structures cost of the development — costs which increase
rentals and reduce the number of potential tenants served by the develop-
ments, and thus the relevance of the program to the non-urban areas.

«
Other cost items aggravating the situation in the rural areas

are to be found in the fee structure provided by the 236 program. We
should like to see architectural fees reduced, and BSPRA totally elim-
inated in favor of a builder's profit allowance which is a percentage
of the construction cost. Consultant, financing and other middle-man
fees also should be reduced. Moreover, it has been our experience that
non-profit sponsors do not have the resources for successful participation
in the program.

The processing procedures of the local HUD Insuring Office are
certainly one of the major problems affecting the success of the Section
236 program in West Virginia. By their yery nature the HUD market pro-
cedures are reactive rather than constructive. Given the desperate need
for assisted housing within the State, it makes little sense merely to
react to developer proposals for certain population centers in lieu of
establishing areas of priority where limited resources can be used to
the greatest benefit. Add to this a tedious and cumbersome processing
system where all proposed developments, regardless of merit, are subjected
to enumerable delays and it is little wonder that only the most patient

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332

developers — whose initial costs were inflated to allow for a 15-18
month processing delay — are interested in involving themselves in
subsidized housing where FHA is concerned. Our experience has shown
that from 6-10 months can be anticipated in order to receive a feasi-
bility letter, and an additional 3-6 months can be anticipated in re-
ceiving a firm commitment - even under the best of circumstances.

«
All of these factors — the urban orientation of the Section

236 program, the low average family income, the high costs incurred in
land acquisition and development, the program constraints of prevailing
wage rates and minimum property standards which increase construction
costs and the tedious processing delays — make it extremely difficult
and costly to produce acceptable units under the program. Invariably
the rentals which are produced are above the regular income limits for
the area and far in excess of the median rentals. To cite but one
example: a 100 unit development financed under Section 236 in Fairmont,
West Virginia (population 26,100) has an average rental of $125.22.
Though quite modest when compared to average rentals of similar develop-
ments in more urban states, this rental nevertheless is more than twice
the median rental for the community ($60.00), and is higher than rents
charged for over 96% of the existing rental units in the community 1

An additional problem which relates to both the costs and market
is that under the existing program restrictions, families whose income
exceeds the income limits established by HUD must pay market rent. Since
the income limits for most rural states are extremely low and the costs of

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333

producing units are disproportionately high, the income range of the
families to which the units can be marketed at basic rentals is extremely
small. As rentals increase toward the established limits the income range
of families eligible for the development — the true market for the
project — decreases proportionately.

Sectyion 235 : The Section 235 homeownership program, in which
the Fund. has been unable to participate to date due to the non-insured
status of construction advances, has been singularly unsuccessful in
furthering the cause of homeownership in most of West Virginia. State-
wide, the volume of homes produced under the program has never reached
the level the population and income levels of West Virginia would warrant.
Since the inception of the program in 1968, only 707 units of Section 235
housing have been built in West Virginia and, as the table below shows,
only 16% of these (118 units) have been constructed outside of major
population centers.

TABLE II

Section 235 Homes Constructed in West Virginia
From Program Start in 1968 thru March 1973

Charleston SMSA (Including Putnam County) 321 Units

Parkersburg SMSA 140 Units

Huntington SMSA , 82 Units

Wheeling SMSA 38 Units

Weirton 8 Units

Other areas of the State 118 Units

Total - - - - 707 Units

This low volume is certainly not indicative of a lack of demand
on the part of potential homeowners, but rather of a lack of interest on

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334

the part of the building industry. We have found that in many areas
Minimum Property Requirements are both inappropriate for rural areas
and generally far too stringent to meet within cost constraints; land
development is both difficult and expensive, and is another factor
tending to costs which exceed existing limits (which until last month
were $18,500); processing takes too long and requires the builder to
deal with a central office in Charleston rather than a local county
office (as is the case with Farmers Home) or a local financial institu-
tion; local banks and savings and loan associations are not interested
in the program because of the paperwork required. Probably the most
important factor, however, is that the small home builder can make more
money with much less work and hassle on a higher priced, conventionally
financed house. This formidable set of obstacles has resulted in a
general lack of interest in the program by both builders and mortgagees
at the expense of potential homeowners.

Public Housing: Especially in the rural areas of West Virginia,
where over 60% of the State's residents reside, the income levels of many
families warrant public housing. Other than Rent Supplement assistance,
this is the only program which produces rentals at levels within the
reach of the truly poor. Nationally, however, the public housing program
remains largely an urban program with the vast bulk of the program re-
sources going to major metropolitan areas.

West Virginia, like many rural states, has simply not received
its fair share of public housing funds. On a simple population basis
the ratio of West Virginia's total population to the U.-S. population (0.9%)

17

335

is almost twice as great as the ratio of public housing units under
contract in West Virginia as compared to the U.S. total (0.48%). On a
need basis this inequity is even more dramatic:

- there are 24 housing units either overcrowded or lacking
plumbing facilities for each unit of public housing in West
Virginia - nationwide the figure is 8 to 1;

- there are 65 below poverty level persons for each public housing
unit in West Virginia - nationally, it is 23 to 1;

- there are 32 below poverty level elderly persons for each
elderly public housing unit in West Virginia - nationally,
the figure is 19 to 1.

In part this situation is the result of the essential inter-
mediary (the housing authority in the case of public housing) — consis-
tently a requirement of existing federal housing programs — being
conspicuous by his absence. In West Virginia there presently are 33
housing authorities (28 city authorities and 5 county authorities) , of
which only 20 have units occupied or under construction. Only 18 of West
Virginia's 55 counties contain public housing units, and over 61% of the
State's total amount of existing or planned public housing is in the three
largest cities (Huntington, Charleston and Wheeling).

Complicating the disproportionate allocation of public housing
resources to urban states and urban areas are the cultural realities and
low population density of rural areas. Public housing requires not only

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336

positive local public action in the form of a local public housing
authority, but also a viable local delivery system; and there is a
serious absence of productive housing authorities in rural areas to
deliver this form of housing assistance. Moreover, the suggestion that
one way for a locality to keep out public housing is to create a (dormant)
authority has not gone unnoticed. Most important, perhaps, most of the
other difficulties, cited earlier, facing rental housing in low density
areas — such as high per unit development and management costs resulting
from reverse economies of scale — apply fully to rural public housing.

FHA Conventional Mortgage Insurance Programs; Many of the
conventional mortgage insurance programs administered by the Federal
Housing Administration, especially the multi-family programs, are simply
not applicable to rural states because the monthly payments for rental
or mortgage amortization are too great and the paperwork involved in
processing is too lengthy. West Virginia has kept pace with the rest of
the country in the decline of popularity of these programs. Moreover,
the onerous financing points, involved whenever the FHA ceiling interest
rate is below the market rate - the rule rather than the exception - have
contributed to this decline, especially as the developer and consumer have
become more sophisticated. Finally, private insurers have b^.come an ever
more popular and attractive al-ternative and conventional (i.e., non-FHA/VA)
loans have become available at an ever higher loan to value ratio.

The Fund has acted as mortgagee on one multi-family development
financed under Section 221(d)(4). The developer, a very experienced and
sophisticated firm, indicates that the FHA processing procedures delayed

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337

him to such an extent that had he utilized conventional financing he
would have saved over $100,000 in labor and material cost increases
which developed over the processing period. Add to this the fact
that a conventional mortgagee would have had to charge between two and
four points to make the investment attractive and you begin to see not
only why costs and rents escalate, but also why developers — especially
good developers — rapidly lose interest.

Fanners Home Administration: Because of its rural nature.
West Virginia is exceedingly appropriate for Farmers Home Administration
housing programs. But FmHA appears to be conservative in making loans
and there seems to be a perverse correlation between a county's income/
housing needs and the incidence of FmHA housing activity.

In fiscal year 1972 FmHA made 2,124 homeownership loans under
Section 502, up from the fiscal 1971 total of 1,970. However, only 161
of these loans or 7.5% were made in the ten most rural counties of West
Virginia, and many of the southern coal -producing counties where new
housing is desperately needed had no Section 502 loans at all.

Also in fiscal year 1972, FmHA made 93 home repair loans under
Section 504 (a dismal record in a rural state where home repair and con-
servation of existing housing Is badly needed) , up from the 85 loans made
in fiscal 1971. Of this total only six loans were made in the ten most
rural counties an^ only 36 loans were made in the 30 most rural counties
of the State!

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338

Much of this inactivity can be attributed to the conservative
administration of the FmHA programs, and to the lack of an aggressive
building industry in West Virginia. Part of the problem, however, is
attributable to the cultural aspects of the rural people. We have found
a tremendous reluctance on the part of many rural families, especially

senior citizens, to go into debt and to obligate their land. They will

«
refuse a Section 504 home repair loan which carries an attractive 1%

interest' rate for a period of 10 years simply because they are required

to place a mortgage on their home, which often was purchased outright

from a coal company with hard earned savings.

The Farmers Home Section 515 program for rental housing has been
greatly under-utilized. Only three projects have been developed in West
Virginia since the inception of the program, and only one of these made
use of the interest credit provisions available under the program. The
poor record of this program is attributable to the inexperience of FmHA
with rental housing, but also to the essential fact that rentals under
the program are too expensive for rural areas given the stringent income
limits of the program ($8,500 maximum). Moreover, the interest subsidy
allowance which can be attached to the 515 program currently is available
only to non-profit sponsors, which seriously limits its relevance and
impact. '

Land Development Programs: Both the Department of Housing and
Urban Development and the Farmers Home Administration have land development
or site loan programs, but the effectiveness of these programs has been

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I 339

severely hampered by the regulations governing their use. The Farmers
Home Administration Rural Housing Site Loan Program (Sections 523 and
524) is limited to participation by non-profit sponsors who generally must
repay the loans within two years at an interest rate of 7.25%. This re-
striction completely excludes private developers and builders from parti-
cipation, and has been a key factor in the limited use of this program.
The Department of Housing and Urban Development has a mortgage insurance
program '(Title X of the National Housing Act) for land development, but
this program is tied to the use of existing interest rates (7%) and the
normal fees and processing delays associated with iHA insurance and private
mortgagees. These costs have limited the use of the program to very large
and costly developments generally tied to new community development.

Rehabilitation Programs: Effective, well thought out and
adequately funded rehabilitation programs have been conspicious by their
absence. The HUD programs — principally "Operation Rehab" — have been
of a demonstration nature, limited to large metropolitan areas where the
scope of the problem being addressed is neighborhood-size, and have been
less than successful. Rehabilitation programs consistently have been
relegated to a position of much lower priority than programs tied to new
production. The arguments against rehabilitation programs (i.e., higher
cost, less usable and desirable space, poor surrounding neighborhoods)
are unfortunately based on urban experiences, and are not valid in rural
areas where rehabilitation programs are, or should be, concerned with
existing single family homes.

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99-855 O - 73 - pt. 1 -- 23

340

In the rural areas, the Farmers Home Section 504 program has
been tremendously under-utilized. But if rural housing problems in this
and other states are to be solved, we must concern ourselves not only
with new production but also with the conservation of those existing units
which are repairable. The 'need for an effective rural rehabilitation
program is clearly documented by the number and incidence of substandard
units in the tural areas, by the delay and cost associated with new con-
struction, and by the tendency of new construction to incorporate features
which have become necessities to the middle-class urban dweller, but are
costly and superfluous frills to the rural resident. Particularly needed
are rehabilitation programs that emphasize moderate up-grading of hom£s
rather than complete renewal. Focus should be on improving a few important
items in a house, such as plumbing, roofing or wiring, to improve living
conditions at moderate cost. Not only is this much more sensible for
most rural homes than gutting and total renovation, but would be far more
practicable to accomplish with the simple carpentry and other home improve-
ment skills possessed by many rural people.

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341

IV. SUGGESTIONS FOR FUTURE GOVERNMENT POLICIES
AND PROGRAMS FOR NON-URBAN AREAS

Federal involvement in housing goes back four decades, to
the Federal Home Loan Bank Act of 1932 and the National Housing Act
of 1934, the former creating the Home Loan Bank System which encompasses
the federal savings and loan institutions, the latter establishing
the Federal Housing Administration whose principal role at the time
was to administer the federal mortgage insurance system also established
by the Act.

Except for a temporary interruption during the World War II
years, federal housing involvement has proceeded snowball fashion, with
particular momentum — and size — added during the decade of the 1960's.
In spite of the spate of new departures over the last ten or so years,
however, the oldest programs remain the most successful, and perhaps
understandably so. In those early programs the government sought
principally to establish the framework within which the private sector
would operate. The FHA mortgage insurance is a particularly good example.
Its purpose was to effect certain changes, felt to be desirable, in the
mortgage lending industry, principally in the form of higher loan/value
and longer term. The FHA did not become a mortgage lender; it merely
established a framework — the insured mortgage loan — within which
the private mortgage lending industry would operate. The purpose of
the FHA wasn't to replace the private mortgage industry, but merely
to alter its course in a way felt desirable. To that end it has been

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342

overwhelmingly successful.

This is an example of public intervention at its best.

Direct, program costs to the public are kept under control; dead-weight

loss associated with government programs providing transfers in kind —

as opposed to transfers of income — are minimized or entirely eliminated.

«
Such has not been the case, however, with the variety of

housing subsidy programs the government has undertaken over the thirty-
five years since the inception of public housing. Although there have
been variations thereon, the consistent theme of those programs has been
transfers in kind. The mounting criticism of those programs, for reasons
of cost and equity, needs no recounting here, though the present moratorium
speaks to the Administration's awareness of and agreement with much of
that criticism.

There is even considerable feeling on the part of some that,
in spite of what (temporary) measures might supplement or supplant the
programs presently under moratorium, ultimately the basic government
"housing" subsidy effort will center on an income-transfer program.
No one — even its proponents — expects this to come about soon. It is
too bold a departure — and we have too well-established a tradition of
resisting bold departures — for such a program to be a likely, near-
term eventuality. Nevertheless, some are confident that we can be
expected to reach — and act upon — the conclusion that an income-transfer
program is likely to be the least costly, least inequitable, and least
counter-productive among alternatives.

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343

An income-transfer approach has, of course, been suggested;
and one form thereof, housing allowances, presently is being pilot-
tested. The debate surrounding the use of an income-transfer approach
has en5)hasized the possibility that increased housing expenditures
on the part of lower income families is likely to result primarily in
an increase in housing costs rather than in an increase in housing
services through up-grading.

The issue has to do with the price and income elasticity of
the supply of housing services; and, though the final results from the
housing allowance pilot programs are not in, there is evidence of supply
elasticity as opposed to inelasticity, encouraging the notion that in-
creased housing expenditures on the part of lower income families could
be expected to result primarily in better accomodations.

If the core of the government's housing program should ever
become not a "housing" program at all, but rather an income-transfer
program, it would have the effect of making explicit recognition of the
fact that what the low income population suffers from, ultimately, is
poverty. All else would be considered effect, and the primary attack
should be on the cause rather than on the effects.

Such a "housing" program would, of course, imply a much-
diminished role for the federal government in the housing sector.
(It would not necessarily imply a smaller role for local government,
however, since considerable effort at the local level, including
such matters as effective code enforcement, would undoubtedly be

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344

necessary if an income-transfer program were introduced.) This
"withdrawal" of the federal government could be expected throughout
the urban areas in general where residential services — schools,
transportation, health care facilities, shopping, recreation facilities,
water and sewer facilities ' — are in reasonably good supply and where
there is a housing industry — broadly defined — to respond to the
increased demand for housing services. Since the bulk of the American
people -- perhaps 70% — live in such urban areas, for the housing
market areas in which the vast majority of the population live the
appropriate housing posture for the federal government would be a much
lower profile.

But even if such a transformation is determined as the appro-
priate federal "housing" response for the urban areas, it would not be
adequate for the non-urban areas. The very ingredients essential to
the success of such a low profile governmental response — an existing housing
industry and a rather complete array of residential services — generally
found in the urban setting, are sorely lacking in the non-urban areas.
For this reason an entirely different governmental response is essential
for the non-urban areas, and in contrast to the low profile response
appropriate for the urban areas, for the rural areas a "large profile"
is the only response having the possibility of achieving the desired
objectives.

In this regard, two factors should be borne in mind: though
a substantial governmental response is called for in the non-urban areas.

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345

the federal government is not the level of government most appropriate
to this response. Additionally, a response limited to housing, per se,
is both inappropriate and grossly inadequate.

What we are talking about in the non-urban areas is not merely
the need for (decent) housing, but the need for community-building. For
years America^ political scientists and economists have talked and written
about the need for — and problems associated with — community-building
in developing countries, paying all too little attention to the problems
and needs of their own "developing" (as a euphemism for underdeveloped)
areas. Such attention is long overdue. We hope we see the beginnings
of change on the federal level in, for example, the Rural Development Act
of 1972. We feel the present moratorium on federal housing and community
development programs a very appropriate time to discuss the issue of the
dilemmas of housing in the non-urban setting, and to that end offer some
specific suggestions based on experience we have gained wrestling with
these dilemmas.

As we have indicated, a principal conclusion we have reached
as a result of trying to deal with the housing problem in rural areas is
that housing is too narrow a focus. Rather, the focus must be on the
community-development process. Government will have to play a major role
in this effort, and involvement encompassing the full range of federalism -
in the sense of the federal, state, and local levels — will be essential.
But assigning an appropriate role to each level is also essential. The
federal role should be one of setting broad, national standards and

- 28 -

346

objectives, and of redistributing resources to the implementing and

receiving entities. The federal government is very ill-suited to an

implementing role, and there is substantial and growing awareness of
this fact.

What, then, is the proper implementing "layer" f government?
In the urban setting, there is a well established and growing pattern
of direct federal-local links, bypassing the states. The history of
such a direct link is seen, for instance, in public housing, urban
renewal, and model cities, to cite several program examples. Moreover,
such a direct federal-local link has been affirmed in the general
revenue-sharing distribution formula, as well as in the proposed special
revenue-sharing distribution formulae.

Such a direct federal-local link is, however, completely in-
appropriate in the rural setting. In many instances there is hardly a
viable local unit to receive and dispense such funds in a way likely to
further any national objective. But more importantly, with the needs
of the rural areas so large compared to available resources, it is
absolutely essential that distribution-implementation reflect priorities
which in turn reflect a reasonably comprehensive program designed to
further desirable objectives, such as, for example, greater population
concentration, investment in intra-regional areas having certain existing
advantages, or efforts to' maximize return on investment that is designed
to increase total regional income.

- 29

347

In non-urban areas, localities are far too small to have
any economies of scale, and far too parochial to hold out the likeli-
hood that they could fill the implementing role in such a way as to
further national objectives. The problems of poverty and lagging
regions ideally invite regional approaches, but the United States has
no truly regional governmental entities. With all their limitations,
the states are the closest approximations, and thus the states are
the appropriate level of government to fill the distribution-implementa-
tion-investment functions in the non-urban setting.

But because the furtherance of national objectives should
be a part of any rural development program, once the national objectives
are agreed upon each participating state should be required to produce
an analysis of its rural situation, a statement of objectives, and a
general plan for proceeding. A first and essential order of business
would be the creation of a state Department of Community Development.
(The name of the proposed agency is chosen deliberately. Urban states
have been creating Departments of Community Affairs, which is felt to
be slightly inappropriate. Correspondingly, a Department of Rural Affairs
is not quite adequate. Community Development is the best expression of
the principal objective.)

The agency must be as comprehensive as community-building
dictates. It is essential that it be considerably more than advisory
in nature, and must have at its disposal a full range of hardware programs,
some of which, such as water and sewer, are absolutely essential. The

- 30 -

348

agency should have a major input into the location and re-location of
future roads across the state; and, depending upon the particular state
situation, perhaps should have the capacity to encourage greater school
district combination and concentration.

If we define development as "any activity which materially
affects the condition of land or improvements," the central role of
land — and the ability to control its disposition — becoraes clear.
Land is the only factor of production that is immobile, as it is the
only factor that is in fixed supply. Central to the agency's objectives,
then, will be not only the ability to acquire land through simple negoti-
ation, but also through condemnation where necessary. Likely to be the
most controversial proposal, it should be borne in mind that only the
ability to condemn land has made public re-development of urban areas
possible, and that power is hardly likely to be less important in
non-urban areas .

Housing will, of course, be an important part of the agency's
program, and it must be able to attack the housing problem on many
fronts. Depending on what federal programs emerge from the present
moratorium and re-assessment, it is essential the agency be empowered
to act as an intermediary for its intended constituency. Moreover, the
income level of that constituency no doubt will make public housing most
appropriate, and to this end the agency needs to be constituted a state-
wide housing authority, to operate where no start has been made to meet
the need for public housing. Further, within its housing division, the

- 31 -

349

agency should have an office of rehabilitation and production.

Rehabilitation of existing units is likely to be a very appropriate

and important function for the housing division of the agency.

Moreover, it will be essential for the agency to have the capability —

either in-house or through a tie to others — to provide scattered units

of new housing of modest design and very low cost where rehabilitation

«
is either impossible or impractical.

Even with the creation of a strong Department of Community
Development at the state level, or of a cluster of coordinated state
agencies that together can fulfill the function of such a Department,
little progress will be made in meeting the community development problems,
including housing, of a state's rural areas unless the federal government
continues to supply the great bulk of the funds essential to make the
development possible.

The funds could be provided through an array of categorical
federal programs such as we have had in the past. If so, it would be
essential to continue many of the present programs that have proved
useable for rural areas, such as sewer and water grants, public housing
and interest subsidy programs. However, as can be learned from experience
with existing housing programsj described earlier, all of these programs
will need modifications, some drastic, to fit better the unique circum-
stances of housing in the non-urban setting.

The funds could also, and perhaps preferably, be supplied by
federal revenue-sharing. The primary concern we would have with this

32 -

350

alternative is the frequently mentioned difficulty of converting
revenue-sharing funds received in a single year or over a very limited
number of years into capital intensive facilities paid for over a much
longer time span — a difficulty that contract authority and annual
contributions contracts overcame. If this problem can be resolved by
some ingenious use of capital grants, federal guarantees, etc. — and
we have no bright ideas on this to suggest at this point — revenue-
sharing for community development, including housing, would seem the
ideal financial mechanism to power the variety of programs administered
by the proposed state level Department of Community Development.

We've come full circle, from a discussion of the dilemmas
of federal housing policy to a discussion of a new agency, at the state
level, in which housing would occupy an important part, but only a part.
In a sense we've also come full circle in our discussion of the appropriate
role for government with regard to housing subsidies. Starting with a
substantial federal role as a provider of funds and programs — with
the action of intermediaries essential to implement those programs —
the federal position itself was somewhat intermediary in the sense of
occupying an intermediate position in the long and complex chain which
links lower income families and their housing needs, on the one hand,
and the very earliest initiatives of others which ultimately may effect
a response to the needs, on the other.

- 33 -

351

For the urban areas some propose that the federal government
abandon this intermediate position and, in a sense, move to the consumer
end of the chain, where the lower income families are, and to effect
this move simply by replacing the present transfers-in-kind housing
programs with an income-transfer program, and thus to let the more
traditional housing market have a chance to demonstrate its ability to
respond to the increased purchasing power of the lower income families.

For the non-urban areas we propose that government, both
federal and state, abandon its intermediate position and move substantially
to the other end of the spectrum, to where the initiatives must be taken
that result in improved housing conditions for lower income people.
Two differences distinguish the two sets of moves: the nature of the
housing market area, and the level of government involved. Only in
urban areas is an income-transfer program likely ever to succeed, and
only the federal government has the resources and the jurisdiction to
implement a national income-transfer program of substance.

For the non-urban areas, however, there is no housing market
to respond to an income-transfer program, which means that the public
sector will have to assume functions traditionally thought of as the
province of the private sector. Moreover, for reasons outlined above,
the state is the appropriate governmental level to undertake these
functions, with the federal government setting national objectives and •
supplying most of the funds.

- 3A -

352

But these efforts in the non-urban areas should divide into
two categories, and the distinction should be borne ever in mind: on
the one hand, there will be need for programs that essentially are
welfare; on the other — and it is essential that this be the primary
focus — central program thrust will be resource investment, with the
objective of realizing a return on that investment.

To undertake these investment programs — as well as the
unfortunate but necessary welfare programs — we have proposed, then,
creation of a state Department of Community Development, whose programs
will reach far beyond mere housing. To effect the creation of such a
Department, we propose that such an agency be mandatory for a state to
receive certain federal funds, whether in the form of categorical grants
for community development or special revenue-sharing.

Beyond the mere creation of such a Department, however, it
would be advisable that certain federal requirements be imposed on its
powers and programs, such as the requirement suggested above of having
the power of eminent domain and the power to act as a state-wide housing
authority, as well as the requirement of developing and presenting a
program — "plan" perhaps having become anathema to too many people —
outlining the state's proposals for community development.

The concept, including the imposition of federal criteria on
the receiving/implementing agency, is hardly more than the idea of an

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353

urban renewal or redevelopment authority transferred to the non-urban
setting.

The proposal is quite consistent with the Administration's
philosophy of New Federalism, and is very much in keeping with the
revenue-sharing concept. In essence, the concept combines an area
approach (each state encompassing an "area") and a truly national
problem. The federal role would be one of defining the problem in
broad terms, formulating national objectives, and evaluating program
success. Knowing their situations and problems best, the states would
be invited and encouraged to propose programs.

Two criteria are essential if this proposal for synergistic
federalism is to work. One is the realization that the problems the
proposal is designed to attack are truly national problems; the other
Is the realization that the design of adequate and relevant programs
cannot be left to Washington. We feel that at long last we have arrived
at those realizations.

1973 HOUSING AND URBAN DEVELOPMENT

LEGISLATION

WEDNESDAY, JULY 18, 1973

U.S. Senate,
Subcommittee ox Housing and Urban Aefairs,
Committee on Banking, Housing and Urban Affairs,

Washington, D.C.

The siibcominittee met at 10 a.m. in room 5302, Dirksen Senate Office
Building, Senator Robert Taft, chairman of the subcommittee, pre-
siding.

Present : Senators Taft, Tower, and Mclntyre.

Senator Taft. The meeting will come to order. We will continue the
meeting by the Subcommittee on Housing and Urban Affairs on hous-
ing and urban development legislation of 1973.

We are delighted to have as our first witness this morning an old
friend, John J. Gilligan, the Governor of the State of Ohio. We are
delighted to have you and your testimony.

TESTIMONY OF GOV. JOHN J. GILLIGAN OF OHIO, CHAIRMAN, COM-
MITTEE ON RURAL AND URBAN DEVELOPMENT, NATIONAL
GOVERNORS' CONFERENCE, ACCOMPANIED BY RICHARD W.
LINCOLN, SPECIAL ASSISTANT

Mr. Gilligan. Thank you, Mr. Chairman. Mr. Chairman, accom-
panying me this morning is Richard W. Lincoln, special assistant with
the National Governors' Conference staff' who serves as the director of
the staff of the Committee on Turban and Rural Development.

I have the honor to appear before you today as chairman of the
National Governoi-s' Conference Committee on Rural and Urban
Development. The other members of the committee are Gov. Linwood
Holton of Virginia, our vice chairman, and Governors, Dan Walker of
Illinois, Edwin W. Edwards of Louisiana, Christopher Bond of Mis-
souri, James E. Holshouser, Jr., of North Carolina, Arthur A. Link of
North Dakota, Philip Noel of Rhode Island and Richard F. Kneip of
South Dakota.

Permit me to add, as the chairman knows, that I have had the
honor of serving six times as a member of the City Council of
Cincinnati and a term in the Congress. The term in Congress was
interrupted ratlier rudely. However well I have served in these posts,
I did then, and in my present post, learn through practical experience
something about the marvelously designed and intricately balanced
structure of our Federal system of government. And it is precisely
that ingenious system — now almost 200 years old — that I want to
discuss with the members of this committee, not as an academician

(355)

99-855 O - 73 - pt. 1 -- 24

356

or political scientist but as the elected chief executive of one of the
great States of our Union.

I am not here today to report to you merely my own reflections or
experiences but to summarize and interpert our committee report,
which was adopted unanimously by the National Governors' Con-
ference at its 65th annual meeting on June 6, 1973.

Mr. Chairman, I believe the recommednations contained in our
committee report are extremely germane to your committee's con-
sideration of the whole subject of community development and hous-
ing and I am grateful for this opportunity to present the views of
the Nation's Governors as expressed at their annual meeting last
month at Lake Tahoe.

Let me preface my remarks by pointing out that these recommenda-
tions were based on information collected in an extensive question-
naire on housing and community development which drew responses
from 37 of the Governors. The results of this survey made it clear to
us that the Governors of this Nation believe that State government
must be more deeply involved in the conduct of Federal programs such
as community development — and that the States are willing to accept
the responsibilities which go with that involvement.

Mr. Chairman, I brought here today, and I offer to the committee,
copies of the questionnaire and a summary of the responses to the
questionnaire, and if they are of value to the members of the com-
mittee and should more copies be required, I am sure that Mr. Lincoln
could provide additional copies from the offices of the National
Governors' Conference.

Mr. Tafi'. We will be glad to have this as part of the record.

Mr. GiLLiGAN. I have brought along as well a copy of the policy po-
sitions as adopted at the National Governors' conference, and I think
the members of the committee might find illuminating the policy state-
ments offered by the Committee on Urban and Rural Development
which were adopted without objection by the members of the Gover-
nors' conference. Again additional copies are available to the staff and
to the members of the committee.

Senator Taft. We will be happy to have them.

[The information follows:]

Results of the March, 1973, Questionnaibe on Rural and Urban Develop-
ment— A Report to the National Governors' Conference

introduction

On March 23, 1973, a questionnaire sponsored by the National Governors' Con-
ference Committee on Rural and Urban Development was mailed to all governors.
The survey was designed to secure gubernatorial opinion on the scope of state
programs in community development, housing, and planning. The governors were
also questioned about state-federal and state-local relations in the financing and
management of these programs.

By April 16, vrhen the returns were needed for drafting a Committee report,
tvpenty-two states had replied. Fifteen more returns arrived in late April and
early May. An overall return of nearly 80% seemed to justify the preparation of
this report on a subject that is apparently of widespread concern.

Comparisons of the patterns of response were made for early vs. late returns,
Republican vs. Democratic governors, and larger, more industrial states vs.
smaller, less industrial ones.^ There were no significant differences by time of

1 The "larger, more Industrial states" are those of the east and west coasts, the middle
Atlantic, and the midwest. The "smaller, less industrial states" are those of the south,
the southwest, the Rockies, and the great plains. The following table gives the number
of returns in two categories :

357

return or by political party. On certain questions, the larger states responded
somewhat differently from the smaller ones. Those few important differences will
be noted as they occur.

Democratic Republican Total

Large 9 7 16

Small 14 7 21

Total. 23 14 37

The most striking aspect of the returns, however, is the broad area of agree-
ment on the role of the states, regardless of size, region, or party. Indeed, it is
this consensus and its implications for the federal system that is the main
justification for this report.

SUMMARY

The results of this sounding of gubernatorial opinion show a broad area of
agreement on desireable patterns of intergovernmental relations. If adopted,
the governors' preferences would constitute a radical change in the present
pattern of narrowly categorical federal grants, in which the states have his-
torically played a passive role.

In all sections of the questionnaire, the same two clear and consistent themes
emerged. Most respondents believe that (1) the present federal grants should
be combined into broad blocks grants to support sets of related public services,
and (2) the states should have the principal authority and responsibility for
the allocation of federal funds to local governments. One or both of these themes
were mentioned by 57% of the respondents who described specific changes needed
in the federal-state relationship in community development services, and by
65% who described specific changes needed in the federal-state relationship in
housing programs.

The governors' preference for block grants that would combine related activities
is overwhelming, as the following data demonstrates :

Number of States

Community
development Housing

Preferred grant pattern services programs

1. Block grants 33 27

2. Categorical grants 3 4

3. Combination of blocks and categoricals 1 5

4. No response 0 1

Total 37 37

By somewhat smaller margins, the respondents believe that the states should
exercise project-by-project review over local government activities that are
funded by a new pattern of broad federal block grants. They are generally not
in favor of distributing federal funds to the localities by formula, with only
general supervision from the state. In short, many states are willing to assume
a type of project review function that has heretofore been performed only by
federal agencies, as shown by the following data :

Number of States

Community
development Housing

Preferred State role in transferring Federal funds to local governments services programs

1. State project-by-project review 23 20

2. Federal formula grants, with State approval of general spending plans 8 9

3. Combination of No. 1 and No. 2. 5 7

4. No response 1 1

Total.. 37 37

358

The two themes — federal block grants and a decisive state role in grant allo-
cations to localities — may be emphasized in various combinations by individual
states. The table below shows the predominant patterns :

Number of states

Community

development

Housing

services

programs

20

17

I 7

6

5

4

. 2

1

0

3

3

6

Preferred grant pattern and State role

1. Block grants wUh State project review

2. Block grants with general approval of local spending plans

3. Block grants with a combination of project review and general approval

4. Categoricals with State project review _._

5. Categoricals with general approval of local spending plans

6. Other

Total... 37 37

1 6 of these are Southern States.

The large states' responses are not different from the small states', nor is there
a difference by party. The only out-of-the-ordinary pattern is indicated by the
asterisk.

The respondents are saying that, while narrow categorical grants may be obso-
lete, project review is not obsolete, contrary to the views of some advocates of
revenue sharing. The locus of review and associated fiscal allocations should be
transferred from the federal to the state level.

However, the review function is not be be performed in the same manner ; the
governors are clearly not thinking about merely substituting a state functional
bureaucracy for a federal one. The questionnaire replies give extremely strong
support to a state role in land use controls, state financial assistance to local and
regional planning, uniform state districts, and state review of regional plans. This
indicates that state project review will not be confined to the application of spe-
cialized functional standards, which all too often have been the basis for federal
agency review of local proposals. Installing an adequate priority-setting mecha-
nism at the state level means strengthening the state-regional-local partnership in
planning. Thus, the governors foresee a system in which local and state projects fit
into a comprehensive set of community development objectives. Arriving at these
objectives depends, in turn upon the development of strong planning capabilities
at all levels — local governments, sub-state regions, and statewide.

In their criticism of categorical grants and federal administrative practices,
the respondents are clearly in sympathy with some aspects of Administration pro-
posals, but they reject the view that unfettered spending by thousands of auton-
omous local governments will serve the public interest of the nation or each of
the several states and they reaffirm their desire for an active state-local partner-
ship in setting funding priorities. The respondents are troubled by some features
of the 1974 federal budget. In general, they judge community development funding
inadequate, and they are almost unanimously critical of the moratorium on hous-
ing programs. Most important, perhaps, they fear that the newly-generated
momentum for an active state role may be lost through the methods chosen to
overhaul the categorical grant system.

COMMUNITY DEVELOPMENT SERVICES

The respondents were asked to indicate what community development activi-
ties were very important, of moderate importance, or of little or no importance to
the state. The answers provide a set of four services which constitute the back-
bone of a state program of support for local community development activities.
They are waste water disposal facilities, water supply facilities, solid waste dis-
posal, and public transportation. Each is cited as "very important" by more than
70% of the states. (See Figure 1)

Of equal interest is the other end of the scale, where urban renewal and model
cities are thought to be very important by less than 307c of the states. This is
not necessarily evidence of an anti-urban bias. The ranking can reasonably both
a realistic appraisal of the limited output of these two programs and a rejection
of a rural-urban dicliotomy. The respondents appear to be asserting that a state

359

program should consist of services that are important to all citizens of the state,
whose needs are the same whether they live in what are conventionally called
"urban" or "rural" communities.

In all services excerpt urban renewal and Model cities, more than half the
states are in favor of state grants to support local efforts (See Figure 2), and
grant programs are mentioned more frequently than loans as a role which state
government should play. For all services, the most favored federal role is a
block grant, except in public transportation, where the present categorical grant
system commands support equal to a block grant. Administration of funding
through state review of local project applications is the most favored pattern of
grant allocations, except in urban renewal and model cities. There the respond-
ents are in favor of distribution by federal formula, with general state super-
vision.

STATE COMMUNITY DEVELOPMENT SERVICES

WASTE WATER
DISPOSAL FACILITIES

WATER SUPPLY
FACILITIES

SOLID WASTE
DISPOSAL

PUBLIC
TRANSPORTATION

"m^

-///////, '■■.■'// ■'////,,,

URBAN RENEWAL

MODEL CITIES

J L

y//////////////////^^^^^^ aa%

■A.

'^2/u

J±

I 19%

10 20 30 40 50 60 70 60 90 100

% or STATES LISTING THE SERVICE AS "vERY IMPORTANT*'
IN A STATE COMMUNITY DEVELOPMENT PROGRAM

«

SMALL STATES
LARGE STATES

360

FIG 2

PREFERENCE FOR STATE GRANTS TO SUPPORT
COMMUNITY DEVELOPMENT SERVICES

WASTE WATER
DISPOSAL FACILITIES

WATER SUPPLY
FACILITIES

SOLID WASTE
DISPOSAL

PUBLIC
TRANSPORTATION

OPEN SPACE

'/'//V/////////, //////' ///////////■///////////////A ^''°''

AIRPORTS

URBAN RENEWAL

MODEL CITIES

V//'////////////////////////////yxw//^^^

J L

J L

f3

n57%

J L

V///////.

10 20 30 40 50 60 70 80 90

% OF STATES LISTING STATE GRANTS
AS A ROLE WHICH STATE GOVERNMENT SHOULD PLAY

MA

SMALL STATES
LARGE STATES

HOUSING PBOQEAMS

No one disagrees that FNMA ("Fannie Mae") and FHA mortgage insurance
programs should remain federally-financed and operated programs. At least 70%
of the states see a basic role for themselves in three housing activities : low and
moderate income housing construction and rehabilitation of existing housing
(See Figure 3). There are no significant difference between the large and small
state groups in their pattern of response.

Loan programs are the preferred state-local financing mechanism by more than
two-to-one margins over grants. Rehabilitation grants were favored by 38%, the
highest level of support for grants in any of the housing activities.

The heavily-favored federal role is identical to the desired role in community
development services : federal block grants to the states, with state project-by-
project review.

A question on the impact of the federal moratorium on new commitments for
subsidized housing programs produced a high level of agreement across all
categories of states :

Effect on housing starts

Number
of States

1. Serious adverse effect 26

2. Moderate adverse effect 3

3. Not sure 5

4. No response 3

Total 37

Two questions were asked about the anticipated impact of the Administration's
special revenue sharing proposal in community development. One was on an
assumed rate of growth in federal outlays ($1.96 billion in 1972 to $2.3 billion
in FY 75), and the other was on the proposed year's delay in switching from the
categoricals to a consolidated grant, with no new appropriations for FY 74. The
following are the results :

361

Number of States

Anticipated impact

Rate of
growth

Delay

1. Serious adverse effect

13

23

2. Unsure, or conditional response

3. No adverse impact

17

4

9
?

4. No response

3

3

Total..

37

37

Twenty-four states believe that the Rural Development Act partly meets their
needs, and only one state is fully satisfied with that program. Sentiment in favor
of amending the Act to provide a more significant role for state government is
unanimous (36-0). At the same time, respondents are evenly divided (19-18)
on the question of combining federal rural and urban development funds into a
single program. The even split remains when the returns are categorized by size
of state or by party.

FIG 3.

STATE HOUSING PROGRAMS

LOW-INCOME HOUSING
CONSTRUCTION

MODERATE-INCOME
HOUSING CONSTRUCTION

REHAB. OF EXISTING
HOUSING

HOUSING CODE
ENFORCEMENT

FAMILY HOUSING
ALLOWANCES

OPERATING SUBSIDIES TO
LOW a MODERATE-INCOME
HOUSING DEVELOPERS

PLANNED NEW
COMMUNITIES

PUBLIC HOUSING
OPERATING SUBSIDIES

^y.^."A"A'^.Vv^>^J^-^''^'V.''ASJA!'^ ' ■'^r'^^^AW.^ ■"■

L_^V.j^L'.nX'^v,v.".W.-.^>V7J^>.^A'^.''AWy.".'^r'^ ,. . , -,......- T

nn^

% of states listing the activity as
"Very important" in a state housing program

PLANNING AND MANAGEMENT

Land use controls, local and regional planning assistance, and uniform sub-
state districts are the choice of more than 70% of the states as the central func-
tions in a state program for improving state-local planning and management
capabilities. There are some significant differences among large and small states.
Greater proportions of small states cite, as "very important," regional planning
assistance (86% vs. 65% of the large states), land use controls (100% vs. 69%),
and public employee training (57% vs. 31%).

More than two-thirds of all respondents think that state grants for local and
regional planning are desirable, and federal block grants are overwhelmingly
favored to support state planning and management programs. Thirty-one states
believe that present federal funding levels only partly meet their needs. More-
over, there is great dissatisfaction (29-7) with the present system for providing
information about the types and amount of federal funds coming into the states.
Both direct state assumption of land use controls and state review of local land
use controls receive support, although the former is approved by less than one-
third of the respondents. On the other hand, state review and approval of local
land use controls is supported by thirty-one states.

362

IMPLICATIONS

These data provide the tentative outlines of a new state program in urban
and rural community development. The focus of attention in such a program
would be on waste water disposal facilities, water supply facilities, solid waste
disposal, public transportation, low and moderate income housing construction,
and rehabilitation of existing housing. The states would apply their own re-
sources to the support of the program, in the form of state grants and loans,
technical assistance, and even direct state assumption of certain aspects of these
services, especially in housing. At the same time, the states would rely upon a
new pattern of federal funding ; the use of broad block grants, which are allocated
to local projects through state systems for setting priorities. The key elements
in building an effective resource allocation system are a strong state role in land
use controls, regional and local planning assistance and the use of uniform sub-
state districts for bringing state and local planning together.

Mr. GiLLiGAN. If we — and by we, I refer to all of us in public office —
if we are to make these national programs work, it is essential that
we create a multilevel decisionmaking apparatus that recognizes the
unique ability of each level of our government to make certain kinds
of decisions which really cannot be made well at any other level, or
in any other way.

Permit me to be more specific. At the highest level, it is clearly the
responsibility of the Congress to establish the basic priorities of our
American society — to determine how" much of a share of our vast re-
sources should be allocated to providing, for instance, decent housing
for every American family in a decent neighborhood, in a clean, safe,
and attractive community, how much should be allocated for the pro-
tection of the environment, how much should be allocated to all of the
vital areas of our system.

In addition, it is clearly the right and the responsibility of the Con-
gress to determine in what proportion the resources of the Federal
Government should be distributed among the States within these broad
program areas.

But beyond that, we, as Governors, believe that the State govern-
ments should be charged with the responsibility of determining how —
within our own States — that share of Federal resources should be ap-
portioned and applied to problem areas.

Our committee's survey — and the deliberations of the Governors at
their annual meeting — made it clear that the Governors are more than
willing to make sure that the multilevel decisionmaking apparatus of
which I speak is extended further to the next level so that the officials
of our local communities have the opportunities to help design the spe-
cific programs which will affect their commimities and their people.

All of us practice this doctrine of the distribution of authority in
the day-to-day conduct of our offices. All of us deal with the problems
of incorporating local government in our decisions in virtually every
area of State concern. None of us seeks the chance to carry out our
programs in an arbitrary, or unilateral manner.

To emphasize this point, let me cite for you at this juncture the
policy statements on Housing and Community Development unani-
mously adopted in June at the National Governors' Conference. The
statement on housing reads as follows :

A new housing subsidy delivery system should be established of Federal bloc
grants to the States for housing assistance, and State governments should be
given the broadest possible discretion to review and approve local projects, and
to allocate such money to a wide range of State and local housing programs.

363

*rhe statement on community development is similar in philosophy
and approach :

Rational State community development policies cannot become a reality un-
less the States provide tlie link between various community programs. Congress
and the administration should, therefore, adopt a program of community de-
velopment assistance which assures that :

(1) Federal funds for community development activities, both rural and urban,
be in form of broad bloc grants to the States, allowing them to develop and
operate their own State systems for setting and directly implementing com-
munity development priorities ; and,

(2) At the same time, each State effectively implement its system for estab-
lishing State goals, ordering priorities at State, regional, and local levels, and
preparing the procedure for achieving these through a comprehensive com-
munity development effort.

As I stated earlier, these conclusions were reached on the basis of
a very detailed questionnaire distributed to each Governor earlier this
year. The questionnaire was intended to provide a comprehensive, up-
to-date survey of the views of the Governors in the area of housing and
community development. We used a survey because we were deter-
mined to develop effective means of using to the fullest advantage the
experience and practical wisdom of State government in the formation
of national policy and national legislation.

As I indicated nearly 80 percent of the Governors responded to
the questionnaire, and the results indicate wide areas of agreement on
the role of the States in community development, housing and plan-
ning and management.

The consensus was stronger than many of us might have antici-
pated. Regardless of party affiliation or size of State, the Governors
were strongly in favor of a much more active State role in community
development than is possible in the current categorical grant system,
or in legislation, specifically S. 1743 and S. 1744, pending before the
Senate.

The returns indicated that nearly all of the Governors believe it is
logicial and proper to devise a system of Federal bloc grants which,
together with State grants, could be allocated to local government
through State-determined mechanisms for establishing priorities, and
supervising the progress of programs.

How active a role do the Governors seek for State government ?

The answer to this question is clearly implied in the questionnaire
returns. When the Governors speak of a State system for setting pri-
orities among local projects, they are clearly not talking about substi-
tuting State redtape for Federal redtape. They are not talking about
State project review procedures applying merely to specialized func-
tional criteria, which have frequently been the basis for Federal agency
review under the categorical grant system.

What the Governors are talking about is a different kind of proj-
ect review, one which takes place within the framework of a compre-
hensive planning process. The Governors envision a system in which
State and local projects are blended into a comprehensive set of com-
munity development objectives.

Arriving at these objectives depends in turn upon the development
of State planning capabilities at all levels : local government, sub-State
district and statewide levels.

It is for this reason that the questionnaire replies gave virtually
unanimous support to State delineation of sub-State districts, State

364

financial assistance to district planning agencies, and State review of
district plans.

The States have been moving rapidly to develop these State regional
local planning systems. As you know, the whole philosophy of State
planning has changed remarkably during the past decade. We are now
primarily concerned with program coordination and executive man-
agement.

The actions of the States to create regional mechanisms is equally
impressive. Forty States have already developed some form of uni-
form substance districting system, and four more States are about
to take such action.

In 288 of a total of 480 State districts, there currently exist in-
stitutional mechanisms for planning which are known by various
names: Councils of Governments, Regional Planning Commissions,
or Economic Development Districts. This represents remarkable struc-
tural change and progress for a movement that did not begin until
the mid-1960's.

The development of adequate State district mechanisms is essential
to the State review strategy for managing Federal bloc grants. It is
also becoming the policy of an increasing number of public interest
groups and governmental agencies.

At its 47th meeting on June 22-23, 1973, the Advisory Commission
on Intergovernmental Relations issued a comprehensive set of recom-
mendations concerning a uniform national policy which speaks to in-
stitutional development in districts and regions.

The Commission calls for greater State reliance on districts, with the
"umbrella multijurisdictional organization" (UMJO) as the preferred
regional organization. The Commission terms the State role in orga-
nizing substate districts "pivotal," and foresees that these umbrella
organizations may eventually have a direct influence on State budg-
eting, and with the approval of the local government members, author-
ity to provide public services on a regional basis.

Finally, the Commission calls for a gubernational veto over UMJO
actions which are inconsistent with programs or the policies of neigh-
boring organizations.

These recommendations are quite compatible with the National
Governors' Conference policy statement on housing and community
development because they stress an institutional mechanism that makes
State allocation and project review systems workable.

The UMJO is the most significant institutional innovation of this
century for creating State-local partnerships, and almost all States
are strongly encouraging their establishment.

The proposed Better Communities Act, S. 1743, now before this
committee, constitutes, in our judgment, a retreat from the new re-
gionalism. Rather than strengthening the movement toward State-
local partnerships and effective substate districts, agencies, this ad-
ministration proposal would drive a wedge between the States and their
urban communities.

Moreover, the methods proposed for distributing Federal funds are
not even consistent with other Federal legislation and programs that
encourage regionalism and an active State role in local planning and
community development activities.

Let me give you some specific examples :

365

First, the Intergovernmental Cooperation Act of 1968, establishes
what is now called A-95 review, a very effective device for coordinating
State and Federal projects on a regional basis. All categorical grant
applications for those programs which would be combined by this
committee into a single bloc grant must presently receive A-95 review
and comment. Why should not this procedure also apply to community
development bloc grant expenditures ?

Second, the 701 planning assistance program is moving legisla-
tively and administratively toward the State allocation of funds to
metropolitan agencies and large cities v,'ith State review of the local
proposed planning programs. Why should the States review pro-
posals for the planning activities that precede community development
projects, but be denied a role in overseeing the projects themselves?

Third, S. 268, the Land-Use Planning and Assistance Act of 1973,
recently passed by the Senate, calls upon the States to review land
development of more than 50 lots located more than 10 miles from the
boundaries of standard metropolitan statistical areas. It would ap-
pear inconsistent to require a State role in controlling the "second
home," but not require that role where the original homes are located,
in existing urban areas.

Fourth, under certain HUD programs, the mayor of a central city
can review Federal grants involving all other local governments in
the standard metropolitan statistical area.

If Chief Executive review and comment is a good idea for coordinat-
ing metropolitan community development activities through the
mayors, why is it not a good idea for coordinating statewide com-
munity development action through the Governors ?

I am convinced that the movement toward State-local partnerships
in the community development planning process is a strong one. It will
proceed under State auspices alone, regardless of Federal action.
Already we can observe the new pattern showing up in the attempt of
a number of States to reorient the delivery of specific public services.

For example, recently, the Minnesota Legislature passed the Reg-
ional Human Services Act and the Community Corrections Act. The
former encourages the integration of human services on the basis of
Minnesota's regional development districts, and the latter creates a
local planning, State subsidy and review system for community-based
corrections.

In our own State of Ohio, I can cite several examples of how State
government involves the local community in important phases of the
decisionmaking process. We have devised a new method of distributing
State LEAA funds that is attracting national attention because of its
strong emphasis on gaining local involvement in the grant process.

Our department of transportation has inaugurated at the district
level a program that involves citizens in the earliest planning stages of
highway projects — involving them at a point that permits changes to
be made to meet local objections and desires. State funds for com-
munity care of the mentally ill and mentally retarded are now funneled
through local boards, composed of local citizens w^ho are familiar
with local problems.

Obviously, this trend toward greater State-local partnerships will
be accelerated if we are given consistent Federal policies in all areas
of concern. This concept will be especially important in the area of

see

community development. Therefore, I would ur^e the committee to
consider ways of strengthening this trend through the legislation cur-
rently before you.

Mr. Chairman, we as Governors believe it is unfortunate that so
many decisions that directly affect our States and local communities
are made by bureaucrats sitting in Washington hundreds and even
thousands of miles way from the problems themselves. I know that
many Members of Congress share that view.

While we recognize that it may be necessary to put into effect interim
legislation in this area, we urge the Congress to provide for the kind
of open discussion that will involve the Governors and mayors of this
Nation in helping to devise a system that will permit local decisions to
be made at the local level, while assuring that the will of Congress in
setting national priorities will still be respected.

At our recent meeting, the new chairman of the National Governors'
Conference, Governor Dan Evans of Washington, noted that he in-
tended to seek closer working relationships with the National League
of Cities and the National Conference of Mayors. I propose that simi-
lar working relationships be set up among those organizations, the
Congress, and the administration. I stress the involvement of the ad-
ministration because many Governors have been dismayed at what
appears to be an attempt to revise the whole relationship between the
States and the Federal Government without any consultation whatso-
ever with the Governors themselves.

Mr. Chairman, I urge tlie members of this committee to permit the
Governors to sit down with you and with your staff members to devise
practical, workable systems to convert the will of Congress into ef-
fective programs.

I would propose that our committee on rural and urban develop-
ment be involved in such discussions, as well as our counterparts from
the mayors' organizations. I believe you will find, Mr. Chairman, more
agreement than you might have anticipated between the mayors and
the Governors. And I believe, too, that we will find similar basic agree-
ment on the part of the Congress, as well.

I sense the dawn of a new day in Federal-State-local relationships,
Mr. Chairman, and I hope the members of this committee will help
to bring that new day closer to reality.

Senator Taft. Thank you very much. Governor. I must say that I
am afraid I may have to cut this somewhat short because of commit-
ments on the floor. But we are very happy to have your testimony.

I am particularly interested to see the emphasis that you put upon
State participation in the community development area. As you have
mentioned, you served for a good many years as a councilman in
Cincinnati. Did you share those views at that time as to the direction
which federalism ought to go?

Mr. GiLLiGAN. I think, Mr. Chairman, that at the time of my service
in the city council, we were experiencing, in Ohio, what was being ex-
perienced around most of the country. In most State legislatures,
largely because of the apportionment systems in effect in those days
with the strong emphasis on rural representation, there seemed to be
a lack of responsiveness to urban problems. As a result, many of us
became convinced that the only way we were going to get the kind of
assistance we needed for the cities to meet the kinds of problems which

367

we were deA^eloping in the fifties and sixties was to go directly to
Washington and we did so.

When I was here, however briefly, I still bought that concept. I am
saying very candidly that a lot of my ideas in that area have changed
and the States have changed.

I think the structural and procedural changes that have taken place
in State government in the last 6 or 8 years have possibly been one of
the most remarkable and one of the most least noticed revolutions —
if you will — in American Government. And the whole thrust today, as
I tried to say in these prepared comments, is in the direction of the
decentralization of State government procedures to require involve-
ment at the local level. I think that pattern has developed very suc-
cessfully.

We are simply urging that in any legislation in the future, the Con-
gress give recognition to these recent developments and strengthen
them rather than undercut them or bypass them.

Senator Taft. I particularly remember — I think it was as recently
as 1968 — that my distinguished colleague, the Senator from Minne-
sota, Hubert Humphrey, then a Presidential candidate, made a classic
speech on new federalism in New Hampton, Conn. He described the
new federalism as a building of a new conduct between the Federal
Government and the metropolitan areas, directly; not going through
the State as contrasted to the real revenue sharing issue bemg advo-
cated at that point by tlie Republican candidate for the Presidency.

Mr. GiLLiGAN. Even more remarkable now is that the Republican
administration has picked up that position and attempted to imple-
ment it through the Better Communities Act.

Senator Taft. It sort of shifts it around. I do not think it is very
representative, one, because, frankly, the development of housing and
planning of the Federal Government seems to have had somewhat of
a monopoly in the past. We are now, through the revenue-sharing ap-
proach at least, facing up to the question of just what the relation-
ship of the State and local government should be.

I, for one, would welcome any input that the Governors' Confer-
ence and their staff can add to our thinking here, and it is most
welcome.

I do not think you will find, however, that all of the local govern-
ment groups and conferences and so forth are in agreement with you
on it. Do you?

Mr. GiLLiGAN. I would not expect all of them to be. But I would say,
sir, that there is a far broader basis of agreement between the mayors
and the Governors or between State government and local govern-
ment in these areas than one might readily anticipate.

Governor Dan Evans, the new chairman of the National Governors'
Conference, has proposed that a steering committee be set up of the
three members from the Governors' Conference and three from the
Mayors' Conference, and three from the National Association of
County officials.

Senator Taft. I am sure we would be delighted to be taken off the
hook, I might say, by the resolution of these questions between the
Governors' and Mayors' Conferences and other such groups because
we are sort of in the middle of it and want to do a little work.

368

Let me ask specifically about one other area. You have not made par-
ticular comment about the housing field insofar as rural housing is
concerned. How do you see the rural areas of the States coming in
there in any new legislation we might propose ?

Mr. GiLLiGAx. Well, as to the role of the States in rural areas,
whether it be in community development or housing or public works
of any kind, it is even more important because very frequently they
lack the governmental structures and the kinds of sophisticated staff
expertise which are required to deal with programs at this level.

So the committee, and ultimately the entire National Governors'
Conference, approved a series of statements involving the whole field
of services to rural areas, including housing, calling for new flexible
programs allowing the State an adequate role in assigning priorities
and giving support to the rural communities and getting housing pro-
grams of various kinds underway, new towns and so forth and so on.
I think that is a very special area where the role of the States can
be quite clearly seen as a fundamental aspect to the success of the
program.

Senator Taft. I find myself very much in agreement with you. Gov-
ernor, to get the groups of State governments to take on more partici-
pation in community development.

Now, do you think the States would be willing to match for com-
munity funds if the communities in States were to raise the level
of

Mr. GiLLiGAN. Our resources are not those of Federal Government ;
but in Ohio, we have already done that.

Senator Taft. You are not so much in debt either, are you ?

Mr, GiLLiGAN. That is true, but we have already, in the budget just
adopted, in the next biennium appropriated, for the first time. State
funds for the support of planning operations and activities in the re-
cently established regional planning areas.

We have, by Executive order, divided the State of Ohio into 11
service districts for State government. There used to be 366 over-
lapping administrative districts through which our State agencies
provided services at the local level.

Senator Taft. Does this tie in to the State legislative planning areas
and so forth ?

Mr. GiLLiGAN. Well, the second tier has 15 regional planning agen-
cies in areas where the planning groups are composed of local officials
choosing their own staffs and so forth. We are putting up $2 million
in the next biennium to help develop those planning districts, to help
staff them, to help provide them with the kinds of expertise they
need.

Now, there are going to be required some realinements of the orig-
inally established 701 planning agency units because they are concen-
trated in the metropolitan areas. They do not cover the whole State.

Senator Taft. Sometimes they combine those problem areas. You
have made some shifts in this recently, have you not ?

Mr. GiLLiGAN, We propose that ; yes. The so-called NOACA group
of nine counties in northeastern Ohio will be split into two regions:
one of five and one of four counties; in effect, centering one around
the city of Cleveland and its environs, and one around the Akron-
Kent area.

369

But, again, th6 thnist is on local planning. We do not propose in
any way to go into any of those areas and tell them what their prob-
lems are, never mind what the solutions to those problems are, but
rather to help them coordinate their own activities.

Senator Taft. Governor, in particular housing programs, of course,
the speed of particular housing programs is somewhat slow. But as
to particular housing programs, do you think we ought to earmark
specific percentages for State housing agencies?

Mr. GiLLiGAN. I have no fixed position on that at all. The money
is not really going to be spent except in some very rare instances by
any arm of the State government apparatus.

Senator Taft. Isn't New York doing this right now ?

Mr. GiLLiGAN. New York has set up their own. It is unique, I be-
lieve, in the country.

Mr. Lincoln may have a comment on that, but they have their own
State agency which has authority to move into a community and the
authority assigned them under the laws of the State of New York,
which supersedes the local authority, but I think that is unique. Is it
not?

Mr. LiN(X)LN. Mr. Chairman, I believe the Governor is referring
to the North State Urban Development Corporation which is one of
three agencies which operates in New York and which is capable of
producing housing and assorted other housing community facilities.

The UDC, as it is called, was able to move into communities in a
very aggressive way and possessed the power of eminent domain and
was able to override zoning and so on. The New York Legislature has
recently stripped the agency of at least some of those powers.

I might just add to that, there are now housing finance agencies
which typically do not have the kinds of development powers that
the Urban Development Corporation in New York has.

There are now some 30 States which have created these sorts of
mechanisms to involve themselves directly in the financing and produc-
tion of subsidized housings.

Mr. GiLLiGAN. We have such a mechanism in Ohio. But a parallel
might be found in a couple of other fields. The great thrust in the care
of the mentally ill and the mentalh/ retarded in Ohio and most other
States is to move away from the old State-operated, huge institutions
out in the countryside — often referred to as warehouses for human
beings — into community mental health and community mental retarda-
tion programs run by local community groups established under State
law, funded by the State, and that is what we are doing.

The same is true of vocational education districts in Ohio. Some-
times, they are multidistricts. In other words, they cross school dis-
trict lines. There is a need for vocational institutions, vocational
training institutions, which no one district can maintain out of its
own resources.

Again, we established, in State law, an authority to run that voca-
tional education district program and the State funds its operation.

Now, it seems clear to me that if the States were to play a more active
role in the field of housing, I would look to that sort of mechanism
for the development of a housing program. The State would act
primarily to funnel the money to the local level.

370

Senator Taft. In fields of manpower training and education, do you
feel you have either more opposition, perhaps, or either more of a
split? I happen to be a ranking leader of the Manpower Committee,
and, there, the Governors' feelings, as compared to the desires and as-
pirations of most of the local officials with whom we talked, seem to
represent a very broad gulf indeed.

Mr. GiLLiGAN. Again, the complaint from the Governors is that by-
passing the States will not just hurt the feelings of the Governors
but will render the programs ineffective in the long run.

We think that by using the federal system and conducting the pro-
grams at the three-tiered arrangement of the Federal Government, a
far better job can be done, and I know that our own people in the field
of manpower training and employment in Ohio feel that very strongly.

We have the problem of attempting to develop coordinated pro-
grams throughout the State rather than a multiplicity of self-encap-
sulated little programs running with complete disregard to what may
be going on 20 miles away.

It is a matter of simple efficiency to do it on a larger regional basis.

Senator Taft. Thank you very much, Governor. I think that com-
pletes any questions I have. I appreciate your being here. You have
been very helpful.

Mr. GiLLiGAN. Tliank you, Mr. Chairman.

Senator Taft. We have some communications that Senators
Abourezk and Clark submitted for the record.

[The information follows:]

[Telegram]

July 7, 1973.
Hon. James Abourezk,
Senate Office Building,
Capitol Hill, Washington, D.C.

Please add my name to those supporting your Emergency Rural Housing Act.
This legislation providing for county and regional housing authorities with con-
sumer input for rural areas is desperately needed if we are to begin to have a real
impact on this desperate situation.

Wendell R. Anderson, Governor.

Rosebud Housing Authority,
Rosebud, S. Dak., July 11, 1973.
Senator James Abourezk,
U.S. Senate,
M^ashington, D.C.

Dear Jim : I have received information this date concerning your proposed leg-
islation for the establishment of a Federal Rural Housing Agency. You have my
whole-hearted support for this urgently needed piece of legislation which I
understand will be entitled the Emergency Rural Housing Act of 1973.

Public housing legislation from its inception to the present time has placed
too much emphasis on urban housing and development problems and too little
on problem areas related to rural families.

I will be more than happy to supply documentation at my disposal to support
your legislation and the need for such legislation.

Warmest regards,

Elmer D. Whitepipe,

Executive Director.

371

Statement of Jim H. Hopper, Executive Director, Idaho Housing Agency
LOW income rural renewal concept

The basic rural problem

Anyone who studies the rural housing condition of America rapidly discovers
that the migration of families to urban centers has left a void in rural America.

The assumption of most urban-oriented studies of rural America is that nothing
can be done beyond expansion of the present Farmers Home Administration,
merely to broaden the interest credit subsidy program to encourage develop-
ment of rural areas.

Pointedly, the lack of employment, the lack of persons with skills in con-
struction and development, the availability of finance, and the lack of family
services in rural areas are outlined as the problems.

While in fact partly correct, these "problems" are merely indicators that rural
blight exists. Any basic concept of housing, whether rural or urban, must be
considered in the context of political acceptance of the community and the people
it is to serve. Rural states' most notable philosophy is one of free enterprise.
Housing, on the other hand, is becoming more and more socialistic.

The real solution to the problem of housing rural America is finding the accept-
able alternative between these two philosophies.

Private enterprise has not and cannot provide housing at the price and loca-
tion the potential rural homeowner or tenant wishes and can afford. Total social
support of any person or family is unacceptable in rural America, both to the free
enterprise oriented producer and to the families supported by social programs.

Almost without exception, low income families living in rural America
accept the difl5culties, the bad housing, the lack of communication, the lack of
media-advertised luxuries of living, and the social abuse of being a recipient of
Federal and state support, in order to maintain their need for individualism
and the personal freedom of living in the open countryside. But these families
can and will work diligently and fruitfully to bring about a more comfortable
life style, if the resources are made available.

Houses vs. homes

Before any discussion, plan, or design of a living situation in rural America
can be considered, a vehicle to serve the constituency of housing must be de-
veloped. It must provide for profit-making, for land use and development, for
job opportunities and employment, and the very real need of the homemaker to
establish a comfortable nest for the rearing of a family, or comfort to the elderly.
Each of these must be served, and the design for a house that is both acceptable
and affordable has to be a joint venture acceptable and agreeable to the total
community (economic, political and social).

Federal support to the lender encourages the availability of finance. Direct
Federal subsidies to the homeowners, encourages participation of the rural poor.
Nonprofit sponsorship does provide broad-based ownership. Public housing au-
thorities do reduce rental costs to the low income family. Attempts to apply these
techniques have succeeded to some degree, but have fallen short in stimulating
and encouraging acceptable development in rural America.

It must be our first concern to reduce to the common denominator all known
delivery systems in an attempt to identify the system that will develop and
deliver housing units to rural America and provide input and takeout for the
total constituency or rural housing.

Hence, the problem is reduced simply to finding a nonprofit-sponsored, self-
help, local housing authority, tax-paying with Federal support, consumer-
endorsed, financeable design with a relocatable and resalable shelter unit. The
system is ordered to comply with the needs of the recipient and to conform to
the ecological demands of life.

Applying this concept to the economics of scale in sparsely populated areas
requires a broad-based, equity-developing system of ownership.

Housing rural America

The ownership, of necessity, must be a joint venture between the sponsoring
organization and the borrower. Developing this into any known legal concept
identifies the vehicle as a broad-based, cooperatively-owned utility corporation

99-855 O - 73 - pt. 1 -- 25

372

empowered to sell tax-exempt revenue bonds and providing for a lease/purchase
arrangement between the cooperative and the cooperative member-homeowner.
The initial equity to insure the sale of the tax-exempt revenues may be developed
through the faith in credit of the United States Government, the pledge of
State or local governments or by private mortgage insurance.

In comparing this need with known vehicles, the closest identification is the
rural electric cooperative associations that brought electricity to rural America.
Careful analysis of the RBA concept shows it to be not unlike a public housing
authority. Yet its owners are the people it serves. It is financial because its
financial statement is that of all its members. Direct low cost Federal loans have
provided the capital, and Federal guarantees have provided the collateral the
lender needs to make a safe loan. To provide housing in sparsely populated rural
areas, the system must take into account the problems of financing, construc-
tion, and management, and do so with the minimal amount of primary and
secondary cost.

The role of federally assisted housing programs in this concept is basically one
of providing guarantees and collateral. The viable program of assistance would
be the recognition of the rural cooi>erative as a local housing authority capable
of applying for Federal funds to build public housing projects for elderly per-
sons with little income and for low-income single family based structures. In this
manner, the cooperative could provide for the full spectrum of housing needs in
rural areas. Federal Public Housing objectives would have to be broadened to
recognize the particular problems of rural housing and to allow for the maximum
opportunity for project feasibility in sparsely populated areas.

Tax exemption and tax shelter of its indebtedness encourages lower cost
financing. The participation of members will provide for employment and self-
help. Its units are guaranteed resalable because first ownership is retained in
the utility corporation. The corporation's assets will produce taxes to local gov-
ernments, as in a cooperation agreement with the local housing authority. Fed-
eral guarantees of repayment or private mortgage insurance will provide market-
able bonds for the indebtedness. A one-time write-down at construction with
special arrangement funds would at the same time reduce the cost to a purchaser-
tenant and do away completely with on-going built-up subsidies.

Alternatives of ownership

The cooperative member can lease from the corporation based upon a per-
centage of income and could acquire equity by any additional investment de-
posited against the obligation of the unit he occupies. The cooperative concept
has already been proven acceptable in buying and selling farm products, as well
as electricity. The shelter provided could be single-family, multi-family, or con-
dominium. It can house single persons, families, the elderly, transient farm labor.
It would provide additional social support to its members by the very nature of
its activities. Within this delivery vehicle, the acceptable and affordable design
of shelter for low income families would be broadened because the designs would
be available to the entire population and would remove stigma of status.

Small declining areas

The use of new materials and technology will reduce considerably the cost
of construction and maintenance while providing for the extension or discon-
tinuation of service, and all allow a life style choice to the rural poor without
appreciably affecting the financial statement of the total cooperative. Popula-
tion centers that are declining, but project a need for ten to twenty years, can
be served.

Present methods of financing require that such communities be by-passed,
encouraging their decline and assuring that the population migrate. The one-
time write-down will provide a direct control for land use planning and other
orderly growth patterns that are now lacking in rural America. Manpower and
Work Training Programs could additionally reduce the costs, and a redescrip-
tion of "welfare" is contained within the productivity of the cooperative mem-
bers.

Statement of Dick Clark, U.S. Senator From the State of Iowa

CONCERNS of IOWA CITIES

Mr. Chairman, in the seven months of the freeze on housing and the cutbacks
on community development programs, community leaders in Iowa have empha-
sized to me their great need for those programs which, in the recent past, have

373

enabled them to provide housing, improve water and sewer facilities, and renew
decaying downtown areas.

Like community leaders throughout the country, they want funding that will
enable them to finish projects already begun and develop new projects. They
have expressed a great deal of concern about this interim period, and about the
different revenue sharing proposals.

' When the Administration's Better Communities proposal was announced in
May, I wrote to the Mayors of a number of cities in Iowa to request their re-
action to that specific proposal and the conceijtof revenue sharing. The replies
were very thorough and thoughtful.

In those letters and in conversations, many Iowa community officials have
indicated that they support some kind of community development revenue shar-
ing. But they have also mentioned serious doubts about a number of aspects of
such a program, especially the allocation system. Their doubts, outlined in their
letters, raise questions that should be considered when the allocation system is
worked out.

Serious questions about the block grant approach itself have been raised
by Frederick Stouder, Director of Planning and Development of Burlington,
Iowa. I think his questions deserve serious consideration. Mr. Stouder believes
that proposals for new methods of funding are obscuring the real problems
faced by cities in this country. He says the cities deserve attention — priority
attention — and I agree with him. His query is, I think, a valid one — where do
the cities stand in the priorities of the United States? I believe that block grant
funding may improve our over-all urban situation through its emphasis on local
solutions to local problems. But such a result will be possible only if the Con-
gress clearly demonstrates the conviction that the cities deserve priority atten-
tion, and I hope this Subcommittee will make that conviction clear in the
legislation it reports.

I would like to request that the following letters be included in the hearing
record along with my statement.

City of Burlington, Iowa,

May 10, 1973.
Senator Richard Clark,
U.S. Senate,
Washington, B.C.

Dear Senator Clark : I would like to take this opportunity to briefly discuss
two issues: (1) The future of community development programs as they relate
to Special Revenue Sharing Proposals now and beyond July 1, 1974; (2) The
current status of our Neighborhood Development Program. Central Burlington
NDP Iowa A-9.

Mayor Wayne Hogberg of the City of Burlington, Iowa, recently sent a tele-
gram to Congressman William J. Scherle who serves on the House Appropria-
tions Committee and the Subcommittee on HUD Appropriations. The telegram
read :

"The City of Burlington, Iowa, is very concerned about the future of housing
and urban development programs during the transition to Special Revenue
Sharing or whatever programs replace the existing one. Burlington is currently
engaged in a half-million dollar yearly residential and commercial redevelop-
ment program that could be severely jeopardized if the transition to urban de-
velopment programs is not continuous. We urge that a continuing resolution
be passed allowing urban development programs to continue with at least the
current funding for the next fiscal year. Burlington is entering the second year
of a 5 to 7 year HUD Neighborhood Development Program project involving
some 4 to 5 million dollars in total funds. We urge you to support a resolution
authorizing the continuation of the current programs".

We are very concerned about the future of federal programs. We are not
satisfied that Special Revenue Sharing alone is the device that is needed. Addi-
tionally, we are concerned that during the transition to replacement programs,
momentum and continuity could be lost — severely jeopardizing total community
efforts and gains made in recent years and months.

As you are probably aware, intensive efforts have been underway for several
years in Burlington toward residential and commercial redevelopment efforts
utilizing the Neighborhood Development Program as a resource. Tlie City Coun-
cil, City Plan Commission, the Maple Hills Neighborhood Organization, the Cen-
tral Business District Advisory Board, the Shopi>er's Advisory Group, and vari-
ous committees of the above have spent considerable time and hours in develop-
ing the future plans and priorities for the future of Burlington.

374

Now we are being told that the city's priorities aren't to be taken into con-
sideration under current HUD regulations relating to what lias been called the
"Hyde Memorandum". At a time when the federal government is supposedly
shifting to increased emphasis at the local level, guidelines for doing so are
eliminating local priorities arrived at through intensive citizen and public in-
volvement— another HUD desire and criteria.

On April 1, the city submitted its Second Action Year Neighborhood Devel-
opment Program to the HUD area otfice in Omaha, Nebraska. This application
was the result of the planning efforts and accomplishments during the Firs.t
Action Year. We expect that this application will be acted on shortly. Our pro-
gram year coincides with the federal fiscal year and hence the application must
be approved by June 30, so our program can enter and complete its second
stage. Any help you could give us on this matter would be appreciated by all
the citizens that have been involved.

If you wish additional information concerning our program, please do not
hesitate to contact me. We will do everything necessary to insure the continua-
tion of our Neighborhood Development Program and hope you can assist us in
this task.

Sincerely,

Frederick C. Stoudek,

Director,
Department of Planning and Development.

City of Burlington, Iowa,
Burlington, Iowa, May 3, 1973.
Senator Richard Clark.
Washington, D.C.

Dear Senator Clark : I would like to express my appreciation for the oppor-
tunity afforded me and the City of Burlington for allowing our views to be
made known on the many issues facing our cities and towns. The meeting which
you held on Friday, March 23, in Cedar Rapids, Iowa, to accomplish this pur-
pose was an excellent one.

As I mentioned during that meeting, we are extremely concerned with the
future of federal categorical grant prol>lems for url»an and rural areas. It is
important to remember that these categorical grants were born as a response
to the unmet needs in the nation. Urban and rural areas lacked (and continue
to lack) the resources, technical and financial, to adequately identify and solve
many of the complex issues confronting them. From the Housing Act of 1949
to the Lead Base Paint Poisoning Prevention Act of 1971, the federal govern-
ment has been in the business, rightly I think, of pointing the finger at areas
of need that can only be attended by a nationally coordinated source of financial
and technical resources.

While it may be true in many instances that the "red tape" (which we hear
is a reason for the elimination of such programs) from these programs have
resulted in time consuming and seemingly wasteful efforts and actions by cities
and towns, much of the "red tape" arose as a result of administrative needs. In
many cases, problems and conflicts resulting in the management of the many
categorical programs were not the result of too much or too little "red tai>e".
but from inadequate management and leadership at all levels and unclear and
contradictory goals and purposes at the national level. What has l)een most lack-
ing in many of the px'ograms has been a clear and continuous commitment from
the federal government that the purposes of the legislation creating a program
would be met and the commitment totally realized.

Again we are faced with that problem. Federal categorical grant programs
and social action programs are being "terminated", "winded down" and "folded-
in" to the new nebulous "special revenue". When President Nixon originally
proposed the idea of revenue sharing in 1969 it was agreeded that general reve-
nue sharing would be new money, not old money from federal programs. Now
after less than one year of general sharing, federal categorical grant programs
are being "terminated" in anticipation of "special revenue sharing". As one
mayor has said, there's been "a gigantic double cross".

375

In the debate over revenue sharing and its formation, amount, and reason
for being, one important element has been obscured. It doesn't matter what the
answers are, if we are continually asking the wrong questions. And the question
we should be asking is, "How with all the present resources, financial and tech-
nical, when we have fallen measurably short in both quantity and quality, of
reaching our goals, can we be ending programs and reducing those resources"?
To perhaps agree that needs have been going unmet is not to then agree that
a reduced effort will be just, or will sufiice. And to announce that the social
and physical ills have been cured is a gross exaggeration and misconception of
our current situation.

By statistical manipulation in recent years, the federal government has at-
tempted to illustrate that poverty has been reduced, that housing construction
goals are being met, and that in general, social exjjenditures in our federal
budget are annually becoming a greater proportion of the total outlays.

Those assertions are distortions of fact. The income gaps in the United States
are widening as several recent studies have pointed out, not narrowing. Many
of those working are actually working poor — and many of those who need work
have long since given-up and have been removed from the unemployment statis-
tics. There are some indications that in the central areas of our large cities un-
employment being as high as 35% not 5% as is the national average or the 10%
figure often cited for our inner cities. And whatever happened to 3% unemploy-
ment rate as the full employment goal?

The Housing Goals established in 1949 and reaflirmed in various years in-
cluding the 1968 Housing & Urban Development Act which created the Neighbor-
hood Development Program have not been met. Statistical manipulations make
it appear that we are reaching and in some cases surpassing, our yearly goals,
but these published figures are now for the first time including mobile homes —
a housing facility of yet undetermined adequacy. For example, most lending
institutions will only allow mortgages of no more than ten years on mobile
homes. In addition current federal housing policies and the moratorium on hous-
ing assistance programs only further the deterioration of the older neighbor-
hoods of our cities, large and small.

The federal budget of over 265 billion dollars contain almost 200 billion dol-
lars of funds that can not be tampered with such as social security funds, high-
way trust funds, interest, railroad pensions, etc. Human Resources Programs
occupy a much smaller role in the federal budget than popularly thought. In a
country that is number 1 in the world in military power we are 8th in doctor-
patient ratio, 14th in literacy, 14th in infant mortality, and 25th in life expect-
ancy. How strong are we? The inclusion of veterans benefits and social security
payments as part of the human resource budget of the federal budget obscure
the real facts that most of our human resource needs are being unattended.

The country today needs a clear, sound, and firm direction from Washington.
Public servants all across the nation are becoming more confused, frustrated,
and unsure in the administration of local programs because of unclear national
efforts. We need strong national leadership to assist those at the state and local
level in providing the leadership needed at these levels of government.

The City of Burlington has made gigantic strides in bringing its government
closer to the citizens, in attempting to identify and solve the many complex phys-
ical and social problems that face any local community. But like other com-
munities, we can't do it alone without national financial assistance and a national
total commitment. We ask your support in assisting us in continuing our efforts
in housing, redevelopment, and total community wide development both social
and physical. We are concerned that much of the current legislation being intro-
duced under the guise of revenue sharing would not provide the resources neces-
sary. If special revenue sharing means a reduced national effort, then we are
against it.

Again, I wish to thank you for the opportunity you provided us in Cedar Rapids,
and look forward to meeting with you in the future on these and other matters
of mutual concern.
Sincerely,

Frederick C. Stouder,

Directo?;
Department of Planning and Development.

376

City of Cedar Rapids, Iowa,

May 25, 1973.
[Memorandum]

To : Mayor Canney, Comm. Phillips, Comm. Seliaefer, Comm. Oberthien, Comm.

Reinis, and Don Salyer.
From : Thomas L. Aller, Intergovernmental Coordinator.
Re: Analysis of a Better Communities Act (B.C.A. ) "The Allocation Formula."

In an effort to provide a review of this most important legislation, I have
assembled the following information. It should be remembered that this bill is
the President's bill. Congress most certainly will make major changes, but these
are not reflected in this memorandum.

We are interested in those commitments the federal government has made to
Cedar Rapids during fiscal years 1968-1972 (inclusive). Tliis means grant awards
between July 1, 1967 through June 30, 1972.

Before proceding, it may prove helpful to indicate those grant awards in
question.

I. Programs consolidated under B.C.A. in which Cedar Rapids has participated :

A. Urban Renewal

B. Neighborhood Development Programs

C. Basic Water and Sewer Facilities

D. Open Space

E. Rehabilitation Loans.

II. Programs consolidated in which Cedar Rapids has not participated in :

A. Model Cities

B. Neighborhood Facilities

C. Historic Preservation.

D. Public Facilities Loans.

The following information concerns our grant commitments and dates of
award. Later in this memorandum, the significance of these dates and figures
will become evident.

A. Urban Renewal (Federal Share) :

R-&— October 1965, amended June 26, 1969 and August 6, 1969.

Federal Grant : $1,642,226.

R-13— June 22, 1966, amended July 2, 1970.

Federal Grant : $10,471,661.

B. XDP (All dates, April 1 of each year) :

1st Year: $1,000,000.
2tid Year: 900,000.
3rd Year: 944,732.

C. Basic Water and Sewer :

Vinton Ditch— April, 1971.
Federal Share : $895,000.

D. Open Space :

OSA-7— November 22, 1967.
Federal Share : $83,050.
OSA-21— May 13, 1968.
Federal Share : $30,426.83.
OSA-24— September 25, 1967.
Federal Share : $15,055.72.
OSA-a^r— June 14, 1968.
Federal Share : $367,000.
OSA-40— September. 1968.
Federal Share : $17,375.
OSA-44— June 6, 1969.
Federal Share: $232,282.
OSA-51— June 23, 1971.
Federal Share : $7,550.

E. Rehabilitation Loans (NDP)

1st and 2nd Year : $34,500.

3rd Year: 9,600.
Under the terms of the BCA, Cedar Rapids would receive $1,348,000.00 plus
$70,000.00 SMSA Discretionary funds, for a 1st year total of $1,418,000.00. This
is supposed to represent our "average" for commitments for FY 1968-72. A care-
ful review indicates the procedure used to calculate this figure to be grossly
unfair.

377

The following explanation demonstrates how the federal government computed
this figure. Averages are arrived at by adding all awards, dividing by total
months of all projects (monthly average) and multiplying resultant by 12, to
get a yearly average. These figures are close approximations. Certain amend-
ments and extensions explain why my figures are not identical to the federal
figures. My pur^wse here is to demonstrate how our allocation figure was
calculated.

1. XDP (add years 1, 2, 3) :

$2,844,782 divided by 36x12 $948,260.64

2. Open space :

$761,739.55 divided by 120x12 76,173.96

3. Rehabilitation loans :

$44,100 divided by 36x12 14,700.00

4. AVater and sewer :

$895,000 divided by 30x12 383, 568. 00

Total— Average yearly 1,422, 702. 60

My area of greatest concern here is our two Urban Renewal Projects, R-9,
R-13. As stated, the "Better Communities Act" stipulates, for the purpose of
determining each city's share, that only commitments during FY 1968-1972, may
be counted. If this is so, neither of our I'rban Renewal Projects would be in-
cluded since R-9 was approved October 15, 1965 and 'R-13 was approved June 22,
1966. This is grossly unfair.

If our Urban Renewal monies are not counted, any dollar representation alloted
Cedar Rapids, excluding these commitments would not truly reflect our com-
munity development activities. Any legislation that would not take this into
account would not be in the best interest of Cedar Rapids, let alone not being
fair at all. The calculations below represent what I consider accurate yearly
averages in these areas.

I. Project Iowa R-9.

Grant amount : $1,642,226.

Yearly average: $1,642,226.00 divided by 60 months x 12= $328,445.20/year.

Project Iowa R-13.

Grant amount : $10,471,661.

Yearly average: $10,471,661.00 divided by 60xl2=$2,094,332.20.

Yearly urban renewal average :

R-9 $328,445.20

R^13 2,094,332.20

Total 2,422,777.40

So one can easily see, that our yearly average in community development
activities is really not represented in the $1.4 million dollar allocation. Rather
it should be in the neighborhood of :

All consolidated programs $1,422,702.60

Urban renewal (R-9, R-13) 2,422,777.40

Total 3, 845, 480. OO

One can readily see the theory behind the Administration's bill. Since most
Urban Renewal Projects were approved prior to FY 1968, literally hundreds of
millions would be saved by the government by excluding all U.S. cities with
Urban Renewal projects approved prior to July 1, 1967. In a word, this is
"unfair."

I will be conveying to you in a separate memorandum, an analysis of the bill
itself, probably later next week.

City of Cedar Rapids, Iowa

June 15, 1973.
Senator Dick Clark,
Washington, D.C.

Dear Senator Clark : Pursuant to your letter of May 11, 1973, addressed to
Mayor Canney, concerning his evaluation of "A Better Communities Act," (BCA)

I am enclosing the following information. I have attempted to review this
legislation from Cedar Rapids' standpoint.

378

Enclosed you will find a copy of a memorandum preimred for the Mayor and
City Council which attempts to explain the allocation formula contained in the
BCA. Hopefully, this will answer any questions concerning adequate funding
levels. It must be remembered, that the exclusion of Urban Renewal projects
also excludes the City's share of the total project costs.

With reference to the bill itself, there are several areas of concern :

I. SECTION V : STATEMENT OF COMMUNITY OBJECTIVES

Conclusion : The concept of a "strategj' statement" or expanded Annual Ar-
rangement Agreement is fine. The problems arise when we begin to examine the
processes being utilized.

(a). What will be the role of the HUD area office in reviewing this community
statement?

(&) ^\Tiat rules and regulations will area HUD be allowed to establish?

(c) What "levers" will the HUD area office retain in order to insure that
local communities will seek to further certain "national" objectives?

(d) Will there be any "percentage" ratios that HUD will impose which may
restrict local decision makers in the expenditures of their monies? If the
"freedom" of the purse is at all akin to the "General Revenue Sharing" legisla-
tion, then local policy makers are restricted in their choices of expenditures.

(e) How will the A-95 requirements be altered, if any? (Especially in light
of HUD's emphasis on multi-county regional planning commissions)

(f ) Will local communities have an opportunity to comment, prior to imple-
mentation, on any new rules and regulations, which HUD may establish? It is
crucial that we do.

iff) Will HUD area offices be given authority to seek "modified" community
statements, prior to granting their approval? This could severely restrict local
policy making, if HUD can alter local i)lanning processes, simply to insure
we spend our money as they see fit. It would defeat the whole purpose of con-
solidation if this prove.7 true.

(h) Will adequate provisions be written so cities will have an opportunity
to revise their statements if HUD so dictates, so that program continuity may
be maintained?

The whole problem with Section V, is that it is too ambiguous and leaves far
too much discretion to the Secretary of HUD. If we are going to switch processes,
then it is crucial we know the rules before we start. Otherwise, administration
will consume a disproportionate cost of community development activities and
efficiency will be restricted.

II. SECTION VII : ALLOCATION OF MONIES

The attached memo should clarify our reservations with this section. Although
we are not a Model City, I would imagine Des Moines is very upset with this
section as it would severely jeopardize the flexibility they would have in spending
their money.

(a) Subsection F: There must be provisions to challenge the Secretary's
calculations of respective allocations. As it is written, there would be none. This
could become very important as sub-sections C-E apply. The left over hold-
harmless monies would become extremely significant.

It is obvious that Cedar Rapids can only lose money under the provisions
of this bill. Certainly, to say communities will receive monies under this bill
equal to that received under categorical programs, is not accurate.

The other area of major concern to us, is in the area of housing. As I under-
stand, the hou.sing legislation will not be introduced until fall. Now, how can
cities develop community plans without assurances for housing programs?
The two areas need to be closely coordinated. For example, if we plan for a
certain neighborhood parks, streets, water, sewer, etc., but no housing units,
what good is the plan? Secondly, if the housing legislation includes the provision
that money go to the States for distriltution as indicated, cities are in even
more trouble. What would be created would be a political bottleneck. Instead
of cities meeting their housing demands, all that major cities would get done
would be to see which one could exact the most pressure on the Governor to
see that more money would come to that city. Does one call this better planning?

379

III. SECTION X : DAVIS-BACON

This section has tremendous significance. At the present, Davi.s-Bacon applies
to categorical programs where projects are shared on a 50-50, %-%. 75-25
ratio. Also General Revenue Sharing regulations set the minimum at 25%.

This would remove any minimum. It also extends Davis-Bacon to residential
developments over 12 family units. The legislation needs to be clarified to define
if this section is speaking of public or private or both developmental sectors.
This could be a very costly provision to cities.

IV. SECTION XIV : RELOCATION PAYMENTS

This section eliminates relocation payments to this displaced by CD.
activities. This area should not be eliminated.

Hopefully, Congress will study this bill and make substantial changes. Cer-
tainly the bloc grant approach is acceptable with us. The areas I have noted
need further review and clarification. I would be happy to discuss these points
in more detail with your staff at any time. Cities cannot afford to have this
important legislation passed without helping shape it to best meet their needs.
If I can be of further assistance, please contact me.
Sincerely,

Thomas L. Aller,
Intergovernmental Coordinator.

City of Davenport, Iowa,

June 25, 1973.
Senator Dick Clark,
Senate Office Building, Washington, B.C.

This is in response to your letter requesting feedback on the adequacy of
proposed funding under the Better Communities Act, now before Congre.ss.
I requested an evaluation from our Department of Community Development
and received the following statement from the Director, Gene Johnson.

"The $902,000 indicated for Davenport on a yearly basis appears to be
higher than the average annual funding that we have received from these types
of programs in the past. Our average, it might be pointed out, is extremely low
based on the fact that Davenport was so late involving itself with this sort
of Federal Assistance. I think we could safely say that under no circumstances
is this amount of money adequate to meet the needs of the citizens of Davenport
and those programs that it is intended to replace. I might point out that
even though this amount is more than the previous five year average that we
have received, it is probably less than the amount that was received in the year
immediately preceding and unquestionably less than the amount that had been
applied for.

"Even though there appears to be benefits in the Better Communities Revenue
Sharing Act, namely the elimination of long application process and more local
control over the types of activities on which the funds will be spent, I believe
it is extremely unfortunate that our "Hold Harmless" amount is as low as it
is. I believe that this matter should be protested to the Senators and Congress-
man Mezvinsky, citing the case that the City of Davenport and its citizens
should not be penalized because we had not previously participated in Federal
programs to the extent of many other communities."

Mr. Johnson's statement has my concurrence and approval and I can't state
strongly enough the feeling that present day Davenporters should not be
penalized for the failure of the City to recognize and take .advantage of the
opportunities in Federal funding programs in the earlier years. In recent
years Davenport has become a City which acknowledges its problems and is
trying to do what is necessary to solve those problems. Under such circum-
stances, in fact, we say that Davenport has an excellent logical reason for
requesting a disproportionally large share of the Better Communities Act money
in order to catch up with long overdue needs.

We appreciate greatly the initiative taken by you to get our response and
opinion and hope that constructive amendments to the Act will be possible.
If there is anything more we can do to assist, we will be most happy, and once
again I thank you for your assistance.
Sincerely yours,

Kathryn Kirschbaum,

Mayor.

380

Senator Taft. The next witness will be the Honoi-able Gladys Noon
Spellman, president of the National Association of Counties. Mrs.
Spellman, I am very glad to have you here. You may proceed with any
prepared statement you may have.

STATEMENT OF GLADYS NOON SPELLMAN, COUNCILWOMAN,
PRINCE GEORGES COUNTY, MD., PRESIDENT, NATIONAL ASSO-
CIATION or COUNTIES, ACCOMPANIED BY JOHN C. MURPHY,
LEGISLATIVE REPRESENTATIVE

Mrs. Spellman. Thank you, Mr. Chairman. I am Gladys Spellman,
president of the National Association of Counties. I am also a mem-
ber of the County Council of Prince Georges County, Md.

I would like to introduce Mr. John C. Murphy, who is a legislative
representative.

Senator Taft. I wonder if you might try to talk into the micro-
phone just a little bit more or perhaps wait until the room quiets down.

Mrs. Spellman. Is that better ?

Senator Taft. Fine.

Mrs. Spellman. I was just introducing Mr. John C. Murphy, our
legislative representative for NACo, which is the affectionate name
for the National Association of Counties.

The National Association of Counties represents nearly 1,200 county
governments which together comprise 70 percent of the Nation's
population. As such, counties — and particularly urban counties — ^have
a tremendous stake in housing and community development programs
which vitally affect our residents.

We wish to commend the chairman and members of the subcom-
mittee for proceeding with these hearings on community development
legislation despite the fact that proposals from the administration
concerning the federally subsidized housing programs will not be
forthcoming until early September.

Surely, we agree with you that there is much that can be done in
shaping meaningful community development legislation prior to
September. Of course, in saying this, we nonetheless concur with the
distinguished chairman's remarks — that is. Senator Sparkman — of
May 8 upon introduction of S. 1743 and S. 1744, that new community
development legislation cannot be enacted without corresponding
housing subsidy programs.

The subcommittee has before it two bills : S. 1743, the administra-
tion's proposed Better Communities Act, and S. 1744, the Community
Development Assistance Act of 1973.

These bills are designed to consolidate a number of categorical pro-
grams now administered by the Department of Housing and Urban
Development into a single program providing flexibility and certainty
of funding for local communities. While both bills are similar in
principle, their particular provisions vary, in some cases considerably.

I would like to comment briefly on the concept of program con-
solidation evidenced in both bills. I need aot recite the frustration we,
as local elected officials, have encountered with the categorical pro-
grams which are filled with their attendant redtape and a lack of
flexibility.

381

Local elected officials need a sufficient ^amount of flexibility and cer-
tainty of funding from year to year to enable them to adapt both Fed-
eral and local resources to fit changing and varied local conditions.

In other words, we at the local level — accountable as we are to our
constituents — must have the opportunity to achieve maximum local
priority-setting and decisionmaking.

NACo, therefore, supports the provision within the Better Commu-
nities Act which consolidates all seven H["D categorical programs —
urban renewal, model cities, water and sewer, open space, neighbor-
hood facilities, rehabilitation loans, and public facility loans.

However, by adding the model cities and public facility loan pro-
grams, which were not in last year's Senate bill, to the consolidation,
we believe that the authorization ought to be increased above the $2.3
billion level for fiscal year 1975 proposed by Ihe administration. A
fiscal year 1975 program level of $3 billion, and $3.5 billion for fiscal
year 1976, would seem to be the very minimum that would be needed.

NACo also supports the provisions in the Better Communities Act
authorizing formula as well as hold-harmless treatment for urban
counties, defined as counties within a metro])olitan area having a
population of 200,000 or more exclusive of the population of metro-
politan cities therein.

The Better Communities Act, as did the House Bankmg and Cur-
rency Committee during the 92d Congress, H.R. 16704, recognizes
the relative need for community development funds by a select number
of urban counties.

This recognition results from a determination that the problems
which such funds seek to solve are not solely confined to metropolitan
cities, nor are they the sole responsibility of such cities to solve.

The 200,000 base population figure for urban counties was chosen
since it seemed to equate the criteria of need, powers, and the expec-
tation of using formula funds of such counties vis-a-vis metropolitan
cities. In addition, for those urban counties which lacked past pro-
gram experience, a formula share of funds carrying with it flexibility
and certainty was felt to provide the necessary incentive to get these
counties in a position to address their needs.

The critics of including urban counties in the formula distribution
of community development funds have cited the fact that it would
give funds to some counties which do not carry out community devel-
opment activities, such as those in New England.

NACo certainly has no objection to excluding the seven counties in
New England from a formula share of funds. There would be three in
Massachusetts, three in Connecticut, and one in Rhode Island, Thus,
we should be speaking of 85 rather than 93 urban counties.

Objections continue to be raised to what appear to be very dramatic
increases afforded urban comities at the expense of metropolitan cities
under the Better Communities Act proposal. One must remember,
however, that the needs formula contained in the bill is applied uni-
formly to both metropolitan cities and urban counties and thus directs
the money to those areas based on their need. The adequacy of the
needs factors is another question.

NACo seeks only a fair share of community development funds for
the designated urban counties. If Congress determines to build hold-

382

harmless as an element into the formula, as was done in last year's
Senate and House bills, we certainly would not object.

It is interesting that in comparing the individual amounts urban
counties would receive under the Better Communities Act versus last
year's House bill, 37 would lose money, 37 would gain money, and 13
are relatively michanged.

It is also interesting to note the difference in past program levels
calculated for the Better Communities Act versus the hold-harmless
under the House bill. Granted, the base years are different and the
better communities proposal includes model cities and water and sewer.

Under BCA, however, 33 counties show zero prior program experi-
ence, while only 21 do under the House bill. In any event, HUD's
figures in this case are questionable and NACo is in the process of
attempting to verify them.

Another question arises as to the treatment of special districts within
cities and counties relative to hold-harmless. We recommend that the
legislation spell out that such past program experience for hold-
harmless purposes be appropriately credited to metropolitan cities
and/or urban counties, based on whom the special district is respon-
sible to in budget matters.

NACo also recommends that the legislation authorize a combination
of jurisdictions on the local level — cities and counties — to join together
in common application to meet the population base, thereby qualifying
for a formula share of funds.

This provision was included in last year's House vei-sion but is not
in either S. 1743 or S. 1744. Many cities and counties fall just short of
the population base, but nonetheless have significant community de-
velopment needs which are best handled by the certainty of a formula
share of funds.

NACo does not support the lack of a substantive application require-
ment as proposed in the Better Communities Act. It is our position
that the purpose of community development legislation is to address
national goals such as the elimination of slums and blights and in-
suring an adequate supply of housing for all segments of the com-
munity, including low- and moderate-income housing.

In order to insure that these goals are met, cities and counties should
be required to submit an application which comprehensively identifies
community development needs and objectives as well as a specific
action schedule to meet those needs and objectives.

Both the Senate and House versions of last year's legislation in-
cluded such a provision.

HI"D, of course, should not be permitted to impose excessive reg-
ulations and redtape in approving applications, and HUD should be
required to complete the processing of each application within 90
days of its receipt.

Now, we differ with the speaker just before us NACo does not sup-
port the role imposed on the States by the Better Communities Act,
that of exercising control over the discretionary funds not earmarked
for metropolitan cities or urban counties.

At issue is whether the Stat/es, who have shown little interest or
activity in comnumity development in the past, should now be given
the opportunity to exercise the right of approval or disapproval over
community development applications from nonmetropolitan cities and
nonurban counties.

383

It hiis been suggested that the States already have a role in com-
munity development since it is they, through State statutes, who deter-
mine the extent of power and authority through State statute which
local jurisdictions may exercise.

The role of the States, according to this view, should bo to deter-
mine if the powers granted to local jurisdictions are, in fact, sufficient
or appropriate to meet today's urban needs.

Under last year's Senate and House bills, the existing Federal/local
relationship for all communities Avould have been maintained. The
States, like nonmetropolitan cities and nonurban counties, would have
been eligible for a share of discretionary funds. We think this, together
with incentives to the States in determining the adequacy of local au-
thorities for community development, is the appropriate role for the
States, and the legislation should so specify.

S. 1744 recognizes that there is a definite relationship between the
federally subsidized housing programs and local connnunity develop-
ment programs.

This is manifested in its requirement that the Secretary of HITD,
at the time he approves a community development application, re-
serves an appropriate amount of subsidized housing funds to meet
the housing needs specified in the application.

NACo supports this linkage of subsidized housing funds to com-
munity development and views it as critical.

Subsidized housing is necessary both from the point of view of being
able to relocate families and from the point of view of being able to
sell land acquired through community development.

Under no circumstances should community development legisla-
tion be enacted unless there are accompanying and complementary
provisions for subsidized housing programs.

An integral part of the community development process is the abil-
ity to plan, implement and manage a comprehensive program. New
community development legislation will call upon counties and cities
to exercise new responsibilities in priority setting and decisionmaking.

Their ability to exercise this new responsibility is directly related to
funds available for building their planning and management capa-
bility.

Any rewrite of the 701 comprehensive planning and management
program must include as a priority in the distribution of funds the
needs of urban counties and metropolitan cities.

Furthermore, such funds should go directly to those counties and
cities rather than through the States. New community development
legislation thus ought to provide complementary planning and man-
agement provisions.

Allow me for a moment, ]\fr. Chairman, to particularize the impact
of community development legislation in my county. Prince Georges
County.

Prince Georges County, located on the eastern periphery of the
District of Columbia — as a matter of fact, the District of Columbia
was cut out of our county when the Nation's Capitol was formed — is
a mix of urban, suburban, and rural areas covering approximately
486 square miles with a population of approximately 750,000 people.

The county level of government in IMaryland is the basic unit of
local government, functioning just like a city and possessing the full

384

range of powers and serAnces. As a matter of fact, our counties are
even more than cities. They have city and county functions combined.

Prince Georges County is deeply involved in all facets of community
development activities. During the past 3 years, the county has been
conducting a community renewal program study designed to develop
strategies to redevelop deteriorating areas of the county.

As a result of this study, the county is prepared to under take neigh-
borhood development program projects in areas which have been
identified in the study.

In addition to this, Prince Georges County is involved in federally
assisted code enforcement (FACE), water and sewer. Model Cities,
and open space programs.

During fiscal year 1972, the county received the following federal
assistances from HUD, moneys for community renewal program,
FACE, Model Cities, water and sewer, open space, totaling $20,710,731.

During fiscal year 1973, Prince Georges County projects its need for
Federal assistance as the following: neighborhood development pro-
gram, FACE, open space — amounting to $4,860,000.

In fiscal 1974, were the HUD programs not terminated, the County
would anticipate Federal assistance of approximately $6.5 million for
the above projects.

Our needs are too great and our local resources too scarce to proceed
without Federal financial assistance. What we need is new community
development legislation enacted in sufficient time for its implementa-
tion on July 1, 1974.

In summary, Mr. Chairman, we once again commend the subcom-
mittee for moving with dispatch on this important legislation.

We, in NACo, are confident that legislation embodying the recom-
mendations as set forth in this testimony will prove to be of great
benefit to us on the local level. With your help, we may begin the
difficult but necessai-y task of solving our pressing community devel-
opment problems.

Senator Taft. Thank you very much, Mrs. Spellman. We appreciate
your testimony. I am sure you understand the committee respects the
work on both bills, S. 1743 and S. 1744, and has tried to develop a fair
formula for community development funds.

The final product will probably be a mix then between HXTD's Bet-
ter Communities Act in 1973, and the Senate's bills last year. We do
appreciate having your views on this.

At one point, you mentioned a hold-harmless approach insofar as
urban counties and said that NACo supports a hold-harmless treat-
ment for urban counties. Why do vou think that that hold-harmless
approach to the problem is justified ?

Mrs. Spellman. Well, a good many of the cities and counties have
been very much involved in these programs already.

Senator Taft. But there have not been any hold-harmless provisions
in our Federal housing programs in the past, have there ?

Mrs. Spellman. No : T believe not, not in housing.
Senator Taft. In effect, the whole concept of Model Cities is that
it is a 5-year project and runs out.

Mrs. Spellman. There is still so much to be done, so much in the
way of planning.

Senator Taft. I realize that. But will we meet the needs by adopting
a hold-harmless approach ?

385

It seems to me that this would freeze us into patterns that do not
necessarily relate to the needs of the particular communities

Mrs. Spellman. Needs

Senator Taft [continuing]. As to relative priorities we ought to
be setting.
' Mrs. Spellman. You are probably right.

Senator Taft. I do not believe I have any other questions at this
time. I appreciate it. Thank you very much for being with us.

Mrs. Spellman. Thank you so much.

Senator Taft. T^nfortunately, I am going to have to recess these
hearings at this point because I am already overdue on the floor on a
matter that is proceeding there.

If the witnesses still listed would wait for a few minutes to see if
we can get the meeting stai'ted again, fine. Thank you. The meeting
will stand in recess.

[Complete statement of Mrs. Spellman follows :]

Statement of Gladys Noon Spellman, Councilwoman, Prince Gex)rges
County, Md., and President of the National Association of Counties

Mr. Chairman and Members of the Subcommittee : My name is Gladys Noon
Spellman, and I am a member of the County Council of Prince Georges County,
Maryland. I am also President of the National Association of Counties. It pleases
me to be here today to present the views of the National Association of Counties
(NAOo) as well as Prince Georges County on pending community development
legislation. Accompanying me today is John C. Murphy, Legislative Representa-
tive for the National Association of Counties.

The National Association of Counties represents nearly 1200 county govern-
ments which together comprise 70 percent of the nation's population. As such,
counties, and particularly urban counties, have a tremendous stake in housing
and community development programs which vitally affect our residents.

We wish to commend the Chairman and members of the Subcommittee for pro-
ceeding with hearings on commimity development legislation despite the fact
that proposals from the Administration concerning the federally subsidized hous-
ing programs will not be forthcoming until early September. Surely there is much
that can be done in shaping meaningful community development legislation prior
to September. Of course, in saying this, we nonetheless concur with the dis-
tinguished Chairman's remarks of May 8 upon introduction of S. 1743 and S. 1744,
that new community development legislation cannot be enacted without cor-
responding housing subsidy programs.

The Subcommittee has before it two bills — S. 1743, the Administration's pro-
posed "Better Communities Act," and S. 1744, the "Community Development
Assistance Act of 1973." These bills are designed to consolidate a number of
categorical programs now administered by the Department of Housing and
Urban Development into a single program providing flexibility and certainty of
funding for local communities. While both bills are similar in principle, their
particular provisions vary, in some cases considerably.

I would like to comment briefly on the concept of community development pro-
gram consolidation and then offer a series of recommendations on behalf of
NACo designed to strengthen the bills.

PROGRAM consolidation

NACo has long supported the concept of program consolidation evidenced in
both bills. I need not recite the frustration we as local elected oflBcials have
encountered with the categorical programs, filled with their attendant red tape
and a lack of flexibility. Local elected oflicials need a sufficient amount of flexibil-
ity and certainty of funding from year to year to enable them to adapt both
federal and local resources to fit changing and varied local conditions. In other
words, we at the local level, accountable as we are to our constituents, must have
the opportunity to achieve maximum local priority-setting and decision-making.

NACo therefore supports the provision within the Better Communities Act
which consolidates all seven HUD categorical programs — urban renewal, model
cities, water and sewer, open space, neighborhood facilities, rehabilitation loans

386

and public facility loans. However, by adding the Model Cities and Public Facility
Loan programs (which were not in last year's Senate bill) to tiie consolidation,
we believe that the authorization ought to be increased above the $2.3 billion
level for Fiscal 1975 proposed by the Administration. A Fiscal 1975 program level
of $3 billion, and $3.5 billion for Fiscal 1976, would seem to be the very minimum
needed.

URBAN COUNTIES

NACo also supports the provisions in the Better Communities Act authorizing
formula as well as hold-harmless treatment for urban counties, defined as coun-
ties within a metropolitan area having a population of 200,000 or more exclusive
of the population of metropolitan cities therein. The Better Communities Act,
as did the House Banking and Currency Committee during the 92nd Congress
(H.R. 16704), recognizes the relative need for community development funds by
a select number of urban counties. This recognition results from a determina-
tion that the problems which such funds seek to solve are not solely confined to
metropolitan cities, nor are they the sole responsibility of such cities to solve.

The 200,000 base population figure for urban counties was chosen since it
seemed to equate the criteria of need, powers, and expectation of using formula
funds of such counties vis-a-vis metropolitan cities. In addition, for those urban
counties which lacked past program experience, a formula share of funds carry-
ing with it flexibility and certainty was felt to provide the necessary incentive
to get these counties in a position to address their needs.

Critics of including urban counties in the formula distribution of community
development funds have cited the fact that it would give funds to some counties
which do not carry out community development activities, such as those in New
England. NACo has no objection to excluding the seven counties in New England
from a formula share of funds — 8 in Massachusetts, 3 in Connecticut, and one
in Rhode Island. Thus, we should be speaking of 85 rather than 93 urban counties.

FORMULA

Objections continue to be raised to what appear to be very dramatic increases
afforded urban counties at the expense of metropolitan cities under the Better
Communities Act proposal. One must remember, however, that the needs for-
mula contained in the bill is applied uniformly to both metropolitan cities and
urban counties and thus directs the money to those areas based on their need.
The adequacy of the needs factors is another question.

NACo seeks only a fair share of community development funds for the desig-
nated urban counties. If Congress determines to build hold harmless as an ele-
ment into the formula, as was done in last year's Senate and House bills, we
would not object. It is interesting that in comparing the individual amounts
urban counties would receive under the Better Communities Act versus last
year's House bill, 37 lose money, 37 gain money and 13 are relatively unchanged.
It is also interesting to note the difference in past program levels calculated for
the Better Communities Act versus the hold harmless under the House bill.
Granted, the base years are different and the Better Communities proposal in-
cludes Model Cities and Water and Sewer. Under BCA, however, 33 counties
show zero prior program experience while only 21 do under the House bill. In
any event, HUD's figures in this case are questionable and NACo is in the process
of attempting to verify them.

Another question arises as to the treatment of special districts within cities
and counties relative to hold harmless. We recommend that the legislation spell
out that such past program experience for hold harmless purposes be appro-
priately credited to metropolitan cities and/or urban counties, based on whom
the si)ecial district is responsible to, budgetwi.«!e.

JOINT APPLICATIONS

NACo also recommends that the legislation authorize a combination of jurisdic-
tions on the local level — cities and countie.s — to join together in common applica-
tion to meet the population base, thereby qualifying for a formula share of funds.
This provision was included in last year's House version but is not in either
S. 1743 or S. 1744. Many cities and counties fall just short of the population base
but nonetheless have significant community development needs which are best
handled by the certainty of a formula share of funds.

387

APPLICATION REQUIREMENT

NACo does not support the lack of a substantive application requirement as
proposed in the Better Communities Act. It is our position tliat the purpose of
conmiunity development legislation is to address national goals such as the
elimination of slums and blight and insuring an adequate supply of housing for
all segments of the community, including low and moderate income housing. In
order to insure that these goals are met, cities and counties should be required
to submit an application which comprehensively identifies community develop-
ment needs and objectives as well as a specific action schedule to meet those
needs and objectives. Both the Senate and House versions of last year's legisla-
tion included such a provision.

HUD, of course, should not be permitted to impose excessive regulations and
red tape in approving applications, and it should be required to complete the
processing of each application within 90 days of its receipt.

STATE ROLE

NACo does not support the role imposed on the states by the Better Communi-
ties Act, that of exercising control over the discretionary funds not earmarked
for metropolitan cities or urban counties. At issue is whether the states, who have
shown little interest or activity in community development in the past, should now
be given the opportunity to exercise the right of approval or disapproval over
community development applications from non-metropolitan cities and non-
urban counties.

It has been suggested that the states already have a role in community develop-
ment since it is they who determine the extent of power and authority through
state statute which local jurisdictions may exercise. The role of the states, accord-
ing to this view, should be to determine if the; powers granted to local jurisdic-
tions are in fact sufficient or appropriate to meet today's urban needs.

Under last year's Senate and House bills, the existing federal/local relation-
ship for all communities would have been maintained. The states, like non-
metropolitan cities and non-urban counties, would have been eligible for a share
of discretionary funds. We think this, together with incentives to the states in
determining the adequacy of local authorities for communities development, is
the appropriate role for the states, and the legislation should so specify.

HOUSING LINKAGE

S. 1744 recognizes that there is a definite relationship between the federally
subsidized housing programs and local community development programs. This
is manifested in its requirement that the Secretary of HUD, at the time he
approves a community development application, reserve an appropriate amount
of subsidized housing funds to meet the housing needs specified in the applica-
tion. NACo supports this linkage of subsidized housing funds to community de-
velopment and views it as critical.

Subsidized housing is necessary both from the point of view of being able to
relocate families and from the point of view of being able to sell land acquired
through community development. Under no circumstances should community
development legislation be enacted unless there are accompanying and com-
plimentary provisions for subsidized housing programs.

COMPREHENSI\'E PLANNING AND MANAGEMENT

An integral part of the community development process is the ability to plan,
implement and manage a comprehensive pi'Ogram. New community development
legislation will call upon counties and cities to exercise new responsibilities in
priority-setting and decision-making. Their abilty to exercse this new responsi-
bility is directly related to funds available for building their planning and man-
agement capability. Any rewrite of the 701 Comprehensive Planning and Manage-
ment program must include as a priority in the distribution of funds the needs
of urban counties and metropolitan cities. Furthermore, such funds should go
directly to those counties and cities rather than through the states. New com-
munity development legislation thus ought to provide complimentary planning
and management provisions.

Allow me for a moment, Mr. Chairman, to particularize the impact of com-
munity development legislation on Prince Georges County. Prince Georges

99-855 O - 73 - pt. 1 -- 26

388

County, located on the eastern periphery of the District of Columbia, is a mix
of urban, suburban, and rural areas covering approximately 486 square miles
with a population of approximately 750,000. The county level of government in
Maryland is the basic unit of local government, functioning just like a city and
possessing the full range of powers and services.

Prince Georges County is deeply involved in all facets of community develop-
ment activities. During the past 3 years the county has been conducting a com-
munity renewal program study designed to develop strategies to redevelop de-
teriorating areas of the county. As a result of this study, the county is prepared
to undertake neighborhood development program projects in areas identified in
the study.

In addition to this. Prince Georges County is involved in federally assisted
code enforcement (FACE), water and sewer, model cities, and open space pro-
grams. During Fi.scal 1972, the county received the following Federal assistance
from HUD :

Community renewal program $16,201

FACE 540, 000

Model Cities 2, 865, 000

Water and sewer 15,247,000

Open space 2, 042, 530

Total 20,710,731

During Fiscal 1973, Prince Georges County projects its need for federal assist-
ance as the following :

Neighborhood development program $300,000

FACE 1, 040. 000

Open space 3, 520, 000

Total 4, 860, 000

In Fiscal 1974, were the HUD programs not terminated, the county would an-
ticipate federal assistance of approximately $6.5 million for the above projects.

Our needs are too great and our local resources too scarce to proceed without
federal financial assistance. What we need is new community development leg-
islation enacted in sufficient time for its implementation on July 1, 1974.

In summary, Mr. Chairman, we once again commend the Subcommittee for
moving with dispatch on this important legislation. We in NACo are confident
that legislation embodying the recommendations set forth in this testimony will
prove to be of great benefit to us on the local level. With your help we may
begin the difficult but necessary task of solving our pressing community devel-
opment problems.

Senator McIntyre. The subcommittee will come to order.

At this time I would like to call as a witness Mr. Daniel Wuenschel,
executive director of the New Hampshire Housing Development Corp..
and I would like to introduce him.

Daniel Wuenschel, who is the executive director of the New Hamp-
shire Housing Development Corporation — I wish I could say I have
known Mr. Wuenschel over a period of years, but that is not the case.
I met him on several occasions but my knowledge of his career and
reputation is essentially what others have told me.

In this respect, however, I should tell the subcommittee that a close
friend whose judgment I value and respect refers to this witness as
"Mr. Housing of New Hampshire", and holds him in very high esteem
indeed.

Mr. Wuenschel is a graduate of the LaSalle College of Philadelphia.
After college he taught school, served as a Department of Welfare
caseworker, and as a Head Start teacher and coordinator.

In 1967 he became the administrative assistant to the area director
of the federally assisted Code enforcement program in Philadel-
phia, and later served as area supervisor of community work and

389

tenant services for tlie same proofram. This role involved the estab-
lishment of a casework and social service system foi- an area which
included some 100,000 poverty families.

Within this framework a large, low-income tenant union was or-
ganized and staffed under Mr. WuenschePs direction. In 1969 Mr.
Wuenschel became executive assistant to the president of the Phila-
delphia Housing Development Corp., and a year later became
general manager of the Joint Development Agency which repre-
sented a consolidation of two organizations, the Philadelphia Housing
Development Corp. and the Development Division of the Phil-
adelphia Housing Authority.

In this capacity he played an important role in the Agency's ne-
gotiating and receiving over a million dollars of administrative funds,
$3 million in capital funds and the completion of more than a thou-
sand units of nonprofit sponsored and public housing under various
HUD programs.

Since July of last year Mr. Wuenschel has served as Executive Di-
rector of the recently created New Hampshire Housing Development
Corp. It is my understanding that in today's testimony he will
examine current subsidized housing programs in the state, and will
make sugges.tions for what he describes as "modest changes" in these
programs.

I am happy to welcome you here, Mr. Wuenschel, and we are de-
lighted to hear what you have to say about this particular legislation.

STATEMENT OF DANIEL J. WUENSCHEL, EXECUTIVE DIRECTOR,
NEW HAMPSHIRE HOUSING DEVELOPMENT CORP.

Mr. Wuenschel. Thank you, Mr. Chairman. In light of the press of
time, I am going to try to summarize some of my remarks and make
what will be a brief presentation. I would like to limit my testimony to
a few brief remarks concerning the grim lack of housing opportunity
in rural areas, and suggest a few remedies which might hopefully assist
your deliberations.

From its inception, our corporation determined to focus its attention
and energies at the rural level. This policy results from the fact that
New Hampshire is a rural State — the 1970 census shows that 74 per-
cent of the State's pemianent housing units are outside standard metro-
politan statistical areas and 45 percent of all year units are in towns of
less than 2,500 population.

More importantly, no vehicle, no system, no agency existed in the
rural areas which could possibly provide the necessary impetus, know-
how, or resources which are so critical to a systematic efficient provi-
sion of housing units to needy families and elderly citizens.

For the past year, the New Hampshire Housing Development Corp.
has attempted to fill this gap in cooperation with various private.
State and Federal agencies, local nonprofits, and so forth. Our results,
like the results of similar organizations across the country, have fallen
far short of the goals which we had hoped to achieve.

This general situation results from a lack of sufficient funding to
administer such a program, inadequate programs to start with, and
finally, the removal of the entire "tool-bag" in January of this year by
way of the housing moratorium.

390

Generally speaking, the results referred to earlier are as follows :

(a) Some, though too few, moderate income families were being
served by the FMHA 502 and 504 programs.

(b) Truly low-income citizens, both families and elderly, were not
served in rural areas at all because the gap between income and cost to
build, I'ent, or repair was too great.

(c) Critical housing problems in small towns and rural areas were,
at best, "remedied" by uprooting the subjects and relocating them to
already overburdened city public housing waiting lists in Manchester,
Concord, and Nashua.

If we are to stop this senseless punishment of the rural poor which
only exacerbates the problems in urban America, we must take some
steps to equalize housing opportunity in rural areas.

We feel that we have at least begun to move in this direction in New
Hampshire by the creation of a new State housing commission. This
commission was enacted into law and a modest "start-up" fund was
appropriated by the State. It now needs workable programs and finan-
cial assistance from the Federal Government to accomplish its task.

Some specific, yet very basic suggestions follow which field experi-
ence shows to be, in our opinion, meritorious and practical in the long
run:

1. Specific attention to rural housing must be given at the Federal,
State, and local levels. This commitment must be demonstrated by
adequate funding of a separate Federal rural housing agency with
appropriate authority.

2. Concommitant water and sewer grants must be made available to
those States, regions and communities who are attempting to provide
housing for their low income citizens.

8. A range of subsidies like those advocated in the Emergency Rural
Housing bill must be made available. Ideally, these subsidies would be
administered by a single rural housing agency and the subsidies would
be based entirely on the ability of the citizens to repay.

Until such a single subsidy program is available, several interim
measures should be instituted as quickly as possible to increase deep
subsidies :

(a) Public housing operating subsidies must be preserved and main-
tained, if that vehicle legislated specifically for the poor is to continue
to serve them.

(h) Rent supplements should be made available to Farmers Home
Section 515 Rural Rental Housing,

(c) Combination grants and loans of up to $5,000 should be made
under Farmers Home : Section 504. The grant provision should be
made according to the aj^plicant's ability to repay.

For years, such combination grant and loan packages have been
available under the HUD 312 and 115 programs. Such a provision
under section 504 would do a great deal to assist poor New Hampshire
homeowners and at the same time help preserve our structurally sound
rural housing stock.

(d) Federal financial assistance to appropriate State and regional
agencies which are striving to provide the vitally necessary technical
assistance to establish a rural housing delivery system is essential. Few,
if any, subsidized housing units would exist today without the inter-
mediary, the State housing authority, the local housing authority, the
nonprofit sponsor, the community action agency, and so forth.

391

In the absence of drastic changes, snc.h intermediary organizations
need increased financial assistance if the thin and fragile framework
that does exist will not break down entirely.

For this reason, we applaud the provision of financial assistance to
consolidation efforts by local housing authorities as contained in Sen-
ate bill 2182 introduced by Senator Sparkman on the 14th of this
month.

In summation, I would only reiterate that the need for a long, hard
look at our national housing programs is in order. We cannot, however,
aiford to stand still during; the evaluation period. All that we ask and
recommend is that some interim steps be taken to put the ill-housed
resident of rural America on equal footing with his urban counterpart,
and that some forward movement be shown so that hope will not be-
come a lost emotion in Ajnerica.

(Complete statement follows :)

Statement of Daniel J. Wuenschel, Executive Director New Hampshire

Housing Development Corporation

Mr. Chairman, Members of this Committee, my name is Daniel AVuenschel. I
am the Executive Director of the New Hampshire Housing Development Corpora-
tion which is a nonprofit, OEO funded corporation which operates on a statewide
basis to provide housing opportunities for low income citizens of New Hampshire.

I would like to limit my testimony to a few brief remarks concerning the grim
lack of housing opportunity in rural areas and suggest a few remedies which
might, hopefully, assist your deliberations.

From its inception, our corporation determined to focus its attention and ener-
gies at the rural level. This policy results from the fact that New Hampshire
is a rural state (the 1970 census shows that 74% of the State's permanent housing
units are outside standard metropolitan statistical areas and 45% of all year
units are in towns of less than 2.500 population.) More importantly, no vehicle,
no system, no agency existed in the rural areas which could possibly provide
the necessary impetus, know how, or resources which are so critical to a systema-
tic efficient provision of housing units to needy families and elderly citizens.

For the past year, the New Hampshire Housing Development Corporation has
attempted to fill this gap in cooperation with various private, state and federal
agencies, local non-proiits and so forth. Our results, like the results of similar
organizations across the country, have fallen far short of the goals which we had
hoped to achieve. This general situation results from a lack of sufficient funding
to administer such a program, inadequate programs to start with, and finally,
the removal of the entire "tool-bag" in January of this year via the Housing
Moratorium.

Generally speaking, the results referred to earlier are as follows :

(o) Some, though too few, moderate income families were being served by the
FmHA 502 and 504 programs.

(b) Truly low income citizens, both families and elderly, were not served in
rural areas at all because the gap between income and cost to build, rent or
repair, was too great.

For example, a modest, new. $20,000 house would cost a New Hampshire
family eligible for a 1% interest credit mortgage the following on a monthly
basis :

Principal and interest at 1 percent $59. 00

Property taxes 60. 00

Insurance 8. 00

Heat and utilities 50. 00

Total monthly housing expense 177. 00

Following the formula that this monthly housing expense is not to exceed 25%
of the family's acljusted income, we realize that we are dealing with a family
whose gross income exceeds $8,500 per year. Those who fall below such income
levels cannot afford to be served by the program used in the example, or any
other program available except public housing which is simply not available in
rural areas.

392

Yet. a recent study done through the auspice of the New England Regional
Commission and based on the 1970 U.S. Census shows that over 30% of New
Hampshire's households would be eligible for low rent public housing in accord-
ance with their income.

(c) Critical housing problems in small towns and rural areas were at best,
"remedied" by uprooting the subjects and relocating them to already overbur-
dened city public housing waiting lists in Manchester, Concord, and Nashua.

If we are to stop this senseless punishment of the rural poor which only ex-
acerbates the problems in urban America, we must take some steps to equalize
housing opportunity in rural areas.

We feel that we have at least begun to move in this direction in New Hamp-
shire by the creation of a new State Housing Commission. This Commission was
enacted into law and a modest "start-up" fund was appropriated by the State.
It now needs workable programs and financial assistance from the federal gov-
ernment to accomplish its task.

Some specific, yet very basic suggestions follow which field experience shows
to be, in our opinion, meritorious and practical in the long run.

(1) Specific attention to rural housing must be given at the Federal, State, and
local levels. This commitment must be demonstrated by adequate funding of a
separate federal rural housing agency with appropriate authority.

(2) Concomitant water and sewer grants must be made available to these
states, regions, and communities who are attempting to provide housing for their
low income citizens. Many towns in New Hampshire simply cannot i)ermit
further destruction of their waters which are vital to the tourist economy, one
of the states most important income producers.

(3) A range of subsidies like tliose advocated in the Emergency Rural Housing
Bill must be made available. Ideally, these subsidies would be administered by a
single rural housing agency and the subsidies would he based entirely on the
ability of the citizen (s) to repay.

Until such a single subsidy program is available, several interim measures
should be instituted as quickly as possible to increase deep subsidies :

(a) Public housing operating subsidies must be preserved and maintained, if
that vehicle legislated specifically for the poor is to continue to serve them.

(ft) Rent supplements should be made available to Farmers Home Section 51.5
Rural Rental Housing.

(c) Combination grants and loans of up to $5,000 should be made under
Farmers Home Section 504. The grant provision should be made according to the
applicant's ability to repay. For years, such combination grant and loan packages
have been available under the HUD 312 and 115 programs. Such a provision under
Section 504 would do a great deal to assist poor New Hampshire homeowners
and at the same time help preserve our structurally sound rural housing stock.

id) Federal financial assistance to appropriate state and regional agencies
which are striving to provide the vitally necessary technical assistance to estab-
lish a rural housing delivery system is essential. Few, if any, subsidized housing
units would exist today without the intermediary, the state housing authority,
the local housing authority, the non-profit sponsor, the community action agency,
etc. In the absence of drastic changes, such intermediary organizations need in-
creased financial assistance if the thin and fragile framework that does exist will
not break down entirely.

For this reason, we applaud the provision of financial assistance to consolida-
tion efforts by local housing authorities as contained in Senate Bill 2182 intro-
duced by Senator Sparkman on 7/14/73.

In summation, I would only reiterate that the need for a long hard look at our
national housing programs is in order. We cannot, however, afford to stand still
during the evaluation i^eriod. All that we ask and recommend is that some interim
steps be taken to put the ill-housed resident of rural America on equal footing
with his urban counterpart. And that some forward movement be shown both so
that hope will not become a lost emotion in America.

Senator McIntyre. Thank you.

Mr. Wuenschel, let me say that the committee has had extensive
testimony on rural housing yesterday, and this subcommittee has
always been concerned about rural housing needs. We will surely write
into the 1973 bill a new assistance provision for rural housing.

393

Rural liousing is a particular concern to our great State. It is im-
portant to New Hampshire. There is a bill, I think it is S. 361, the
Emergency Rural Housing Administration Act, which Senators Mc-
Govern, and Abourezk, and Humphrey have sponsored, and they are
asking me to cosponsor.

I think from what you have said here, you feel I should get behind
that and make it part of this bill that is coming out ?

Mr. WuENSCHEL. That's correct.

Senator ]McIntyre. I want to thank you very much for taking the
time to come here today and giving us your suggestions. I appreciate
that very much.

I am now very happy to turn over the gavel to a member of this
subcommittee, John Tower, the Senator from Texas.

Senator Tower. '\^^y are you turning it over to me ? Where are you
going?

Senator McIntyre. You are a member of the subcommittee.

I do want to say to those witnesses that are being held up today that
we are under very difficult constraints here in the Senate. Everybody
is rushing around with committee hearings and there is a great deal of
activity on the floor as we rush for an August recess.

I was telling one of my aides, "I'm not sure that recess is going to
be worth it if we have to stand on our heads in the meantime to get all
this work done before we go." I think that is one of the reasons that it
has been difficult to run this committee this morning.

Senator Taft, as he probably explained to you, is very much in-
volved on the floor on the minimum wage bill.

Senator Tower. His amendment is pending business.

Senator McIntyre. Now, Senator Tower, it is all your.

Senator Tower. Thank you very much, Tom. I believe that the next
witness in order will be David Shepherd, a member of the board of
directors, the National Association of Regional Councils, and the
mayor of Oak Park, Mich.

Mr. Shepherd?

Mr. Shepherd. Thank you very much, Mr, Chairman. I have with
me Richard Hartman, the executive director of the National Associa-
tion of Regional Councils,

Senator Tower, Thank you. Now, you can read your full statement
or you can — we can print it in its entirety in the record, and you can
hit the high points of it. You may proceed any way that you want to.
Your statement will be printed in full in the record, whether you read
it in its entirety or not.

STATEMENT OF DAVID H. SHEPHERD, MEMBER, BOARD OF DIREC-
TORS, NATIONAL ASSOCIATION OF REGIONAL COUNCILS, AND
MAYOR OF OAK PARK, MICH.

Mr, Shepherd, It is a great privilege for me to have the opportunity
to testify before the distinguished members of this subcommittee. I
am here today as a member of the board of directors of the National
Association of Regional Councils and as chairman of its Special Com-
mittee on Housing and Community Development.

Also, for the record, I have the pleasure of serving as mayor of the
city of Oak Park, Mich., and as a member of the executive committee

394

of the Southeast Michigrau Council of Governments, which is in the
Detroit metropolitan ar-ea.

I am also on the National League of Cities Interoovernmental Rela-
tions Policy Committee, and serving as a trustee of the Michigan
Municipal League.

I do want to make this inti-oductory comment, that T am interested
in regionalism and I am interested in the regional movement, because I
am mayor of the city of Oak Park. I obviously would not be at all
interested in this if it were not to the advantage of my community to
have area wide planning and coordination.

The National Association of Regional Councils was initiated in 1967
to assist local government officials in organizing a rapidly growing
number of regional councils.

Simply summarized, regional councils for the most part are area-
wide organizations of general purpose local governments which in-
volve more than one local government and encompass a total regional
community. Regional councils exist both in densely populated metro-
politan areas and in sparsely populated rural areas.

Their prime purposes are to increase communication, cooperative
decisionmaking, and coordination among local governments; to re-
view and comment on certain Federal grant applications; and to
develop policies and programs to meet mutual problems and guide
orderly development.

More than 600 such regional councils have been established to deal
with areawide problems. Their governing bodies are composed pri-
marily of local government-elected officials. These local-elected govern-
ment officials working together develop and approve the plans and
policies for the development of the region.

In the last 2 years, the continued growth of regional councils has
been encouraged by the actions of the States. Forty-four States have
initiated the process of establishing substate districts. Of these, 34 have
completed or will shortly complete the subdistricting process and have
designated regional councils for each district.

The Southeast Michigan Council of Governments is the regional
council for the substate district established by the State of Michigan.
This type of substate districting was referred to earlier in Governor
Gilligan's testimony.

In the interests of time, I will summarize the highlights of our
testimony.

Regional councils are established by law. Through the 01MB A 95
Review and comment process have saved taxpayers an estimated $450
million a year.

There are certain things in S. 1748 and S. 1744 that we are particu-
larly interested in because of the impact on regional councils and this
review process. Speaking as a local elected official, one of the most im-
portant improvements in the bill is to assure local government continu-
ity in funding. We support the community development principle
encompassed in each of these bills. We also support the ability to com-
bine program.

The need for area-wide coordination will not disappear with the
advent of community development block grants or revenue-sharing.

We feel that there should be some specific statutory guidelines to
determine where proposed community development activities have

395

areawide impact and therefore should be consistent with re^onal
policy and plans.

To assure this consistency and at the same time minimize the time
period for input in local decision-making, we have developed several
recommendations. They will pro\dde in our opinion a reasonable basis
for evaluating the areawide aspects of community development ap-
plications.

Both bills presently do require some degree of public review and in-
spection prior to final local government application approval. We
suggest that at the same time this public review is being made that the
proposal be submitted to the appropriate regional council for applica-
tion review. This would allow an opportunity between local govern-
ment, the regional councils and neighboring communities to review
regional implications.

We also believe that there are only certain matters which should be
subjected to regional review. We suggest that the regional review fol-
low these criteria in determining whether a proposed community
development activity is subject to review.

First, activities wliich are of a multijurisdictional nature such as an
activity funded, operated, or owned by more than one jurisdiction;
located on or adjacent to the boundaries of one or more neighboring
jurisdictions; with a significant impact on shared facilities and activi-
ties of more than one jurisdiction; or results in substantial use by
citizens of more than one jurisdiction.

Second, activities encompassed within areawide plans and policies
adopted by the regional council, and third, activities requiring area-
wide policies and planning under Federal law, such as air and water
quality, mass transit, highways, and so forth.

This brings another point, if during the review process an applica-
tion activity is in conflict M'ith the regional plan. How would you
resolve the conflict ?

We do not propose to pass the buck to the Federal Government.
We believe that the local governments can solve these problems. Most
of them will be resolved in the staff discussion and review process,
but in those cases where this fails, we feel the applicant government
should use the regional council, made up of local elected officials from
the area, to work out the inconsistencies.

Our only other option would be to have the Governor or his desig-
nated agency resolve the conflict. We do not believe that an entire
application should be held up for these areas of conflict, but only
those activities that are actually in conflict.

Housing is extremely important. Many regional councils today are
involved in creating regional housing programs and plans. We believe
that this is a very essential priority.

Section 701 is of extreme importance to regional councils. If sub-
stantial changes are made in 701 or if it is replaced, we would ask
the subcommittee to consider the following points: First, section 701,
with a few minor amendments, can perform most of the tasks sug-
gested by the Administration's Responsive Governments Act, as it
has been discussed.

Second, special consideration for earmarking 701 funds to regional
councils should be considered. S. 3248, which passed the Senate in
1972, had such a provision. The existing system, where large metro-

396

politan regional councils have direct access to HUD for funding, is
preferred to the delegation of funding administration to the States.

Third, if consideration is given to the State role in 701 programing,
it should be based on a hold-harmless policy assuring regional councils
at least the same level of funding for a period of 5 years subsequent
to State administration of the program.

Fourth, a most important point relative to 701 funding is the matter
of interstate regions, the metropolitan regions that include portions
of more than one State. It is essential that these regions continue to
have direct funding.

Mr. Chairman, I have gone through this rather quickly. I under-
stand your time problems. If you have any questions, I will certainly
try to answer them.

[The complete statement of David H. Shepherd follows :]

Statement of David H. Shepherd, Member, Board of Directors, National

Association of Regional Councils

Mr. Chairman, gentlemen : It is a great privilege for me to have the
opportunity to testify before the distinguished members of this Subcommittee.
I am here today as a member of the Board of Directors of the National Associa-
tion of Regional Councils and as Chairman of its Special Committee on Housing
and Community Development. Also for the record, I have the pleasure of serving
as Mayor of the City of Oak Park, Michigan, and as a member of the Executive
Committee of the Southeast Michigan Council of Governments (Detroit metro-
politan area.)

Let me begin with some introductory comments about our organization which
will serve to make clear our point of view. The National Association of Regional
Councils was initiated in 1967 to assist local government officials in organizing
a rapidly growing number of regional councils.

Simply summarized, regional councils for the most part are areawide orga-
nizations of general purpose local governments which more than one local gov-
ernment and encompass a total regional community. Regional councils exist both
in densely populated metropolitan areas and in sparsely populated rural areas.
Their prime purposes are to increase communication, cooperative decision mak-
ing, and coordination among local governments ; to review and comment on
certain federal grant applications ; and to develop policies and programs to
meet mutual problems and guide orderly development.

More than 600 such regional councils have been established to deal with area-
wide problems. Their governing bodies are composed primarily of local govern-
ment elected oflBcials. In the last two years, the continued growth of regional
councils has been encouraged by the actions of the states. Forty-four (44) states
have initiated the process of establishing substate districts. Of these, 34 have
completed or will shortly complete the subdistricting process and have designated
regional councils for each district.

Most regional councils serve as the basic coordinative device for federal fund-
ing of local government activities. This function is based on the "review and
comment" provisions of Section 204 of the Demonstration Cities and Metropolitan
Development Act of 1966 and the Intergovernmental Cooperation Act of 1968,
both of which are implemented through Circular A-95 of the Office of Manage-
ment and Budget. Regional councils, designated as A-95 agencies, review federal
aid applications of local governments prior to sul)mission to the federal funding
agencies. This review process saves taxpayers an estimated $450 million a year.

NARC is a membership association of regional councils throughout the country.
Our Board is composed of local government elected officials and other regional
council policy members, as well as representatives from the Boards of the
National League of Cities and National A.ssociation of Counties.

A basic regional council concern is the balanced and orderly development of
our metropolitan areas and rural regions. Because many of our domestic problems
are Intergovernmental in nature, this is a very difficult but necessary mission.
It has become abundantly clear that most state and local governments are unable
to finance all local public services and have become dependent on federal assist-
ance. But the nature and type of financial assistance to local government is
important.

397

The character of federal aid is especially sensitive in the promotion of inter-
governmental cooperation, wise public investment, and areawide planning for
orderly and balanced development. It is for this reason we are particularly in-
terested in two bills pending before the Subcommittee— S. 1743 and S.1744. Each
of these bills concerns community development assistance programs. They pro-
pose a radical and, we think, a needed change from fhe categorical grants-in-aid
system. The thrust of the two proposals before your Subcommittee is similar,
but there are significant differences in implementation. We would like to com-
ment briefly, Mr. Chairman, on the general concept behind these bills and the
implications they may have on areawide cooperation, public investment and
development.

I would like to cover several points: (1) the community development con-
cept, (2) national goals and priorities, (3) regional housing activities, and (4)
reorganization of the HUD 701 program.

COMMUNITY DEVELOPMENT

In essence, both S. 1743 and S. 1744 would consolidate into one comprehensive
grant program most of the hardware grant programs of the Department of Hous-
ing and Urban Development. In addition to consolidating these categorical pro-
grams, both bills would encourage and authorize a greater flexibility in the use
of the grant monies for locally identified community development needs and
priorities. Speaking as a local elected official, one of the most impprtant improve-
ments contained in these bills would assure local government a continuity in
funding. By departing from a project orientation and moving to a total com-
munity development approach, these bills will permit local governments to do
advanced planning and programming with the knowledge that continuing fed-
eral funds wall be available. We support the community development principle
encompassed in each of these bills.

We also want to indicate our support of the provision in S. 1744 that local
governments can combine on a regional basis to undertake all or part of a com-
munity development program. There are many regions throughout the country
to which this could be an attractive and economical alternative to that of in-
dividual local governments carrying out a total community development program.
In other areas, certain activities might be accomplished jointly because they
can be carried out more effectively at the regional level. It is suggested, how-
ever, that additional inducements for cooperative and joint community devel-
opment programs makes sense dollarwise and in terms of rational regional
development. For example, local governments might need specific incentives to
work together in developing a regional housing program. Subsequently, we would
hope that the Subcommittee would give some thought to providing earmarked
funds as financial inducements to encourage intergovernmental cooperative pro-
grams among local governments.

NATIONAL GOALS AND PRIORITIES

We propose that language be added to foster areawide cooperation and bal-
anced development in metropolitan areas and rural regions. S. 1744 comes clo.s-
est to fulfilling this need. It departs from the concept contained in the Admin-
istration's Better Communities legislation which does not contain any planning
goals and priorities. It simply requires that the applicant file a statement of
intent as to community development objectives, the projected uses of the com-
munity development funds and the degree to which community activities relate
to state and areawide community development activities : (1) programs for meet-
ing the housing needs of low and moderate income individuals and families re-
siding or working in the community, and (2) steps to prevent and eliminate
slums and blight and upgrade neighborhood environment through urban re-
newal, code enforcement and .similar programs. Moreover, the applicant must
certify that the proposed activities are consistent with comprehensive develop-
ment planning at the local and areawide levels.

As a local elected official. I am sympathetic with the need to discard the often
onerous conditions and red tape for securing federal grant-in-aid funds. But at
the same time, I feel it is desirable for Congress to impose certain minimal re-
quirements which will encourage the coordination of community development
programs with those of neighboring jurisdictions and with related programs.

Many of the eligible activities under proposed community development legis-
lation would have significant impact on areawide development. Previously, Con-

398

gress has identified certain of these developmental activities and required local
governmental applicants to undertake such projects only when consistent with
areawide planning and programming. This Suhcommittee placed such require-
ments on the Hl^D-administered open space and water and sewer categorical
programs. Moreover in 1968, Section 701 of the Housing Act was amended to re-
quire a housing element in the comprehensive areawide planning funded under
that section.

The need for areawide coordination will not disappear with the advent of
community development hlock grants or revenue sharing. This fact is i-ecognized
in S. 1744. But we feel there should be some specific statutory guidelines to
determine whether propo.^ed community development activities have areawide
impact and, therefore, should be consistent with regional policies and plans. To
ensure this result, and at the same time minimize the time period or intervention
in local decision making, we have developed some recommendations. They
would provide, in our opinion, a reasonable basis for evaluating the areawide as-
pects of connnunity development ai)plications.

Presently, both bills require some degree of public review, in.spection and com-
ment prior to final local governmental approval. At the same time this public
review is made, we suggest that the proposal be submitted to the appropriate re-
gional council for a preapplication review. This would allow negotiations be-
tween local governments and their regional council on matters of regional concern.
and would avoid an extended review process. A 60 day period for such review
seems reasonable. This is the suggested time proposed in S. 1743. During this
period, regional comments, among others, would be submitted to the applicant
prior to formal adoption by the local government. Following final approval of
the application by the local government, the application would be submitted
through the normal 30 day A-95 review process to the state and regional review
agencies. The regional council would provide its formal comments and a regional
"certification of consistency" to be filed with the application. This process should
expedite the local government application since HUD will have full comments
from the state, regional agencies and neighboring local governments available
to them in their final review of the application.

In our opinion, the regional review should be limited to those community devel-
opment activities that affect adopted regional policies and plans or impact
directly on neighboring jurisdictions.

It is suggested that the regional review agency be required to follow these
criteria in determining whether a proposed community development project
or activity is subject to regional review :

(1) Activities which are of a multijurisdictional nature. The multi jurisdic-
tional nature would be determined if the activity :

Is funded, operated or owned by more than one jurisdiction ;

Is located on or adjacent to the boundaries of one or more neighboring juris-
diction ;

Has significant impact on shared facilities or activities of more than one juris-
diction ; or

Results in substantial use by citizens of more than one jurisdiction.

(2) Activities encompassed within areawide plans and policies adopted by the
regional council, and

(3) Activities requiring areawide policies and planning under federal law
(e.g. air and water quality, mass transit, highways, etc. )

We suggest that only activities which fall within these criteria should be sub-
ject to areawide planning requirements in the community development legislation.

A logical question then follows from this requirement. What happens if there
is a conflict between local proposals and areawide policies and plans? In other
words, who decides? We do not propose to pass the buck to the federal govern-
ment. Such inconsistencies for the most part will be resolved in the discussion
and review process. But in these isolated cases where this process fails, we feel
that the best solution is for the applicant local government to have an option.
Our preference would be for the local governments to arbitrate differences
through their regional council. But another alternatve should be available. NARC
suggests that at the option of the applicant, the Governor or his designated rep-
resentative should be authorized to resolve the conflict. In any event, the ap-
plication should not be held up pending resolution of the dispute. We suggest that
the application should go to HUD for funding of all elements except those that
are in conflict, and the local government should be allowed to expend its
formula funding for all but the disputed items pending a decision on the dis-

399

puted matters. However, at any point, the applicant sliould always have the option
to reprogram the disputed activities into local community de\'elopment activities.

The mechanics of this approach could simply be the provision in the law that
the regional council issue a certification of all elements that are found to have
regional impact under the criteria I have just cited.

Mr. Chairman, this procedure meets the increasing needs of returning decision
making back to state and local governments. At the same time, it recognizes
that parochial interests should not interfere with sound and balanced growth and
development policies in our meti'opolitan areas and rural regions. Indeed, as local
elected officials, we feel that if we cannot work together to solve our interjuris-
dictional problems, the time may well come when we will lose much of our au-
thority over our own local decisions.

REGIONAL HOUSING ACTIVITIES

While the various federal housing programs do not require areawide plan-
ning, they are, nevertheless, becoming a more relevant part of regional council
programs. Although housing is a sensitive issue, there appears an emerging
consensus from most progressive local elected officials that it is a metropolitan
and regional challenge. It is obvious that no one local government can ade-
quately provide the necessary housing for low and moderate income people. And
over-concentration of such housing in one jurisdiction is detrimental to the
balanced growth of the entire region.

We believe that the federal housing policy must be an integral part of any com-
munity development program. Again, we support S. 1744 in requiring that link-
age. NARC has been attempting to develop some specific housing principles
which we feel are essential to balanced areawide development. We are also aware
that the Administration's reassessment of federal housing programs is scheduled
to be completed in early September. We will not dwell on this issue at this time
Mr. Chairman. I am attaching a statement of these principles. We hope to
have the opportunity to send you a detailed statement of our position on this
matter at a later date. But there are several objectives that we hope the Subcom-
mittee will consider in looking at the relationship of commiuiity development and
new housing programs.

First of all, the experiences of our regional councils have demonstrated that
the real housing market is a metropolitan or regional one, and solutions to hous-
ing problems ought to be approached within this larger context. Before the hous-
ing moratorium this January, several of our regional councils were in the process
of implementing allocation plans for low and moderate income housing within
their areas. We feel this approach, which was encouraged by HUD, has great
potential for developing truly balanced communities throughout the United
States. Such joint action can help eliminate distortions in our housing market.
Too often people with low and moderate incomes cannot live within the jurisdic-
tion where they are employed due to a lack of affordable housing. We hope that
this Subcommittee gives serious consideration to maintaining some significant
areawide dimensions in any reformulation of national housing programs. It is our
understanding that housing allowances and rent supplements will be carefully
examined as principal methods of solving our national housing problems. We feel
that such approaches have merit. If these approaches become a part of a new
national policy, we believe that there is some regional dimension that can be
built into the program. For example, there will be a need to certify that any
unit eligible for rent under a housing allowance program meets housing and build-
ing code requirements and is a safe and sanitary unit. Such a requirement in a
housing allowance program could be the basis for certifying units as eligible for
participation in the program. Moreover, certified units might well be rented in
accordance with a regional housing plan, such as those fair share programs devel-
oped in Washington, Dayton, Denver and other metropolitan areas.

BEOBGANIZATION OF 701

Finally, Mr. Chairman, we would like to speak briefly on the Administration's
proposal to develop a new planning program to replace the Section 701 Compre-
hensive Planning Assistance Program. As you know, this program is of vital
imiwrtance to our regional councils. If substantial changes are made in Section
701 or if it is replaced, we would ask the Subcommittee to consider the following
points :

400

Section 701, with a few minor amendments, can perform most of tlie taslcs
suggested by the Administration's Responsive Governments Act.

Special consideration for earmarking funding for regional councils should be
considered. S. 3248 which passed the Senate in 1972 had such a provision.

The existing system where large metropolitan regional councils have direct
access to HUD for funding is preferred to the delegation of administration of
the program to the states. If consideration is given to a state role in funding
and progranmiing a regional council, however, it should be based on a hold-harm-
less policy assuring regional councils at least the same level of funding for a
period of five years subsequent to state administration of the program.

One final point, Mr. Chairman, relates to the unique situation in our interstate
metropolitan areas which requires special congressional attenton. If 701 is to be
changed and a state administration role assigned, it is vitally important that the
funding of interstate metropolitan councils should not be included. These agencies
should continue a direct relationship with HUD. Tlie only justifiable exception
would be where the states and the regional councils concerned mutually agree to
formal contractual arrangements for future funding through the states.

Mr. Chairman, I know our comments have been rather lengthy, but we wanted
tf» give you the benefit of some of our thoughts on these vital interests. We thank
you and the other committee members for your indulgence. If you have any
questions, we will certainly try to answer them.

Part V — Housing

GOAL 5.01: REGIONAL STRATEGY

Housing requires a regional strategy, and regional councils should provide this
leadership in the housing field. Councils should work with local government lead-
ers to gain leadership commitment and decisions on housing challenges.

Discussion. — Housing and the housing development process must be viewed
as an integral part of planning for the region as a whole. Housing plans and
programs should be positively related to transportation plans, open space plans,
water and sewerage plans, the provision of public facilities and health and social
services, and to job opportunities. This mission will involve high visibility and
the assumption of strong leadership in creating public understanding, apprecia-
tion, and acceptance of the need for resolving housing problems on a regional
scale.

GOAL 5.02: REGIONAL COUNCIL PREFERENCE

Reginal housing planning should be vested in existing regional organizations
which are controlled by the elected officials of general purpose local governments,
and not single purpose agencies. Regional councils should pursue state govern-
ment enabling legislation to use regional councils as the appropriate agencies
for housing planning and coordination.

Discussion. — The need for coordinated and more relevant metropolitan insti-
tutions to plan for and deliver housing is another crucial issue. The proliferation
of local housing authorities and other housing planning and development agen-
cies has not produced enough or, in some instances, sound housing to meet the
needs. A coordinated process is essential. The relationship between the public
and private housing sectors is an often neglected area of public policy and an
important issue. Through the development and adoption of a regional housing
development plan, the regional council (public sector) can coor'dinate activities
of the private developer.

GOAL 5.03 : HOUSING ACTIVITIES

Regional councils should develop a housinug role which seriously considers
these components :

Set housing policy and priorities in conjunction with local governments.

Establish allocation process for low income housing, including a fair share
distribution among local communities.

Coordinate with other community development.

Review and comment on proposed housing projects as they relate to implemen-
tation of adopted regional policies.

Provide technical assistance to public and private agencies.

401

Establish suitable operational agencies where needed.

Serve as a clearinghouse on housing data.

Serve as a catalyst for public and private agencies.

Relate housing to public and private sector economic considerations such as
private market feasibility.

Promote local adoption of progressive zoning and construction performance
codes.

Evaluate aspects of all taxing policies on development and rehabilitation of
housing.

GOAL 5.04: HOUSING DISPERSAL

It is essential to decentralize housing for low and moderate income people
instead of concentrating it in the central cities and existing high density minority
group communities.

Dscussion. — Shifting patterns of population and land use are redistricting
employment to suburban areas where housing production is not meeting the needs
of the labor force. At the same time, there are equally critical needs for more
low and moderate income housing in the central city areas. Since all types of
housing are needed in the region, it is desirable to have a balance of housing
opportunity among communities. No one community should bear more of a tax
burden or receive more of a tax benefit than another. Therefore, it becomes an
areawide problem to assure equitable and desirable housing development through-
out the region.

GOAL 5.05 : AFFIRMATIVE FEDERAL POLICY

Congress should adopt an aflSrmative federal housing policy which promotes
and supports economic as well as racial integration in new housing develop-
ments.

Discussion. — The current federal housing policy places the burden for the
implementation of areawide programs for the distribution of low and moderate
income hou.sing directly on local initiative. There is considerable discussion
as to whether local-regional leadership and initiative should be supported by
federal and state policies and funding incentives. Individual local governments
in a region should share equitably in their re.sponsibility for providing low and
moderate income housing in accordance with a regional plan. Rather than the
federal government penalizing local governments that fail to live up to their
responsibility, a new policy at the federal level should be premised on giving
incentives to local communities for their adherence to areawide housing plans.
Congress might also have reservations about providing additional funds for a
local community to comply with obligations and responsibilities they should
undertake anyhow.

GOAL 5.06 : INCOME POLICIES

The federal government should evaluate and reorient housing distribution pro-
grams, emphasizing income supplements which expand the housing opportunities
in the market of low and middle income families.

Discussion. — The myriad of existing housing programs at all levels have met
with limited success at best. The intent of this goal is to phase out and reduce
overlapping, duplicating and conflicting programs. This policy lets the suppliers
of housing respond to the demands of the consumer. Assistance would focus
primarily on enabling more families to purchase their housing preference, rather
than on assisting the .suppliers providing such housing. This approach relies on
the market mechanism to respond to the housing demands generated.

Senator Tower. Thank you very much, Mr. Shepherd, for your
comprehensive statement, and let me reassure you that your entire
statement will be made part of our record, so this will — your entire
statement, even though you have summarized it, will be made part of
the record.

I have no questions and thank you very much for appearing.

Mr. Shepherd. Thank you.

Senator Tower. The next witness is Mr. Robert Honts of Austin,
Tex., speaking for the League of New Community Developers.

402

STATEMENT OF ROBERT HONTS, AUSTIN, TEX., CHAIRMAN,
GOVERNMENTAL RELATIONS, LEAGUE OF NEW COMMUNITY
DEVELOPERS

Mr. HoNTS. Mr. Chairman, with me today is Mark Freeman, who
is executive director of the League of New Community Developers.

I will not take but just 2 or 3 minutes of the time, because there is
a formal statement which you have and which I understand will be
introduced into the record.

Senator Tower. Anything that you want to submit for the record
will be incorporated in the record.

Mr. HoNTS. Thank you, Senator.

I think the first statement we should make would be one of com-
plimenting this committee

Senator Tower. Just a minute, Mr. Honts. I believe that you do
Avant the full statement placed in the record, is that correct ?

Mr. HoNTs. That is correct, sir.

Senator Tower. Fine.

[Complete statement of the League of New Community Developers
follows :]

403

910 17th Street, N.W.

Suite 728

Washington, D.C. 20006

(202) 872-1314

HEARINGS ON S. 1743 AND S. 1744

SENATE COMMITTEE ON BANKING, HOUSING
AND URBAN AFFAIRS

SUBCOMMITTEE ON HOUSING AND URBAN AFFAIRS

STATEMENT BY LEWIS MANILOW,
CHAIRMAN OF THE BOARD,
LEAGUE OF NEW COMMUNITY DEVELOPERS
July 18, 1973

Mr. Chairman, Members of the Subcommittee:

My name is Lewis Manilow, I am Chairman of the Board
of the League of New Community Developers, an organization
consisting of active and potential developers of new
communities as authorized by the Congress under the Title VII
of the Housing and Urban Development Act of 197 0. A des-
cription of the League and its membership is attached as an
addendum to this statement.

99-855 O - 73 - pt. 1 -- 27

404

- 2 -

With me today are Robert Honts , Chairman of the
League's Governmental Affairs Committee and partner in
the team developing San Antonio Ranch and Mark Freeman,
Executive Director of the League.

A. NEW COMMUNITY DEVELOPEMENT

As you know, in 1970, under the leadership of this
Committee and its counterpart on the House side. Congress
approved the Title VII program, offering an attractive range
of financial incentives to private and public developers to
establish new communities. These new communities were
designed to provide an alternative to the conventional,
uni-dimensional, tract-by-tract development patterns which
have contributed to the growth problems we face today;
decline of rural areas and central cities, environmental deter-
ioration, water, fuel and energy shortages, increases in
public service costs, economic, racial and social imbalance
in communities, fragmentation of local governments.

To control the problems of urban, rural and suburban
decline, the Congress set forth the following goals to be
achieved by the development of new communities:

405

- 3 -

More rational and desirable patterns of
growth, development and redevelopment in our
urban areas.

Land use patterns and practices which protect
and enhance the physical environment.
Balanced open communities which provide ample
housing opportunities for low and moderate
income families, and which provide adequate
access to social, educational and health
services and facilities as well as opportunities
to work in or near the new community being
developed.
The community development process which has emerged
because of Congressional intent, HUD regulations and developer
responsiveness is based upon a more systematic and comprehensive
approach to human settlement. The basic principle of the
process is that there are several components necessary in the
development of a well-planned community — physical, environ-
mental, social, financial, economic, governmental, and manage-
ment — and each plays an integral role in the life of the
community. This multi-disciplinary approach to the planning
and implementation of a new community makes it easier to view
community life in its totality, as a system, and to deal with
the problems which may occur while there is a chance for improve-
ment.

406

-4-

For the most part. Title VII new communities are
expected to be self-sustaining economic entities where
people could work, shop, play and sleep; an alternative to
urban, rural and suburban living yet capturing the advan-
tages of each life style. The program has fostered sig-
nificant achievements and innovations in financing, planning,
coordination and program execution. In addition, new com-
munities promise to fulfill their responsibility to employ
advanced technology in meeting problems of community de-
velopment. Some brief illustrations show the kinds of
innovative approaches used by developers of new towns.
Environment and Open Space

• The development organizations for The Woodlands, San
Antonio Ranch, and Pontchartrain have produced three of the
most sophisticated, ecologically balanced plans ever developed
in the United States.

• All approved projects devote between 18% and 27% of
total land areas to recreation and open space . New commu-
nities like Jonathan have used this open space to effectively
link the whole community through a series of "greenways,"
and this has influenced the entire open space program of the
town of Chaska in which Jonathan is located.

407

-5-

Transportation

• At least five new communities may provide substantial
transportation breakthroughs as they develop their advanced
transit systems. Three others may well influence the entire
transportation system in the metropolitan area in which they
are located.

Communications

• The lessons learned at Jonathan as they developed a
fully integrated communications system — tying together tele-
phone, CATV, FM, educational programs, computer and other
forms of information communication — will benefit all new
communities and enhance our present state of knowledge regard-
ing this new field.

Assimilation of Minority Groups

• Columbia and Park Forest South have a minority population
equaling 17% of their total present population.

• All Title VII new communities must offer substantial
housing and job opportunities to all minority groups.
Provision of Social Services

• Gananda is experimenting with a multi-use facility that
will be leased by the school system, but available for other
uses as well. Maumelle is doing much the same thing.

• In St. Charles, each village will have a health service
clinic.

408

- 6 -

• Relocation of residents and small businesses in Cedar-
Riverside is being handled in a way to minimize inconvenience
to them.

Governmental Relations

• The new town of Newfields in Ohio is experimenting with
the difficult yet highly promising concept of "dual devel-
opment" whereby some public facilities are provided by the
public developer and other public facilities and housing
are built by the private developer.

• Jonathan is taking the lead in the planning of the
entire corridor along which growth is taking place between
the 20 miles separating Minneapolis and Jonathan.

• The State of New York is developing new communities
through a State-chartered corporation financed by their
own bonds and utilizing only Federal supplementary grant
funds.

Since the enactment of the 1970 amendments, the New
Communities Program has won the support of the Governors'
Conference, the U.S. Conference of Mayors and the National
League of Cities as an important community development approach.
Both Party Platforms adopted last year endorse new community
development as a part of the Nation's overall domestic program.

409

- 7 -

In January 1973, the National Association of Home Builders
passed a resolution in support of the New Communities Progreun,
and recommended that the program be broadened to include
planned neighborhood developments.

B. PROGRAM FACTS

Since 1970, HUD has approved guarantees for fifteen new
communities, which are listed on Table I in the appendix. The
approved projects include tvelve satellites, two NTITs, and
one free-standing and their locations are identified on Map I
in the appendix. The Title VII developments approved so far
are located in nine states and will accommodate, when completed,
an estimated aggregate population of 814,000.

The Title VII program has generated considerable interest
on the part of developers and scores of proposals have been
submitted to the HUD Office of New Community Development for
consideration. Twenty of these proposals have completed the
preapplication process, are in varying stages toward approval,
and are listed on Table II. Similarly Map I pinpoints the
location of each. They include twelve satellites, four NTITs,
two free-standing, two growth centers, and are located in ten
additional states. They are projected to serve, at completion,
a combined population of approximately one million additional
people.

410

- 8 -

Up to this point, the new communities program has
been given, at best, only very modest support by the Admin-
istration and by HUD. in addition, the program's potential has
never been really seriously evaluated by the Executive Branch,
insofar as we can determine. This lack of commitment is
exhibited in many ways. First, the ONCD is grossly under-
staffed. The ONCD staff had more than 50 project proposals
or applications under review at the end of 1972. The complex
nature of the program requires that each project be closely
evaluated by numerous specialists and that the contracts for
approved projects be negotiated on a custom-crafted basis.
Disciplines required on the staff include physical planning,
architecture, environmental engineering, social planning,
land appraisal, cost engineering, market analysis, finance
accounting, and legal skills. The new communities program has
never been decentralized to regional or area offices, primarily
because of this complexity; yet budget restraints at HUD ' s
Washington office have never permitted the combined professional
and clerical staff to exceed 35 people.

This staff cannot possibly do justice to the large volume
of pending projects, many of which will obviously be forced
to stand in line for several years at present staffing levels.
In fact, in a study conducted for ONCD it was determined that

411

- 9

it generally takes 38 months for a project to go from pre-
application submission to final offer of commitment by HUD.
Because of the importance of timing in land development,
those in line who can afford to go it alone will do so, to
the great detriment of the growth objectives served by new
communities.

Many potential developers, both public and private, have
been dissuaded from participating in the program because of
the complexity and length of the review process. While we
feel that the interdisciplinary nature of the planning and
review process is an excellent educational tool for developers
and has systematized the community development process, we do
not feel that an administrative problem — the lack of staff —
should be allowed to thwart the participation of more developers
in the program. The League and other interested parties have
made countless attempts to remedy this situation; for the
good of the program we urge this committee to assist us in
these efforts.

Another serious shortcoming of the program has been the
Administration's failure to release the broad range of financial
incentives and resources the Congress created to encourage
State and local governments as well as private developer
participation in the new communities program. The Title VII
program provides many funding mechansms to finance land

412

- 10 -

acquisition and land development activities, both of which

constitute the major costs of developing a new community.

As can be seen from Table III in the appendix so far, only

two financial mechanisms have been implemented by HUD, the

basic loan guarantee and the supplementary grant program.

(1) Loan guarantee ; The basic Federal loan guarantee
makes it possible for the developer to float debt instruments
similar to corporate bonds, which can be offered to a broad
capital market. The aggregate outstanding obligation that
can be insured under the Title VII program is $500 million.
To date, the outstanding obligations are $253.5 million. By
law, each project cannot exceed $50 million and the loan
guarantee of private debt must be secured by a first mortgage
of 110% of the value of the project.

The total costs of the land and development acti-
vities which will be guaranteed by HUD vary. Private
developers may be guaranteed an amount covering up to 80%
of the value of real property before development and 90%
of the land development cost. Public developers (a city,
county, or public development corporation) can receive a
federal guarantee covering 100% of the value of real
property and 100% of land development costs.

(2) Supplementary grants; Title VII provides
supplementary grants to State and local public bodies
for those community development activities viewed as
essential to developing the infra-structure of new
communities. Supplementary grants, made by HUD, cover
up to 20% of the project cost but never involve a total
federal grant in excess of 80% of costs. They can be
made in conjunction with 13 federal programs including
urban mass transportation, highways, airports, public
health facilities, libraries, recreation and open space
lands, neighborhodd facilities, and other public health
facilities needed to strengthen a community's economic
development potential. These grants should prove helpful
in reducing the cash required of the new town developer
or the host community to provide a full range of facilities
and services for a new community. Supplementary grants
have only been sporadically released by HUD and the
Administration has recommended termination of this
important program element.

413

11

The other financial tools, the interest differential
grants, interest loans, public service grants, technical
and planning assistance and renewal assistance, some of
which can be used in financing community amenities and
services, have not been fully implemented by the Adminis-
tration.

(3) Interest differential grants; Title VII also
provides a program of interest difference in interest
rates between obligations of public bodies guaranteed
under the Act who may not be exempt from federal taxation,
and the lower interest rates which would be obtained if
such obligations were exempt. No funds have been
requested by the Administration as of this date"

(4) Interest loans ; In addition. Title VII
recognizes the financial demands placed on developers dur-
ing the early years of the development of a new community.
Thus, it provides loans to developers to assist them in
meeting interest payments on their indebtedness. Both
private developers and public land development agencies
are eligible for the interest loans, repayment of which
can be deferred for fifteen years. No loan funds have
been released as of this date.

(5) Public Service Grants; These grants are for
eligible local public authorities provided for by
Title VII. They can be used to fund basic education,
health, and public safety services essential to the
viability and growth of a new community. During the
period when residents first move in, it is highly likely
that they may be unable on the basis of their own
resources to fully support such services. The public
service grants, which can extend over a three-year
period, could amke it possible for the community to
provide such delivery systems. The Administration has not
thus far requested funds for this purpose from Congress.

(6) Technical Assistance; Title VII authorizes the
provision of technical assistance by HUD to private new
community developers as well as state land development
agencies or other local public bodies, to assit them

in planning and carrying out new community development
programs. So far, HUD has failed to take advantage of
the authority provided for in the law.

414

- 12 -

(7) Special Planning Assistance; Both, private and
public developers are eligible for this assistance,
which covers up to two-thirds of the cost of special
planning. The program provides developers with funds
to plan new community programs, particularly planning work
having special value in developing programs which are
fully responsive to social or environmental problems, or
which support the use of new and advanced technology. In
the case of private developers, assistance may be pro-
vided only for planning work which is in excess of
ordinary market, financial, and engineering studies.
This assistance would ease some of the "front end"
costs that have to be borne by public and private
developers and would serve to encourage innovative
planning. Funds have not been released for this
program. While some five million dollars for the
purpose has been appropriated by Congress, the funds

have

not

been

released

by the

Office

of Management

and

Budg

2t.

(8)
ons c

701

Planning

Assistance (75% g^rants)

to State

Regi

>r other multi"

urisdictional

areas for

the

Deve

lopme

int of National

Urban

Growth

Patterns :

The

Act

directs the Secretary to encourage state and regional
governments to formulate plans, programs and
implementing procedures necessary for planning and
guiding urban growth. The 701 grants were authorized to
give substance to the Secretary's encouragement. To
date, HUD has shown no inclination to encourage state
and/or regional governments as the Act directs nor nave
any 75% 701 grants been made for the purposes set tortn
in the law.

(9) Renewal Assistance for NTIT Development; Title
VII amends existing urban renewal legislation to encourage
and support the creation of NTITs and permits the
acquisition of land, which is being occupied by uses
which, although not physically blighting, are functionally
obsolete and uneconomic. In effect, this provision was
to make it possible for redevelopment agencies to under-
take the acquisition and assembly of large tracts of
land for puroses of eventual disposal at a write-down
for the development of a new town. The Administration has
so far taken no serious steps to encourage or implement
this element of the program.

415

- 13 -

In considering and enacting the Title VII program.
Congress recognized that a wide variety of resources would
be needed to encourage the development of new communities.
Experience under the program reflects the fact that Congress
accurately anticipated the complex nature of the program and
the need to offer economic inducements to private developers
and State and local governments to participate. If the pro-
gram's full objectives are to be attained, those who ad-
minister it must be cognizant of all of these facets and pro-
vide the necessary incentives or the program will fall con-
siderably short of the objectives envisioned by the Congress.
Therefore, we feel that in order to ensure the effectiveness
of Title VII, the resources that Congress determined as ne-
cessary for the successful operation of the program should
be made available.
C. C0^4MUNITY DEVELOPMENT GRANT LEGISLATION

Having presented our estimate of the Title VII program,
I would now like to present our views on the community
development legislation which is before this Committee.
As I explained earlier, new communities are a community
development tool to be viewed within a larger framework
of a national growth policy. Their value is enhanced to the
extent that they can deal with the problems of urban growth
and to the extent that they can be used to direct and imple-
ment a national growth policy. Because new towns must

416

- 14 -

necessarily bring together all the programs which affect
the community development process, including the interests
of the Departments of Transportation, Agriculture, HEW,
Commerce, HUD, and EPA, GSA and other agencies, we support
any mechanism which will ease the problems and complexi-
ties of inter- and intra-agency cooperation and which
make funds more easily available. We support the unifi-
cation of the fragmented HUD community development
programs, for we feel that this unification will enable
us to better, and more efficiently, carry out our
responsibilities .

S. 1744/ The Community Development Assistance Act of
1973, would require consolidation of all Title I urban
renewal programs, neighborhood facilities grants, open
space land grants, the basic water and sewer facilities
grants, public works planning advances and public
facilities loans. Under the Administration's bill,
S. 1743, the Better Communities Act, the first four programs
would be consolidated; the public facility loan program
would be excluded, but the Section 312 rehab loan
program and Model Cities would be included in the
consolidation.

Many of the categorical community development pro-
grams are essential in the development of new towns
because they provide funds for the construction of the

417

- 15 -

skeleton of the new community — the infrastructure.
However important they are, the grants have been
insufficient to meet the unique needs of the new communities,
The developers have had to pre-service the communities --
install community amenities and facilities before resi-
dents move in — while the local governments have been
unable, either politically or financially, to commit
scare resources to a community with no constituents.
The financial difficulties are also compounded by the
commitments the developers have made to provide anywhere
from 25 to 40 percent of their total projected housing
supply for low and moderate income families; the larger
the proportion of subsidized units in the community, the
weaker the economic base and the more difficult and
costly it is to sustain an effective system of delivering
good quality social, education, health and recreation
services to new residents.

Recognizing the problems inherent in the financing
of new community infrastructures, the Congress created
the Title VII supplementary grant programs which allows
HUD to "piggy-back" a grant of 20% of the projects
costs to any State or local public body for those community
development activities viewed as essential to developing
the infrastructure of new communities. These grants

418

16 -

can be made in conjunction with thirteen federal programs,
including urban mass transportation, highways, airports,
public health facilities, libraries, recreation- and
open space lands, neighborhood facilities, and other
public works facilities needed to strengthen a
community's economic development potential.

As another form of financial assistance to the
development of the new community infrastructure, the
Congress also passed the public service grant program.
This program was designed to provide three-year grants
to local governments to fund a broad array of basic
services essential to the viability and growth of a new
community such as health, education and public safety
services. Once again the federal infusion of funds was
necessary because neither the residents of the new
community nor the public body responsible for service pro-
vision would be able on the basis of their own resources
to fully support these service systems.

Therefore, in assisting the unique community develop-
ment activities for new communities. Congress provided
three sources of funds: the basic HUD grants, the
supplementary grants and the public service grants. As
stated earlier, however, the Administration has not
requested funds for the public service grant program.

419

- 17 -

Supplementary grants for public facilities as
authorized under Section 718 have amounted to about
$11.5 million for approximately 35 projects in 9 new
communities. Although FY '73 reports are not yet final,
this amount could have increased to $19 million by June
30th if all went well. This will leave roughly $5-10
million of appropriated, non-committed funds which will
be lost to the program since the Administration has
indicated its intent to terminate this form of assistance
starting June 30, 197 3.

The Administration's decision to terminate
supplementary grants, plus HUD's categorical aid programs
covering open space, water and sewer, and neighborhood
facilities, has had and is having a very negative effect
on existing developers who have, from the very beginning,
been led to believe that both public facilities grants
plus the supplementaries would be available to the local
governments in which new communities are being developed.
As a matter of fact, all the economic models for all pro-
jects approved so far, up to but not including Riverton,
included public facility grants plus supplementaries, in
anticipation that they would be made. In all the projects
approved since Riverton, the developers had good reason
to believe — on the basis of their negotiations with

99-855 O - 73 - pt. 1 -- 28

420

- 18 -

HUD, th.e law itself, plus Congressional intent — that
public facility grants, particularly supplementaries in
varying degrees, would, in the normal course of events,
be forthcoming.

1) New Community "Set Aside": With the intended
termination of the categorical and supplementary grants,
our developers and the impacted local governments are
left stranded; if this situation is left unremedied, the
effects may well be disastrous to the program. Neither
potential successor to the grant programs, S. 1743 and
S. 1744, makes any provision for the community development
needs of new communities.

We would therefore recommend that any bill reported from
this Committee include a community development "set
aside" for new communities. We would expect that these
funds would come not from the allocation to units of
government but from the "discretionary fund" which remains
to be distributed by the Secretary. The "set aside" would
combine the functions of the basic grant, the supplementary
grant, and the public service grant programs. "Set
aside" grants, over and above the regular entitlement
allocation, would be awarded to any unit of government
responsible for community development activities in a
new town .

421

19 -

Such a provision may help ease the burdens faced
by local governments in parceling out their funds among
competing development demands. It seems apparent that
community development funds will be apportioned to
respond to immediate needs and that local governments
will not easily be able to attend to the prospective
needs of new communities. The "set aside" will allow
them the extra margin of funds needed to finance community
development activities in new communities.

Ultimately, however, the resident/consumer will be
served; with the community development funds it will be
easier for the local government to finance the community
facilities rather than the developer who would have to
"front end" the costs and pass them on to the buyers in
the price of the land.

In apportioning the "set aside," we would propose an
amendment which would permit community development grants
to be made to public bodies recognized by the Secretary
to carry out community development programs in a new
community. In most new communities, no city or municipal
agency is authorized to undertake all necessary community
development programs for the new community area.
Instead, state or local laws grant jurisdiction to other
public bodies for various community development programs.
For example, in the development of the plans for the new
community of Newfields, outside of Dayton, Ohio, the

422

- 20 -

State legislature passed enabling legislation for the
establishment of the Community Authority which would act
as a quasi-special district to provide certain community
development activities and services to the residents of
the new community, over and above those to be provided by
the regular units of government. The clarifying language
we suggest would make it clear that a body such as the
Newfields Community Authority would be eligible for a
community development grant for any activities which fall
within the meaning of "eligible activities" in the
legislation before us.

Based on the language in the legislation before us,
we believe there are two strong factors which support
our request for a new community "set aside." The first
is the nature of the allocation formula and the second
concerns the "hold harmless" provision.

(a) Allocation formula; The formulae in both pieces
of legislation provide that entitlements be based on
criteria which apply to existing conditions which include
population, housing overcrowding and poverty conditions.
We feel that this approach provides funds in an amount
which will only perpetuate the wasteful, crisis-oriented
urban growth patterns and policies which are now evident.
New communities, through long term planning and development,
are designed to correct this approach. Yet, local

423

21 -

governments which host new communities would be dis-
criminated by the formulae since community development
funds would be needed now to plan and provide for future
needs. The "set aside" would correct this inequity by
providing for these future needs. We would expect that
if our recommendation for a new community "set aside"
from the discretionary fund is approved, that the Secretary
will, of course, allocate these funds based on his own
determination of need rather than according to an
allocation formula.

(b) Hold Harmless ; "Hold harmless" provides that
no community will experience undue hardship upon
termination of the categoricals and implementation of
program consolidation. In determining the "hold
harmless" entitlement, the supplementary grant funds
received by units of local government are not included
in the calculation. We feel that communities such as
the City of Chaska which received a basic grant of
$400,000 and a supplementary grant of $160,000 for its
open space program -- a program which will serve all
residents including those who reside in the new town of
Jonathon — should be rewarded for receiving both
grants. Since the "hold harmless" provision does not
reward the communities, as we have suggested, the "set
aside" will provide a source of funds to perform this
function.

424

- 22 -

(2) Multi-year progranuning : Many new community
projects, particularly th.ose new-town-in-town projects
wh-ich rely upon urban renewal for land clearance,
write-down and development, are multi-year projects.
To secure debt financing, developers must have some pledge
that government funds will be available to undertake
activities which will keep the community development
process moving. We believe that local units of government
must have some assurance that community development funds
will be forthcoming on an annual basis so that they will
be allowed to commit themselves to long-term programs.
We have noted the loan provision in Section 9 of S. 1744
which permits the Secretary of HUD to make loans to
State and localities to provide financing for planning
and operating activities pending receipt by the locality
of the grant funds and to provide interim financing for
the construction of certain public facilities. To the
extent that this provision permits authority for multi-
year planning and programming, we support it and would
urge that it be included in any bill reported from this
Committee.

Furthermore, we note that the urban renewal loan
authority program will be suspended by the legislation.
We would much prefer that language be included in the bill
which would permit continuation of this activity, either

425

- 23 -

as an eligible activity or with specific reference in
Section 9 of S. 1744. As stated above, many new
communities, particularly the in-town projects, are
dependent upon this kind of government financing to insure
the continual and consistent implementation of their
development plans.

3) Eligible Activities: Because the new community
development process depends so heavily upon the timely
installation of all community facilities, we would there-
fore urge that the broadest possible interpretation be
placed upon the nature of the community facilities which
may be constructed or operated with community
development grants. For example, the lack of funds in a
school district or a library board may hold up the
development of a neighborhood in the new community or the
entire community itself.

We would therefore urge that school, library, hospital
and other such construction be permissible activities under
the Act where funds for these activities are not available
through other sources. When funds are available through
other sources or when the grant recipient is not permitted
to engage in these construction activities, we believe that
Section 4, subsection 13 in S. 1744, is an excellent fall-
back position for the unit of government to encourage early
or pre-servicing of new communities.

426

- 24 -

As stated above, we would recommend that the definition
of community facilities be expanded and that the financial
incentives provision be included in legislation reported
from this Committee.

In addition, we also believe that grant recipients should
also be able to use community development funds to buttress
citizen participation efforts. One of the objectives of the
Title VII program is to involve residents in the planning of
the new community through citizens groups and community associa-
tions. Developers have supported these efforts and make pre-
vision in Hovelopmont pl»nn f*>r thip input.

However, without experienced staff assistance from planners
or managers, many of these community efforts result in stulti-
fication of the project rather than participation in it. In
order to achieve the goals of the program we believe that
"eligible activities" should be expanded to include financial
assistance to the citizen/community associations to hire pro-
fessional staff to help manage and assist groups with their
delibarations and to help keep the community development
process moving along.

427

- 25

D. TITLE VII PROGRAM

1. Suggested amendments; While these hearings are

devoted primarily to the community development legislation,

we would like to take this opportunity to recommend to the

Committee some amendments to the Title VII program. Since

enactment of the program in 1970, there have been no changes

in the program and we feel that several are sorely needed.

The amendments which appear below have been included by the

Housing Subcommittee in H.R. 8879, the Housing and Urban

Development Amendments of 1973, and we would urge that the

Committee include them in any legislation which is reported

from this Committee.

(a) Community Development Corporation (CDC) Structure;
change the name of the CDC to New Community Development
Corporation which more accurately reflects its jurisdiction
and increase membership from five to seven years by adding
two additional members.

Explanation;

The size of the board should be increased by two more

members who will reflect the diverse groups interested in

and knowledgeable about new community development. The

major objective in increasing the size of the board is to

create a balance in membership between the public and private

sector.

428

26 -

works of art, to provide workshops that will encourage and
develop the appreciation and enjoyment of the arts.

If the program is not revived and the community devel-
opment "set aside" is approved, the above could be considered
eligible activities under the Act.

(d) Expansion of land development definition; may
include waste disposal installations, and community or neigh-
borhood central heating or air conditioning systems.

Explanation

Central heating, air conditioning, and waste disposal
facilities are not only appropriate but eminently desirable,
particularly in high density developments, and ought to be
encouraged. Also, it is possible such central facilities
can act to reduce individual housing unit costs. Day care
facilities should be eligible under the section without
amendment; if HUD has ruled otherwise, some clarification
is in order.

(e) Low and Moderate Income Housing; require Secretary
to reserve housing assistance funds for use in connection
with the Title VII projects.

Explanation

This amendment is to assure that new communities do not
lose their fair share of housing funds for persons of low and
moderate income merely because a new community requires
longer lead time for planning and development than is
required for a typical subdivision.

429

- 27 -

(b) Interest Differential Grants; increase interest
differential grant to Ztate land development agencies by
1/2%; authorize Secretary to make interest differential
grants to eligible agencies even if it does not seek guaran-
tee assistance.

Explanation

The 1/2 percentage point increase would compensate
public developers for the higher interest rate that they
obligate themselves to pay if they issue taxable bonds
instead of tax exempt bonds. While there is some agreement
that the current language in Title VII would permit this
1/2 percentage point it has become desirable to clarify the
amount of the grant. By adding 1/2% increment to the grant
payment, there will be a greater inducement to public agencies
to participate in the program.

(c) Supplemental grants; include projects or programs
funded under Section 5 of the National Foundation on the
Arts and Humanities Act of 1965.

Explanation

Before the program was terminated last month, a wide
variety of federal activities were eligible for supplementary
grants. However, funds were not available for projects pri-
marily involving the arts. If the supplementary grant program
is revived, assistance would be limited to such items as the
construction of buildings, the purchase of land and the
acquisition of equipment and works of art, rather than being
used to pay salaries on an ongoing basis and would include
programs to foster American artistic creativity to commission

430

- 28

We appreciate this opportunity to testify before the
Subcommittee and stand ready to assist the staff should any
further information be needed or any questions arise about
our position on the proposed community development grant
program. If the Chair permits, we would like to reserve
the right to submit additional material if further consid-
eration of the legislation should warrant it.

431

Table i

Summary of New Commun

ities Guaranteed by HUD'

(Dollars in

1 Thousands)

Guarantee

Commit-

ment

Guarantee Issues

Dwelling

Amount

Amount

Interest

Population

Units

Community

Type

Date

Date

Rate

(projected)

(projected)

Location

Jonathan,

Satellite/

$21 ,000

$ 8,000

8.50%

50,000 in

16,500 in

20 mi. S.W.

Minnesota

Growth
Center

2/70

10/70'

$13,000
6/72

7.20%

20 years

20 years

of Minneapolis

St. Charles

Satellite

$24,000

$18,000

7.75%

75,000 in

25,000 in

25 mi. S.W. of

Communities,

6/70

12/70

20 years

20 years

Wash., D.C.

Maryland

Park Forest

Satellite

$30,000

$30,000

7.00%

110,000 in

35,000 in

30 mi. S. of

South, Illinois

6/70

3/71

15 years

15 years

Chicago

Flower Mound,

Satellite

$18,000

$14,000

7.60%

64,000 in

18,000 in

20 mi. S.W.

Texas

12/70

10/71

20 years

20 years

of Dallas

Maumelle,

Satellite

$ 7,500

$ 4,500

7.62%

45,000 in

14,000 in

12 mi. N.W. of

Arkansas

12/70

6/72

20 years

20 years

Little Rock

Cedar-

New-Town-

$24,000

$24,000

7.20%

30,000 in

12,500 in

downtown

Riverside,

In-Town

6/71

12/71

20 years

20 years

Minneapolis

Minnesota

Riverton,

Satellite

$12,000

$12,000

7.125%

25,600 in

8,000 in

lOmi. S. of

New York

5/72

16 years

16 years

Rochester

San Antonio

Satellite

$18,000

—

88,000 in

28,000 in

20 mi. N.W. of

Ranch, Texas^

2/72

—

30 years

30 years

San Antonio

The Wood-

Satellite

$50,000

$50,000

7.10%

150,000 in

49,160 in

30 mi. N.W.

lands, Texas

4/72

9/72

20 years

20 years

of Houston

Gananda,

Satellite

$22,000

$22,000

7.15%

50,000 in

17,200 in

12 mi. E.of

New York

4/72

12/72

20 years

20 years

Rochester

Soul City,

Free

$14,000

—

—

44,000 in

12,906 in

45 mi. N. of

North Carolina

Standing

6/72

—

30 years

30 years

Raleigh-
Durham

Harbison,

Satellite

$13,000

—

—

23,000 in

6,750 in

8 mi. N.W. of

South Carolina

10/72

—

20 years

20 years

Columbia

Lysander,

Satellite

«

5

5

18,300 in

5,000 in

12 mi. N.W. of

New York

8 years

8 years

Syracuse

Welfare Island,

New-Town -

4

18,000 in

5,000 in

in New York

New York

In -Town

12/72

7 years

7 years

City

Shenandoah,

Satellite/

$40,000

70,000 in

23,000 in

35 mi. S.W. of

Georgia

Growth
Center

2/73

20 years

20 years

Atlanta

' Source: Department of Housing and Urban Development, as of February 1973.
'Guaranteed under Title IV; all other guarantees under Title VII.
'Contingent on water protection studies.

'Eligable for 20% grant from HUD supplementing basic federal grant programs.

'First to receive a determination of eligibility for grant assistance rather than federal guarantee of its debt;
receives federal assistance under Title VII, Housing and Urban Development Act of 1970.

27

432

Table ii

Summary of New Communities
Completing the HUD Application Process'

Community

Type

Guarantee '

Commitment

Requested

Population
(projected)

Location

Beckett.
New Jersey

S

535,000

60,000 in
20 years

So. of Camden
Gloucester County

Newfields,
Ohio

8

$31,000

33,500 in
20 years

West of Dayton:
Montgomery County

New Franconia,
Virginia

S

545,000

30,640 in
10 years

25 mi. SW of Wash.,
D.C: Fairfax County

Oak Openings,
Ohio

S

$31,000

50,000 in
20 years

near Toledo

Pontchartrain.
Louisiana

NTIT

$20,000

80,000 in
20 years

25 mi. east of
New Orleans

Amherst/Ransom
Oaks, New York

S

$47,000

n.a.'

S.E. of Buffalo:
Erie County

Rancho San Diego,
California

S

$30,000

65.376 in
15 years

East of San Diego

Stansbury Park,
Utah

S

$25,000

70.000 in
10-15 yrs.

25 ml. west of
Salt Lake City

Fort Lincoln,
Wash., D.C.

NTIT

n.a.'

16,000 in
10 years

Washington. D.C.

Midland,
Kentucky

FS

$15,000

50,000 in
30 years

Between Lexington and
Huntington Tri-State

' Source; Department of Housing and Urban Development, February 1973
' Dollars in thousands
^ Not available

28

Tableii;Continued)

433

Community

Type

Guarantee '

Commitment Population

Requested (projected)

Location

Nouville, S $30,636

Louisiana

Kansas City West, S $25,000

Kansas

San Antonio NTIT, NTIT n.a.

Texas

Kane County, S n.a.

Illinois

Pattonsburg, GO n.a.

Missouri

Shelby Farms, NTIT n.a.

Tennessee

Tree Farm, S $ 9,000

Florida

Timberlake, S n.a.

Tennessee

Deer Run, GO $ 6,000

Texas

Murrock, FS $30,000

Arkansas

32,000 in

7 mi. south of

20 years

Baton Rouge

100,000 in

Wyandotte & Leaven

20 years

worth Counties

19,415 in

San Antonio

20 years

65,000 in

40 mi. west of

20 yrs. (est.)

Chicago

25,000 in

N.E. of St. Joseph,

30 years

Daviess County

65,000 in

Memphis

20 years

30,000 in

No. of Pensacola:

20 years

Escambia County

31 ,500 in

30 mi. SW of

20 years

Knoxville

40,000 in

100 mi. from Dallas

30 years

and Shreveport, La.

62,000 in

60 mi. NW of Little

20 years

Rock

434

Map I

Location of New Communities

New Communities
Approved by HUD

A

Jonathan

B

St. Charles

C

Park Forest South

D

Flower Mound

E

Maumelle

F

Cedar-Riverside

G

Riverton

H

San Antonio Ranch

1

Woodlands

J

Gananda

K

Soul City

L

Lysander

M

Harbison

N

Welfare Island

0

Shenandoah

o

New Communities Completing
the HUD Application Process

A

Beckett

B

Brookwood

C

New Franconia

D

Oak Openings

E

Ponchartrain

F

Amherst/ Ransom Oaks

G

Rancho San Diego

H

Stansbury Park

1

Fort Lincoln

J

Midland

K

Nouville

L

Kansas City West

M

San Antonio NTIT

N

Kane County

0

Pattonsburg

P

Shelby Farms

Q

Tree Farm

R

Timberiake

S

Deer Run

T

Murrock

80

435

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99-855 O - 73 - pt. 1 -- 29

436

DEVELOPMENT MEMBERS

Audubon, New York

Orangewood, Florida

Beckett New Town, New Jersey

Park Forest South, Illinois

Brier Hill, Pennsylvania

Pattonsburg, Missouri

Brookwood , Ohio

Pontchartrain , Louis iana

Cedar-Riverside, Minnesota

Rancho San Diego, California

Columbia , ■ Maryland

Riverton, New York

Flower Mound, Texas

Saint Charles , Maryland

Gananda, New York

San Antonio Ranch, Texas

Harbison, South Carolina

Shenandoah, Georgia

Jonathan, Minnesota

Soul City, North Carolina

Lysander, New York

Stansbury Park, Utah

Maumelle, Arkansas

Tree Farm, Florida

Midland, Kentucky

Welfare Island, New York

New Franconia, Virginia

West Valley, Illinois

Nouville, Louisiana

The Woodlands , Texas

Oak Openings , Ohio

437

Mr. HoNTS. I would like to compliment this committee and the
chairman for their leadership in the past with respect to the New
Communities Act of 1968 and 1970.

As you know, those two acts have been the basis by which 15 new
communities have been approved and are in the process of being
developed.

Two basic elements of that program, provision of Federal guar-
antees of loans and Federal grants, have played a vital role in changing
the community development process in this country.

Now, to skip most of the testimony, a geneml summary of how the
program has worked and a general evaluation of some of both the
opportunities and problems are included in our statement. We would
like to address ourselves directly to the Better Community Act and
to the various aspects of that act as that will impact on the new com-
munities program.

The Better Communities Act was based on a formula. On page 22
of the statement that has been introduced into the record a general
discussion takes place of our understanding of that formula.

The Better Communities Act does not contain in its formula any
provision for assistance to new communities which would replace the
present basic and supplemental grant provided under title II of the
1970 Housing and Urban Development Act.

Accordingly, we would urge that some form of "set aside" take
place in the Better Communities Act allocated toward the needs of
new communities if the Congress in fact feels that the new communi-
ties program is a vital element in the overall community development
needs of this Nation, as we believe they do.

There are two other elements that are mentioned in our statement.
The need for multiyear programing in any community development
project is discussed. We feel this provision is needed in order to
insure that funds can be commited for long enough periods of time to
provide needed continuity as the project evolves.

In addition, new^-town-in-town projects depend on some type of
urban renewal grant and loan arrangement, and it is important that
the Better Communities Act take into account that need if there are
to be central city new-town-in-town projects.

In summary, we appreciate your time, we appreciate your help in
the past, and we state that our primary purpose here is to ask that the
Better Communities Act formula be amended in a way that allows
"set aside" to meet the present needs for future cities.

Senator Tower. Thank you, Mr. Honts. I appreciate your testimony,
and I certainly know that your testimony carries the ring of authority
because I know of your experience in Texas.

We appreciate your appearance here today.

Would Mr. Freeman care to make any supplementary statement?

Mr. Freeman. No, sir; I think Bob has pretty much covered our
feelings, and with the formal statement being introduced into the
record, I think that probably adequately covers it.

Senator Tower. Thank you, Mr. Freeman.

Thank you very much, gentlemen.

Mr. HoNTS. Thank you, sir.

Senator Tower. It was requested that a statement of Congress-
woman Abzug be inserted in the record at this point.

[The statement follows r]

438

Statement of Bella S. Abzug, Representative in Congress
From the State of New York

Mr. Chairman, I welcome the opportunity to address the Suhcommittee on
Housing and Urban Affairs regarding proposed community development and
housing programs. The Subcommittee is to be commended for the value of its
past work and the diligence with which it has pursued the matters presently
before it.

As I represent a Congressional District in the City of New York, I am deeply
interested in the future of community development and housing programs
as they affect urban America, especially New York. It is now imperative, in
the face of the administration's moratorium on Federally subsidized housing
programs, that Congress move quickly to pass new comprehensive legislation
in these areas.

The moratorium, if permitted to last 18 months, would add greatly to the
frustrations of low and moderate income families who are in dire need of better
housing. In New York City, 75% of low and moderate income housing is planned
for urban renewal and Model Cities areas. Approximately 12.000 units which
are able to be constructed on urban renewal and neighborhood development
sites are unfunded. It is nothing short of criminal that this nation, so rich and
so innovative, can so ignore the basic needs of its least affluent citizens. We
who still believe in the 1949 Housing Act's promise to provide decent housing
in suitable neighborhoods for all Americans, are left to hope that the recent
District Court decision requiring the release of impounded housing funds
will be upheld, and that these funds will begin to flow without too long a delay.

For two years the Congress has been attempting to pass legislation concerning
community development and housing programs relevant to the needs of our citi-
zens. Your subcommittee is presently considering the administration's Better
Communities Act (S. 1743), the Community Development Assistance Act (S.
1744) and the Housing Act of 1973 (S. 2182). I should like to comment on
these bills.

HOUSING AND COMMUNITY DEVELOPMENT INTERDEPENDENCE

First. I should say that community development and housing programs must
not be considered as separate and distinct entities. For each to be successful,
especially in providing decent housing in a suitable living environment for
low and moderate income families, they must be dependent upon one another.
Not too long ago we thought of the Urban Renewal Program as one merely
concerne<l with slum clearance. Today, our sights have broadened so that we
think in terms of community development — not merely the elimination of a
slum, or the construction of a building, or the preservation of a single neigh-
borhood. Rather, we are speaking of preserving whole communities, for with
their salvation rests the salvation of entire cities.

One of the major failings of the Better Communities Act (S. 1743) is that no-
where does it recognize the interdependence of housing and community develop-
ment. The Community Development Assistance Act (S. 1744) does take a long
stride toward recognition of this principle by its requirement that applications by
community development agencies contain an outline of the housing needs of com-
munities, and its provision that the Secretary of HUD shall reserve, where
necessary and feasible, funds to meet the housing requirements specified in the
application. We must never lose sight of the fact that communities do not exist
but for the people who reside within them. We may tear down all of the slums,
we may provide excellent recreational facilities, social service centers and water
and sewer facilities — but if we do not provide for decent housing, there will be no
community.

FINDINGS AND PURPOSE OF S. 174.3 AND S. 1744

My overriding concern is that any community development legislation which is
enacted into law serve the needs of low and moderate income families. At the risk
of sounding like an alarmist, I am uncomfortable with both S. 1743 and S. 1744.
in that their findings and purpose speak in overly broad generalities. I do not
know whether it is feasible to be any more specific than is S. 1744, with regard
to the intended uses of community development funds. At least that bill attempts
to speak in terms of national priorities. However, I believe that language can be
developed which would not be so narrow as to be overly restrictive, but which

439

would clearly mandate that community development funds are to be used in those
blighted or transitional areas for which they are intended. I believe such language
would go a long way toward preventing future abuses in the program.

APPLICATIONS

One of the most frequently voiced complaints about the categorical grant
approach concerns its burdensome, red tape-ridden application process. In
reaction to that, and in an attempt to place the ultimate responsibility for a
community development program upon local ofiBcials, the Better Omimunities
Act requires no formal application. Rather, it requires a statement of com-
munity development objectives and the projected use of funds. Tlie input of the
community into such a statement is minimal if it exists at all.

S. 1744 requires an application which does not seem to be overly burdensome or
unnecessarily detailed. It is an attractive requirement in that it mandates com^
munity participation in its completion.

I believe that an application as a prei-equisite for receiving community devel-
opment funds is an absolute necessity. Tlie Committee should carefully evaluate
the retiuirements of any such application to be sure that it will not become bur-
densome, time consuming or too technical for the local community filing the
application, or for the HUD officials who must read and approve it.

There are a number of advantages to an application requirement. Applicants
would be obliged to address broad national objectives as outlined in S. 1744. Also,
as provided in S. 1744, citizens would participate in plans for their own future. A
public record would be established to hold local officials and the community
development agency accountable to the public, to HUD and to the Congress.
Progress of the plans would be monitored and evaluated as necessary to assure
compliance with the spirit and intent of the laws.

FUNDING

I am concerned that the formulas and funding mechanisms employed by both
S. 1743 and S. 1744 may not be equitable for New York City, or for a number
of older urban centers.

Under the hold-harmless provisions of S. 1743, HUD estimates that in the first
two years of the program. New York City would receive $91.3 million, based on
its past five years of experience in the categorical programs being phased out.
New York City's Housing and Development Administration estimates that New
York ought to receive $99.3 million. However, if we consider that New York
City will receive very little funding for these programs in FY 74. if the admin-
istration has its way, then the average for the next three years will be approxi-
mately $60.7 million. This compares quite unfavorably with the $115 million
the City received in FY 72.

New York City's formula share under the Better Communities Act is set at
approximately $132 million. With redistribution of State funds and the pliase
down of other cities' hold-harmless funds, it is estimated that by FY 79 New
York may receive $149.1 million. I am also advised that under the S. 1744
formula the City would receive $127.3 million with no "transitional year." These
figures pale in light of New York City's requirements of more than $240 million
for FY 74 under existing categorical grants-in-aid programs (not including urban
renewal or neighborhood development ) .

A further problem is evident, on a more national basis, when we consider
that by the fifth year of the Better Communities Act program, the following
older metropolitan cities, to name just a few, will be receiving less money than
their previous program experience funding provides : Baltimore. Cleveland.
Milwaukee, Pittsburgh, Newark. Washington, D.C. The "big gainers" seem to
be the newer and faster growing cities of the South and Southwest. While I
have no objection to those cities' benefiting from the community development
funding procedure (perhaps they can plan to avoid the problems of the older
metropolitan areas), it offends my sensibilities to learn that those cities with
long term, chronic inner city problems will actually be losing funds under the
S. 1743 formula.

I would propose, to rectify this situation, that an additional factor be added
to the formula. That factor would be the extent of housing stock 40 years of
age and older. The effect of this factor on entitlements to cities is unclear but
I would urge the Committee to run the existing formulas of S. 1743 and S. 1744.

440

along with my projwsal. through the HUD computers to determine wliat changes
would occur. I helieve that the result would he a more equitable distribution
of funds based upon a more accurately assessed need.

SECTION 312 REHABILITATION LOANS

The Better Communities Act would include current section 312 rehabilitation
loans in the si)ecial revenue sharing provisions. I oppose this change. I prefer
to see section 312 either stand separately or be consolidated into a purely "Re-
habilitation" chapter of comprehensive housing legislation.

Although the 312 loan limits have, in the past, been too low for extensive u.se
in high cost areas such as New York City, I believe this program has proved
viable for the rehabilitation of many homes. Section 312, or its successor, should
be definetl in such a way as to allow local costs to be the determinant of rehabili-
tation loan ceilings rather than an arbitrary national figure setting those ceilings.

Mr. Chairman, these are some of my thoughts concerning the community de-
velopment bills, S. 1743 and S. 1744. I should now like to discuss briefly S. 2182,
the Housing Act of 1973.

A number of changes which S. 21S2 would make in existing federal subsidy
programs are welcome. I will however, reserve judgment on the bill itself, as I
feel that a consolidating approach similar to that of the community development
bills may actually be more relevant to the housing needs of low and moderate
income families in urban America.

In the past, New York City has been unable to take advantage of section 235,
Homeownership Assistance, either for new or existing housing or for rehabilita-
tion. The basic problems were the mortgage ceiling limitations and the family
asset limits it imposed. While much of this has been improved by section 402 of
S. 2182, I am concerned that section 402 will still see limited use in a city like
New York. That is, the cost of land and single family housing would be so high
that poor and moderate income families could scarcely afford the upkeep of such
homes. I would prefer to see at least a consolidation of the current 235 and 246
programs (sections 402 and 502 of S. 2182). Localities could then use these funds
in a manner most suited to their lifestyles and the forces of their economies.
Consolidation would also allow cities like New York to develop more housing
than is currently possible under section 236

I do not expect New York City to develop only multiple family dwellings. I am
quite confident that some of the funds under such a consolidated program would
be used innovatively in implementing the puriioses of section 235. However, given
the housing problems of cities like New York, it would seem more consistent with
our national goals to allow such cities the total wherewithal to provide decent
housing — whether that housing be single family or multiple dwelling. To proceed
otherwise would be to continue the categorical system, which is not totally ap-
plicable to all localities and which is antithetical to the community development
bills of both the administration and Senator Sparkman.

I will now comment on some aspects of S. 2182.

ALLOCATION OF HOUSING ASSISTANCE APPROPRIATIONS

I commend S. 2182 for earmarking subsidy appropriations to metropolitan
areas and metropolitan cities. Perhaps for the first time, cities will be able to rely
on a set amount of annual appropriations. This would go far toward aiding plan-
ning processes and giving the citizenry a better idea of what can be expected in
the way of housing.

DEFINITION OF LOW INCOME

S. 2182 defines low income as 90% of median income within a SMSA. In gen-
eral, I believe this definition is workable, but I am glad to see that the Secretary
of HUD may adjust the figure area by area. I think such flexibility is especially
important in areas like New York where, because of a very high cost of living,
families with incomes considered moderate elsewhere would for all intents and
pui-poses lie considered low income in the New York area. I would expect the Sec-
retary to exercise this option if he determines it to be in a community's best
interest.

REHABILITATION

Both sections 402 and 502 of S. 2182 provide some funding for the rehabilitation
of existing housing stock. Section 402 provides that not less than 10% of funds
appropriated are to be used for substantial rehabilitation.

441

I believe that rehabilitation of our existing housing stock is vital and that it
deserves a separate chapter in comprehensive housing legislation. The fastest
and least exiiensive way to provide decent, safe and sanitary housing, and, at the
same time, to save neighborhoods in danger of deteriorating is through the re-
habilitation of our sound housing stock.

I have introduced into the House of Representatives H.R. 227, the "Multi-
family Housing Rehabilitation Act of 1973." It would authorize the Secretai-y of
HUD to provide loans to tenant and other non-profit organizations to assist in the
rehabilitation of sub-standard multifamily housing for occupancy by low income
and moderate income persons, or for purchase and occupancy by such persons as
members of a tenant cooperative.

My bill embodies, I believe, a unique rehabilitation technique. I would urge the
committee to study it, and to study other ways in which rehabilitation could be
made attractive to owners of both single family and multiple dwelling units.
Rehabilitating structurally sound but neglected housing is more eflScient and eco-
nomical than continuing the neglect or replacing such housing with expensive new
units.

Finally, Mr. Chairman, I would like to bring to your attention H.R. 3210, which
I introduced into the House on January 30, 1973. This bill would prohibit dis-
crimination on the basis of sex or marital status in the granting of mortgage
credit. For too long, women have been denied decent housing of their choice, and
it is my intent to accord them the financial responsibility they are able and willing
to undertake.

Mr. Chairman, I hope that the Committee will give my thoughts and proposals
due consideration prior to and during the mark-up.

Senator Tower. The committee will stand in recess until 10 o'clock
tomorrow.

[Whereupon, at 11 :40 a.m. the subcommittee recessed, to reconvene
at 10 a.m., Thursday, July 19, 1973.]

1973 HOUSING AND URBAN DEVELOPMENT

LEGISLATION

THURSDAY, JULY 19, 1973

U.S. Senate,
Subcommittee on Housing and Urban Affairs,
Committee on Banking, Housing and Urban Affairs,

W ashington^ D.C.
The subcommittee met at 10 :15 a.m., in room 5302, Dirksen Senate
Office Building, Senator John Sparkman (chairman of the subcom-
mittee) presiding.

Present : Senators Sparkman, Johnston, Biden, Packwood and Taft.
The Chairman. Let the committee come to order, please. I would
like to get started and move as far as we can. We're going to have
some rollcalls and the first one is at 10 :15.

Our first witness this morning is Thomas Bomar, Chairman of the
Federal Home Loan Bank Board.

We are glad to have you here, Mr. Chairman, and we shall be
pleased to hear from you.

STATEMENT OF THOMAS R. BOMAR, CHAIRMAN, FEDERAL HOME
LOAN BANK BOARD, ACCOMPANIED BY DICK PLATT, DIRECTOR
OF THE OFFICE OF HOUSING AND URBAN AFFAIRS FOR THE
FEDERAL HOME LOAN BANK BOARD; BILL NACHBAUR, ASSIST-
ANT GENERAL COUNSEL; AND MICHAEL WESTGATE, ASSISTANT
TO THE DIRECTOR, FEDERAL SAVINGS AND LOAN INSURANCE
CORPORATION

The Chairman. Identify the gentlemen with you, if you would.

Mr. BoMAR. Yes, sir. On my left is Dick Piatt, Director of the Office
of Housing and LTrban Affairs for the Board. On my far right is Bill
Nachbaur, Office of General Counsel. Immediately on my right is
Mr. Mike Westgate; he is with the Federal Savings and Loan In-
surance Corporation.

All three of these gentlemen are considably more knowledgeable
than I in many of the areas you may have interest in, so I asked them
to sit in with me to answer any questions you may have.

The Chairman. We are glad to have all of you and you may proceed
as you wish. All of you understand that your prepared statements
will be Drinted in the record in full.

Mr. BoMAR. We have submitted a statement for the record, Mr.
Chairman, and what I would like to do this morning, with your per-
mission, is to summarize that statement and bring out the key points
to the committee's attention.

(443)

444

The Chairman. We would be very glad for you to do so.

Mr. BoMAR. Thank you. You have asked that the Board direct its
remarks to S. 971, which would enact the Housing Preservation Act
of 1973.

With regard to the specific provisions in that bill, it is our feeling
that HUD would make recommendations which, among other things,
will relate the preservation of existing housing stock and the decline
of older homes.

Therefore, we will not make specific comments with regard to
specific provisions and we hoj^e that the committee will consider the
administration's proposals before you take final action on this very
important matter.

Let me say preliminarily with regard to improvement in the existing
housing stock, that there are a number of statutes that deal with this
area.

Savings and loan companies are able to make home improvement
loans up to $5,000. We have the FHA title I for home improvement.
HUD has authority to make grants, to my understanding, in urban
renewal areas. We have certain provisions in the tax code which pro-
vide certain incentives for rehabilitation.

But the fact is that we still have a very serious problem in this
regard, so it is obvious that these things cumulatively are not sufficient
and there is need for additional action.

The main thing I would like to do this morning, Mr. Chairman, for
the committee, is set out in capsule form an approach the Board has
been taking in this regard and tell you a little about our operations and
our efforts to make some progress in improving the existing housing
stock.

About 5 years ago, there was a plan instituted in Pittsburgh called
the neighborhood housing services program. This program has been
quite successful and the Board picked up on what was apparently a
successful experiment. Our Office of Housing and Urban Affairs has
been attempting to foster these kinds of service facilities around the
country. They have been successful in establishing some of these.

The way it works is this : There are several elements — first, the pro-
gram acknowledges the fact that you cannot just improve houses and
solve the problem. You have to deal with this on a coordinated basis
and it is just as important to improve the neighborhood and municipal
facilities as it is to improve the houses, and you have to do that on a
coordinated basis.

So, the way the program works is that the cooperation of the
municipal government, local government, is solicited; local financial
institutions are brought in, as well as some grants from private
foundations.

Now, the parts each play are this : The local governments are asked
to infuse a greater supply of municipal services into this area, greater
fire and police protection, improvement of streets, help with trash
cleanup, and so forth. The local institutions sometimes put up the
development money, but they cooperate with this neighborhood hous-
ing services agency, or group — it is really a neighborhood group —
by agreeing to make improvement loans in this area that are bankable.
They are not asked to minimize their standards, just to lend in this
area to people who are qualified.

445

Third, this revolving high risk loan fund is established with founda-
tion grants. This fund is run by a group of neighbors, the people within
the target area for the development of the neighborhood, and they
make the selection as to who will get these loans that are not bankable
and under what terms and conditions.

Linking these three elements together is a small staff, usually two
or three people, something of that nature, and they help coordinate
these activities; they help the homeowners in deciding what kind of
improvements to make.

One of the things the municipality does in addition to these other
things is help point out areas where code enforcement is necessary.
So, if a homeowner is advised that he has some upgrading that needs
to be done on his property, he can come to these people in this neigh-
borhood cooperative group; they will assist him in either getting a
loan from their local savings and loan, if it is a bankable deal, or if
not, present it to the high risk loan fund supervised by these com-
munity people, help them in making the repairs, selecting contractors
and doing these things to get their house upgraded.

So far, through the Board's efforts we have a program operating
in Washington, D.C. ; it is in the Anacostia area. There is one in
Cincinnati. The third one is operating in Oakland.

In addition to that, we have these opening in Dallas and — where
are the other two ?

Mr. Platt. Plainfield, N. J., and Boston.

Mr. BoMAR. This is not something that we are seeking legislation
on at this time. We feel it is better to proceed as it is. We do not want
the excessive publicity on this program; we w^ould rather continue
to operate as we are now to be sure of the results that it can produce
and not create expectations beyond that which it can produce.

This cannot be a solution in and of itself. We are encouraged with
what we have seen so far and are enthusiastic about fostering more
of these kinds of programs. I hope that they will be productive
along with a great many other efforts.

Mr. Chairman, that is the statement that I have now.

The Chairman. Thank you, very much. AVe appreciate that state-
ment, Mr. Chairman. It becomes a pretty complex business. Isn't
that right ?

Mr. BoMAR. Yes, sir.

The Chairman. Trying to get better housing for more people.

Senator Packwood ?

Senator Packwood. I have no questions, Mr. Chairman.

That was a very good statement.

The Chairman. Senator Cranston had questions he wanted to
propound, but he has not been able to get here yet.

I wonder if I could submit these questions to you, and if you would
answer them for the record ?

Mr. Bomar. Yes, sir ; I would.

The Chairman. Here is one that I might ask ; it says : "Could you
briefly describe how the neighborhood housing services program
works? Do you believe it has been helpful in encouraging S & L's to
reinvest in the inner city ? Does the Office of Housing and Urban Af-
fairs plan to expand this program, or is it moving in other directions?"

446

Senator Cranston makes reference to an article that appears in
the Oakland Tribune. He says, "It carried a stoi-y which was of great
interest to me, entitled, 'Ten Million to Halt Blight.' "

The article described how a neighborhood housing service com-
mittee with funds pooled by 26 savings and loan associations was
making grants and loans to low-income homeowners for rehabilitation
in the East Oakland area.

I understand that the neighborhood housing services program is run
by the Board's Office of Housing and Urban Affairs. So, it is right
along the line that you were talking about. I do not know whether
you need to give any further discussion of it; just refer Senator Cran-
ston to what you already said,

Mr. BoMAR. I have covered the basics of how it works, Mr. Chair-
man, and we will be glad to answer any questions that he has.

The Chairman. I will see that he gets the substance of your testi-
mony, sir.

Mr. BoMAR. Thank you, sir.

The Chairman. Can you tell us how your agency is organized to han-
dle this program? I believe you said something about a unit of the
Housing and Urban Affairs.

Mr. BoMAR. Yes, Mr. Piatt is Director of that office.

The Chairman. How does that tie in with the Housing and Urban
Department ? That is HUD ?

Mr. BoMAR. I believe Mr. Piatt could answer that question directly.

Mr. Platt. Mr. Chairman, we are in constant contact with HUD. As
you know, over the last 6 months they have had a series of task forces
working on housing programs. We try to keep informed as to what
they are doing and to keep the Board aware of their efforts. We
also

The Chairman. So, there is coordination ?

Mr. Platt. There is a loose coordination at this point in time, yes,
sir.

The Chairman. Very well.

I will make these questions available to you and if amons: you you
could prepare answers for the record, I am sure Senator Cranston will
appreciate it.

Mr. Bomar. Yes, sir.

[Complete statement of Mr. Bomar and answers to questions of
Senator Cranston follow :]

Statement of Thomas R. Bomab, Chaieman Federal Home Bank Board

The Federal Home Loan Bank Board welcomes the opportunity to appear be-
fore you today as you consider various pieces of legrislation affecting; housing.
You have asked that I direct my remarks to S. 971 which would enact the "Home
Preservatiton Act of 1973." I expect that the Department of Housing and Urban
Development will be making recommendations in the housing area which, among
other things, will relate to the preservation of our existing housing stock and the
decline of older, but still stable and structurally sound, neighborhoods. Therefore,
I will not comment on the specific provisions of S. 971 at this time. I hope you
will consider the Administration's proposals relating to this problem before you
take final action. I agree however that the problems which the bill addresses
are important.

The bill focuses on the prevention of our existing housing stock rather than
on new housing construction. Used housing, at any given time, is more imT>ortant
in the housing market than new. The nation's housing sunnly increases at an
annual rate of two or three percent. In our efforts to meet the nation's need
for housing, abnormal losses from the housing stock can cancel gains made by

447

new construction. Despite the fact tliat 1972 was another record year In terms
of housing starts, housing deterioration and abandonment ate away some of the
progress we made as a nation toward meeting our housing needs. The statement
made by Senators Taft and Cranston when they introduced this bill dramatized
tlie magnitude of the loss. In some places, housing units are being abandoned
faster than they are being built. On the other hand, some areas are facing net
outflows of population.

There are statutes now on the books which focus on the improvement of
existing homes. Section 5(c) of the Home Owners' Loan Act of 1933, for example,
authorizes federal savings and loan associations to make home improvement loans
of up to $5,000. Under the National Housing Act HUD is authorized to insure
home improvement loans. Other statutes authorize HUD to make rehabilitation
grants in urban renewal areas. Certain tax provisions encourage the improve-
ment of existing housing for low income tenants.

The fact that a problem exists despite the existence of all these and other
programs, we believe, is evidence of the fact that the problem is deep-seated and
probably cannot be solved just by focusing on housing. Nonetheless, some housing
programs have achieved success in preserving housing quality.

One such program which is not federally sponsored takes a coordinated
approach to the problem and deserves your attention. I refer to the Neighborhood
Housing Services (NHS) Program which has been successful in Pittsburgh for
the past five years. A combination of community commitment, financial institu-
tion involvement, a city building code compliance program, a high risk revolving
loan fund, and a small but highly competent counseling and technical assistance
staff has "turned around" Pittsburgh's Central Northside, a neighborhood that
can no longer be classified as "declining." The program has resulted in improved
housing, rising property values, increased real estate activity, broadened lend-
ing by financial institutions, and a growing community pride and confidence.

An NHS program involves residents of the deteriorating neighborhood, local
government ofllcials, and local financial institutions in a concerted cooperative
effort to revive a neighborhood. The program focuses on relatively stable mod-
erate-income neighborhoods that require a substantial financial investment and
a commitment of local government to increase code enforcement and municipal
services. Local financial institutions agree to make home improvement loans to
neighborhood home owners without necessarily lowering their underwriting
standards. A neighborhood group administers a revolving high risk loan fund
to make loans to neighborhood home owners whose credit at the financial
institutions is not sufficient to warrant a loan. The fund comes from foundation
contributions. An NHS also provides counseling and management services to
assist low- and moderate-income persons with the problems of home ownership.
When a neighborhood is deteriorating, home owners are reluctant to put
more money into their homes and lenders are reluctant to lend. Neither the
home owner nor the lender can recover the added investment so long as the
deterioration of neighboring properties drags down the value of the improved
property. An NHS type of program overcomes this reluctance since the home
owner and the lender know that the city and other owners and lenders will
participate in the program and upgrade the whole neighborhood.

Over the past year and a half, the Board's Office of Housing and Urban Affairs,
through the Federal Home Loan Banks and in coordination with the federal
and state bank regulatory agencies and the Federal Reserve Banks, has been
encouraging community groups, local officials, and financial institutions in other
cities to establish NHS programs. NHS programs are operational — although still
very new — in Washington, D.C., Oakland, California, and Cincinnati, Ohio.
Other programs are in the formative stage in Plainfield, New Jersey, Dallas,
Texas, and Boston, Massachusetts. Numerous other cities have expressed an
interest in forming NHS programs. The Board is not requesting any legislation
at this itme related to the NHS program. In fact, the Board does not wish to
see these efforts over-publicized or expectations raised beyond what the program
can actually accomplish. I simply wish to point out one way the problem is being
solved at the local level.

It is not the Board's view that NHS programs will solve the problem alone.
On the other hand, in the Board's view, methods must be developed to involve
the private sector more heavily in the massive job of rehabilitating and main-
tainins the nation's housing stock. NHS is one method that has been successful
in mobilizing the community, financial and municipal resources necessary for
the task.

The Office of Management and Budget advises that it has no objection to this
statement.

448

Jttly 19, 1973.
Hon. Thomas R. Bomar,
Chairman, Federal Home Loan Bank Board, Washington, D.C.

Dear Mr. Chairman : I was very sorry that I was unable to hear your
presentation before the Housing Subcommittee on the Neighborhood Housing
Services program of the Federal Home Loan Bank Board. I have followed with
interest reports from Oaliland which describe how this program is helping low
income homewoners to bring their houses up to code standards. This is, as you
know, a primary goal of the Home Preservation Act of 1973, legislation I have
introduced with Senator Taft.

I have several questions regarding the Board's program and would appreciate
your responses for the record.

1. How m,any units have been rehabilitated under the Neighborhood Housing
Services program?

2. Is the Title I home improvement loan the major source of assistance or do
more fam^ilies rely upon the high risk loan fund f

3. Although the program is confined to a designated code enforcement area,
does investment and rehabilitation activity spill over to adjacent areas?

4. Please explain the counseling service performed by the Neighborhood Hous-
ing Service agency.

5. Has your program suggested ways of shifting more responsibility for proc-
essing loan applications to lenders when FHA loans are involved?

I look forward to your reply.
With best wishes,
Sincerely,

Alan Cranston.

Federal Home Loan Bank Board,

Washington, D.C, July 27, 1973.
Hon. Alan Cranston,

U.S. Senate Com/mittee on Bamking, Housing and Urban Affairs,
Washington, D.C.

Dear Senator Cranston : I appreciate the opportunity to respond to your letter
of July 19, 1973, concerning Neighborhood Housing Services, which I under-
stand will be included in the hearing record.

The NHS approach is one of many local efforts currently underway to mobilize
private sector resources to deal with housing deterioration. It is my hope and
expectation that new legislation will enhance the effectiveness of this and other
local, private approaches t ) neighborhood revitalization.

We are encouraged by the initial response to the NHS concept in the several
cities where it has been introduced, and we believe significant results will be
achieved as the program takes hold. However, the concept is not a panacea,
but simply a small step in the right direction.

Patient, dedication, skill, and dollar resources are basic ingredients which
must be available in order for an NHS to get off the ground. After eighteen
months of FHLBB effort, six cities have initiated the program. Three have ac-
tually incorporated and are staffed (Oakland, Cincinnati, and Washington,
D.C.) : and three (Dallas, Boston, and Plainfield, New Jersey) are well along in
the process leading toward the establishment of an NHS. A number of additional
cities have shown strong interest in the program, among which are Indianapolis,
Denver. Seattle, Hartford, and Baltimore to name only a few.

Presently, however, the only NHS with a significant 'track record' is found
in Pittsburgh, where the effort has been in operation for five years. Our answers
to your specific questions are therefore based on information from this city alone.

Question One

Most of the rehabilitation generated by NHS's activity is financed through the
private sector and exact statistics have not been maintained. However, it is
estimated that of the 4,000 homes in the neighborhood, about one-half of those
needing rehabilitation have been completed with the result that in this target
area compliance with local codes has swung from a negative 80% to a positive
80% in five years. A reasonable estimate of the total number of homes rehabili-
tated, through both code enforcement and voluntary compliance, would be in
the range of 1,200 units.

449

Question Two

A preponderance of the financing arranged so far by this NHS has involved
bankable loans. These have consisted, in descending order of frequency, of con-
ventional home improveraent loans, Title I FHA home improvement loans, mort-
gage refinancing, and new mortgage loans. Direct loans from the high-risk
revolving loan fund have been made to those homeowners who did not qualify
for bankable loans on flexible terms and at rates which were required to
accomplish the necessary work.

Question Three

It is our hope that considerable spillover will result from this program, and
that it can move through a number of "gray area neighborhoods" in a given city.
Because of the large area in Pittsburgh and the relatively severe deterioration
there, the process has not been a rapid one. Some spillover has occurred, however,
into an adjacent neighborhood where the NHS staff has assisted a number of
homeowners with financing. Another significant effect is the replication of NHS
in the Lawrenceville and Turtle Creek sections of the Pittsburgh metropolitan
area through the guidance and counsel of the original NHS staff.

Question Four

The NHS staff provides counseling to homeowners on a one-to-one basis when
needed or requested. These counseling services can include financial counseling,
contractor referral, referral of "bankable homeowners" to financial institutions,
on-site inspection, approval of contractor requisitions, direct lending to home-
owners who do not qualify for bankable loans, and emergency financial aid.

This type of counseling service is designed to provide the expertise in financial
counseling, home rehabilitation and contractor evaluation which the individual
homeowner often finds difficult to obtain and which cannot readily be provided
by most private financial institutions.

Question Five

When a bankable loan is involved, all processing is done by the lender. With
respect to these bankable loans, NHS is simply a referral service which does not
originate or package the loans. It is interesting to note that during the past year
the NHS staff has been more successful in placing FHA loans.

I hope you will find this information helpful. We, of course, stand ready to
respond to any additional questions you may have concerning NHS.
Sincerely,

Thomas R. Bomar.

The Chairman. Thank you very much.

Gentlemen, we appreciate your being with us.

Next we have the Honorable Roman S. Gribbs, mayor of the city
of Detroit, Mich., representing the National League of Cities and the
U.S. Conference of Mayors.

Mr. Mayor, come right around.

STATEMENT OF ROMAN S. GRIBBS, MAYOR, CITY OF DETROIT,
MICH., REPRESENTING THE NATIONAL LEAGUE OF CITIES AND
THE U.S. CONFERENCE OF MAYORS; ACCOMPANIED BY JOHN
GUNTHER, EXECUTIVE DIRECTOR, U.S. CONFERENCE OF MAYORS;
AND DAVID GARRISON, LEGISLATIVE COUNSEL TO THE LEAGUE
AND CONFERENCE

Mayor Grtbbs. Thank you very much. It's nice to be here.

The Chairman. We have your prepared statement, as I announced,
and it will be printed in the record in full (see p. 46-2 ") .

Mayor Grtbbs. I am pleased to appear here this morning. Mr.
Chairman and Senator, as president of the National League of Cities,
and as a member of the executive committee of the U.S. Conference
of Mayors.

450

I would like to introduce John Gunther, executive director of the
U.S. Conference of Mayors, and Mr. David Garrison, legislative
counsel to the league and the conference, who will assist me this
morning.

Your subcommittee is now taking testimony on a wide range of na-
tional issues of vital significance to the cities, including not only the
extremely important community development block grant proposals,
but housing and planning legislation as well. I have an extensive
statement on each of these three areas, which I would like to have
filed for the record. On behalf of our Nation's cities, I would now
like to summarize our position for the committee.

I feel it is necessary to preface my remarks with a brief observation
about the irony of these hearings. Had the Congress been able to
complete action on the omnibus housing legislation last year, the cities
would now be well into the first year of the community development
block grant program. In addition, we would be dealing with a re^dsed
set of federally assisted housing programs and a reconstituted sec-
tion 701 executive planning and management program.

Instead, Mr. Chairman, cities have no new programs. Worse, still,
they are faced with a crippling short- funding strategy now being im-
plemented by this administration. Rather than innovative, new efforts
to revitalize our cities, we are facing substantial cutbacks, delays, lost
momentum, and increased costs. The committee can appreciate the
cities' concern that the National Government not fail us again on this
second go-around.

Early enactment of community development block grant legislation
is a top priority for the cities. I should comment here that a compro-
mise version of the block grant legislation somewhere between the very
similar House and Senate bills of last year would have received the
enthusiastic support of both the League of Cities and the Conference
of Mayors.

We have noted and studied the President's revised community devel-
opment proposal, this year called the Better Communities Act
(S. 1743). Similarly, we are pleased that Chairman Sparkman has
reintroduced last year's Senate version of community development
l)lock grants for the consideration of the committee, S. 1744. At our
most recent annual meetings, the League of Cities and the Conference
of Mayors separately reaffirmed their solid endorsement for block grant
legislation.

Copies of these resolutions are attached (see p. 488) .

Before commenting on the specifics of these two bills, let me first
identify the major components which we hope will be incorporated into
whatever community development block grant legislation is finally
adopted.

The legislation should consolidate the following programs : Urban
renewal, model cities, basic water and sewer facilities, open space land,
neighborhood facilities, and rehabilitation loans.

Funds should flow directly to units of general purpose local
government.

The Chairman. By the way, under chapter III of our bill last year,
we did that.

Mayor Gribbs. Yes, Mr. Chairman.

451

All interested communities should be required to submit a simplified
application — I stress "simplified'" — which sets forth locally deter-
mined needs and objectives and the locally designed action program.

Each community should be required to address the important
national goals of eliminating and preventing slums and blight, and of
increasing the availability of standard housing for low- and moderate-
income families.

Each community should be required to involve its citizens in the
development of its local program.

The Federal process of reviewing and approving block grant appli-
cations must be vastly simplified. The primary role for HUD should be
to determine at the beginning of each year whether, on the face of the
application, the community has complied with the process set forth
by the statute.

The determination of whether a given community has accomplished
its stated objectives should be made through postaudits.

The legislation should allow and encourage each participating com-
munity to use a portion of its funding to improve the local govern-
ment's executive planning and management capacity.

The bill should establish a stable method of allocating block grant
funds. The funding mechanism should address a community's need,
its level of prior experience with consolidated programs, and its capac-
ity to devise and carry out a comprehensive program. A fixed, minimum
guarantee of funding for communities with current ongoing programs
is essential.

The legislation should provide for 100-percent Federal grants and
for multiple-year contracts between HUD and the cities. In addition, it
is vital to the success of the program that there be an adequate pro-
cedure for the Federal guaranteeing of local temporary financing.

Finally, it is central to the success of the block grant program that
there be a close linkage between the community development program
and the housing proirram, both at the Federal and local levels. A sepa-
ration of the two will translate into less comprehensive, more disjointed
local efforts.

These, Mr. Chairman, are the major elements that we seek on behalf
of the cities in any proposed community development block grant
legislation.

As you can tell, a great many of these points were satisfactorily
covered by last year's Senate bill. On the matter of consolidating the
model cities program, we are pleased to note Chairman Sparkman's
announcement that he now supports — as we do — its inclusion in the
block grant.

On the need for a strong linkage between the community develop-
ment and housing programs, we urge the committee to strengthen the
language in last year's bill.

The other major difference between our list of first principles and
the Senate bills concerns the local share issue. We join with the ad-
ministration and the House committee in urging that the Federal grant
cover all costs. No local share should be required. This issue was de-
bated at great length last year before the committee, and the argu-
ments remain the same. We hope the committee will reconsider its
earlier decision, which would have required a 10-percent local share.

99-855 O - 73 - pt. 1 -- 30

452

So far as the administration's "Better Communities Act" is con-
cerned, there are also a number of important issues on which we find
agreement. However, we must disagree with several central points.
These include —

The lack of a satisfactory application requirement ;
The lack of a linkage to key national goals such as housing ;
The failure to provide for an adequate minimum guarantee of
funding for communities with ongoing programs ; and
The failure to provide for any Federal loan provision.

On all of these four issues, we continue to feel that the committee's
approach of last year was preferable.

Furthermore, the administration's bill raises several other issues
which were not dealt with last year. A number of these suggestions, if
approved, would significantly alter the character of the new program.

First, the bill proposed to assign to the States the responsibility of
making the funding decisions for the smaller cities and towns of this
Nation. The League of Cities and the Conference of Mayors
strenuously oppose this suggestion.

The legislation should require each interested community to submit
a single simplified application.

The Chairman. Mr. Mayor, there is a rollcall on, l)ut I would like
to hear what you have to say, so we w^ill stand in recess until I get back.

Mayor Gribbs. All right. Thank you.

[Recess.]

The Chairman. Let the committee come to order, please.

Mr. Mayor, we will be glad to have you continue.

Mayor Gribbs. Thank you, Mr. Chairman.

As I was saying, the administration's bill raises several other issues
which were not dealt with last year. A number of these suggestions, if
approved, would significantly alter the character of the new program.

First, the bill proposed to assign to the States the responsibility of
making the funding decisions for the smaller States and towns of this
Nation. The League of Cities and the Conference of Mayors strenu-
ously oppose this suggestion.

As this committee knows, the majority of communities participating
in the urban renewal program have been below 25,000 population.
Moreover, the direct Federal-local relationship in this area has existed
since at least 1949. During the 24 years that have elapsed, most States
have shown little if any serious interest in assisting local governments
to improve their capacity to carry out community development activi-
ties.

At present and for the foreseeable future, few if any States have or
will have the necessary capacity to undertake the responsibilities
which the President would impose on all 50 States 11 months from
now.

In our judgment, Mr. Chairman, last year's Senate bill approached
the matter correctly. HUD was given the continuing responsibility to
manage a large discretionary fund for smaller communities, and
States would have been able to apply for discretionary funds as well
as to conduct their own program activities. We urge the committee to
retain this approach.

The other major structural problem raised by the administration's
bill deals with county government. Our statement for the record sets

453

forth, in some detail, our reasons for opposing the approach recom-
mended by the administration. Let me summarize by saying that the
result of our many hours of work with this committee last year on the
county issue was the decision reflected in the Senate bill — ^that
was, that the only effective and equitable solution would be to handle
all applications from counties under the ample discretionary funds
provided in the bill. The impact of introducing some 90 counties into
a delicately balanced, weighted allocation system is significant and, in
our view, negative.

Wliile we are continuing to study the matter in the hopes of finding
a feasible way of introducing a limited number of counties, we also
continue to feel that, lacking such an approach, last year's Senate bill
is the best way to go.

Another major point of concern for the cities about the administra-
tion's bill is that it would eliminate the all-important minimum fund-
ing guarantee — the so-called hold harmless commitment — after a
short period of 4 years, according to the present bill.

In contrast, both of last year's congressional bills clearly established
the minimum funding guarantee for all communities — large and
small — as a permanent feature of the program. The minimum guar-
rantee provision is, first of all, a crude but fairly effective method of
building in a relatively smooth transition for the cities from where
they are right now to where the new system will take us.

Secondly, the minimum guarantee is a recognition of the valuable
investment that both the Federal and local governments have al-
ready made in the development of a capacity to carry forward ef-
fective community development programs.

Thirdly, the minimum guarantee mechanism is a knid of second-
needs formula which, when taken in conjunction with the first for-
mula, produces a much more realistic approximation of the true urban
needs.

There is nothing sacrosanct about the three-factor formula pro-
posed by the administration, and merelv asserting that it is a "real-
needs formula" does not make it a "real-needs formula."

As anyone who has struggled with the primitive state of the art of
our national data collection system knows, we are a very long way
away in this country from accurate, objective, reliable social indica-
tors. As a result, we would contend that the rough but nonetheless
important minimum guarantee formula has at least as high a correla-
tion with need in this area, as does the proposed Census Bureau for-
mula.

For these reasons, the minimum guarantee provisions should be
maintained as a fixed feature of the program and the companion past
performance measure should be retained as a fourth factor in the
formula — which is to say that we continue to support the Senate bill
on this issue.

One final comment on the community development legislation.

Notwithstanding the final resolution of the various issues surround-
ing the allocation mechanism it is clear that the number of parti-
cipating communities under the block grant will be substantially
larger than the number participating under the various categorical
programs to be consolidated.

454

Therefore, in order to insure that the new approach can be satisfac-
torily spread across a wider constituency, it is extremely important
that the size of the Federal commitment be similarly increased. The
starting level proposed by the President — $2.3 billion — would pro-
vide no new money above the sum of the funding of the present
programs. In our view, a considerably greater amount should be au-
thorized and appropriated for each of the first several years of the
block grant.

Now, this concludes my oral remarks on the community develop-
ment block grant legislation.

There are at least two other matters of major importance which
will be before this committee during its planned markup sessions
this fall — namely, planning and housing. And I should like to make
several comments on both issues, Mr. Chairman.

Last year's omnibus housing legislation, had it been enacted, would
have included a substantial revision to the section 701 comprehensive
planning program. The administration has announced that it will
shortly set forth its proposals under the title of "The Responsive Gov-
ernments Act." While HUD has discussed a draft of their bill with
us and our staff, we will withhold detailed comments until the legisla-
tion is actually filed with Congress.

Our formal statement seeks to respond to the general description
of the bill which President Nixon included in his community develop-
ment message some months ago. Summarizing those comments, Mr.
Chairman, and Senator, we support the general thrust proposed for
the new 701 program — that is, redirecting the funding into the process
of strengthening the capacity of State and local government to more
effectively plan and manage their activities. This new direction will
be particularly important in conjunction with the comprehensive plan-
ning and management demands of the community development block
grant program.

My own city of Detroit has already made use of 701 funds in this
new context. In 1970, we began the long and complicated process of
reorganizing all of the city's various community development activities
into a single municipal operation.

Now, using 701 funds, we are carrying out this objective and I am
very pleased to say that our new unified community development com-
mission in the city of Detroit is already having a positive effect upon
the way in which we develop citywide policy in Detroit. It is this kind
of capacity building that will have to take place in most all communi-
ties in order that they may maximize the potential of such new ap-
proaches as the community development block grant.

We hope that the committee's final planning legislation will both
authorize and encourage this process to continue forward in other
cities.

Finally, the all important matter of the Nation's housing policies
and programs are before the committee. We join with the committee
in looking forward with great interest to the President's proposals in
this regard in early September. We also note that Chairman Sparkman
has revised and reintroduced the housing sections from last year's
Senate bill.

Unfortunately, the President's moratorium on the existing housing
programs continues although we note with encouragement Secretary

455

Lynn's statement on Monday before the committee that he has re-
quested some additional funds from 0MB. There was not then, nor is
there now, any persuasive justification for shutting down the existing
programs until new ones have been devised and enacted.

Since only one of the several expected legislative proposals on hous-
ing are now before us, we will file our detailed comments with the com-
mittee at a later date. However, we would like at this time to set down
some basic elements which we feel must be addressed by any legislative
proposal in this area.

First, as we have already suggested earlier, there must be a strong
linkage between the community development block grant program and
Federal housing policies and programs. Without a firm connection,
both major efforts will suffer greatly.

Second, housing funds should as nearly as is practicable be made
available to communities on the basis of need and of capacity to
utilize the funds.

Third, the locational and other broad programmatic decisions neces-
sitated by assisted housing activity legitimately belong within the
purview of general purpose local government. To shift the program
design decisions for community development upon local elected officials
and then to withhold similar decisions for the equally important and
related housing activities would make little practical sense.

Fourth, as with the community development block grant, localities
will also need the flexibility to adapt the national housing mechanisms
to their own special situations.

Thus, the national program should make it possible for some com-
munities to concentrate upon new production while others, such as my
city of Detroit, put most of their efforts into conservation of housing.

Similarly, the national program should recognize that the con-
figuration of the poor and the problems which their condition presents
to the community differ from place to place. For example, Detroit's
needs at the moment are for very deep subsidies with some 30 percent
of our householders with very low incomes. There are other cities in
other parts of the country with equally pressing but very different
problems of poverty.

Fifth, any new housing legislation must also adequately resolve the
increasingly demanding problems of the maintenance, modernization,
and management of our existing inventory of 1 million public housing
units. An agreement must be reached in this legislation regarding the
availability of operating subsidies and the manner in which they are
to be computed. The Nation simply cannot afford to allow this mam-
moth investment of public resources in our existing stock to wither
away.

In the case of Detroit, our concern of maintaining the existing hous-
ing stock applies not only to public housing units but to the large num-
ber of privately produced and maintained units, many of which have
or are about to become government property through foreclosures.

In a city with over one-half a million dwelling units, HUD's FHA
now owns approximately 11,000 units, over half of which have either
been demolished or are about to be. The balance are scheduled for
repair and resale.

In addition, 7,000 units are now in the process of being foreclosed
with another 15,000 waiting in the wings in the default stage. As a

456

result of these and other actions, the city's total housing inventory suf-
fered a net loss of some 7,300 during- the short period from 1970 to
1973. There are, in fact, some census tracts in our city where HI"^D
owns 25 percent of the dwelling units.

Clearly, we have a very serious problem in Detroit and we are spend-
ing a great deal of time struggling to find the answers. As helpful as
they are, the present array of Federal housing programs does not give
us the flexibility and control we need to really begin to deal with our
special problem. We hope this committee will design its new legislation
so that our city and the many others like it will be able to better cope
with these difficult problems.

Thank you, Mr. Chairman. I will be glad to answer your questions,
as will, of course, Mr. Gunther and Mr. Garrison.

The Chairman. Thank you, Mr. Mayor.

You have given us a very fine and helpful presentation. I wanted to
ask you — you made reference to the fact that HUD owns a large num-
ber of houses where the mortgages went sour in Detroit.

What type housing is that ? What program ?

Mayor Gribbs. The type of housing cuts across all neighborhoods, all
income levels and includes both single units and multiple units. The
235 and 236 programs essentially were used for the sale of homes that
now have been defaulted, repossessed and

The Chairmaist. One reason I ask you this is this : I remember when
news stories came out about the situation in Detroit and I think the
impression was created that they were primarily 235 housing. If I re-
member correctly most of it was not 235 housing. If I remember cor-
rectly most of it was not 235 housing, but was financed in another way.

I would like to ask about that if I may. I think

Mayor Gribbs. 221

The Chairman. I wonder if you have the breakdown showing the
number of units that HUD had to take over. I saw that breakdown —
units financed under one program or the other. I ask that for this rea-
son : When the President on January 11 made his statement relating
to the freeze and the moratorium, when he virtually eliminated certain
types of housing, I think he clearly implied that the big failure in
Detroit was on 235 housing.

I don't understand that to be true.

Mayor Gribbs. I misspoke myself, it's really the 221 (d) (2) program.

The Chairman. All right. 221 (d) (2) .

Mayor Gribbs. Yes.

The Chairman. How is that financed ?

Mayor Gribbs. Guarantees.

The Chairman. Isn't it an FHA nonsubsidized program ?

Mayor Gribbs. Yes.

The Chairman. In other words, while he was cutting off subsidized
programs, it was actually the unsubsidized that was giving difficulties.

INIayor Gribbs. That's right.

The Chairman. FHA, without subsidy, is supposed to be the sound-
est program of all. But, I think there's been a terrible misunderstand-
ing. I think the section 235 subsidy program which really helps low
income people, has taken the blame for failures that didn't belong to
the program at all.

Is this true in Detroit ?

457

Mayor Gribbs, Your comments are correct, Mr. Chairman. I will
give you an analysis of those units that have been repossessed and the
programs under which each were operated.

The Chairman. I think it would be helpful. My understanding is
that — I am told that 90 percent of that housing that went sour in
Detroit was nonsubsidized housing. Ten percent was in the subsidized
program.

Mayor Gribbs. It could well be. I don't have the statistics at the
moment, but we'll send them to you.

The Chairman. We had the statistics before but I don't have them
now before me. We had them at the time but it seems to me it's tragic
that the kind of housing that we provided to give relief to the lower
income people, which has worked so well, is reported to be the culprit
when actually the housing that went bad was in the program that
usually is recognized as the strongest of all, the FHA nonsubsidized
program.

I wish that people could understand those things.

I want to say with reference to your discussion of the 701 program,
Mr. Mayor, I don't know wiiat the reasons may be, or what arguments
may be presented with reference to placing it on a State basis. 701
legislation was enacted under the jurisdiction of this committee back
in 1954. It has worked well.

I think I am correct in saying that it has always been fimded at the
local level, and I surely agree with what I understood you to say that
you think it ought to stay there.

Mayor Gribbs. Yes, sir, and it's working well in Detroit now.

The Chairman. I think it's working well all over the country. I
was in Alabama yesterday and I saw people down there interested in
community development. We have groupings of counties in regional
organizations. Practically the whole State is covered by one region or
another.

I talked with some of the regional people yesterday and they were
greatly distressed at this idea of putting 701 programs at the disposal
of the — well, at the State level, instead of having it at the local and
regional levels, as we have had for a long time.

Senator Johnston ?

Senator Johnston. Thank you very much, Mr. Chairman.

Mayor Gribbs, I am very interested in this 235 and 236 program in
this area. We think it's working well in my part of the country.

I wonder how it works in Detroit? Is the single family residence
with the 235, is that concept viable in a big city like Detroit?

Mayor Gribbs. It is if properly administered.

Senator Johnston. Would you say the problem in Detroit has been
the administration ?

Mayor Gribbs. Yes, sir.

Senator Johnston. Do you think it's a very good program ?

Mayor Gribbs. I think it's helped with the housing problem and
not just in the metropolitan areas. It's the administration of it that
is key.

I can give you a brief example of how important management of the
program is: We have had a tremendous repossession problem, if you
are familiar with this, as Philadelj^hia and other cities have. The

458

capacity to handle the repossession process just wasn't in the HUD
area office in Detroit.

What happened was that we would have houses that had been
defaulted upon and vacated, standing empty, for a year or I14 years —
empty — without appropriate maintenance being performed or even an
attempt to resell it being made.

There is a market for those homes. For whatever reason, and I can't
explain it, those who administer that HUD office who should be
attempting to do something don't have a valid explanation. They don't
process those homes with an eye toward maintaining them or be able
to put them on the market and sell them ; the houses just stand there.

When they stand there 3, 6, 9 months, they are vandalized ; they are
totally destroyed by vandals and they have to be torn down.

That is a vast needless waste of good housing stock. I am happy to
say that the new Assistant Secretary, Mr. Crawford, came to Detroit
shortly after he took office and has been there twice since.

This is about the third time that HUD has attempted to correct
the situation. I again have hopes that these steps will correct it by
having adequate personnel to repair the houses and to put them on
the market and sell them because there is a need for them.

Senator Johnston. How^ about the construction of them? Has
oversight of FHA been satisfactory in insuring that the quality of
the housing is up to — passes muster ?

Mayor Gribbs. Yes, but that is recent. We have insisted upon and
the city is providing, for example, the inspectors to make sure the
houses are up to city code and that there are no conveyances or at-
tempts to unload the housing as is. That would put it in the hands of
speculators and they dodge and hide and squirm. You end up with
that housing stock again going steadily downhill to the point where it
has to be abandoned and thus demolished.

Senator Johnston. Mr. Mayor, the administration has testified
before this committee that in their judgment the present subsidized
housing programs are a failure and they want to revamp it and
they are in the process of studying that problem now.

What advice would you give to them as to how the Government
can best spend its dollar in the area of low-cost housing in the area of
subsidized housing ?

Mayor Gribbs. Well, aside from the policy statements that the
league presents on the record, so far as the citv of Detroit is con-
cerned, at this point the thrust should be toward the conservation of
good housing. Production may be a need and a concern in other com-
munities which have vacant land. There is some of that in Detroit,
but our major concern is the conservation with various programs to
preserve the existing housing stock that is essentially good in the
city of Detroit.

That means loans, if you will, or grants for rehabilitation. In the
metropolitan community they have the space and they would be in-
terested in the surrounding metropolitan community in new produc-
tion to a greater degree than in the city of Detroit.

I think Detroit as such with 11/^ million people within the city
represents the need of most of the major central cities that conserva-
tion efforts would be the best way to spend the dollar in the immediate
future, although not to the exclusion of other things. Certainly as

459

we indicated in my statement, housing conservation should be part
and parcel of the better communities act and housing program.

Senator Johnson. Would that be through the urban renewal fund
of — urban renewal method ?

Mayor Gribbs. Yes; we have programs in that area. We used the
urban renewal program essentially to put together large areas of new
land where the homes are absolutely not subject to rehabilitation and
make available that area for commercial projects.

Senator Johnston. There are urban renewal programs for loans to
existing housing ?

Mayor Gribbs. Yes.

Senator Johnston. I can't quote the chapter and verse of it, but
those programs are available.

Mayor Gribbs. Yes.

Senator Johnston. The city would put up matching funds with
streets and that sort of thing ?

Mayor Gribbs. They are useful. They are helpful. They are essential
and they should remain in the new legislation you are considering.

Senator Johnston. Mayor Gribbs, we have heard now for a number
of years from various sources that central cities are not worth saving
and indeed it appeared that the lid was going to blow off everything
in the IQGO's, particularly during the urban riots of the sixties.

What direction are we going in the cities ? Are things getting better
or worse?

What directions are we going in the cities, and are they, in fact,
worth saving?

Mayor Gribbs. You have asked a very basic question, and I am of
the firm conviction, Senator, that things are getting better. The tide
is turning and we have bottomed out. I specifically speak of Detroit.
I am the mayor there and I am not a candidate for office and I don't
say that because of motives that might otherwise be true.

I can say that with the basis of what has happened in Detroit as a
foundation for that statement. For example, we have the largest build-
ing boom in the downtown area of the city that we have had in our
city's history.

At this moment we have over $1 billion worth of construction under-
way in one phase or another. That is solid, eastern — if you will — in-
vestment money from hardnosed businessmen that predict the city
of Detroit has a great future, and they are putting their dollars into
one venture or another in the city of Detroit.

We do need some breathing time while the cities rebuild and we
need help in the rebuilding process. The housing, the community de-
velopment aspects of it are vast and they can't be handled by private
ventures. The only way to really develop the cities further and to make
the change come during our lifetimes is for the continuation of effec-
tive Federal assistance.

The prospects that the cities should be written off is just unthink-
able from a human point of view and it's unthinkable from our prac-
tical analysis of what's going on in the city of Detroit and other cities.

Senator Johnston. By the way, I agree with you. I had hoped you
would have that view. I have that feeling about our cities that things
are getting better, wtih some exceptions, like the city of New Orleans.
In a lot of ways, it's getting better, but with all these Federal pro-

460

grams having been cut off I am sure Mayor Landreau has advised you
of his dire situation down there with so many of the poor and near-
poor who have been drastically hurt through the cutoff of Federal
programs.

I share that view that things are getting better and that the Federal
Government has a real important role to play in improving that situa-
tion and in accelerating the rate of improvement, Mr. Mayor.

Yesterday, Governor Gilligan testified before this committee and he
said as follows, and I ask you to comment on this :

I urge the members of this committee to permit the Governors to sit down with
you and your staff members and to describe practical workable systems to convert
the will of Congress into an effective program. I propose that our committee on
Rural and Urban Development be involved in such decisions as well as our coun-
terparts from the Mayors' organizations. I believe you will find, Mr. Chairman,
more agreement than you might have anticipated between the Mayors and the
Governors.

Can we anticipate very much agreement between the mayors and
the Governors ?

Mayor Gribbs. Yes and no.

We certainly feel that the States should be involved. We encourage
their participation. We urge that they be given wide range of oppor-
tunity through community development discretionary funding, to par-
ticipate to the extent that the States individually chose to.

But to go so far as to say — as I indicated in the comments that I
made — that the States should replace the Federal Government, that's
where we part company with the Governors. We think that the States
have a responsibility to the totality of the communities and are in a
position to evaluate from a broad basis what should be done and could
be done to assist the local communities with technical assistance and
planning.

For example, in the State of Michigan for the first time in our his-
tory some 31/2 or 4 years ago the State created the Michigan State
Housing Authority. It was given some $600 million in bonding capac-
ity to spur new construction and rehabilitation of housing.

They are not yet in the community development business although
its directors are talking about the fact that they are considering such
activity. I think that we not only would be willing to sit down and
talk with them, I think there is a very proper place for cooperative
effort on the State and local basis. The Federal Government, of course,
would maintain and continue its vast responsibilities in the community
development field.

Senator Johnston. Thank you, Mr. Mayor.

Thank you, Mr. Chairman.

The Chairman. Thank you, Mr. Mayor.

I'll be brief, because time is passing : You said in your statement a
while ago that you have had big trouble with 235 housing. The trouble,
it appears to many observers, has been the result of the administration
of the program.

461

What would you say with reference to the 221(d)(2) program?
This program accounted for 90 percent of the failures while only 10
percent were from the 235 program.

Mayor Gribbs. No question about that. It's not the program, but it's
how it was administered, Senator. We encourage the continuation of
the program with appropriate, good judgment measures, to put it
broadly.

You shouldn't sell the house to somebody who doesn't have the ca-
pacity to maintain it. They shouldn't make a house available if the
prospects of major repairs are there and the buyer lacks adequate fund-
ing at the time the conveyance is made.

Unfortunately, so far history shows in the Detroit area that there
were criminal frauds committed in appraisals and other means of con-
veyances that resulted in the many repossessions. There are 35 or 50
people under indictment now for various criminal actions in the com-
munity that I am familiar with.

So, it's a combination of inappropriate administration and some
criminal activity that has brought about the problem as we see it. It is
not the concept of the program.

The Chairman. In view of the fact that 90 percent of the housing
which has gone bad in Detroit is nonsubsidized housing under FHA,
and only 10 percent being in all of the various subsidized programs,
don't you think that it's unfair to brand that type of housing as being
no good, not accomplishing its purpose, not benefitting the people it's
intended for and ultimately being eliminated ?

Mayor Gribbs. I agree with you. Senator. It's unfair and wrong.

The Chairman. Mr. Mayor, I have some questions here I wanted
to ask you, but we have to move along. We have three or four more
witnesses and it's 11 :20 now. I will submit these to you and I would
appreciate it if you would answer them in writing for the record.

Mayor Gribbs. Thank you very much, Senator, I would be pleased to.

[Complete statement of Mayor Gribbs, the resolutions and the an-
swers to questions of Senator Sparkman follow :]

462

iiyn?*^

NATIONAL LEAGUE OF CfTIES

UNITED STATES CONFERENCE OF MAYORS

STATEMENT OF

THE HONORABLE ROMAN S. GRIBBS

MAYOR, CITY OF DETROIT, MICHIGAN

ON BEHALF OF

THE NATIONAL LEAGUE OF CITIES

AND

THE UNITED STATES CONFERENCE OF MAYORS

ON HOUSING AND COMMUNITY DEVELOPMENT LEGISLATION

BEFORE THE

SENATE HOUSING AND URBAN AFFAIRS SUBCOMMITTEE

Thursday, July 19, 1973

1620 Eye Street, N.W., Washington D. C. 20006/202-293-7330

463

Mr. Chairman and members of the Senate Housing and Urban Affairs
Subcommittee. I am Roman S. Gribbs, Mayor of the City of Detroit, Michigan.
I am pleased to appear before you this morning on behalf of the National League
of Ciiies--of which I am currently honored to be serving as President--and of the
Liniicd States Conference of Mayors on whose Executive Committee I presently
serve. Your Subcommittee is now taking testimony on a wide range of national
issues of vital significance to the cities, including not only the extremely important
community development block grant proposals but housing and planning legislation
as well. On behalf of our nation's cities, I would like to comment on each of these
three areas.

I would also like to preface my remarks with a brief observation about the
irony of these hearings. Had the Congress been able to complete action on the
omnibus housing legislation last year, the cities would now be well into the first
year of the community development block grant program. In addition, we would
be dealing with a revised set of federally assisted housing programs and a
reconstituted Section 701 Executive Planning and Management program. Instead,
Mr. Chairman, cities have none of these new programs to work with and, worse
still, they are faced with the crippling short-funding strategy now being implemented
by this Administration. As a result, cities have had to make substantial cutbacks
in tlieir local programs thereby producing delays, lost momentum and increased
costs. With this in mind, the Committee can appreciate the cities' concern that
the national government not fail us again on this second legislative go-around.

464

COMMUNITY DEVELOPMENT BLOCK GRANTS
Early enactment of community development block grant legislation continues to
be a top priority for the cities. This Committee and the Senate as a whole is to be
commended for successfully moving block grant legislation last session. Failure of
the House to complete action on the proposal was a great disappointment and we
earnestly hope that final enactment can be achieved during this Congress. I should
comment here that a compromise version of the block grant legislation somewhere
between the very similar House and Senate bills of last year would have had the
entliusiastic support of both the League of Cities and the Conference of Mayors.
We have noted and studied the President's revised community development
proposal, this year called the "Better Communities Act,"'(S. 1743). Similarly, we
are pleased that Chairman Sparkman has reintroduced last year's Senate version
of community development block grants for the consideration of the Committee
(S. 1744), At our most recent annual meetings, the League of Cities and the
Conference of Mayors separately reaffirmed their solid endorsement for block
grant legislation. Copies of these resolutions are attached. Before commenting
on the specifics of these two bills before the Committee, let me first set forth the
major components which we hope will be incorporated into whatever community
development block grant legislation is finally adopted.

1. The legislation should consolidate the following programs: Urban Renewal,
Model Cities, Basic Water and Sewer Facilities, Open Space Land, Neighborhood
Facilities, and Rehabilitation Loans.

465

2. Community Development block grants should flow directly to units of
general purpose local government rather than to special purpose agencies as has
been the case in the past with some of these programs. This direct Federal-local
relationship should continue, regardless of the size of the community.

3. The legislation should require each interested community to submit a simplified
application setting forth the locally determined needs and objectives and a locally
designed action program. This local program should address the community's need

to increase the supply of low and moderate income housing and to prevent and eliminate
slums and blight. In designing its program to respwnd to both national and local
objectives, the community should be authorized to undertake in a broad range of physical
development activities as well as certain supportive community services and facilities.

4. As part of its application, the community should be required to certify that

it has involved its citizens --and particularly those residing in areas where block grant
activities will be concentrated--in the planning of the local program. Of course, the
final responsibility for the design of the program should rest with the local elected
officials.

5. The process of Federal review and approval of these applications should be
vastly simplified over present practices. The role of the Federal Department in this
new system should be to determine whether the applicant community has met the stated
requirements of the statute. At the end of each program year, the community, in
applying for additional funds, should be required to submit an evaluation of the past
year of activity to assist the Department in making a continuing determination of
statutory compliance. The Federal review process should be as speedy and as
simplified as possible.

466

6. In support of the community's broadly gauged comprehensive planning process,
the legislation should also allow for the funding of the improvement of the local
government's executive planning and management capacity.

7. On the matter of allocating block grant funds nationally, the legislation should
create as stable a method as is practicable which takes into account each community's
need, its level of prior performance under the consolidated programs, and its capacity
to devise and carry out a comprehensive community development program. It is
critical to the success of this legislation that it insure as nearly as can be done that
each applicant community will at least be eligible for funding at a level equivalent to
its past funding under the consolidated programs.

8. The community development block grant legislation should provide for
100% federal funding and for multiple year contracts. In addition, it is particularly
important that the legislation provide for the Federal guarantee of local temporary
financing actions which are necessary to carry out the local program. It is only with
such Federal financing assistance that communities can be expected to undertake the
many large scale development projects that are needed.

9. The block grant program should require a close linkage between community
development activity and the adequate provision of housing for low and moderate
income people living or working in the community. Reasonable progress toward
providing such needed housing should be a prerequisite for the continued availability
of block grant funds. In furtherance of this national goal, the legislation should
establish a process by which HUD would reserve Federally assisted housing funds
for local community use in conjunction with the locality's block grant program;

467

These are the major elements that we would seek on behalf of the cities
in any proposed community development block grant legislation. As you can
tell, Mr. Chairman, a great many of these points were satisfactorily covered by
last year's Senate bill. On the matter of consolidating the Model Cities program,
we are pleased to note Chairman Sparkman's announcement that he now
supports --as we do -- its inclusion in the block grant. On the need for a strong
linkage between the community development and housing programs, we urge the
Committee to give high priority to the strengthening of the language in last year's
bill. The other major difference between our list of first principles and the
Senate bill concerns the local share issue. vVe join with the Administration and
the House Committee in urging that the federal grant cover all costs and that a
local share not be required. This issue was debated at great length last year
before the Committee and the arguments remain the same. We hope the
Committee will reconsider its earlier decision.

So far as the Administration's "Better Communities Act" is concerned, there
are also a number of important issues on which we find agreement. However,
there are several central points on which we find we must continue to disagree.
These include the lack, in the President's bill, of a satisfactory application require-
ment or of a linkage to key national goals such as housing. The bill also fails to
provide for an adequate minimum guarantee of funding for communities with ongoing
programs or for any federal loan provision. On all of these four issues, we

continue to feel that the Committee's approach of last year was preferable. We have
included following this statement an analysis of the "Better Communities Act" which
we would ask to be included in the record of these hearings.

99-855 O - 73 - pt. 1 -- 31

468

The Administration's bill does raise several other issues which were not
dealt with last year. A number of these suggestions, if approved, would
significantly alter the character of the new program. First, the bill proposes to
assign to the states the responsibility of making the funding decisions for the
smaller cities and towns of this nation. The League of Cities and rhe Conference
of Mayors strenuously oppose this suggestion. As this Committee knows, the
majority of communities participating in the urban renewal program have been
below 25,000 population. Moreover the direct Federal-local relationship in
this area has existed, at least since 1949. EXiring the 24 years that have elapsed,
most states have shown little if any serious interest in entering the system to
assist local governments in improving their capacity to carry out community
development activities. At present, and for the foreseeable future, few if any
states have or will have the necessary capacity to undertake the responsibilities
wliicli the President would impose on all 50 states 11 months from now. In fact,
the dismal experience which smaller communities have had under the states'
administration of some $40 million annually in Section 701 Comprehensive
Planning monies should give the Congress good reason to reject the Administra-
tion's suggestion that these same states should now be given nearly $500 million
in block grant funds for distribution to local government.

In our judgment, last year's Senate bill approached the matter correctly.
HUD was given the continuing responsibility to manage a large discretionary fund
for smaller communities. States would have been able to apply for discretionary

469

funds as well to conduct their own program activities. We would urge the Com-
mittee to retain this approach. In addition, we would suggest to the Committee
that some greater attention should be paid to defining what application require-
ments should be placed upon the states. For those states now desiring a greater
role in community development activities, the place to begin would be with requiring
the development of a state-wide urban policy.

The other major structural problem raised by the Administration's bill
deals with county government. During the debate around last year's Senate bill,
it became clear that there were a number of counties -- perhaps a dozen or two
at most -- which had, for differing reasons, become the focus for community
development activities in their jurisdiction. The League and the Conference
attempted--as did this Committee--to devise a way of incorporating these selected
counties into the allocation system. All such efforts proved to be unsuccessful,
primarily because there was no available way to reach these particular counties
without also bringing into the allocation system a large number of other counties
which had no community development responsibilities or experience. Thus, it
was decided that, with the large discretionary fund proposed in the Senate bill,
it would be most efficient to handle the few active counties in this area on a
discretionary basis.

Unfortunately, the House Committee and now the Administration adopted
a different approach which would appear to qualify about 90 counties for formula
entitlements accounting for nearly 20% of the total national funds by the third
year of the program. Of these approximately 90 counties, over one-third have

470

had no experience at all in any of the consolidated programs and less than 10 now
have ongoing urban renewal activities. Under the House bill of last year, the
effect of introducing these 90 counties Into the allocation system would have
been to reduce drastically the amount of discretionary funds available to smaller
communities within metropolitan areas. Under the Administration's bill, the
effect would be to reduce the amount of funding for the 500 metropolitan cities.

The League and the Conference are continuing their search for a better
method of allocating funds to those counties with legitimate needs and existing
legal capacity so far as community development activities are concerned. We
will, of course, provide the Committee with any suggestions we may have on
specific approaches before your mark-up sessions begin this fall. In the
meantime, however, we cannot support the House and Administration approach
on this important matter and we urge this Committee to hold with last year's
Senate bill on the issue of county allocations until a more workable mechanism
can be devised.

Another major point of concern for the cities about the Administration's
bill is that it would eliminate the all important minimum funding guarantee--the
so-called hold harmless commitment- -after a short period of four years. In
contrast, both of last year's Congressional bills clearly established the minimum
funding guarantee for all communities, large and small, as a permanent feature
of the program. The minimum guarantee provision is, first of all, a crude but
fairly effective method of building in a relatively smooth transition for the cities
from where they are right now to where the new system will take us. Second, the

471

minimum guarantee is a recognition of the valuable investment that both the
federal and local governments have already made in the development of a capacity
to carry forward effective community development programs. Third, the
minimum guarantee mechanism is a kind of second "needs" formula which,
when taken in conjunction with the first formula, produces a much more realistic
approximation of true urban needs. There is nothing sacrosanct about the three
factor formula proposed by the Administration and merely asserting that it is
a real needs formula does not make it one. As anyone who has struggled with the
primitive state of the art of our national data collection system knows, we are
a very long way away in this country from accurate, objective, reliable social
indicators. As a result, we would contend that the rough but nonetheless important
minimum guarantee "formula" has at least as high a correlation with need in this
area as does the proposed Census Bureau formula. For these reasons, the
minimum guarantee provision should be maintained as a fixed feature of the
program and the companion past performance measure should be retained as a
fourth factor in the formula --which is to say that we continue to support the
Senate bill on this issue.

One final comment on the community development legislation. Notwithstanding
the final resolution of the various issues surrounding the allocation mechanism it
is clear that the number of participating communities under the block grant will be
substantially larger than the number participating under the various categorical
programs to be consolidated. Therefore, in order to insure that the new approach
can be satisfactorily spread across a wider constituency, it is extremely

472

important that the size of the federal commitment be similarly increased. The
starting level proposed by the President -- $2,3 billion -- would provide no new
money above the sum of the funding of the present programs. In our view, a
considerably greater amount should be authorized and appropriated for each of
the first several years of the block grant.

PLANNING AND MANAGEMENT

As it did last year, the Administration is again recommending that Congress
consider and approve substantial revision and redirection of HUD's Section 701
Comprehensive Planning Program. The suggested new thrust of the program would
produce a greater emphasis upon the process of building the capacity of state and
local governments to effectively plan and manage their affairs. The League and
the Conference strongly support this shift away from the traditional physical or
land use planning orientation of 701 into an institution building focus. While the
Administration has consulted with the League and the Conference concerning some
of the elements of their legislation, a final bill has yet to be submitted and we will
therefore hold our comments on matters of detail.

There are, however, several basic principles about the restructuring of
the Section 701 program which we would urge this Committee to consider. First,
the movement away from the traditional planning exercises which more often than
not produced master plans for the shelf should be applauded. The real problem
which should be addressed by t his program is the need to improve the ability
of state and local governments to not only plan for certain actions but to implement

473

and evaluate those actions, all as part of a continuing process. Moreover,
this planning--managennent--evaluation continuum must take place at the public
decision-making level which means local elected officials rather than professional
planners working for autonomous special purpose agencies.

Second, in so far as the states are concerned, it is important that they
be required to begin to consult with local governments in the development of the
annual State Overall Program Design for the distribution and use of 701 funds.
Not only has the experience of local government with the state administration and
use of Section 701 funds been most disappointing, few states if any have system-
atically consulted with local government regarding how the distribution of the
state controlled 701 money should be handled. HUD officials themselves have
acknowledged that the greatest problem with the current 701 program is the
manner in which states have dealt with the smaller communities. Under these
circumstances, therefore, a proposal to turn the entire 701 package over to the
states at this time would appear to be most unwise.

Third, during the next several years, the major challenge t3 be presented
to local government by the evolving Federal grant-in-aid system will be the
community development block grant program. Because capacity building is
central to both the block grant and the new thrust of 701, the relationship between
the two funding channels is and must be very close. Any new legislation must
recognize the importance of this convergence of interest and encourage the
participants in the 701 system to give block grant activities priority. In
particular, communities preparing to seek block grant funds should be able to
obtain 701 monies to assist them through the necessary preliminary steps.

I

474

In the context of these concerns, we would urge this Committee to take
another look at the planning legislation which it approved last year. To an
alarming degree, that legislation would have perpetuated the unhappy fixation
of tlie present program with narrow physical development concerns. We would,
of course, be glad to work vnth the Committee in revising last year's bill to
accomplish the above purposes.

HOUSING

As we attempted to establish as loudly and as persuasively as possible
before this Committee last spring, the cities of this nation deplore the
President's action of unilaterally terminating the entire Federally assisted
housing effort in this country. We continue to urge that he immediately reinstate
the existing programs until satisfactory alternatives have been worked out and
are In place. This Committee has responded to this plea by attaching anti-
impoundment language to H.J. Res. 512, the authorization bill for the present
year. We hope this language survives in the final version which goes to the
President.

At the same time, we also acknowledge that a serious, thorough analysis
of our nation's current housing policy and a presentation of alternative strategies
for future policy is vitally important. I feel constrained at this point to raise
what may seem to the Committee to be a familiar complaint from students of the
urban scene. It is now and will continue to be impossible to truly understand the
problems of our core cities without referring to a broader range of issues not
just federally assisted housing. The housing problems of our core cities are the

475

product of extremely powerful non-housing policies having to do with employment,
transportation, social welfare, and tax matters, to mention but a few. The
national government- -the Congress and the Administration--must begin to
address this wider picture before the nation can expect to make any headway
against these negative forces which now seem inexorable.

Having said this, however, I do not wish to imply that we do not acknowledge
the importance of resolving the future direction of our nation's assisted housing
programs. Quite to the contrary, because of our firm commitment to the
community development block grant approach, we are now more concerned than we
have ever been about the status of the national government's own goal to provide
decent home in a suitable living environment for all Americans. Because the
improvement of the housing stock for low and moderate income citizens is
central to the long run success of the block grant program, we are extremely
anxious that the Federally asssisted housing programs be tangible, functioning,
well funded entities readily available to the cities.

We are not privy to the discussions that are going on within the Administra-
tion regarding the development of new housing proposals for submission to the
Congress in September. We do note that the Chairman of this Committee has
restated his support for the approach adopted last year by the Senate- -namely a
re-working of our present housing delivery system. If the decision is finally
made to proceed forward with programs similar to those now on the books, last
year's Senate bill was and is a very satisfactory package. However, in whatever
legislation is finally adopted in this area, we would urge the inclusion of these
few principles of importance to the cities.

476

I'irst, as wc have already suggested earlier, there must be a strong linkage
between tlie community development block grant program and Federal housing
policies and programs. Without a firm connection, both major efforts will
suffer greatly.

Second, housing funds should, as nearly as is practicable, be made available
to communities on the basis of need and of capacity to utilize the funds.

Third, the locational and other broad programmatic decisions necessitated
by assisted housing activity legitimately belong within the purview of general
purpose local government. To shift the program design decisions for community
development upon local elected officials and then to withhold similar decisions
for the equally important and related housing activities would make little practical
sense.

Fourth, as with the community development block grant, localities will also
need the flexibility to adapt the national housing mechanisms to their own special
situations. Thus, the national program should make it possible for some
commu.iitles to concentrate upon new production while others, such as my city
of Detroit, put most of their efforts into conversation. Similarly, the national
program should recognize that the configuration of the poor and the problems which
their condition presents to the community differ from place to place. For example,
Detroit's needs at the moment are for very deep subsidies with some 30% of our
households with very low incomes. There are other cities in other parts of the
country with equally pressing but very different problems of poverty.

477

Fifth, any new housing legislation must also adequately resolve the
increasingly demanding problems of the maintenance, modernization and manage-
ment of our existing inventory of one million public housing units. An agreement
must be reached in this legislation regarding the availability of operating
subsidies and the manner in which they are to be computed. The nation simply
cannot afford to allow this mammoth investment of public resources in our
existing stock to wither away.

Finally, it seems clear that the states have a greater role to play in
housing than they have assumed up to now. The current trend toward creating
more state housing finance agencies is good and should be supported. Assisting
in the financing of housing programs is a very appropriate function for state
government. The widely held misconception, however, about the state role
issue is that what is needed is that the state develop programs of its own or that
it assume ones now being operated by the Federal government. To the contrary,
the much more significant potential contribution of the state can and should be in
the area of setting policies, in consultation with local governments, controlling
the future development and viability of our urban environments. Without rational
state urban policies, all of the efforts, disjointed or otherwise, of Federal,
state and local governments will be seriously hampered.

478

NATIONAL LEAGUE OfMm..M

TATES CONFERENCE OF MAYORS

VVASMIWertDN ANALYSIS

1620 EYE STREET. N.W.
WASHINGTON. D. C. 20006

NUMBER 5

JUNE, 1973

\

"THE BETTER COMMUNITIES ACT"
(COMMIJfyiTY DEVELOPMENT BLOCK GRANTS)

After nearly two years of extensive discussions
and iong Committee meetings, the 92nd Congress
failed, in the closing days of last year's session, to
complete action on pending legislation which
would have created a community development
block grant program to begin in July, 1973. By the
time the House Rules Committee intervened in late
September 1972 to stop the progress of the bill for
reasons which did not relate to the block grant
program, a bill had already passed the Senate
(March 2, 1972 80-1) and a quite similar measure
had been reported out by the House Banking and
Currency Committee. As the bill headed for the
House floor and an eventual House-Senate Confer-
ence, it appeared fairly certain that the final
product would have Administration endorsement.
The final legislation would have had the enthusi-
astic support of both NLC and USCM.

With the convening of a new Congress, legisla-
tion proposing the estabhshment of a community
development block grant must be re-submitted. On
April 19, 1973, the President sent up the Adminis-
tration's revised "urban community development
special revenue sharing" bill, this time with a new
title of "The Better Communities Act" (BCA). On
May 8, 1973, Senator Sparkman (D-Ala.), Chair-
man of the Senate Committee on Banking, Housing
and Urban Affairs, reintroduced last year's Senate-
passed community development block grant bill,
again entitled "The Community Development As-
sistance Act." By July, 1973, it is expected that
Congressman Barrett (D-Pa.), Chairman of the
House Housing Subcommittee, along with other
Democratic members of the Subcommittee, will
have reintroduced last year's House Committee-
passed block grant bill.

Following is an analysis of the President's
proposed version of this legislation with compari-

sons made at appropriate points between BCA and
the House and Senate bills of last year. Because the
House and Senate bills were so similar in most of
their major elements, and because significant Con-
gressional support for these versions continues, it is
important to assess BCA against this already
established legislative framework. As a result,
readers of this report will find it useful to consult
the chart comparing the major issues posed by the
three bills which was provided by NLC and USCM
shortly after BCA was introduced.

PROGRAMS CONSOLIDATED

As with the Congressional bills, BCA would
consolidate the major community development
categorical programs administered by the Depart-
ment of Housing and Urban Development into a
single, broad, flexible, block grant of funds for
allocation to units of general purpose local govern-
ment. Three of the HUD programs proposed for
consolidation by BCA were also included in both
Congressional bills - namely Urban Renewal (all
Title 1 activities including conventional projects,
NDP, amendatories, code enforcement, etc.).
Neighborhood Facilities and Open Space Land. In
addition, BCA would propose to include Basic
Water and Sewer Facilities, Public Facility Loans
(both also in the Senate bill). Section 312 Rehabili-
tation Loans (also in the House bill), and Model
Cities. As a result of the passage of time and of
shifts in the desires of various national constituent
groups, it now appears quite likely that all seven of
the programs proposed for consolidation by BCA,
including Model Cities and Basic Water and Sewer
Facilities, will be included in the final Congres-
sional version.

479

ELIGIBLE GRANT RECIPIENTS

All three bills would define the range of eligible
grant recipients to include all units of general local
government and States. In addition, a combination
or consortium of general local governments would
be eligible as a single, unified grant recipient.

ELIGIBLE ACTIVITIES

Each of the three bills would authorize a fairly
broad scope of eligible community development
activities. The "laundry list" approach adopted by
all three bills makes use of language which, by and
large, is based on the statutes of the existing
categorical programs proposed for consolidation.
Thus, the intended meaning of the proposed
eligible activities language may be best determined
through reference back to the legislative and
administrative history which has grown up around
the existing statutes. The "laundry list" approach
also brings with it a different problem - are
activities not specifically listed therefore not eligi-
ble? Since the legislation is attempting to define a
concept of community development which is
broad, flexible and, to some extent, not fully
defined as yet, the difficulties created by an
exclusive list may be significant.

The list of eligible activities set forth in each
bill essentially outlines a range of physical develop-
ment mechanisms. BCA, whose list is quite short,
includes the acquisition and disposition of prop-
erty, clearance, rehabilitation, acquisition or con-
struction of public facilities, code enforcement,
and relocation assistance. Both the House and
Senate bills, which include the minimum list
proposed by BCA, go on to add a number of other
subsections setting forth more specific activities.
The Administration's announced intention is that
all activities eligible under each of the consolidated
programs would also be permissible under BCA.
However, whether the general language of the BCA
list is sufficiently inclusive to imply the eligibility
of the more specific Congressional items is uncer-
tain.

There are three major exceptions in one or
another of the bills to these otherwise physical
development related lists. First, all three of the
bills would authorize the expenditure of some
portion (unstated) of a community's block grant
funds on broadly defined "social service" activities.
Under BCA, it would be possible for a community
to direct its entire block grant resources to this one
particular activity. The House and Senate bills
would limit "software" expenditures to a consider-
able extent by requiring that the activity be
supportive of the basic physical development
thrust of the program.

A second major exception to the "hardware"
focus of the block grant is found in last year's
House bill which would have specifically permitted
the financing of a community's executive level

pohcy planning and management activity as it
related both to the carrying out of the locally
designed block grant program and to the coordina-
tion of other relevant federal, state, and local
programs which impacted on the local community
development strategy. This provision would have
vital significance for the necessary capacity build-
ing process which will have to occur in most all
communities making use of these and other block
grant funds.

The third exception is that both the BCA and
the House bill would allow communities to use
block grant funds (again, portion unstated) as
matching money for other federal programs provid-
ing assistance for community development activi-
ties. BCA would permit payment of the full non-
federal share for such a related program while the
House bill would have limited it to 90% of the
non-federal share.

TYPE OF GRANT

BCA would mandate that the federal share for
the block grant program equal 100% (i.e. no local
share would be required). In addition, BCA would
prohibit a state from mandating local share require-
ments on communities seeking block grant funds.
The House bill would have permitted the federal
share to go as high as 100% with strong legislative
history indicating that no local share should be
required. The Senate bill would have provided for a
90% federal share with the 10% local share
permitted to be either cash or limited non-cash
grants-in-aid.

APPLICATION REQUIREMENT

BCA would not require an appUcation as such.
Instead, each community would be required to
submit a statement of community development
objectives and of the projected use of the upcom-
ing year's funds. The statement would also have to
address the extent to which the community's
activities would relate to any State and areawide
community development plans and programs. Each
community would be required to publish its
proposed statement for public review 6() days prior
to submitting its final statement to HUD. A copy
of the final statement would have to be made
available to the public, to the Governor of the state
and to HUD. The community would also have to
certify that the above procedure had been followed
and that all other provisions of BCA had been
compbed with.

Within 60 days after the close of each fiscal
year in which BCA funds were received, the
community would have to make pubUc and send to
HUD a report concerning the projects and activities
supported in whole or in part with block grant
funds. This report would also have to include an
assessment of such projects and activities as they

480

related to the community's previously stated objec-
tives.

This procedure set forth in the BCA differs
sharply with the approach taken in last year's
CoTT^ressional bills. Both the House and the Senate
bii... would have required substantive applications
fiom all interested communities with prior review
and approval by HUD before funds could be
released. However, it was made clear in both the
proposed statutes and the accompanying legislative
histories that the breadth and depth of this federal
oversight role was to be vastly simphfied from
present practices. Last year's bills would have
required localities to develop a comprehensive
community development program which, among
other things, dealt specifically with the following
three national objectives; increasing the supply of
low and moderate income housing, eliminating and
preventing slums and blight, and improving com-
munity services and facilities in support of the
basic community development strategy. The House
bill would have exempted smaller communities
from some aspects of the full-fledged application
requirements. The Senate bill would, instead, have
provided for a waiver for smaller communities
which were merely seeking funding for a "one-
shot" activity.

Both Congressional bills would also have re-
quired a showing of consistency with areawide
plans, a strong role for citizens in the development
of the application and annual self-evaluations of
the performance of the community in relation to
its previously stated goals and objectives.

ALLOCATION AND DISTRIBUTION
OF FUNDS

Metropolitan and Urban Counties

BCA would propose to first allocate 65% of the
total national appropriation directly to all metro-
politan cities and urban counties according to a
formula, using the following three criteria: popula-
tion, poverty (weighted twice), and housing over-
crowding. The formula would measure the degree
to which a metropolitan city or urban county had
a high of low amount of population, poverty, and
overcrowding as compared with all metropolitan
cities and urban counties. A metropolitan city
would be defined as a central city or any other city
over 50,000 population within a Standard Metro-
politan Statistical Area (SMSA). At the moment,
there are about 500 such metropolitan cities. An
urban county would be defined as any county with
200,000 population or more within an SMSA ex-
clusive of the population of any metropoUtan cities
therein. Under this definition, there are now about
93 such urban counties.

This urban county definition under BCA is
slightly broader and less strict than that proposed
in last year's House bill. Under the House ap-
proach, in computing the population cut-off, not

only would the population of any metropolitan
cities be excluded but also the population of any
smaller municipalities, which were eligible for hold
harmless funding, be omitted. In addition, to
qualify for a formula allocation, an urban county
would have to have sufficient authorization under
state law to carry out community development
activities. The exact number of qualifying urban
counties under the House bill was never deter-
mined precisely except that it was no more than
85. The Senate bill had no mention of formula
allocation to counties. Rather, county funding
under that bill would have been accomplished
through the distribution of ample discretionary
funds.

During the first two years under BCA, each
metropoUtan city and urban county would be
assured of a minimum funding level - called hold
harmless - which would be based upon a rough
calculation of the community's recent use of the
seven consoUdated programs. The hold harmless
guarantee would be computed as the average
annual grant received under the NDP and Model
Cities programs plus the average of all other grants,
loans or advances received under conventional
urban renewal and the rest of the consohdated
programs. BCA designates Fiscal Years 1968-1972
as the period for averaging purposes, except that
any new NDP begun in FY 73 would also be
counted. The average annual grant figure for NDP
and Model Cities would be computed on a spend-
ing rate basis (i.e. total amount of grants received
divided by the total number of months of activity
with that result then multiplied by twelve).

In defining what grant monies would be in-
cluded in the urban renewal portion of hold
harmless, BCA would estabUsh two rather curious
exclusions. First, it would omit any grants made to
assist a community in its recovery from a natural
disaster. The impact of this provision would appear
to be minimal since HUD is interpreting it to apply
only to separate, special appropriations for disaster
relief. There was no such special appropriation for
commitments during the FY 68 to 72 period used
under BCA for hold harmless computations. In the
case of the exception for new NDP's funded in FY
73, no new NDP's in FY 73 have been or will be
funded for disaster relief purposes.

Second, BCA would exclude from the compu-
tation any grants made to assist in the initial
implementation of the Uniform Relocation Assis-
tance Act of 1970. During FY 72, about $500
milUon or one-third of that year's total urban
renewal commitments were made as a result of the
implementation of the 1 970 Act. Since the Admin-
istration has argued strenuously before Congress
that relocation costs should be treated just the
same as any other project costs, it is hard to
understand how BCA's proposal to exclude these
FY 72 grants from the hold harmless computation
can be persuasively maintained.

One of the major differences in approach to
the concept of funding under the block grant is

481

contained in BCA's proposal to phase the hold
harmless provision down after two years. Under
BCA, a community would have access to 100% of
its hold harmless amount during the first two years
of tl- program. In the third year, the community
woi Ul be allocated its formula plus two-thirds of
' J uifference between the formula and the hold
1. rmless amount. In the fourth year, the allocation
would equal the formula plus one-third of the dif-
ference between the formula and hold harmless. In
the fifth year of the block grant program, all metro-
politan cities and urban counties would have to
rely upon the formula mechanism for allocations.
The approach adopted in last year's Congressional
bills was fundamentally different with the hold
harmless amount for all metropoUtan cities and
urban counties computed as a fixed minimum
funding guarantee until the growth in the total
national appropriation was sufficient to raise each
community's formula share above the minimum.

BCA would also propose special treatment for
computing the Model Cities portion of the hold
harmless level. Most of the 147 Model City
communities would normally enter their fifth (and
presumably last) funding year either just prior to
the projected start of the block grant (July 1,
1974) or during either the first or second year of
the new program. Under BCA, the hold harmless
amount for the first year after the year in which
the fifth Model Cities action year was begun would
not include the average annual grant for Model
Cities. This proposal is new since neither Congres-
sional bills would have consoUdated Model Cities.

One additional element of the basic allocation
method would be explained. All three bills would
propose to gradually ease those communities into
the system which had higher formula than hold
harmless shares. Each bill would establish slightly
different approaches with the steepest formula
phase-in operating under BCA and the Senate bill
and the most gradual estabUshed under the House
bill. In the case of BCA, in year one, a metropoli-
tan city or urban county would be allocated its
hold harmless amount or one-third of its formula,
whichever was larger. In year two, the choice
would be between the hold harmless or two-thirds
of the formula or the amount received in the first
year, whichever was larger. In the third year, the
community would be eligible for its full formula
share. As noted above, year three would also be the
first year for the phasing down of the hold
harmless amount. Under the House bill, the three
step phase-in of the formula would affect only the
difference between 135% of the hold harmless
amount and the fuU formula.

Unlike the Congressional bills, BCA would
allocate formula and hold harmless funds directly
to the eligible communities without any intermedi-
ate allocation to SMSA's. Funds for discretionary
distribution to smaller communities would then be
distributed out of a single account - in the case of
BCA, an account to be administered by the states.
Under the Congressional bills, the first allocation

would have gone to the 267 SMSA's with suballo-
cations within each SMSA to the various levels of
eligible communities. This procedure would have
created 267 residual discretionary accounts for
funding small communities along with a specific
amount of money set aside at the national level. In
comparing the two funding mechanisms, it would
appear that BCA's proposal for a single discretion-
ary fund would provide HUD with a simpler and
more fiexible administrative arrangement.

Funding for Non-Metropolitan Cities
and Non-Urban Counties

Under all three bills, a non-metropolitan city or
a non-urban county would also be eligible for the
above described hold harmless guarantee if the
community had been carrying out urban renewal
activities during FY 68 or any subsequent fiscal
year prior to the date of enactment of the block
grant. In the case of BCA, Model Cities activity
would also serve to qualify a smaller community
for a full scale hold harmless computation. As
outlined above, by the fifth year under BCA, the
hold harmless amount would no longer be available
while under last year's Congressional bills, the
minimum commitment would have remained in
force. BCA would identify 703 small communities
for hold harmless guarantees.

All three bills would also provide additional
discretionary funds for the funding of block grant
activity in smaller communities. Under BCA, after
all formula and hold harmless allocations to metro-
politan cities, urban counties and smaller commu-
nities had been completed, 10% of the remainder
would be retained by HUD, with the balance (90%
of the remainder) being distributed among the
states. Each state's share would be determined on
the basis of the amount of population, poverty
(weighted twice) and housing overcrowding in the
metropolitan (SMSA) areas in that state, excluding
the population, poverty and overcrowding data
from all metropohtan cities. Of the amount it
received each year, each state would be required to
allocate at least half to the metropolitan areas
within the State (on the same basis as above,
namely SMSA data excluding data from metropoli-
tan cities) for use by communities within those
areas. Those funds not allocated by the state to
communities within SMSA's would be available for
use by any community within the state and for use
by the state for "reasonable administrative costs"
associated with its responsibilities under the block
grant. Although BCA would not specifically re-
strict the use of the state funds only in smaller
communities, the basis on which the funds would
first be allocated to the state and then within the
state strongly suggests that this would be the
desired use. By the fifth year, with the elimination
of hold harmless under BCA, all municipalities
below 50,000 population and all non-urban coun-
ties would be entirely dependent upon the state for
community development block grant funding.

482

In the matter of funding activities in smaller
communities, the Senate bill differed fundamen-
tally ,rom BCA. The Senate bill would have identi-
fied several fairly substantial discretionary funds,
the primary or sole purpose of which was to fund
smaller communities. In addition, the funding
source throughout for these communities would
have been HUD rather than the state. It is entirely
possible, if not probable that the Senate will insist
on this approach again.

States

Thus, under BCA, states would have the respon-
sibihty of allocating a relatively small amount of
funds among various interested communities within
the State, with the probable focus of its attention
being on non-metropolitan cities. The states would
be able to cover their administrative costs for this
activity but would not be able to use any of the
block grant funds for their own independent pro-
grams. With the exception of the administrative cost
allowance, all of each state's allocation would have
to pass through units of general local government.

The Congressional bills essentially reversed this
procedure. States would have had no responsibility
in the allocation of funds to local governments but
would have been able to apply for community
development financing of state programs out of
ample national discretionary funds.

Re-Allocation of Hold Harmless Savings

One final element of BCA's proposed formula
mechanism should be explained. During years
three, four and five under BCA, "savings" would
be realized as a result of the phase down of the
hold harmless commitment. These savings would
then be plowed back into the allocation system in
the following manner: 10% to HUD, 30% by
formula to metropolitan cities and urban counties,
and 60% to the states (of which at least half must
go to communities within SMSA's) on the basis of
the population, poverty (weighted twice) and
overcrowding in the SMSA's (including metropoli-
tan city data). As a result of this re-allocation
procedure, the formula amounts for the larger
communities and the remainder allocations to
states would gradually increase during years three
through five, even if the total annual appropriation
were held constant.

Overall Analysis of the BCA Formula

Under BCA, in the first year of the program,
approximately 73% of the funds would be used for
formula and hold harmless purposes for metropoli-
tan cities and urban counties. Smaller communities
would consume an additional 18% for their hold
harmless demands. The state share for distribution
to local governments would be about 8% with the
reserve fund retained by HUD equaling 1%. In year
two, the allocation to the larger units would

increase to 75% with the smaller units getting an
additional 17% for hold harmless purposes. The
state share would drop to 7% and HUD would
remain at 1%. The share to metropolitan cities and
urban counties would hold at about 75% from the
second year onward through the fifth year and
beyond. In the case of the states, however, their
total share for re-distribution to local governments
would increase to about 21% by the fifth year with
HUD retaining approximately 3.5%.

After the second year, the rough similarity
breaks down between the distribution patterns of
BCA and the Congressional bills so far as the direct
allocation mechanism is concerned, due to the
phased disappearance of the hold harmless commit-
ment. With the elimination of the hold harmless
guarantee, a substantial portion of the block grant
funds would shift away from the core cities and
away from other cities with ongoing community
development programs and toward the many me-
dium sized communities whose major characteristic
in the context of the formula criteria is population.
The introduction of 93 urban counties into the
allocation pattern further magnifies this shift. The
shift would also be due to the 25% weight given in
the formula to the population criteria under BCA
as contrasted with 20% weight under the Congres-
sional bills. In addition, the BCA formula lacks the
significant fourth criteria proposed by the House
and Senate bills which measured the relative
amounts of past performance under the seven
categorical programs.

The elimination of the hold harmless guarantee
also has great significance for the manner in which
the new commodity — "urban counties" - fare
under the formula. In year one, about 7% of the
total block grant funds would be allocated to
urban counties. By year five, the percentage take
for urban counties would be up to nearly 20%. In
this connection it should be noted that 36 of the
93 urban counties would have a zero hold harmless
guarantee — that is, over one-third of these
counties had no experience under any of the seven
categorical programs being consoUdated during the
FY 68-72 period. In contrast, all of the largest 93
cities would have a hold harmless commitment.
Totaling the five-year allocations under BCA for
the top 93 cities reveals that there would be net
reduction in block grant funds from year one to
year five of about 14%. Of the 93 cities, 33 would
show increases while 60 or almost two-thirds
would suffer decreases. At the same time, for the
93 urban counties, there would be a net gain from
year one to year five of about 190%. Of these
counties, 90 would show increases whUe only 3
would fall off.

AUTHORIZATIONS

BCA would establish an open ended authoriza-
tion of such funds as may be necessary for the five
year period from July 1, 1974 (FY 75) through

483

June 30, 1979 (FY 79). In sending the bill up, the
President announced that he would seek $2.3
billion in appropriations annually for the block
grant during this five year period. Both the House
and Senate bills from last year contained specific
authorization amounts substantially above the sum
of the annual program levels for the categoricals
being consolidated. That sum at the beginning of
FY 72 was $2.1 billion, including Model Cities. It
is a reasonable expectation that the Congress will
authorize amounts somewhat above the $2.3 bil-
hon target figure set by the Administration.

In designing last year's bills, the concept of a
two year contract was established. This particular
version of contract authority would have been sub-
ject to the prior approval of the Congress in annual
Appropriation bills. However, under the proposed
bills, HUD would have been able to make two year
contracts with applicant communities and would,
in addition, have been able to make new two year
contracts with those communities at the end of
each year. This important feature was not included
in the Administration's BCA.

LOAN PROVISION

Both House and Senate bUls would have
authorized HUD to make loans and loan guarantees
for certain purposes to localities using block grant
funds. In this fashion, much as is the practice now
under urban renewal, communities would have
been able to capitahze their programs and commit
up to several year's worth of block grant funds at
one time, thereby maximizing their ability to
undertake substantial projects with large, front-end
costs. BCA, however, failed to incorporate this
vital financing mechanism.

COMPLETION OF EXISTING
URBAN RENEWAL PROJECTS

The Senate bill of last year would have
authorized an additional $300 million outside of
the full authorization for the block grant for the
specific purpose of financing the completion of as
yet unfinished urban renewal projects. BCA would
take a different approach. HUD would be autho-
rized to effect a financial (but not necessarily
actual) close-out of all existing urban renewal
projects. For any such projects closed out for
which additional funds were still needed for actual
completion, HUD could then condition the distri-

bution of block grant funds upon the use of part or
all of such funds by a community for closing out
existing urban renewal projects, whether the local-
ity desired it or not. It should be noted that this
provision, which would authorize HUD to dictate
the priority uses for a community's block grant,
would seem to be somewhat out of spirit with
BCA's proposal of nearly total transfer of all other
decision-making responsibilities to the local level.
On the positive side, this provision would also
allow a community to convert (on top of its
regular block grant allocation) any outstanding but
unutilized urban renewal commitments into more
flexible block grant uses, if the community so
desired.

APPLICABILITY OF UNIFORM
RELOCATION ACT

BCA would extend the coverage of the 1970
Uniform Relocation Assistance Act to persons or
businesses who relocate as the direct result of block
grant activities, 25% or more of which are paid for
with block grant funds. The Senate bill had a
similar provision except that there was no funding
threshold established. It is expected that the 1970
Act will apply to the final bill and that the
threshold will be estabUshed as much by the courts
as by any cut-off put fonvard in the statute.

CONCLUSION

The National League of Cities and the United
States Conference of Mayors strongly support the
concept of consohdating HUD's various commu-
nity development categorical programs into a
single, broad, flexible block grant package. The
continued support for this approach by the Admin-
istration is important and is welcomed by the
cities. As has been noted at various points in the
above analysis, there are a number of critical issues
affecting the design of the new approach on wliich
Congress is expected to develop the legislation
contrary to the Administration's suggestions. In
addition, the House and Senate Housing Subcom-
mittees will have had a year or more to reconsider
many of their original positions and, as a result,
some changes over last year's bills can be expected.
The final bill which Congress sends to the President
will be a compromise among the three proposed
bills, a compromise which will likely bear major re-
semblance to the House and Senate bills of last year.

99-855 O - 73 - pt. 1

32

484

NATIONAL LEAGUE OF CITIES Allen E. Pritchard, Jr.

Representing 14,883 Municipalities in 50 States. Executive Vice President

Excerpt from the
National Municipal Policy

of the
National League of Cities

Adopted at Annual

Congress of Cities

Indianapolis, Indiana

December, 1972

1620 Eye Street, N.W., Washington, D.C. 20006/(202) 293-7300/CabIe: NLCITIES

National League of Cities

485

OFFICERS:

President

Roman S. Grlbbs

Mayor ol Detroit, Michigan

First Vice Presider\t

Thomas Bradley

Councilman ol Los Angeles, Calil

Secorid Vice President

E, J. "Jake" Garn

Mayor ot Sail Lake City, Utah

Immediate Past President

Sam Ma5s«ll

Mayor ot Atlanta, Georgia

Executive Vice President
Allen E- Pritchard. Jr.

DIRECTORS:

Lester E. Anderson
Mayor of Eugene. Oregon

Robert B. Blackwell

Mayor of Highland Park. Michigan

Thomas W Bradshaw, Jr
Mayor ot Raleigh. N C

Richard Brown

Texas Municipal League

John T Campbell
Mayor ol Columbia. S C-

John D. Origgs

Mayor ol Phoenix. Arizona

William 0. Dyke

Mayor ot Madison. Wiaconsin

Peter F, Flaherty

Mayor ol Pittsburgh. Pennsylvania

William S. Hart. Sr

Mayor of East Orange, New Jersey

Richard G. Hatcher
Mayor of Gary, Indiana
Kathryn Kirschbaum
Mayor of Davenport. Iowa

Robert J LaFortune

Mayor of Tulsa, Oklahoma

Phyllis Lamphere

Councilman of Seattle, Washington

Moon Landrieu

Mayor ot New Orleans. Louisiana

Dean A. Lund

League of Minnesota Municipalities

James McGee

Mayor of Dayton, Ohio

William H. McNichols

Mayor of Denver, Colorado

Mario A. Micone

Mayor of Butte, Montana

Norman Y. Mlneta

Mayor of San Jose. California

E. A. Mosher

League of Kansas Municipalities

Gordon H. Paquette

Mayor ol Burlington, Vermont

Elijah Perry

President ol Council ol Camden, New Jersey

George W, Phipps

Council of Oak Ridge. Tennessee

John Salisbury

Maine Municipal Association

Steven Sargent

Illinois Municipal League

Raymond C. SIttIg

Florida League ol Cities

George M Sullivan

Mayor ol Anchorage, Alaska

James L Taft. Jr.

Mayor ol Cranston, Rhode Island

S. Letgh Wilson

North Carolina League ol Munlclpalillea

Harriett Woods

Councilman ol University City, Missouri

486

Urban Development

1.300 COMMUNITY DEVELOPMENT BLOCK GRANTS

Tliere is an increasing need for placing greater reliance upon the decision-making capabilities of
local elected officials regarding the setting of local priorities particularly in the area of federally-as-
sisted community development activity. In addition, new legislation should recognize and enhance the
interrelationship among all community development programs and the importance of viewing the con-
cept of community development as one including not merely physical development, but related social
service development and executive policy planning, management and coordination of federal, state and
local programs as well.

To these ends, there should be a consolidation of the categorical grant programs now adminis-
tered by the Department of Housing and Urban Development into a single, comprehensive community
development block grant program. Tliis block grant program should be designed in such a way that it
would both simplify the process of applying for program funds and streamline the delivery of those
funds, once they have been awarded.

In addition, this community development block grant program should have the following compo-
nents:

A. The program should consolidate existing urban development categorical programs, including
urban renewal, basic water and sewer facilities, open space land, neighborhood facilities and
other comparable programs.

B. Block grants should be made to units of general purpose local government without regard to
population size.

C. Applicant communities should be required to prepare a multi-year, community development
plan along with a detailed, first year program. Provision should be made, in connection with
this new legislation, to insure that HUD's application review process will be simphlled con-
siderably.

D. Each applicant-community's development program should be required to respond to several
broad, clearly stated national goals, including:

— improving the quality of life for all citizens;

— elimination and prevention of slums and blight;

— adequate provision of standard housing for low and moderate income people who live or
are employed. in the community, without discrimination according to racial or economic
status; and

— rational future growth and land use policies.

E. A procedure should be established by Congress to provide advanced funding for the block
grant program, at levels substantially above those now being approved for the various urban
development programs to be consolidated. In addition, HUD should be empowered to make
multi-year block grant commitments in the interest of promoting more sound, long-range
development planning.

F. For each community seeking block grant funds, a basic funding entitlement should be com-
puted by HUD which takes into account the community's prior level of program activity
and the community's need for increased assistance, where appropriate. To the extent possi-

487

ble, each applicant-community should be eUgiblc to receive at least as much in new program
funds as it had been receiving previously, hi arriving at this calculation a city's overall expe-
rience should be taken into account as well as its most recent experience. At the same time,
adequate provision should be made for the funding of eligible applicant-communities which
have not previously been receiving funding. Congress should avoid the use of mechanistic
formulas based upon current Census data, which by their nature, fail to take adequate
account of past performance and present need.

G. There should be a wide range of eligible activities under the block grant program, including
all those now currently permitted under the existing urban development categorical pro-
grams to be consolidated. In addition, communities should be able to use a portion of their
block grant funds for social service activity and executive planning, management and coordi-
nating activities.

H. To the extent that a local share requirement must be met, it is imperative that communities
be allowed to do so, as is currently provided, by the use of local "in-kind" contributions.

I. The block grant program should require a close linkage between community development
activity and the adequate provision of housing for low and moderate income people living or
working in the community. Adequate progress toward providing such needed housing
should be a prerequisite for the continued availability of block grant funds. In order to fa-
cilitate each community's progress in this regard, HUD should reserve federal housing funds
for those communities that have set forth a responsive housing plan in connection with their
community development block grant programs.

J. The planning process associated with the block grant application should be broadly gauged
to include the improvement of local government's executive planning and management ca-
pacity as well as the coordination of other federal, state and local programs into a unified
community development strategy.

Approval of Federal community development block grant legislation which includes these basic
components is an immediate necessity. In the interim, prior to the passage of such legislation and dur-
ing any required transitional period from the current programs into the block grant program, it is vital
that Congress continue to expand present funding levels, and to improve the existing categorical pro-
grams so as to broaden and maximize their impact at the local level. While the block grant legislation
described above would result in vast improvements in the Federal and local delivery systems for com-
munity development dollars, the overriding need now and in the future under any program is a vastly
expanded flow of federal funds.

1.301 IMPLEMENTATION OF URBAN DEVELOPMENT PROGRAMS

National, state and local urban development assistance programs must have the flexibility to re-
spond to the dynamic nature of the urban problems they were designed to help solve. Local general
purpose government now combines Federal assistance programs with planning, zoning and public
facilities construction to accommodate, anticipate and influence physical, social and economic
change. There is a need for cities to extend their powers by acting as a developer of last resort of those
private facilities required to meet community development needs when economics makes it impossible
for private enterprise to respond to clearly defined community needs in a timely fashion.

Cities are encouraged to expand their local authority in order to make it possible for them to act
as a developer of last resort on a citywide basis. An expansion of authority of this kind would permit
more effective use of community development block grant, urban renewal and new community pro-
grams. Linking this authority with local government tools and Federal assistance programs would be
especially effective in coping with the problems of abandonment which plague a number of cities

488

Resolution No. 29

Community Development Block Grants

WHEREAS, the United States Conference of Mayors has long urged
grant simplification and consolidations such as have been proposed
for the Department of Housing and Urban Development's community
development categorical programs; and

WHEREAS, failure to pass community development block grant
legislation during the last session of Congress was a major dis-
appointment for the nation's cities, particularly because the
Congressional bills under serious consideration were highly
supportive of the policy position of the United States Conference
of Mayors as adopted in June, 1972; and

WHEREAS, the Administration has submitted to Congress a revised
legislative proposal — called "The Better Communities Act" — important
elements of which conflict with the approach urged by the United
States Conference of Mayors and passed by the Senate and reported
favorably by the House Banking and Currency Committee; and

WHEREAS, the Administration has simultaneously submitted Fiscal
Year 1974 budget recommendations which announce the impoundment of
nearly one billion dollars in already available housing and community
development funds and which propose more than a 90% reduction in
program levels for the next year, all of which actions seriously
threaten a crippling loss of the present local capacity to carry
forward urban revitalization efforts;

NOW, THEREFORE, BE IT RESOLVED that the United States Conference
of Mayors reaffirms its strong support for early enactment by Congress
of a community development block grant program which includes the
following important provisions:

— consolidation of urban renewal, model cities, basic water
and sewer facilities, open space land, neighborhood facilities,
and rehabilitation loans,

— block grants directly to units of general purpose local
governments ,

— authorization of a broad range of activities, including both
physical development and related social services activities, con-
sistent with certain stated national objectives,

— the requirement that each community, interested in receiving
block grant funding, submit regular, simplified applications
setting forth a statement by the community of the locally
defined needs and objectives, and the locally determined
actions to be taken, particularly in regard to the community's
need for housing in a suitable living environment, for prevention
and elimination of slums and blight, and for the improvement
of community services and facilities, along with a statement
that local citizens have been involved in the development of
the application and will be involved in the carrying out of
the local coirjnunity development program, and that th'is
application snould be subject only to a speedy and simplified
review process by the federal government.

489

— creation of a stable method of allocating funds to applicant
communities, taking into account each community's need, its level
of past performance under the consolidated programs, and its present
capacity to devise and carry out a comprehensive community develop-
ment program, with a guarantee that each applicant community will
at least be eligible for funding at a level equivalent to its past
funding under the consolidated programs,

— provision of 100% federal funding and assurance of federal
guarantees of local temporary financing actions which are necessary
to carry out the community's program,

— provision for a broadly gauged comprehensive planning process
in connection with a community's program which is directed toward
the improvement of the local government's executive planning and
management capacity and toward the coordination of other federal,
state and local programs as they relate to a unified community
development strategy,

— provision of multiple year funding arrangements so that
greater continuity and more efficient use of block grants will occur
at the local level, and

— assurance that each recipient community which has an approved
block grant program would be able to affect the mix and location of
all federally assisted housing resources within its jurisdiction;

BE IT FURTHER RESOLVED that the United States Conference of
Mayors will work closely with the Congress and the Administration in developing community
development legislation which reflects the needs of our nation's
cities and will, in the process, express support for those portions
of the Administration's bill which are consistent with the above
policy and will express its opposition to those provisions which
conflict, including the lack of an adequate fixed minimum guarantee
of funding for communities with ongoing programs , the lack of a
direct federal-local funding channel for communities of all sizes,
the lack of an application requirement which requires communities
to address certain broad national objectives, and the lack of
adequate provision for federal loan assistance; and

BE IT FURTHER RESOLVED that the United States Conference of
Mayors calls upon the Congress to consider the manner in which
the federal government responds now to the critical funding
needs of community development programs, particularly through
the urban renewal program which symbolizes more than anything
else the concern of the federal administration for the serious
problems of the nation's cities and to approve, in addition
to adequate funding for the block grant program, the necessary
resources to enable HUD to honor its legal and moral commitments
in connection with existing urban renewal projects whose
completion depends upon further funding; and

490

BE IT FURTHER RESOLVED that the United States Conference of Mayors
urges the Congress and the President to provide funding in
Fiscal Year 19 74 for community development programs at not less
than the same level which was approved by Congress for Fiscal
Year 1973 funding and with assurances of immediate allocation
to localities of these funds without impoundment or delay so that
local plans and programs may continue forward aggressively until
block grant funds are available, and that, in this regard, the
Conference specifically urges the Congress to reject the no-
funding approach suggested by the Administration's Fiscal Year
1974 budget proposals which not only damage existing local
program capacity but also insure increased start-up costs for
local governments when they begin to operate under the block grant.

491

(Iftt^ af J^tr^tt

EXECUTIVE OFFICE

ROMAN S. GRIBBS

MAYOR

August 16, 1973

Dear Senator Sparkman:

Senator John J. Sparkman
United States Senate
3203 New Senate Office Building
Washington, D. C. 20510

" -v.-] !i|(

17'' ' ' ■ 1 '' ••
I wish to thank you for the opportunity to appear"t3feiOTe'A^43ir Committee

to present testimony on the proposed community development block grants and

to discuss federal housing subsidy programs on behalf of the National League of

Cities and U.S. Conference of Mayors. The Federal Housing Administration's

insurance and subsidy policies are of great concern to me because of Detroit's

well known mortgage default and housing abandonnient problems.

In response to your question, I am providing herewith infornnation re-
garding FHA repossessions by program in Detroit. Unfortunately, complete
statistics are not available for the past five years. However, the following chart
shows foreclosures completed during the first six months of 1973. Following the
redemption period, these houses will all com^e into HUD ownership by the end of
the year.

FHA MORTGAGE FORECLOSURES
JANUARY - JUNE, 1973

Percent of*
Section No. Total

203 427 16

303 38 2

221 1,432 55
321 564 22

222 2 Less than 1

223 9 Less than 1
235 99 4

335 54 2

Total .... 2, 625

*Total may not equal 100 due to rounding.

492

Senator John J. Sparkman
August 16, 1973
Page -2-

The average monthly rate of foreclosure exceeded 400. At the same
time, HUD is attempting to offset the existing inventory of foreclosed homes
(8000) with a sales program. Their own stated disposition objective is 300
units per month. As you can clearly see, this level is not sufficient to meet
the monthly acquisitions, let alone reduce the inventory.

In order to provide further perspective on the foregoing figures, I am
including the following information on mortgage insurances and defaults in
Detroit for the years 1968-1970. These statistics, compiled by the General
Accounting Office, are the nnost current ones available.

1968-69

1970

P(

srce

nt of

Total

De

fault Rate

Section

M

ortg

ages

Insured

(In

Percent)

203

45

3

303

2

7

221(d)(2)

38

9

321(d)(2)

13

18

235

7

3

335

7

8

203

22

1

221(d)(2)

50

4

235

6

4

223(e)*

22

12

^Includes the following housing programs: 303, 321(d)(2), and 335.

In addition, there are currently 22 niultiple-unit developments, having
a total of 1,800 dwelling units, in varying stages of default. All of these pro-
jects are mortgaged under Section 236.

One inference which can be drawn from the above data is that the "high
risk" nnortgage program is 221(d)(2). This finding indicates to me a certain
amount of misnnanagennent on the part of FHA in its routine insuring practices.
Furthermore, I tend to believe that many families in Detroit who could have
qualified for 235 subsidies were instead misguided into the 221(d)(2) program.
Their poverty made unassisted homeownership an impossible burden.

A second and more serious factor is the widespread lack of sufficient
income for fannilies in Detroit to benefit from any of these subsidy programs.
To begin with, 70,000 families in Detroit are statutorily eligible for public

493

Senator John J, Sparkman
August 16, 1973
Page -3-

housing on the basis of income alone. Less than 10,000 of these families
are presently so housed. Median rent in the city is about $90, a figure that
is $35 to $60 below the minimum rents possible with the deepest 236 or 235
subsidy on new construction. Home ownership is still more costly. Com-
bined with high vacancy levels, Detroit residents have many options to utilizing
subsidy programs, although these generally mean settling for lower quality
housing.

In other words, Detroit has a large supply of relatively inexpensive
housing which is steadily deteriorating due to lack of sufficient financial re-
sources for necessary maintenance. The single most important housing program
we can pursue is conservation and rehabilitation.

This situation nnay not be true of other communities across the country,
but I believe it may apply to a number of manufacturing cities in particular.
My depiction of Detroit is not intended to exclude housing development and sub-
sidy programs from our repertoire. What I wish to emphasize is the need for
Detroit--and every other community--to have the flexibility to select and develop
the right kinds of housing progranns to meet its own particular needs.

For this reason--the uniqueness of my own experience--I wish to re-
emphasize my support for the concept of a housing block grant. Such a pro-
cedure would enable Detroit to pursue prinnarily conservation, while a rapidly
expanding connmunity suffering a critical shortage of housing of any description
could undertake primarily development. This is a miost sensible and most
promising approach to addressing the housing needs of an entire nation. We
are, of course, quite pleased to see that you also realized the significance of
this approach and included it in your proposedjaousing legislation.

Malror, City of Detroit

President, National League of Cities

494

[Telegram]
Senator John Sparkman,

Chairman, Committee on Banking, Housing, and Urban Affairs, Washington, D.C.
The Tennessee Municipal League strongly endorses your Community Develop-
ment Assistance Act presented in Senate bill 1744. We particularly support the
provision that the 25 percent earmarked for small cities located outside metropoli-
tan areas will be received directly from the Federal Government. We oppose State
channeling of these funds and believe it would be detrimental to local home rule
to substitute 50 State bureaucracies for a Federal bureaucracy. Thus, we oppose
the Administrative Better Community Act as contained in H.B. 7277 for State
channeling and certain other provisions. Our membership appreciates your dis-
tinguished leadership.
Very sincerely,

Dr. James Powers,
President, Tennessee Municipal League,

Mayor, City of Waverly, Tenn.

The Chairman. Thank you very much. We appreciate the help you
have given us. Next is Mr. Hugh McKinley, city manager of Eugene,
Oreg., representing the International City Management Association.

STATEMENT OF HUGH McKINLEY, CITY MANAGER, EUGENE, OREG. ;
ON BEHALF OF THE INTERNATIONAL CITY MANAGEMENT ASSO-
CIATION; ACCOMPANIED BY LAURENCE RUTTER, ICMA STAFF

The Chairman, We are glad to have you, and as I stated before, your
full statement will be printed in the record.

[The complete statement of Mr. McKinley may be found at p. 500.]

Mr. McKiNLEY, Thank you, Mr. Chairman.

The Chairman. I ask that you make known the name of the gentle-
man accompanying you.

Mr. McKinley. I would like to introduce Mr. Lawrence Rutter, Staff
member of the International City Management Association, Mr.
Chairman.

I am appearing in behalf of the International City Management As-
sociation and specifically as chairman of its Finance Committee, which
has spent some period of time reviewing community development block
grant proposals and has developed a committee report which is being
submitted to the committee for your perusal during design of this
community development legislation.

This report has some 17 specific recommendations and I am not
going to attempt to summarize and emphasize the things we feel are
important. The committee was made up of some 30 chief administrative
officers of cities throughout the United States as well as county admin-
istrative people and community council of government administrators.
Since this is the first time that the International City Management
Association has appeared before your committee I wanted to sum-
marize or clarify what this association is.

495

Over half of the cities in the United States with over 5,000 popula-
tion have in their employment chief administrative people of a pro-
fessional nature who are responsible for the administration of these
communities and also are responsible for working with the elected
officials in the policy formulation funds.

We are made up primarily of these people. They are city managers,
chief city administrative officers, county administrative officers, direc-
tors of regional councils, and some mayor appointed administrators.
The experience of these people in city administration has been pulled
together in our report and we hope you would have an opportunity
to find something helpful in this report in the design of the community
development legislation.

We do urge a favorable report on Senate bill 1744, the Community
Development Assistance Act of 1973, and in conjunction therewith we
urge a favorable report on title IV of Senate bill 3248 as it was passed
in 1972 which was designed to support the planning and management
functions of local governments.

I can make some comment about the block grant concept as compared
with the existing categorical grant functions. We feel that the present
categorical grant programs, while they have been very helpful in many
instances, are administratively very difficult. They are expensive to
administer. They are sporadic and frequently slow, disjointed, and
inconsistent. A whole raft of other adjectives of a similar nature could
be applied to them.

Frequently, also, they are unproductive. Under the existing system
of categorical grants with its expensive and detailed application sys-
tems, it is almost impossible for a total community development func-
tion to be carried out by a city in any logical, coordinated way.

The varying time schedules, the vary administrative and review
functions of the Department of Housing and Urban Development, the
different staffs involved and the different programs are all adding to
the complexity of trying to pull together a coordinated and sensible
approach to total community development.

The cost to the applicant and the Federal agency supervising the
application, and reviewing the application — supervising the develop-
ment of the program — must be tremendous compared to what could
be done with the block grant approach.

The timespan between the initial attempt to go into the program
under the categorical grant program and the time actual execution
begins is often so great that the people in office at the time the idea
came forward have left and we have a new set of elected officials who
are then responsible for the execution of the function.

The International City Management Association joins with the Na-
tional League of Cities and U.S. Conference of Mayoi-s in favoring a
system of minimizing the application program process in the block

496

grant program. We believe, however, there should be an application,
that it should be concerned primarily with whether or not the com-
munity has a community development plan and a set of goals.

Also, the application process should be concerned with whether or
not the particular plan appeai-s to be feasible from the standpoint of
delivering the goods.

For the past 2 years the International City Management Association
has had a committee working on the criteria for management of Fed-
eral grant legislation. The report of that committee, which contains
some 12 administrative criterion and 9 legislative criterion, was de-
veloped at the request of the National League of Cities for the pur-
pose of giving guidance to the design of legislation by this Congress
in the area of Federal grants. We have made it — with your permis-
sion— a part of our report and call your attention to the fact that the
illustrious Senator from Illinois, Mr. Stevenson, some months ago had
most of this report entered in the Congressional Record.

We feel that post control as proposed in the community develop-
ment block grant programs Avill provide local flexibility in the ad-
ministration of the programs. It will provide the necessary flexibility
for changing directions which may become necessai*y in midstream and
will provide the Federal Government with the ability to determine
whether or not its money has been well spent.

We believe general local government has proven its ability to effec-
tively administer these programs. We think that the decisionmaking
process on priorities should be a local function carried out by the peo-
ple who are elected by, and who represent, the people and who are on
the scene and have the ability to set local priorities.

We would hope that HUD's review of an application be limited to
seeing that the application meets specific national goals, and that it is
workable and that the review take not more than 2 to 3 months time.
We think that implementation rapidly is a very important asset to any
community development program.

We also agree with Mayor Gribbs' in his preceding remarks and
Senator Sparkman in his statement when he introduced S. 1743 and
S. 1744, that there must be a very strong linkage between housing and
community development.

We think that the current delay or withholding of funds in the hous-
ing field is making the transition from the existing categorical grant
program to a community development block grant program more dif-
ficult the longer it lasts.

In conjunction with the block grant program we feel very strongly
that the 701 program or its successor should include management as
well as planning assistance.

Planning which is done without management capabilities frequently
lies on the shelf. Although Senator Packwood and I both come from a

497

paper industry area, our paper industries' economic well being does
not rest on how many plans we can develop and lay on the shelf.

We would like planning to be useful and functional and the paper
industry can absorb any setback that may occur. Plans must be rele-
vant, they must be politically acceptable, and they must be timely. I
think the timeliness of planning is a very important criteria.

We now see plans being accepted in our community which 10 years
ago would not have received any serious consideration at all because
conditions change so rapidly.

Planning must be flexible. Planning which is done in a vacuum
or without the attendant ability to execute the plans is worse than an
exercise in futility. It is a complete waste of money.

Flexibility is important in a management planning program — we
support it. We think that title IV of Senate bill 3248 as passed in 1972
has improvements over the existing 701 program although I think on
the whole the 701 planning program has been successful and helpful.

Before I leave the planning function, there is one element of the
title IV of S. 3248, that we feel could use reexamination, that is the
requirement of certain mandatory inclusions in each funded program :
a capital improvement program, housing element, and land use
program.

We believe these are necessary elements. However, many cities have
already developed these types of plans and find their planning priori-
ties are in other areas. To have to redo these kinds of things would be
unfortunate.

In addition, we think that management capabilities need to be
built into the funded portion of the program.

With regard to the States' involvement in community development
block grants our position would be that many States are not qualified
or are not geared up to administer community development programs
at the local level at the present time.

States have shown very little interest in this area in the past, and
they do not have the expertise for this function. We would suggest
that a test for whether or not a State should be involved in this area
would be whether it was willing to put its own funds into the programs
at the local level.

If a State will contribute substantial moneys to a community devel-
opment program then I think we would say the States certainly should
have some say in what that program is.

One of the purposes of my coming today was to express a particular
concern about the hold harmless provision in the Better Communities
Act as suggested by the administration in 1934. We agree heartily with
a hold harmless transition protection system.

However, for example, in the city of Eugene or comparing the
city of Salem in Oregon, to cities of approximately equal sizes who

498

have carried on for the past several years approximately equivalent
dollar amount community development programs, the formula which
is provided for in the Better Communities Act sets forth a 5-year
average calculation base period which defines the grants as having
been eligible if the commitments were made during that 5-year period.

Now reference to the word "commitment" makes a great difference
between the city of Salem and the city of Eugene because the city of
Eugene's commitment was made some 6 months before the suggested
average 5-year period.

That means it is not eligible for being considered. The net result
being that while Salem and Eugene have carried on programs of ex-
penditure and execution of approximately the same amounts of $21/^
million a year each the hold-harmless program under the Better
Communities Act would provide Eugene with $422,000 in the first
year, and Salem with $3,179,000. Over the 5-year program Salem
would receive some $11 million while Eugene would receive some
$4 million.

Now I am not suggesting that a new formula be written which
takes from Salem what it should have. But I think that the hold-
harmless formula in BCA is very unfair to the city of Eugene and
other cities which may find themselves in a similar situation. I would
suggest that rather than commitment, the averaging process of de-
termining hold harmless be based upon the expenditures in the execu-
tion period, not when the commitment was made because we know
many projects where commitments were made and nothing has been
done in the area of execution.

Mr. Chairman, I would like to offer the services of the Inter-
national City Management Association and whatever expertise it has
to this committee in the design process of this legislation. I would
like to terminate my presentation at this point and be available for
questions.

The Chairman. Well, thank you very much. You have given us
some very helpful suggestions and certainly a number of your sug-
gestions are welcome and we are happy to have any help you may
have in the future.

Senator Johnston ?

Senator Johnston. Mr. McKinley, you mentioned about the length
between block grants for housing and block grants for community
development. Would you expand on that? Should they be linked or
not?

Mr. McKinley. Our position, Senator Johnston, ife that housing
is an inseparable element of the community development function.
They should strongly be linked. But we do not feel that the admin-
istration of housing programs fits into the block grant concept of
administering community development programs at the local level.

Housing is frequently involved in the private sector, funding, sub-
sidizing, other things outside the purview of the city administra-
tion. We think the programs should be separate but dovetailed very

499

closely into the development of the community total function and
that the planning must be integrated.

We do not have at the local level the abilities to carry out many
of the kinds of housing programs which are very helpful and should
be continued and expanded.

Senator Johnston. Talking about State and city relationships here,
is the problem really lack of expertise on the part of the States, or is it
rather an insensitivity on the part of largely rural-controlled State
legislatures to the problems of the cities ?

Mr. McKiNLEY. I am sure the problem varies from State to State and
there is a great difference between the way in which various State ad-
ministrative agencies or State executive departments and legislative
departments feel about their role in the community development.

However, in general I think that States have not been concerned
with this area. They have not had a recognized responsibility. \Vliether
they are rurally oriented and simply concerned with their traditional
functions I could not answer.

But some States I know are highly rural oriented, some are not.

Senator Johnston. There seems to be all over the country so far as
I know, that if you gave block grants to the States very little of it
would get spent on housing or community development types of
programs.

Why that is, whether they don't put it very high on the priority list
or whether they are insensitive to the problems or what — I don't know.
I think it is something more than lack of expertise. I think it is a lack
of willingness to commit to the urban problem.

Mr, McKiNLET. I am sure there is a good deal of that. I think also
if we would see ourselves replacing a Federal administrative organiza-
tion with a State administrative organization which did not have the
experience, the background, and know-how, we would be substituting
one bureaucracy for another in administration of these funds — it
would be difficult.

Other programs such as law enforcement assistance has been that
States involvement in this has been almost a disaster in terms of the
delay in decionmaking in the passthrough process.

The local governments have been left in the lurch for years and
years awaiting the seeping down of those funds that were originally
intended for use at the local level.

Senator Johnston. Thank you very much, Mr. McKinley. You have
been very helpful. Thank you.

[Complete statement oi the International City Management Asso-
ciation follows :]

99-855 O - 73 - pt. 1 -- 33

500

1140

Connecticut
Avenue
Norltiwest
Wastiington DC
20036

Area Code 202
293-2200

International
City

Management
Association

Statement of

HUGH McKINLEY

City Manager
Eugene, Oregon

On behalf of the
INTERNATIONAL CITY MANAGEMENT ASSOCIATION

Before the
Senate Banking, Housing and Urban Affairs Committee
Subcommittee on Housing and Urban Affairs

Thursday, July 19, 1973

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Mr. Chairman and mcmbei-s of the Committee, my name is Hugh McKinley. I am
city manager, Eugene, Oregon. The past year I have also served as chairman of the
Commiltee on Finance of the International City Management Association. With me
today is Laurence Rutter of the ICMA staff.

Our committee has made an in-depth study of the proposals for a federal community
development block grant. I am greatly honored to appear before this distinguished
body to highlight tlie results of our study. The full report of the study is submitted,
with your permission, for the record. While too lengthy to present this at this hearing,
the report succinctly presents the criteria which the committee believes should be
considered in designing a community development block grant legislation.

Since this is the first time a representative of ICMA has been invited to appear before
this Committee, I would like to provide some background. Thirty members of the
local government management profession were appointed this year by ICMA to study
the block grant. We came from every region and area of the country and cities and
counties of all sizes and needs.

We are appointed chief local government administrators by profession. We are city
managers, mayor appointed chief administrators, county administrators, and directors
of regional councils. In more than one half of the nation's cities over 5, 000 population,
people such as us are responsible for working with elected officials in developing local
policies and programs and the day-to-day operation of local government.

PVom our experience with local government we have developed these views on the
community development legislation before this Committee.

Block Grant Urged

We strongly urge a favorable report on legislation for a community development block
grant along the lines of S. 1744, the "Community Development Assistance Act of 1973, "
and a program to support planning and management activities along the lines of Title IV
of S. 3248 as passed by the Senate last year.

A block grant is badly needed by local government. The present system is in need
of major repair. The present system encourages a long, expensive, capricious, and
disjointed federal administrative process. The process results in ineffective local -
community development programs.

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For instance, because federal community development funds are now available from
separate categorical programs, the coordination and scheduling of projects at the
local level is impossible. For a project that involves urban renewal, open space,
and water and sewer grants, a city or county will be following three different applica-
tion procedures dealing with three sets of HUD officials, wading through three sets
of technical and procedural requirements, shuffling three piles of paper, and following
three different time schedules. In the process countless hours of staff time, of the
manager's time, and the time of elected officials will be eaten up in conceiving the
project, checking into the availability of funds, ascertaining initial HUD interest,
developing lengthy involved proposals, and then following the proposals as they wind
their endless waj's through the administrative maze. Much of this valuable and costly
time is wasted. At the end of the maze is often rejection of an application — or worse,
such drastic changes in the local situation that the application has to be rewritten and
the process begun over again.

Post-control

It is the position of ICMA — a position that has been adopted by the National League
of Cities — that the specific elements of the block grant should be constructed around
the concept of "post-control" rather than "pre-control" of locally run grant programs.
The idea of "post-control" was the result of a two-year study of the entire federal
grant-in-aid system by our Management Criteria Task Force. That study was conducted
at the request of the National League of Cities and was adopted in large part by that
organization last November. Earlier this year the distinguished Senator from Illinois,
Mr. Stevenson, saw fit to request that major sections of that report be read into the
Congressional Record. I would like to also submit that report for this record, with
your permission.

Pre-controUed grant programs begin with the assumption that the locality must prove
beyond a doubt that it will not mismanage its grants. This is one of the major reasons,
for instance, that most of the categorical community development programs have a long,
involved, application process followed by frequent and repetitive reviews of local
administration of approved grants.

Post-controlled grant programs acluiowledge that for the most part local governments
have demonstrated the ability to wisely and resiwnsibly use grant funds. Simply stated,
post-control involves leaving the bulk of administrative review and audit until
completion of the first funding cycle of a project. Post-control allows for maximum
speed and flexibility in funding and it places sanctions at a place in the cycle — the
middle — where cities and counties are most sensitive to sanctions.

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Application Needed

When applied to the community development block grant, post-control has a number
of implications. One implication is an answer to the question: Should there be an
application process? The answer is definitely yes if the process is carefully
circumscribed. The answer is yes if the process causes localities to produce a
reasonable, thoughtful, and comprehensive community development plan and program
in a fair period of time. The answer is yes if it is accompanied by an equitable formula
for fund distribution.

So, we urge that HUD's criteria for application review be limited. It should be
limited to the basic national goals set forth in the legislation and to reasonable
expectations for an effective community development plan and progress. We urge
that HUD be encouraged fo leave to local judgment the specifics of implementation of
the program. We also urge that HUD's review of applications be limited to a specific
length of time. Two to three months should be ample time for a final HUD decision.

There are other components of a community development block grant that our committee
felt were important.

The block grant program should be conceived in light of the existence and nature of
separate federally-funded housing programs. Each local community development
application should be required to identify housing resources and needs and to relate
both to community development projects.

Management — Planning

A separate title for management and planning assistance is an imf)ortant adjunct to
a block gi-ant. Management-planning assistance can be a basic underpinning to
effective community development.

But, it can only be effective if two conditions are met. First, the program has to
make certain that planning is usable — and that it is used. This condition, we believe,
was met by Title IV of S. 3248 as passed last year. That title required that funded
activities be implemented.

Frankly, we too are tired of seeing expensive, impressive, attractive — but virtually
useless — plans gather dust on the shelf. The only way to avoid this is to channel
management-planning funds through the local chief executive — that person in a
position to see that plans are implemented. To avoid useless planning, it is also
necessar.v to make certain that funded activities are timely, relevant, acceptable,
and of a high priority to locally elected officials. Otherwise, elected officials and
their appointed chief administrators will not commit themselves to implement the
results of the management-planning.

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The only realistic way to make certain that funded activities are relevant, acceptable,
and of high priority is to allow flexibility in identifying funded activities. This is
the second condition that should be met by a management-planning title.

The requirement of Title IV that all recipients must produce a housing, capital
programming, and land use clement may tend to inhibit flexibility. These three
elements are indeed high priorities in many cities and counties. But not all. Some
already have these elements. Others have alternative high priorities. The priorities
may instead be a program evaluation capability, program budgeting, capital budgeting,
data collection and processing systems, or other management-planning activities.

Title IV of S. 3248 would be a definite improvement in the current Section 701,
Comprehensive Planning Assistance program, legislation if the element of flexibility
were added.

State Role

Next, our committee faced up to the issue of the state role in community development
and management-planning programs. We did so because some are urging a role for
states in administering local block grants and In administering management-planning
funds.

States definitely have a role in community development. But, at this time we feel
that it would be a mistake if states assumed any major role in administering local
grants. A state role now will nullify many of the benefits of a federal-local block
grant program. Not enough states have sufficient interest or capability in the area
of community development or management-planning to make a positive contribution
to either program.

Proposals to give states a larger role would have the net result of substituting one
bureaucracy for another — of substituting state agencies for HUD. It was the position
of our Management Criteria Task Force, which I mentioned before, that stiites should
have an administrative role in local grant programs if they are concerned enough about
the needs served by the program to make a significant financial contribution to the
local grants they administer. We believe this principle applies to the community
development block grant as well as management-planning programs.

Hold Harmless

Because of the severe problems phasing from categorical grants to a block

grant concept, the proposed liold-harmless principle based upon the previous level

of community development activity is strongly endorsed.

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However, there are technical problems in the calculation of hold-harmless tliat will
result in severe iuequities. As an example of the inequities, take the State of Oregon,
where the cities of Salem and Eugene are similar in size. The two cities have carried
on roughly equivalent categorical programs tlie past five years. However, under the
proposed formula and hold-liarmless calculation of the Administration's Better
Communities Act Salem will receive $3,179, 000 the first year, while Eugene's share
will be only $422, 000. After five years of the BCA, Salem will receive in excess of
$11 million, while Eugene will only receive over $4 million.

There are two reasons for these inequities. First, the Better Communities Act
does not include the recant relocation amendatory grants in computing hold-harmless
guarantees. It seems to us that the amendatory grants should be used, and we are
pleased to note that they are included in the formula in S. 1744.

The second reason for the inequity is that under the formula in both BCA and S. 1744,
the date of grant commitment is used for calculating the base rather that the date
of execution of expenditures. Since Eugene's major urban renewal commitment was
made six months previous to the proposed five-year calculation. We would propose
that the date — and rate — of expenditure, rather than commitment, would make for
a more realistic and equitable hold-harmless formula for a community development
block grant.

That concludes my remarlis, Mr. Chairman. If you have any questions, I would be
pleased to respond to them.

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THE FEDERAL BLOCK GRANT AND
COMMUNITY DEVELOPMENT

Report of the
ICMA Committee on Finance

The Report in Brief

The work of the committee has been influenced by a number
of fattors. It is based upon the work of ICMA's Management
Criteria and Revenue Sharing Task Forces, and also upon an
understanding of block grants as programs with little red tape,
and maximum administrative and priority-setting discretion.
It recognizes the emerging dilemma of local officials who
simultaneously favor federal block grants as a concept and
several specific categorical grants.

Based upon these factors, the committee recommends to
the federal government that it limit creation of categorical
grant programs to areas that are either national priorities
for which alternative private, state, or local funding is
scarce or unavailable and in which the problems or needs being
addressed are found only periodically or in a relatively small
number of communities; or entail economic, social, or political
risks that are too high for local or state government to bear.

The committee recommends creation of a community development
block grant solely for the planning, acquisition or construction

507

of public facilities, that requires the submission of an application,
that limits the application review by the U.S. Department of
Housing and Urban Development in terms of time and scope of review,
that goes directly to local government on the basis of a need
factor, and with a funding level consistent with the fiscal goals
of the nation and to the extent of community development needs.

The committee recommends that managers work with their councils
to develop effective methods to ensure that all knowledgeable
and interested citizens have an opportunity to make contributions
to community development plans, and prior to developing plans carry
out programs of goal setting and priorities' determination for
all lo'cal government programs.

ICMA is encouraged to assist by working with other public
interest groups representing local and state government to seek
passage of a community development block grant in the Congress,
and by preparing technical assistance for localities in developing
block grants.

INTRODUCTION

Federal grants to local governments have been a major concern
of chief municipal administrators and ICMA. The concern within
ICMA has been evidenced by the work of two task forces and an unre-
solved dilemma.

The charge to this committee was to extend the concern of ICMA
and the profession to another issue related to federal grant programs.

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The issue is the desirability of block grants for community
development. As will be seen, this new issue can be resolved
only in the context of the work of the two task forces and some
resolution of the dilemma.

The two task forces were those dealing with revenue sharing
and management criteria. The letter's report was adopted by the
ICMA membership at the 1972 Annual Business Meeting, and sub-
sequently by the membership of the National League of Cities.

It prescribed legislative and administrative criteria for the
design and operation of federal grant programs.

•The criteria were developed over a period of two years
during which the committee met, deliberated, and conferred
with experts. (See Report of the Management Criteria Task Force
for the specific recommendation.) The criteria were developed
in order to encourage post control of grant programs.

Post control 'involved review and audit after completion
of the first funding cycle on a project'' that is federally
funded. Post control provides for maximum flexibility and is
based on the assumption that local government will perform
effectively and with integrity.

The Task Force on Revenue Sharing studied a grant program
that is a good example of post control as defined by the Management
Criteria Task Force. Although completing its work considerably
earlier than the Management Criteria Task Force, the one on revenue

I

509

sharing concluded that a program of federal/local revenue
sharing would help ease the fiscal dilemmas of local government
in a way that provided for maximum flexibility.

Flexibility extended to setting priorities, management systems,
program design, and implementation. The sole responsibility of
the federal government is to see that the funds are spent
according to generally accepted practices of public accounting. A
program of federal/local revenue sharing was strongly recommended,
and it was recommended that ICMA work toward the adoption of such
a program in the Congress. Both recommendations were adopted
by the- ICMA membership.

What is a block grant? - The Committee on Finance was asked
to examine a new kind of federal/local grant program - the
block grant or special revenue sharing. The first part of its
report to the membership deals with the meaning of the proposed
federal program.

The phrase special revenue sharing often is used interchange-
ably, and sometimes inaccurately, with the phrase block grant.
And, both are confused often with general revenue sharing. Perhaps
the clearest and most succinct attempt to distinguish between
the three terms was that published in the Federal Budget anfl the
Cities by the National League of Cities/U.S. Conference of
Mayors.

510

The three (terms) can be distinguished by their
relative freedom from requirements.

General revenue sharing provides funds to be used at
local discretion without strings, distributed according
to a formula and without need for an application.
Special revenue sharing may have a formula, it may
require an application, and the funds must be spent
within a broad subject area, such as law enforcement,
but no prior federal approval is required to use it
for any of a large number of activities under that heading.
Block grants will require an application, may require
prior federal approval, will be subject to more federal
control but far less than the old-fashioned categorical
programs for which a federal official must approve
everything from the cost of the land to the style of
the housing and the plumbing.

As can be seen, the definitions of special revenue sharing
and block grants are very close. If anything, there is a
difference of degree of flexibility at the local level between
the two. Generally, the only real difference in the two terms
is in who uses them.

Special revenue sharing generally is associated with the
proposals of the Nixon Administration, while block grants are
favored by the Congress.

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According to how liberally the definitions are applied,
there are two programs currently in operation that could be
considered block grants: the Law Enforcement Assistance
Administration and the Partnership for Health Program.

However, persons familiar with either of these programs
at the local level seldom experience the amount of discretion
and freedom from red tape associated with block grants.

The concept of special revenue sharing was given its
greatest boost in the State of the Union Message delivered
by President Nixon Jan. 22, 19 71. In that message the
President called for Congressional adoption of six block grant
programs. The Congress did not respond positively to most of
those programs. The only one that came close to being adopted
was community development.

The Senate passed a community development bill in Spring
of 1972. A similar bill died in the House Rules Committee the
following fall. In all likelihood, the only special revenue
sharing program, or block grant, that will be passed by the
Congress in its current session will be community development.

A dilemma -- With the passage of general revenue sharing
{the State and Local Fiscal Assistance Act of 1972) , and with
the introduction of the President's budget for fiscal year 1974,
there emerged a new dilemma for local government. It was a
dilemma unanticipated by ICMA's two policy task forces.

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The budget placed strong emphasis on continuing the
precedent set by revenue sharing, through four separate programs
of grant consolidation, called special revenue sharing by the
Administration and block grants by others. The emphasis was
consistent with the concept of post control as developed by
the Management Criteria Task Force, and closely akin to the
concept of general revenue sharing.

But, at the same time the budget called for the termina-
tion of a number of grant programs, programs not slated to be
combined into some program of special revenue sharing. These
programs included the Public Employment Program (PEP) , Solid
Waste Management within the Environmental Protection Agency,
summer youth programs, and the Economic Development
Administration (EDA), among others.

The budget also called for the continued freeze on a
number of low and moderate income housing programs. Moreover,
there was a great deal of uncertainty about whether or not some
community development programs should be folded into a block
grant or kept as separate categorical grant programs.

Many local officials found themselves in a dilemma over
the budget's proposed block grants and terminated categorical
grants. If they followed the Administration's logic for
adopting block grants, they appeared foreclosed from supporting
a number of categorical grants which they considered important.

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But, many who favored some or all of the block grants
also favored continuation of the terminated categorical grants,
such as Solid Waste Management, PEP, and EDA. There seems to
be no way of arguing consistently for the excellence of the
block grant concept and at the same time favoring continuation
of specific categorical grants.

The dilemma — along with the work of the Management
Criteria and Revenue Sharing Task Forces — are the context in
which this committee began to take a critical look at the block
grant programs, especially the community development block
grant.

Recommendations

Based upon the work of the Management Criteria and
Revenue Sharing Task Forces, the meaning of a block grant,
and the need to resolve the dilemma of simultaneously wanting
block and certain categorical grants, the following recommenda-
tions are offered.

To the federal government:

1. Categorical grants programs should be limited to
areas that are: either national priorities for which
alternative private, state, or local funding is scarce
or unavailable and in which the problems or needs being
addressed are found only periodically or in a relatively
small number of communities; or those which entail
economic, social, or political risks that are too high
for local or state government to bear.

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In seeking to resolve the dilemma posed by the desire
to see greater use of block grants and at the same time to
maintain or develop certain categorical grants, the committee
found that there was very little existing material on the
subject. Extreme advocates of block grants seem to be saying
that if a program cannot be made into a block grant it should
not be funded. Others who more moderately support block grants
seem to want only to protect their pet categorical grants.

Perhaps the most thoughtful attempt to draw the dis-
tinction between federally-funded block and categorical programs
was the statement by Richard P. Nathan, one of the architects
of the New Federalism while with the Federal Bureau of the
Budget and HEW and now Senior Fellow at the Brookings
Institution.

In testimony before the Congress, he said that,
... in areas of public activity where governmental
responsibilities are not well established, categorical
grants are appropriate to encourage the development of
these services, although on the assumption that they
will, like other established programs, later be phased
out as state and local governments take on these
functions. Examples of programs proposed or expanded
by the current Administration which illustrate this...
decision rule are family planning, drug abuse prevention
and control, and aid for culture and the arts.

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In response to this decision rule, the ICMA Committee
on Finance determined that one criterion for adopting a
categorical grant was the one in which the economic, social,
or political risks are too high for local or state government
to bear. The risks include the consequences of the possibility
of failure because the program is very experimental.

But, the committee believed that Mr. Nathan's decision
rule was not enough. What about programs such as flood control
or damage? What about some of the highly popular manpower
programs, such as PEP? What about the "701" program?

In response to questions such as these the committee
added the criterion of national priority with scarce nonfederal
funding and relatively infrequent incidence.

The criteria adopted by the committee are intended as
suggestions for resolution of the dilemma. They were not
intended to be exhaustive or in any sense definitive. Rather,
they are advanced as a guide for future thought and action.

2. Congress should create a program of block grants

to units of general local government for the purposes

of community development.

The present system for funding community development
generally is recognized as one which encourages a long, expensive,
capricious and disjointed federal administrative process. It
also leads to ineffective local development programs.

99-855 O - 73 - pt. 1 -- 34

516

A block grant that emphasizes the need for the post control
of funds and a minimum of red tape should be created out of the
existing array of categorical community development programs .

3. Block grant-funded programs at the local level

should be limited to the planning, construction or acquisi-
tion, of community facilities and the steps necessary for
construction and allied functions.

There has been a tendency in some community development
block grant proposals to maJce almost all local programs and
projects eligible for block grant funding. Such broad eligibility
limits the impact of federal funding by spreading it thinly
across a broad area. Such broad funding should be limited to
general revenue sharing.

A block grant should be limited to the acquisition of
land, construction costs, relocation payments, and other
expenses incident to a development program. Social programs
required as a direct consequence of community development also
should be eligible.

4 . Each community eligible for funding should be
required to submit an application for the funds
subject to HUD approval.

The application process will motivate communities to do
the intensive study and discussion necessary to produce a
community development program which is effective.

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5. The block grant legislation should limit HUD review
to a specific, limited time frame, and to ensuring that
national priorities expressed in the legislation and
minimal specific process requirements are met.
The legislation should expressly direct HUD to make
certain that the application process is administered with a
minimum of subjective evaluation and red tape.

Perhaps the most unsatisfactory aspect of current
community development programs is the capricious, nonessential,
time-consuming, and arbitrary nature of the application processes
for the various programs. The nature of these process has
caused many communities otherwise qualified to devote their
limited resources to other activities. It has also slowed,
disjointed, and sabotaged effective and efficient community
development nationally.

A community's application should demonstrate: 1) that any
specific national priorities spelled out in the legislation will
be met; 2) that the civil rights of the community are addressed
by the program; 3) that citizen input into the program has been
encouraged and facilitated by a process determined by each
individual community, and 4) that the program is consistent with
existing regional plans as approved by a regional body falling
within the recommendations of the ICMA Committee on the Problems
of Regionalism.

Moreover, the application process should acknowledge
the staff limitations of smaller cities to ensure that they are
able to participate fully in a grant programs.

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6 . Only units of general purpose local government
equipped and legally empowered to carry out major
community development programs, including cities and
urban counties, should be eligible for block grant
funds .

Criteria for receipt of funds should make reference to
the scope of functions carried on by a unit of general purpose
local government, the need for community development in the
primary service area of the government, and the experience
of the government in the kinds of programs funded under a
block grant program.

The criteria should not be limited to often arbitrary
designations of locality type under state law. At the same
time, the criteria should seek to avoid funding local
governments which are not fully functioning municipalities,
such as townships in many states. Finally, the criteria
should not include wholly irrelevant limitations due to size
or communities.

7. Unless states currently are carrying on major
community development programs or are contributing
substantially to local community development programs,
they should not receive funds under a block grant.
The preponderance of expertise and experience in the

field of community development is at the local level. States
have demonstrated neither the ability nor the desire on the
whole to undertake community development activities.

519

Moreover, current proposals for the substitution of
state for federal administration of the programs run counter
to the recommendations of ICMA's Management Criteria Task
Force. The task force recommended that federal grant programs
fund local government directly unless states make substantial
monetary contributions to the program.

8. The formula for fund distribution should
incorporate only factors which measure a community's
need for community development.

Factors to be considered should include the level of
poverty in a community, the overcrowding or density of housing,
as well as the degree and rate deterioration of community
facilities. The formula should be normalized for regional
differences in the cost of living.

Areas such as Alaska should not be asked to pay
additional burdens for their high cost of living; any formula
grant should take that living cost into account.

9 . There should be no matching requirement for grant
funds .

The requirement for matching funds places even greater
drains on scarce, locally-raised revenue, and also serves to
cause communities to shift their priorities from human service,
public safety, and other programs to community development.
10. There should be a hold harmless provision in the

formula.

The period for computation of the hold harmless level
should be at least five years.

520

11. Computation of hold harmless amounts should not
be limited to calculations to the date reservations
were approved for conventional community development
programs. Hold harmless computation should be based on
both the grant amount for those projects entering the
loan and grant stage during the period, and the
projects entering planning and execution during the
hold harmless period.

12. Where hold harmless levels exceed formula grants,
legislation should provide for phasing down from hold
harmless levels over a period of several years.
Communities with high levels of community development

should be allowed to complete existing programs and they should
not be penalized for the high levels of interest and action
in community development. However, in order for the block
grant to have maximum impact on development in local communities
across the country, eventually all communities should receive
only their formula levels.

13. Mechanisms for citizen participation should rely
upon the elected councils of local government.
Elected representatives remain the best and most

democratic means of channeling the needs and views of citizens
into local government programs in the same way that state
legislators and members of the Congress represent their res-
pective constituents.

521

It is the responsibility of the council to see that
the views of the citizens are considered carefully in the
preparation of a community development program. It is also
the prerogative of the Congress to make certain that the funds
for community development are not allocated in a vacuum.

But, it should make no requirements for local representa-
tives that it does not make for itself. Public hearings and
discussions should be encouraged as part of the legislation.
When appropriate, the advice of knowledgeable and interested
pcinels of citizens should be encouraged to be solicited. The
final authority for program approval, however, should rest with
the elected council or board of supervisors.

14 . The level of funding should be consistent with the
fiscal goals of the federal government and the extent of
the problem. In no case should the level of funding
preclude funding for smaller units of government that
provide urban services.

A level of funding which prohibits funding to smaller
units of government — regardless of their need--is neither fair
nor wise. Demonstrated need--based upon the block grant
formula — should be the only criterion. Smaller, independent
communities should not be asked to bear the sole burden for
scarce funding.

15. Local community development programs and plans
should be developed in the context of areawide planning
and policy development.

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Community development programs should be subject to
review and comment by areawide A-9 5 clearinghouses. Such
clearinghouses should be organized in a manner consistent
with the recommendations of the ICMA Committee on Regionalism.

More than any other area, community development projects
frequently have an impact beyond the boundaries of municipalities.
Areawide plans and review can prevent unnecessary duplication
of effort as well as unwanted spillover effects in community
development programs.

16. Although housing programs should be funded separately,
no community development block grant should be designed
without regard to the nature of federal housing programs.
Local community development plans and programs may involve

housing programs as an essential element and be conditioned by
the availability of funds for low and moderate income housing.
A block grant should require an assessment of housing needs and
the resources to deal with these needs as part of local community
development programs .

17. As an adjunct to a community development block
grant, funding and guidance should be made available to
local governments for the planning and the management
of community development programs.

Such a program should have two components: 1) transition
program for maintaining and improving planning and community
development staff capabilities, and 2) an on-going program to
sponsor and improve local ability to create community development
plans and implement development programs.

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The current Comprehensive Planning Assistance Program
("701"), administered by HUD, often has had the effect of the
above recommendation. This effect needs to be broadened to
include all communities eligible for a block grant--bef ore
they begin receiving block grant funds. This effect needs to
be less ambiguously stated than it is in the existing "701"
legislation.

To the profession:

18. Managers should work with their councils to
develop effective methods to see that all knowledgeable
and interested citizens have an opportunity to make a
contribution to, and review, any proposed community
development plans.

Although no federally-mandated mechanisms are recommended,
each locality must see that its programs are prepared with
maximum citizen participation. Each locality must select its
own specific mechanism.

19. Managers should encourage their councils at a
minimum to hold public hearings on community development

needs and plans.

Many communities do not require public hearings on such
programs. But, professional managers should take steps to
encourage their governing bodies to use this device as one means
tailoring plans to community needs, and of assuring that before
plans are developed all views have an opportunity to be heard.

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20 . Prior to development of specific plans for community
development block grant funds, managers should encourage
their councils to carry out programs on goal setting

and priorities' determination for all local government

programs .

Community development plans should be prepared in the
context of total community needs and priorities to help place
the plans in this context, managers should encourage and help
their councils determine long and short-range goals and
objectives for the city and country.

To ICMA:

21. The membership and staff of ICMA should work with
the other associations representing general local
government to seek Congressional passage of a community
development block grant along the lines recommended by
this committee.

Following the precedent set with general revenue sharing,
members should work with their elected officials in persuading
members of Congress of the need for a community development
block grant. If asked, ICMA should testify on the kind of
block grant program best suited for local government.

And, the staff should seek to provide members with
information on the progress of block grant legislation as well
as assist the staff of the other local government associations
in seeking passage.

525

22. Prior to passage," ICMA should prepare technical
assistance material and programs to help local
government implement block grants.

Through its Management Information Service, Institute
for Training in Municipal Administration, and other such
programs, ICMA should prepare materials for distribution to
the membership on the implementation of the block grant. The
technical assistance should include written material out-
lining legislative, and likely administrative, requirements
as well as suggested procedures for developing community
development plans. Also, ICMA should work through state
managers associations and municipal leagues in providing
technical assistance. The material should accompany seminars
and institutes of managers designed to share information and
techniques.

23. In the area of federal grants and local finance,
the committee recommends that it, or its successor be
directed to undertake further study. Areas which
need such study include: property taxation, municipal^
bonds, the relevance of recent developments in public
policy analysis to practical municipal finance, the
impact of the federal tax structure on local government
and the financial and economic implications of rapid,
moderate, limited, and zero rates of urban growth.

These were some of the major areas suggested by members
of the committee in need of further study. Each of the areas
is worthy of indepth study by an ICMA committee.

526

1140 Area Code 202

Connecticut 293-2200

Avenue

Norttiwest

Washington DC

20036

International
City

Management
Association

REPORT OF MANAGEMENT CRITERIA TASK FORCE:

How to Make Federal Grant-in-Aid Programs More Manageable
For Local Government

Members:

Phin Horton III, Chairnan, City Manager, Valdosta, Georgia

Camille D. Andre, Assistant City Coordinator, I'linneapolis

Herbert Bingham, Executive Secretary, Tennessee Municipal League

Osmond Bonsey, Town Manager, Falmouth, Maine

Tcm Chsnot.'eth, City ^fenager, Des Moines, Iowa

Ihotas W. Fletcher, President, National Training and Developnent Services

Ronald Gatton, Assistant to the City Manager, Dayton, Ohio

Hov^ord HaUrran, President, Center for GovemiTental Studies, Washington, D.C.

Walter Kane, City Administrator, LaJtewood, Colorado

Guy C. Larcon, Jr., City Administrator, Ann Arbor, t-lichigan

Clarence Maddy, Administrative Assistant. Duluth, Minnesota

James E. Malone, City Manager, Jackson, Michigan

Hugh McKinley, City Manager, Eugene, Oregon

Paul Noland, County Administra1x)r, Los Alamos, New Mexico

William J. Pitstick, Executive Director, Central Texas Council of Govts

Gilbert Steiner, Brookings Institution, Washington, D.C.

August 1972

527

THE Rnroirr ra brut

The Task Force

The lOP^ Executive Board appointed in Kovanber 1970 a Task Force on
Managor.ent Criteria. It vss charged v/ith the responsibility of developing
guidelines; th^t cculd be used to r.easure the irrpact of federal prcgrams on
local nunagar.ent systems and to identify problems caused by the federal
grant-in-aid system. The Cormittee e>:panded its responsibility by also
developing criteria for use by the Congress £md Administration in drafting
legislation and acrrdnistrative regulations for categorical grant prograros
that cire sound frcm the point of vis^j of irMTicipeJ. rrar^gerent. This is the
Task Force's recam^endations to the Association on rranagenent criteria.

The Findings ■ "

The Task Force finds that most legislation and regulations are written
on the premise that unless properly constrained, local govemnent v.'ill misuse
grants-in-aid. Most legislation and regulations are based upon a need for pre-
oontrol .

The Task Force recorrRends that legislation and regulations be based upon
an alternative, more realistic, and less debilitating pranise: that local
government is responsible and responsive in its use of funds. The Task Force
reccnrr.ends using post-control as the central focus of legislation and regulations.

Flcn-ang from the prerrise of post-control, the Task Force recornienas a nurriDer
of specific criteria for drafting federal grant-in-aid program legislation and
administrative regulations.

Administrative Criteria

1. The assurcince of adequate funding before either encouraging or accepting
application.

2. An agreePEnt bet^ceen the granting agency and the local agency of the
goals to be achieved cind the tirr^ frame for their achievement.

3. Greater uiderstar.ding by personnel in field offices of the problems of
local gCTv'emnrsnt.

4. htore decision-making pc-.-er delegated to federal field offices.

5. Reasonable clieckpoints , agreed to by federal and local agency, v;hen
perforrranco vill be evaluated aixi v.iiat level of perforrrance will be
expected at the checkpoint.

6. An agreed-upon series of controls to be invoked if goals are not being
achieved — including funding considerations.

7. Final joint evaluation of funded projects.

528

8. Institute regional agency or interagency program advisory camiittees
CXJtipoGcxi of local officials.

9. Insure unifonrity in fiscal control procedures \d.th maxiitum reliance
on local govern:r<int.

10. Pllci for funding which provides for administrative and Icgcil expanses.

11. Provide program developv.ent working capital for supporting the. program.

12. Include protection against the difficulties caused by changing federal
policies during the life of funded programs.

Legislative Criteria

1. Leave the designation of "chief administrative officer" to each locality.

2. Indicate the forrmla for grant distribution, including both the basis for
recipient selection and the percentage of required local matching funds
vAiere applicable.

3. Indicate performance standards to be met.

4. Be flexible to allow for varying conditions.

5. Channel monev throuah the states onlv if it is a state/ade ciroaram of
statewide impact and vri.th state contributions.

6. Channel money directly to the agency or (level of) government responsible
for the program.

7. Channel ironey so as to be coordinated by the general purpose government
of primary interest.

8. Encourage coordination and systaintic managar^ent at the local level.

9. Centralize intra-and inter-agency administration of applications and
facilitate local develop«2nt and subnission of multi-purpose applications
en related programs.

529

lOTTiODUCriON

The fcdcaral grar.t-ir.-aid svstcn ir.iy be the Trojan Horse of crhattled
local govcrr.-raiit. Initially, scrrs rray see the systcTi as nn opportuni.ty to
iteet cities' rr.'ria.d cf r.Eods. After all, the present acinini.stration has
proposed sper.dirg over $-13 billion in cities in fiscal year 1973. City
managers, irj'.>'crs, ard chief acinini strati ve officers, hcr.-.-ever, are increasingly
caaing to realize that the grant Si-stcin rray be an agent inhibiting effective
rranaganent of the cities' problcxis.

Problsfs vath the categorical grant-in-aid process are irany. Perhaps
4-Ko r^^c:■f- ■»T''-rv^>-+^t^4- -i e- c-tT-^irs i-»t->^.^*.n*-^_-; ^^4-ci^ "^rol "^ "^"r? ti o'^ of '~^?nt prcjrairs.
CMrrejit estiT.ates are that 'there are bafc-.-een 500 and over 1,000 federal
categorical grcint progrc.TS. The progra.T.s are spread an-ong alnxjst every
federal departrr.a^.t aj^-.d agency. The results for city Tranagenent are t.hese:
1) The cost of obtaining inforraticn about the prograrrs is prohibitive. Many
cities canr.ot afford the tire necess^-ry to survey all available federal T.cney.
Thus, irany cities — especially araller cities—miss badly needed opportunities
for assista-nce. 2) .Most cities can have no idea hcA' irjch, or v.tiat kind, of
federal ironey is flcv-dng into their city. Federal agencies often bypass general
purpose local go\'enrr.ent in funding pjblic and private functicr.al aga^.cies
operating in areas siirllar to local gcvcmrr.ent. Planning and iranageir.ent of
developr.ent is severely limited as a result.

quireiTGnts. Application prccecures can be so tiire consuming as to prohiuit
application. Grant prccraTs cr,ar.ge priorities in mid-stream leaving cities
unable to find fir.ancing for on-going programs. Red tape often frustrates
the need to be fle>d±)le.

Within the federal goverraient, many recognize the problems caused by the
grant-in-aid process, and attempts are being made to improve the process.
Perhaps the irost ambitious atterpt h^s been the develoorent of the concept of
revenue sharing, th.at eliminates grant categories and maximizes recipient
fle>dbility. Also, the concept of the blcck grant - adopted in the health field
and soon to be adopted for ccnmunity dsvelopir.ent - shov-'s premise of improving
the process.

Another attempt at improveir.ent h^s been the President's Federal Assistance
Review-/ (FAK) program,, expressly desigr.ed to streamline the administration of
categorical cranrs. FAK — an intcrager:cy effort — has sought to cut red tape,
reduce the tii?a necessary to process grant applicatic.ns, decentralize program
oparation, bring about similar regional boundaries bef.veen agencies, and placS
greater reliance on state and local government. Through its participatic.T in
the FAR prccram, tlie "Big Si:<" public interest groups* have observed scrrs important
inproverents, especially with regard to decentralization and regional bcurdaries.

* Council of State Governments

International Cit'/ ! Irjngcr.ont .^ssoci^tion
National Association cf Counties
National GcvcrT.ors' Cc.nfcror.ce
National League of Cities
U.S. Conference of Mayors

530

Recently, the Fcxlorcil r.cgicnal Ccur.cils v:crc strengthened, and a chainran
appointed by tlic President. Ci-.e of the first itcif.s on. the Councils' agendas
will )je to V'ork clc^oly viiil-i state e-sa ].cail covcmirc-;it to identify pro'olcTis
in the intcrcTG\'crr~cntal r/ston. /''■notiicr initiative — tlie Iiito-jratcd Grcnt
Miu.nistiv.ticn r'rcxjraT. — nviy prove to also Irenefit loc-.nl and stato covern:-cnt.
Currci-itly, 2-5 IC.'-i prcs^ra-TS have Yxen selected. They will invol\-e the ccn.'^oli-
dation of grants in several agencies into ens progri.:!'; cesignod for a spccii'ic
P'arp03e at t.^.e local level. IG.^ v.lll be cc-jrunisterexi by the P.c^jicnal Ccu;-cils.
Also, a r.UT'ber of OfficG of ''.anagGrent and Djcgct Circ-L^lars (A-B7, A-102) I^ave
been devolcixd v;ith tiia c:<press pj:rjx>se of .irr.provi;ig tho grant-in-aid process
by prccoting •>:nifomi rec?j±re.r,Dnts for the adrr-inistraticn of grants by all
federal agencies. In sim, attcrpts are being r.ade by tiie federal government
to improve the situation.

However, a great deal is left to be done.

In spite of current federal efforts to improve tlis systen, the benefits of
federal grants in rnany instances are out-.-.-aighsd by the prcble."Tis created by the
prograns frcn the point of vie.>,' of the professional city administrator.

Recognizing these probler'.s, and reccgnizing that they are likely to increase
unabated unless steps are ta>;en, and resr-onding to a request frcn the National
League of Cities, lC~i President John Stiff (city rrrinsger of A-Tiarillo, Texas)
J'pp^'' Tt"'^.'' ^ -t-^cV fnrrn tn f;tt:<-;y thp nroblem frcm the t:>oint of viev; of city
managarent. IC?.'s ;'".2i-'.agc?.3.nt Criteria Task Force, witii Phin Hortcn III (city
iranagcr of ?.shevillc, Nortli Carolina) as its chaima;-!, set out to do three tilings:
1) Exarrdne v.'ays of evaluating the iirpact of federal progrEiri; en local rranagcrnent
systems, 2) study tlie prcbieirs created by federal categorical grants, and 3)
suggest to the Congress and the federal acrranistrative aganci.es criteria for the
careaticn and adr:unistration of categorical grjint programs that are sound frczn the
point of vieA' of city rranagerrent.

Since its acpointrr.snt, tho Task Force has met se\'eral tiir.es, in sev£u:al
places, including Holly-i-.ccd, Florida, and V'ashington, D.C., and has held a hearing
vri.th I'IjC's InterccvernT-.encal relations Ccr.Tiittee in Xev? York Cit:/ to receive
recomr.endaticns and suggestions frcm interested parties. Und.^a: f.hairr.'an Phin
Korton's direction, the Task Force has zeroed-in on specific legislative and
administrative criteria. Cut of a list originally prepared by Tas!; Force n-isrher
Hugh j-'cKinlGy (city rar.ager of Djgens, Oregon) , it selected specific legislative
and administrative criteria for prcgrrjn design.

BgIchv are the criteria developed by the ^•aragc^•.cnt Criteria Task Force. First,
there is a discussion of tiic general concept from v.hich it v.'as agreed the criteria
should flew. Second, there is a set of criteria relating to the adndnistration of
grant-in-aid progra.Ts. Third, there is a set of criteria relating to the drafting
of grant legislation.

531

I. PROPCSED t-MIAGEMM' CIUTERIA

ThG ovGCT-.-hGlnir.g rrajority of federal Icr/islation is \N-rittcai ccnd acirujiistcrcd
on the prrwiso that local and state government is guilty of inappropriate or Lt>-
profor uc;c of fc<Icral roney until proven irr.ocent. The assurrption baiiind tJie
legislation cu-.d tJic procedures set up by tl-.c c'.oTvuiistrative agencies for application
for roney secr.'js to ba tJiat an agency of local or state govcm'-..rnt r.ust prove beyond
a doubt t'-.at it v.'ill rot be guilty of poor managen-^ait. In other \\ords, U-.e er->i>hasis
is on pre-control of federal roncy.

■The Task Fores believes that prc-ccntrol is vnrealistic, burdenr.crre , and cost-
. inefrecclvo. It io pjvi- control 'Jnut produces the ccstly delays cind red taps that
iji turn prevents city ad-ainistrators frcm effectively planning their approach to
inunicipal prcblen's. Voluminous justifications that are tacitly and irrjt-aally re-
gajrded as port of the process, but of lira. ted use, the long times necessary for
federal agei'icy revie-;, all are siir.ptams of the pre-control concept.

It is becooing evident to the ^:anage^ont Criteria Task Force that 1) pre-
control is a very ccstly concept, and 2) an unnecessary ccrr.pcnant of grajits to
local and state goverrr^its . For the large part, cities have derranstrated their
ability to v.'isely spend that ir.eney allocated to them by tl-.e federal government.
T)iose fer>;'that have not are easily identifiable and need to b-a singled out, so
that the vast irajorit/ of nmicipalities do not suffer.

of po3t-ccr.trol. Sir,-;ply stated, post-control involves revie.-/ and audit after
tlie ca-plcticn of the first funding c^'cle on a project. Once the audit and reviev;
are ccrrplets, then a decision is race en subsequent funding. Fcst-ccntrol allc-.vs
for the ra;-:i.-n'jni spaed and flexibility in furdii-.g and it places sanctions at a
place in the cycle v.v.ora cities are rrost sensitive to sanctions. Post-control
relies upon the cities' needs for contiiiuation of furjding and the cities' integrity
in adrranistraticn to bring about confonr^ance to fexleral ix^licies. Post-control
alla.-.'s iranacenant to effectively plan — coordinate — its use of federal funds, and
it allo-.vs city ranagsrr.enr to take advantage of these funds without liaving to gaiDble'
and often Icsa local taicpayers' funds in the process.

Post-control should be emphasized in both the design £ind the implerentation of
federal categorical grant prograirs. To a large extent, this esx^hasis has guided
the formulation of the specific legislative and adrdnistrative criteria that follc.v.

99-855 O - 73 - pt. 1 — 35

532

II. ?J2•lrNISTR^TIo:l of grant progpa'-is shoudd include:

1. The asg-irarce of r-drcruato fcr.dirci before cither encouraging or accepting
applicatlcn.

Cities often find thc3TiEelvos encouraged to undergo the expense of
preparing cind suLiiLtting a grant application only to find that no funds
are available for their needs.

If funds are not availrble, federal agencies should tske all feasible
steps to see that arrplicaticns exe not prcprxed. LE?J\, for instance,
thought it h^d several rillicns of collars of discretionary funds available
for FY 1971. It, therefore, er.couraged m'jnicipalitics to make grant
applications. Later it v.-as discovered th^t tiie nrcney u-as not available as
originally rjiticipated. As a result, irany municipalities wasted precious
resources in preparing applications for money that had already been spent.
Such situations should be avoided. '

A nurrher of steps should be taken to avoid such situations. Better
internal msnacisi'.snt is a prerequisite. Pre-applicaticn conferences bet^-.-een
■ municipal, officials and federal officials should be required in all grant
programs. Federal agencies should be required to reinburse nunicipalities
for expenses incurred preparing applications encouraged by federal agencies,
but for vhiich funds are not available at tiir.e of agency encx5uragGr;ent. If a

— ' * . ■ . . .. 1 -• ..J __ £ -.— >...^i ■ ..-. .^i--^,^^*. ^^yy^^p. 3r-.->1 ^ /-«3f'-lo.r)C

should be L-rrr.adiately refjirnsa so that municipalities may begin planning to
seek othjer avenues of furjding.

• The Task Porte accepted the recortinendation of Peter Kom, city adi;unistrator
of Jersey City, at its nieeting in Ne-? York, that, scrr.e procedure be developed
vtiereby cities can get a preli.Tir.ai-y ccnmit.^it of fur^ds on a project prior
to preparing a long and often expensive cor-prehensive grant proposal. The
prelii:ur.ary resor^/aticn '.v-ould ccnfiim th.at funds were being held for the city
assuming en application consistent with the prcgrjai guidelines was sutmittcd.
The so-called "speed letter reservation" rcqv'.sst system proposed by Mr. Kom
would allow the Iccal goverrjr.snt to reserve funds before derailed and time-
oonsiiTung applicaticns are prepared, staff tir.e is expended and hours of
frustration have resulted when approval is later rnt given for reasons which may ba
known prior to the CCT»nitment of effort to prepare the application.

2. An agrc-£r.ent betv-^een tJve crrnting acencv and the loc.il aaencv of the goals
to ba acine'.'c-g fna zr.a "a-ve irar.e for ti'.eir aciiieveT.enc.

Task Force me-ibers f irirly believe that cities are prepared to take
total respcnsibitity for i.TpleT.cnting federally funded programs and for
accepting the consequences of this responsibility. In order to effectively
carry out program respcnsibil'' t\', hcr.\'ever, it is essential that prcgrara
goals at the ad-?i.nistrativc level be e\vlicitly stated along with a
schedule of irplcrr.cntaticn. A joint agrcciricnt or contract with goal
staterr.onts and th.o lT.;:)lc.T..3ntatien schcdu.ie binds a city but dees not define
the prcced'ure cr cdriru-strativc style and tcchjiiqucs v.hich v/ill be used to
carry out tiie prcgriT. Actual ir.-.p'lLtr.cntation is tho sole responsibility of
tlic city and should not b<2 a suii'jcct for ftd.cral rcvie-^- or control. £o
long as goals are cc:i3istent vitii federal objective;; and agreed to by tlie
funding agency along witli saro r.oanG of chcdcing progress, tho recipient

533

unit of c;ovcrr.T:nt should he given broad latitude in irplesnentation
strategies and ircthcds. Tnis criteria adirdts to the need aj'.d desir-
ability of clearer definition at the cdriniGtrativo level of objec-
tives to be adiieved. It further acrlts to the benefit a city can
accrue from rrJ:ir.g fonral ccrrritrr.ents to the achievejrents of objec-
tives and bcir.g \7illir.g to be evaluated against the original state-
ment of purpDce. Tne ccnsccucnces cf such a carmitnerit are that
cities v;ill, as they s;:culd, be evaluated en perforrrance, but the •
perfonrarcs reasvures v/ill bo those v.orked out jointly by both the
city arjd the f-undir.g agency.

Qy„^,.r.^ ,,^r-:r^^^^^r"-Tir^ v,v rersonT.el in field offices cf tlie DrcblerriS of
local ccvGiT-T'-rx.

It is iTocrtant that adninistrators of local grant prograirs recognize
the peculiar and unique nature of goverrur.ent at the local level. Lccal
officials v.Terk under considerably different sets of ccictraints than federal
officials cvai at the area office level. Lad': of sensitivity' to these con-
straints results in unreasonable cer?:inds, missed opportunities for co-
operation, and friction in the intergovenxr.ental si'stan.

Ti'TO policies sliould be adopted by federal agencies in staffing local
and regional offices. First, officials should be chosen because of t/ieir
prior experience in local govem-enr, or l-u-.CA-ledge of the probleirs of local
. govem.'vent . To carry ouu 1:01;) iJuxiuy, ^^:^IcJ.ul i.^>_i'.cic3 ehculd rJ.''. '"='-<^
greater use of tiie ircbility provisic^ns of th.e Ijitergcven---?.ental Personnel
;ict, allciving federal officials to take positions in local govcmrrent, and
vice versa.

Second, agencies sliould ta.ke steps to reduce personnel turnover at^
the area and regional office level. SpeaJ-ters at the Kcrw Yor): City hearing
noted tlie probl£.T3 of turnover of federal of f i cials in local offices . Current

' federal practice rerroves qualified individuals fron the position of field
represente.tivcs after they develop rapport v.dth local officials; the irore
qualified an individual hecores, tJ-.e greater tr»e prckebility that r.e will be

■ prcroted out of hJ.G pc'sition rather than rev.-arded iri-grade or in-position.
It is the Taslc Force's belief that idiis process nrust be ciianged in order to
Strang tlicn the intergoverr-'rsntal process. The result of t-he current policy

' is to iTunlTice understar.ding of local official ' s probloViS in the regional and
area offices of federal agencies.

4. More dscisicn-r'.a.kinq PCT.-:er delegated to federal field offices.

ICMA recently prepared a study for the President's Office of ^!anageInent
and E-jdget en dccantrali^etion of federal agencies, including flUD. The study
vas of the perccpricn of nanagers ana mayors of area office perforraance. The
results of t]->e study ^■.•ere these:

M^^ragers and r.ryors gcncrelly endorsed the surea office
concept, hut they found that thei-e v:ere niany problsrs
at this level. One of th.T najor proble.TS v.ith the curea.
offices is their lack of discretion in decision-inaking.

534

It is the feeling of the .'-'^-jTarcirtGnt Criteria Task Force that f!UD
should delegate rrore authority to its area offices to further iirprc^'e
the operation of the federal .WGtcr, cind other agcr.cics should establish
area offices v.-ith a'.-ecuate dccisicn-ma-king authority over federal-city
grants. Held offices v.-ith full cccision-?.v3):ing pa.vcr v.ould greatly speed
up and untTjigle the grant prograTS.

5. Reasoncble chgcltccints, pnxecri to bv federal- c-nd- local agencv, vhen perfonr^nce
would n-o' o.-aluaccc! r-i'.a v.T.at J.c\'c-1 of reriorr.r-j.ce ■■■■•cuid i:e e:-rpi'cccci a-c tne
check poi-iiu.

In line vath tJ^e concent of post-control, it is important to keep in
mind tl^at 1) the revic.-; pericd is largely a function of the specific prcgrarn,
and, 2) tiiat period and the level of perfonr.ance shculd be agreed to by all
parties at the cutset. These steps avoid misunderstandings sr.d tailor each
grant to the reality of the ecT'inistrativa set-up. If si>^ ir.cnths is ade<yjate
set-up tir.e for a rcdest prcgra.-;., evaluation should taJ-ie place then. Kat, if
the program is a !r.;ssi\'e social e>:t:erirnent, a more reasonable set-up tir.s may
bs 18 ironths to fc-.o years.

Task Force m-irfxrs generally agreed that tlie Kodel Cities Regional
Interagency Ccordinating Ccrrnittee (R.I.C.C.) revie.v- concept, ir.volving
quarterly re\'ic.'.-'s pei'ijorn-od by both the federal agency and the grantee, v.-as
a concept tliat should bo adopted by other federal progrojTS. R.I.C.C. reviews

satisfactory.

This is consistent v/ith the suggestion of 0''S Assist£mt Director,
Diright In';, at the Ne-7 York hearing, tJiat audits bs held early in the funding
Ci'cle to eliinirate rrajor prcbleirji and misunderst^mdings at tlie end of the
cycle,

6 . Aji aoreed-u'Jon series of controls to be invoked if cronls cure not being achJ.e'>'od —
incluilj.n.; iu::r.ir.:; ccnBicsra-::^cns.

Effective use of federal funds requires tlie eijistence of crcx3ible and
adequate s.-mcticns for misui;e of poor use of fedejral funds. The ;'-^^gcrrent
Criteria Tasl: Force recognises th-is necessity. In many cases, it '.;elcaT.es
the existence of such sanctions, because they act as a spur to action.

Ha.sevcr, the Task Force feels that, in line v.dthits ernphasis en post-
control, s-jch controls rcust meet certain reasonable criteria for than
to be effective. First, the controls nust bo agrtad upon befc-.een the federal
and city officials at the time a grant is r.;de to local gavorrircnt. Othcnvise,
controls v.'ill not be effective for postrcontrol . Seoond, there should be a
series of controls, graduated in severity. ThJLrd, they must be applied fairly
vdth the nature of the un.Tet goals.

535

7. Fin:;! joint r-.-aluaticn of fi-xiod projects.

Consistent v.lth tho cbjcctivG of pcst-control on federal grant programs,
the Task Force advccatos a joint evaluation of projcx:t acccrrplishrr.ents U'casiurcd
against originally dofinrd goals ar.cl objectives and ir.-.plc-T.rntation Echodulcd.
This crvaluiiticn v.'ill inclv.de not ju.i;t an audit evaluation hut an actual
cur;stantivc prcgran rcvicv;. 1"ha purpose of a joint evaluation of local officio'
and federal rcprescntati'/rs v.culd he to 1) build on the interaction process
tliat presurrably developed during t}:a course of the prcgraii Jjr.pla':>2ntation, and
2) as iji a ir.aj-.r.gcTent-by-cl-gecrivc systcn to in?njre a rv.tual undersU'-r-ding of
concerns aj-id preblcrrs ^.Tiich ir:;y ha'/e resulted frcn the project. This process
has problcirs. Clearly a r.^nicipcli-c-y uhich has iT.pler.ented a prcgra-u will
ta.kc ii strc'ng advocate and protective position of its acccr.plishrr.ents. If
il.^ Liur.ctio.is to b<2 used aie clef-x, cii;d if it is ur.cerstec-i thjrcughout a
project th^t such an evaluation v?ill occur, the Task Force bslieves ti-.at
the alleged problem of protective rcr.ction on the part of inunicipal officijils
can bs dealt v.lth and a net result from joint evaluation r^nlized.

In many cases, this process Acqs, in fact, occur; ha;\'ever, tliere is no
formal recv.ircr.ont that a joint evaluation be carried out and that such
an evaluation bo developed on the basis of eit)-.3r program contract carr:vit-
ments or letters of understanding v.Tiich define both program goals and tirna
schedules.

8 . Institute regional accno; or interar'cnc/ rrogrem advipors^ com:nittpc-r> ccrr.tosed
of local ci!i:ici£.is.

Several participants at the Ncv; York hearing recc'T^ended the establish- "^
iTient of regional federal agency advisor^' ccnTrdttees rrade up of local officials
to rcvie.v' progran guidelir.es, grant amplications and/or fir..-,;l program products, "
Local participation in tiie granting process vould not only b^- helpful in in-
creasing the respansiver.e.'^s of the federal govemrsnt but also in providing a
means of incorporating local priority concerns.

The National Institutes of Health use practitioner specialists on advisory
csDiMicils to ic/ic.-i and pass en fur.ding applications. Iho proposal offered here
vould not te as far rcacli:jig; rather it ^-.-culd be to develop a revicv ar,d ccmr.ent
'■ procedure through v.-hich fjuidclir.os, cpplications and final prcgrcOT products
could be exa.Tined from a local j^rsp-active.

9 . Insure uniforT'it"/ in fi^ctl control rroconures with ra:-:i""Lurn reliance
on local c-:vcrnr^-n-c.

Federal grant-in-aid program fiscal procedures create a nuirber of .
problcTS for local govcrrrrsnt. Perhaps one of the most difficult problems
is a wide variety of reporting and control prcce-dures er-ployed by federal
prograr^. Sera require rrnchiy reporting, ethers rec'uire qi.'artcrly reporting.

Sane fiL-.d on a d;rc.-A-co.-.'n hanis. Others fund en a letter of credit basis. . .

Auditir.g procedures differ bet\ve-en prcgra.TS. Steps should be undcrtc'tcn by the
federal goverrtr>-ent , pcrh^-'os with the leadership of the Office of Management
cLr.d Dj-'gct, to sea that : ■■■.:ir.:-\ uniforrit-y is achieved r-ong prcgra.TS, or that
grcatei- rcliar:~:; a.-.d ace:; --nee bo given to local rcportir.g ard audit procedures
^shich rvcet acccpt^xi accc-ii^ng principles.

* lliii iS noL lulcnatjn Lu IrlpTy review ul cvcuy i^iauL appiicuciou.

536

Ttie foderal govcrrr.cnt has estT±)lishcx3 an important and successful
precedent in using Icccl r.udit prc^crlures with Oio VJashingtnn iMctropolitan
Co'oncil of GovG;.T.':v2nts . Instead of rcquijrii-.'i ir.dividunl federal audits of
each prcv^rcjn cjront, ti-e audit prepared by tJie l-.'ash COG's own CPA finn for
all prcrprrins is cccipted for fcdci'al control a>-.d rcvir.^; pn.;poscG. This
process not cnly cliin.r:\--tos the irultiple tiro-conoiuiiiny visits of ii-.dividual
federal solicitors, but recognizes the validity of non-fodcral professional
• CPA fimis bcdjr.cj accountable.

10. Alloy; for fur^'.ing v.'hic!i r.-rCT-'idgs for adrlnist-rative and legal eroxgnscf; .

V?ith increased sup'port for Iccal government cotninq fron tlie federal
and state levels, it is iT.parative t^'-.at rcnies he irade avai].able not only
for mcorgiral costs sterling frcni categorical pregrarr^;, but also tlie real
costs attendant to tJ'iese progress including overhead, nGr,iinistrative ara
legal e:-xenses. The Office of .'-laiiagcr.^ent rj-;d KMdget Cire^ilar No. A-87
defines tha principles to be used in detenrining costs apTJliccible to
■ grants and cer.trac-.s. Th.ese Lnclur.e acceptable "overhead" expenses v;hich
nvay be charged against a grant or contract. The objectives of this circular
arfi to be lauded aj-.d are strongly sup-,xrtcd by tJiis Task Force, hc^s'ever,
actual practice belies the intent of this objective.

Thf2 required docurr.ntaticn e;-:pected by federal auditors in justifying
and datcrrrJjiing the applica^ole ov^erhead costs is a long, difficult and ex-
pulsive process; one v.iiicii in several inst£inces identified in Kew York City
it«y far axcccd tr.a benefits derived frcra the overhead ironies brought into
th? ^■'■•-y, ft" ffliron rv-ivo psiqni f iccTit problKM is tihat the acceptea overJicad
cose rust 1>3 drav.Ti frc~ ti'.e operating rmnies provided in a grant ajiu jiui.
supported by adddtienal grant ivond.es; a grant should be approved vdth
overhead ronies in addition to the initial arro'jnt, not subsuir.ed in ti:e
ori.gir;ally requested support.

Mr. GrossTPan, Director of tlie Budget for New York City, described
that citi''s axpsrience at the joint hearing held by the Task Force and
the Kational J.eagua of Cities' Intergcverrjr.ental Relations Steering
Ccrrmittco. Ke noted ti;at in t!e-; Yorlc's case, ac-niinistrative ar.d overhead
costs carre cut of tivo base grant an:! vere not acdiiiio;ial fur.dir.g cind second,
that the amount of roney recouped by tl'.e city and the adTinistrative cost
about fxn-al the coot of gathering tl'.e data in the first place; tiierefcre,
the objectives of Circular No. A-S7 v;era not in practice achieved.

11. Provide prcnra-Ti dpyolcpTront \.T^rkin:T caoital for s'-iotcrtinn tJie procTrr.'n.

Cities have cash rrobler.is, a fact v.'hu.ch the federal grant-in-aid
process sezxs to ignore, vrnen a ne;; federally-fundsxl prograni is started,
the tirr-e delay in receiving pa'j Trent costs cities l£irge su.t3 of roney. The
cost of st--_ffing, developing the acrjal LTplcTentaticn prcgraTi and strategy
are rei-rbursablo expenses v.Tiich the cities r.ust carry often for rronths. This
itoney is taJ:cn fror. general fur.ds if available, borrc-;cd on ta:: anticipation
iKJtes or from utility' furds, or drav.Ti frcr. short term ir.vestr.snts. In the
last tJuree ixstances, the cit^' actually loses roney.

537

Progratis using letter of credit prcx;edures are a problem because
carmitiT.;int to cr::v; Oa.'cn funds often ccr-cs after caT:iiitJr.ent to proceed
has Lccji orontcd; there is a dslay vhich for nriny citic;s can ho costly
ar.fl a l':c.n'y drain v.rcn cash. In otlier i;roc;r£LTS, jiuiTicnt is rrr.do on a
reiirl'urs^vsnt basi;; v.iiich fiau an even v.orne irr,p.-.ct on tJie cash position
of the city cir.c3 tivs irjTdcipnliti' rrvst corry a deficit until such tiira
as rei"hui-5G--ent is r.:!de. 11 lo Task Force is here concerned v;itli the
initial start-up p-aricd of a prc^ran vhere cash is short eind investrrcit may
be heavy. It is roccrCT-ersdod by the ccrmitteo tl-.-it federal government through
,- ■ an aOTinistrative ccrrrdtxent agree to pay interest en rcney used by a city
during initial dtvclcptr.ent process and develop a rrr^ans by utiich letters of
credit ray be made at the sa^e tire as grant ccirnitir.ajits are given.

12. Include protection r.c-.qjnst the difficulties caused bv changing federal
policic?; ci'jrir.:: cJ'.e life of f;---.:-c3 r:::o::r:;r-s.

It is recognised that t};e federal goverrnient has — and should have —
the authority to reorient and redesign prc^grams v/ithin its control. To
a certain extant, inflexible rrsnagar.ent is a sign of poor program manage-
ment.

HCTA-ever, the federal govcrr:n-.ent should recognize that there are costs
incurred at the local level v/iien prcgranis are chancj<td during the inple.Tentation
period, pl'ased cut or otherisrise Trodified after exT>ectations exist based on

are cut cff . These costs are often home by local gcvemr^ont. Other costs
are ii~iCurred by local govemrrcnt v.tien citirsn participation has been a
ccCTponer.t of a prcx.a'an. Citizens ca;-jiot he sir-ply told that tl-.eir pertici.pr.tion
is no Icr.ger needed in a terminated or rcidically reoriented program. They
have invested too rrach of their time and energy. Tiiis citizen participation
has to be redirected and dealt ulth, often at considerable cost to 3-ocal
government. IIUD's concentrated Code Enforcofent program, and Keig'nbcrhcod
Developr.-.ent Program have both caused serious phase-out problcJT\s for local
goverrj-ient.

The cost of redirecting and phasing out a program — after federal funds
have been denied — sh.culd be borne by the federal goverrrr.snt. I^-.lght In);,
Assistant Director for the Office of r'anagcTient aixl Eucget, a most sensitive
obser\'er of Iccal goverrrsnt prcblers, told the Task Force tliat citizens see
govem.r.e]it as mcnclitiiic v.-ith Iccal officials as the agents through v.mcli they
make inputs. If federal rcnies are cut, or a program radically changed e.g..
Concentrated Code Enforccrr.ent, after local officials have developed a v.nrking
relationship witii citizen groups, it is the local officials v;ho lose credibility.
Ihis is a hiigh cost, particularly now v.ticn citizen trust of government is so lav!

538

III. LEGISI.^'^Ic:I fop. cw<iTi pkoqv\*b should:

1. Leave Vho ci?n.icnnticn o^. "chief r.tr'.ir.5.nfcrr4tivc cfficcir" to cr.ch localits'.

There if; a tcr.C-:.r.cv f.rcnq ].c:;i.'ilatorj; ard foicj-al dKJminiatrators alike
to am.r.o tj';:;t. tho title "r-rx.-r" is sr.T.cr.virouG v.-itli a lccc.lit^''c; chief
E(iTiii:,£;6-a(J.vc:" cfiic:-!.-. T.-c-7iElatJ,cn or.d adr.iinistrativc regulations, tlius,
Sfooiiy "ra'^'or" v.^.cji c!iicf c::r,irJ.i;trat-ive officjr is intended. Or Uioy
Epccify "c:iii-..f ar1.Ti.pJ.s;:jr,-Lti'/e cfiiccr" v.-hen it is r.ot clci-x v.-lra occupies
Uint roviticr. in .~ giver: c.:.~.-:ur.ity. In localities \:itl\ the ccv.r.cil-rr£ir.rger
pl;-Ji, the c;vir:f £A";.'i.nir;trr.tive cfiicer is ur.-jally the cit^' panacicr' v?hile
in citien vrlth a strcr.'j ru.yor, that fvir.cticn is p';;rtonr,ed by tho irayor.

Inscnsitivity to this criticTil distinction often causes very tmfortiinate
misuriccrsti-r.dir.cis in cities v.'ith tve ccur.cil-r.ionaqer plan. Tne I'-ayor is
ccn^u.ctc<}, or c.clEc-c.tcd i-cspcr.sibi.lity, v;hcn the city iranager s'rould have
besci conU;ctccJ c::d given rc-:sponsibility. Ihe result is often strained local
internal relations.

Legislation and rccra2aticr£ both should bo sensitive to the need for
specify :-r.g the Iceal official ccncsrncd. As an illi^stxation, the legislation
involves tiie day-to-day adniniscraticn of local govorr-T.ent — as vri.th rost
categoric:;! grant prcgr:r:s — ar.d it is relev?j;t to tlve "chief acjid-.-D.strati.ve
r.-rf^i'n.-.-.-" nr th^ It'-.^h! <-v. it. Fr.",-;;ld have this definition: "cmcf aciiiinistrative
officer to be desigi-.ate-". by e;-.eh lc;;aliti-." The sar.e basic defirj.ticn sho-jld
be used in all ad-^-iiii a-trative rcg-alarlcns -^vhere appropriate.

2. Indicate tj'.e for.-rula for c-^.y-u-^t distri'i-.-jcicn, inc]A:dina !x>th the bnsis for
reei».:.:.:.-z : ::" zz:.Z-: rv.i: -l':': :-.:::c -yjace or roei:irca iceai i""tc::i"g lurds
M-ii:!:re a-JolJc-r^'xe .

Cities initiate fedexal grant application on the basis of their
asses.~.ent of city nc-ed, eligibility Eii'.d the prospects of success in re-
ceivii-.g a cc:Trritr,'.ent. Frcr?. fh-e perspective of nunicipal officials, tlte
criteria for recipi.-.nt sejocticn and tl'.e besis of fimd distribution is
extraTely loe:-.e, and is too often deterrined by admnistratively es-
tablisb.cd cri-ieria. 'ih.e legislation or tJ^.e ccngresrional cccnr.i-ttea -
reports accc-.-panying iojislatien sh.ould include distrih-.itien fon.^jla ard
ci-iteria fcv prcgr;;.! seiccr.icn. I'.-.e block grant forr-.-.la principle currently
being dir^cuj.'ved for reve;-;ue shai:i:-.g provides a sound design for categorical
aid as v.-ell.

■Wie current system benefits these cities wliich have tJie resources and
staff to play the grantsranrhip g:-Ti2, leaving the great buLk of cities
mthout ponies they Ic-gitijratoly need and more than IcgitlTately deserve
■basiid on vhat v.-e perceive as the federal grant prograTi objectives.

539

3. Indicate pcrf crr-orce strrr'.arr.s to ha rot.

It is not the intension of tho Tr.s)-. Force that legislation ir.clur.G
a stcp-by-stip tVt.lii:;tion prccccuro or rcriorrrarca iT.'3aE\:rc. Bet it io
ncces'^.vry and c.::£;ir:iblc t^-it ti'.e Ccr.Tresr. give E--.3 ir.dicaticn of v.r^t
is expected ircn Ircricl.-tively s'J-tcrtcd progrr.-:: as noted rjxive. This
csn i>:; co.vj Lt £c:lit.-.cr. 'd-jrcur^ c::.T.-itte3 rcpoi'ts v;hich c.ccar-'jiy
lecislaticr. ai^d prc-.-ics a basis for cc-v2lcrr.:?nt of a'jninir.trariva
regulaticr.s ar.d prcr.er.vrc-s. Tno rcrs a ccr-ittcs report includes, the
easier it is for net only tlis irpla .er.ting aroncy, but also local
gcverr.TsntSjto ;<nc..' v.hat tha ger.arai ir.tent of ?. prccre.- is. Fart cf
the cc.-r,dtt£s rcecrc richt be a set cf ststc.T.snt.s thxcvgh v.-hich t!'.e
Congress cer-eriJrcs he-.-; it vdll evaluate v.-hether or not a prc-grani h^lS n.at
their intents and purposes.

4. Be flexible to all?.-.' for var--'ir.J cr.nd j.tior.s .

One of ths y?ajor virti:es in the federal interccverm'.ental relations
process is tbJit different sif^ticns req'^re different t^-pes of response
in v.^riti-'-.g to aiiie-.-e a cc.":r-on cbjeetivc, -dius a federal grant progran
with generally er spooificelly defined purposes can be aci'devod through
iTTUltiple strntegiss err. devices given the different constraints and
resources of the recipie;it cctrrrjinities. It is desirable to enco'jrags
this kind of in.-.ov£ticn and fle>dJ;Ie f.pprcach v.dti.in scrr.e c].e£Xly
unaerscocQ xiuLLi,si. A uctjoj. i-j.xi.cu- -La i^j-v^-^^yosj^ bj L.._ Te.c; Tei'ce is _o
n-.ii.ilx.i:-. ri^-ibiliLy to e=eer.T.-cd:.;;e th.o 'eniq'ue and different requirer.vants
of local goverrr.vants .

5. Ch2n:".el rcnev threvrh the states c^lv if it is a statg.'idq prc<"Tci'n of
statcv.'ide irr.-.ct t-i onlv it sca^e cor.rrib-jtes f in^Ticial Iv Co Che oro-ran.

6. Ch?.n:'.ol ronev directly to the ?.cenc' cr (level cf) ccr.-errr-ent res-xnsible
for the cre-r::-.. ' ~~

Scrne of the mre recs-ntly ccsigred grant-in-aid prcgraTs, such as
the Lav; Enfcrccr-e-nt Assistsr.cs .^dr^inistratic-n, have tended to rely on
state gevcrre.-int for the Eub3tanti\"a ac.Tinistrative efforts. To a
certain aiter.t this relic: nea has z::r3 virt"uas. It elinuj^-ates the
necessity' of t]va fc-der.=d- rc-gicns h:'ving to deal \vdth the grant applicr;ticr.s
of thousands cf sr-all urJ-ts of local gc/emr-n-c. It is the feeling of the
Task Fcrca, hnv.cver, that reliance en th-a states creates rare prcbler^
than it solves ac-Tinistratively. It reans that an additional le-vel is
already acd^ to r;-.a trng2ed federal s-j'sten. ;-.pprcr/al, fund era*. .--da. .r:,
aj-d tccr.r.ical assieter.ca in s\^zh pre^TaTs —est be crchestratod th.rcuch
thjTce arjd se-ati-Tcs four levels of gevcrnrant. Fcr large cities in irany
states ti-is is a needless i— cdi-r.cr.t in an already tangled intcrgci-emrenral
situaticn. .^uch prograr-c aEs-..~.e an understanding, ad-ninistrative ccrrpetonce,
and camcr^alif/ cf p-urpcse lad<ir.g in the vast rrajcriti' of the states.
Such prc^-V-Te give tha states pc-.~r in a situ-tien in v.hich they ccnti-ibute
no funds ar.d little intr.Lr.sic E;,rparhy with cities' prcblerrs.

540

It in '.^'YTcer/ceC th.-'.'c rl.n ftx'cr'-il ccvcxnr-.ont rely on its regions to
einJp.j .'.'or i'::- civr.t-ir.-c- ::^ rrfC'iiv-.v. , csprrcioU.y vith rcx-'nrd to iT.cdLivA
i'.nci l-:;rc;o r:-:'.:; cLtio", t'.v": t.'::t tl;v. I'c.kral cover rj' en t ur;c c::isUii".g
c;cr.:>::al p.'^Tc-o f.v.b-;.;r.".'.'i c '.".'.rt-vici.n for dealing vith trrvTll cities cind
£.'r:-.-. .".ik'dr.v .-ir^iilicr.?.! j.-yu.-: ci: rr/.-cn-:T.cnt bc-U^ccri U-;G fnc'cral rj-.d
tli2 local le.'c-ils jihouid bi- avoidr.d.

Porhrj:?. c:";^ cf t'-..; r.-.jrr pir'.-lcpv. faced Ysi gc;r.eral ixirporie local
Cj0vcr'---T::t tc-'":.::-' ir. Jj'.cv.'i.-.:; cbr.u'; jj-,d ccoro:ixr.t,\!:g tliG e.::iv3;-diti;rcs of
pj;.-)lic uv.-id? — Jor.i-.rr.i , sv--. n, ar.u lccr;l — v.dthj.n its jiiri rid iction. As
ri-ny ctviics "-.'.vr, i;::2ic:-.c;:,".: 1) fcv.', it: cny, cities teo'i.' v.r.^t rroney is
)y:.ij:-.j rv-~i!t '.'i-:-;:ir. its ;.:.-..:v';r5.--:^, ~ix:l 2) th;it as tjiintjs st'-r.d, it is
i"pc:.:r.;:ble to fij-.d cut p-ccirivy he-? iruch federal ironey is lieing spent.

*
The px'cblr.r! crcnt.-d fcr r-or.Er;r-Ls;-!t is quite straicht-fon-.-Brd: n'oney
tlTo.t dors rry-: TvSS ti^ic.".'.-'' c^sr.eral p.u:v<;EC local govcrr-T.ant weajcens attci.pts
at s;i-stz;-v?;tic plc^rdng.

The soluti.cr. is to c/rrnal all funds directly through tlis city's c!iief
ateinistri.t-.Vo c/.'fic'" Ir.-- rj'.vir.-..-, ccj-.v.'mt and sic-'-off . Attempts are hsing
made to do t>J.!:. In cr.-.l::oV.-:.d rcx'.-;l citic-.5, the U.S. Dcpariicj-it of Housirg
t>r.-l Ur;:-.n r-'/clo;:'.':ir.t :-•:;;•. c"i:7alc;7~d Plr.riisd X'-irinticns or. cit'y-v/ide
■ cxpcndiU-.r^tv of !il- fiu.:"'.:. Or.;:! of \l\y. variaticrr, is chief c:-:rxrjtiva cign-

siir.ilar £:rrr;r.r:^.T^r.i:s .

It is r.c'.'7 tir.?. for t',-..-:! Ccngrcsn to bsgin drnftijig legislation that
recogi'Llzas the ij;7:ortar.ce of adopting this concept of chief ci:ecutive
sigri-off.

8 . Encc-'rr.^e cccrdinaticri -cvr. 'rystcn-.utic ransgsrrent pt t>.e local i.evel.

A nun'x?r cf cv;rrcnt rr:T.ijiir,tr;;tivc- efforts by the DcpzLrtrrient of I'ousing
£md Uj.h7j> r':=:;;eli.c-_-T.^nt ar-.j (■.:^icir.cd to enco-jragc cccrdir.ati.on and sy3te:v:'.tic
rri-r.?g:;-;;nt at -tj-i l-ccal IcvhI. Fpiicifically, '.nrr.r.l /'jrrar.gcr.'cr.ts c:xi Flai-Lncd
Variations rjre ho'ih d-5ic:-.r<> to lifji.u chief ac.Tiinistrativc officers ccordir^ate
t}-iair diliviiy cf c.-ivic^j, fi:-.;r.cr.d in part f:rc;m fcdir/O. grants, cx^d rrcp-rly
plai': for Icv.g-r-un i.-s.'-rrc.-.-nt. 'JctJi sre based upon e.\istir5 grant pro^rsv.'iS.
Ei'.t 1:0 jh rc-.T-rd cities fcr t:;J'dr.g tr^e tijT:3 to eiigage in thoughtful planning
ar.d systeratic iT-.-j.r.gc-.er.t.

/""Tnual 7rranrcr.e:-.t3 ii'-'Olve prior negotiation hot^sen tJUD and cities"
on a group rf specific pr/c.ncial grEnts. Once arrived at, tl-.e .^a-rongerent
ho;cr.-.v3 the city's blucpri:-.t for r.i-.ii-.g application for tr.o specific grants,
v.'ith th; ■j'r-.'l:J.^.-i ti-.r.c if t;:.:; applic.'.tior^ are acc-jotrxiln the grant funds
arc av-.iliL-io, .":;-nual i'lrrar.grr^nts v.vrci sr>9cifically designed by I:L"J to
prcparo cit.i-s fcr tr.a Ccv.:-:i-iit\' Lvrv-eloprrent l;loc;: Grant prcgrani, currently
fc.-;:oro tho Cc.--~re'j:j.

541

Th.e CcrrrjT.ity :
legis]^ticD thr.t \r
plannir.g in cLzr/ r:
lCvisl~ticn in tr J
Blod: Gr:;nt fcr Czr.
vhere rcssible, i.:.-
prcqrcs.3 Eir:il:Lr t-;

9 . Ccr.tr rli ;s i-.tr.--- r

lopr.Gnt Eloc); Grint is ono c^rrjrple of tha kind cf
ir.courage s-ystc-^tic rj-.nriccTcnt and cccrdir.atcd
-rr.t. It is tl'.2 ccrsens'js of the Tas!: Force tJiat
-■J! fcc ccvolcpc-i clcr.g the lir.cs of the prcposz-d
.y Dovelcr.iT.crit. /"-d it is the ccrsrcns-.zs that
rative agencies be ci'-csi clear autl-orit^' to under.taJ-te
.al ArranccT.snts zr.d Plarr.ed Variations.

- -r-.-.cT-r.cr-' r.'"~;r>i.'tr.='.tirn cf z-.

-licr.ticns to

-'ir.z arc. suur^.rTicn cr r.-in— :

uj-:c£2 ^v:iicrricn3

0ns cf tr.9 re:
admin iLtration cf :
does not )cr.~./ v.hst
irsent, is doing. S:
coord ina ted . Sirl 1
The result is that
it is often r.ecoss;
vdthin cne agenc-/ -
inability,' to plan.

■ Tuently heard ccr.-.plaints about the federal
rical grants is th^at cr.e agency, cr cne sub-agency,
zr.zr agency, cr c-i-agency •.-.Ithin the sar-.e depart-

-• kLnds cf cran-cs in different ceparlr-onrs are not
rri.ts v.'ithir. agencies are net cocrdijiate-d eitj:er.
;1 v.-ith a specific prcblen v.lth several ccrrpcnents,
r a citv' to rrake a series cf grant applicaticns
■:=en federal cesartrents. The result again is an

Integrated crn:
be enccuraged in 1
inteqraticn are ver-

Integrated Grant .-il"
initiative.

-lications th.at deal vri.th a single prcblen should
:lctr-.en- cf legislation. Today, attcr.pts at

11, arid U'=^la"l"lv n\-e^ l-n prrm-i T^i c:+--»-n+-T^^o >-3+-K^>-

LaLlve. Tl.c: orrica of M=iiii;-;fc:i.a)t end Lvricet's
uration (IG.-.) program is cne adndnistrative

The Ccngrers <:
single application
dealing v.dth the sz

begin to design legislative txicVeges that require
..ures coordinated by a lead federal agency fcr
^blsTi area in a local jurisdiction.

542

Ihe folla»,ang resolution v.-as adopted by the International
City Managt-zent Association in Septeirber 1972.

KESOLUTION

Whorcns , the Executive Board of the International City Manageirent
Association appointed in 1970 a task force to study the criteria for
designing federal grant-in-aid prograns;

Kherea_s, the task force vas charged with developing the criteria fron
the point of view of rrjnicipal ir.anagenent ;

Whereas, the creation of the >!anagenient Criteria Task Force vas done
In cocperacion v;ith the iJational League of Cities;

Whereas, the Association adopted as its Goal IV: "To contribute to the
understanding and resolution of urban issues";

Whereas, the >5ana5e:7.ent Criteria Task Force was appointed to help
carry out this goal;

Where_as, the report of the Management Criteria Task Force has been
submitted to the Executive Board;

VJhereas, the Executive Board has reviewed that report and recormends
to' the r.cnbership that it adopt the report as the position of the
Association;

Therefore, be it resoxveo cnac:

1. The report of the Management Criteria Task Force as approved by the
Executive Board be adopted as the position of the International City
Management Association with regard to the criteria which should be
used in designing federal grant-in-aid programs.

2. Pursuant to the report of the Management Criteria Task Force, it
Is the position of the Association that administrative regulations for
federal grant-in-aid programs should provide for:

A. The assurance of adequate funding before either encouraging
or accepting application.

B. An agrecm.ent beti:ecn the granting agency and the local agency

of the goals to be achieved and the time frame for their achievement.

C. Greater understanding by personnel in field offices of the
problems of local government.

D. More decision-making power delegated to federal field offices.

543

E. Reasonable checkpoints, agi'eed to be federal and local agency,
when perforr.iance v/ill be evaluated and what level of performance
vlll be exiicctcd at the clieckpoints.

F. An agreed upon series of controls to be invoked if goals are
not being achieved -- including funding considerations.

G. Final joint evaluation of funded projects.

H. Institute regional agency or interagency program advisory
concnittees con-.posed of local officials.

I. Insure uniforniity in fiscal control procedures with maxiraua
reliance on local government.

J. Allow for funding v;hich provides for administrative and legal
expenses.

K. Provide program development working capital for supporting
the program.

L, Include protection against the difficulties caused by changing
federal policies during the life of funded programs.

3. Pursuant to the Report of the Manacement Criteria Task Force, it is the
further position of the Association that congressional legislation for
federal grant-in-aid programs should provide for:

A. Leave the designation of "chief administrative officer" to each
locality.

B. Indicate the formula for grant distribution, including both the
basis for recipient selection and the percentage of required local
matching funds where applicable.

C. • Indicate performance standards to be met.

D. Be flexible to allow for varying conditions.

E. Channel m.oney through the states only if it is a statewide
program of statewide impact and only if the state contributes
financially to the program.

F. Channel money directly to the agency or level of government
responsible for the program.

G. Cliannel money so as to be coordinated by the general purpose

government of primary interest.

544

H. Encovira[;e coordination and systematic nanagement at the
local level.

I. Centralize intra- and intcr-ap,cncy adninistration of applications
and facilitate local developnent and submission of multi-purpose
applications on related programs.

A. Tlie Report of the Management Criteria Task Force be transmitted to
the National League of Cities as the position of the Association.

5. Tlie Report of the Manager.ent Criteria Task Force be forwarded to
appropriate federal officials as recoirj-nendations from the point of view
of the municipal management profession.

545

The Chairman. Thank you, sir.

Mr. Wilcox, secretary, Pennsylvania Department of Community
Affairs.

STATEMENT OF WILLIAM H. WILCOX, SECRETARY OF COMMUNITY
AFFAIRS, COMMONWEALTH OF PENNSYLVANIA; ACCOMPANIED
BY MR. LORENZO, STAFF MEMBER

Mr. Wilcox. Mr. Chairman, I am William Wilcox. I have Mr.
Lorenzo of our staff with me in case we get into certain matters.

I almost feel at this point, if I may say so, something of a rebuttal
witness on behalf of the interests of the States.

I want to say that the generalizations that have been made with
respect to State performance in community development in almost
every precise way do not apply to Pennsylvania.

The State of Pennsylvania has had a long involvement, going
back 20 years or more, in community development activities, par-
ticularly with respect to urban renewal, and we even meet the criteria
of the previous witness that the State put money on the line as an
indication of its commitment.

The Commonwealth has put about $200 million into urban renewal
funding which has produced about $1 billion of Federal funds for
urban renewal for the communities of Pennsylvania.

I think we have done as well or better than any State with respect
to urban renewal funding.

One of the reasons is because of the heavy needs of the old Pennsyl-
vania communities which tend to be old because of the location on the
east coast. They are somewhat older than other communities in the
United States.

The State of Pennsylvania has put in one-sixth of the cost of urban
renewal projects over these years. One-sixth of the total cost.

I emphasize total because in terms of the non-Federal share the
Commonwealth of Pennsylvania has been contributing about 90 per-
cent of the non-Federal costs of urban renewal to Pennsylvania com-
munities for these 20 or so years and in connection with the Agnes
disaster of last year, in a single bite, the Commonwealth has com-
mitted itself to $140 million of non-Federal urban renewal money to
help with this disaster cleanup.

So the State has certainly put a very substantial amount of money
on the line in community development in Pennsylvania and as a re-
sult of that Pennsylvania has done quite well.

I would want to say — I wonder if I might back up before I sum-
marize some further comments that are in the written testimony, Mr.
Chairman, to say that we fully concur with your concern, and Gov-
ernor Shapp fully concurs with your analysis of the situation with
respect to the housing moratorium.

In fact, the Commonwealth is so deeply concerned about the mora-
torium that we have instituted legal action in the Federal courts along
with a number of other interested agencies including the Maine Hous-
ing Administration and other groups, against Federal Government
for its precipitous and we think unwarranted postelection moratorium
on housing.

k

546

We agree with your view that there have been problems with some
of the programs, particularly the unsubsidized 221-D-2 program, and
we think it was quite unwise to eliminate or to put a moratorium on
other programs which had a rather impressive record of service.

We think the Federal position is inconsistent. In most of the state-
ments there is something about the housing pi-oduction that has oc-
curred as a result of the federally assisted programs and in the next
breath the statements generally indicate that the programs have not
worked well and that is the basis for the moratorium.

I don't understand how it is possible to have it both ways.

But I want to assure you of our support and agreement with your
point of view on this matter and our willingness to cooperate.

We have data on file, Mr. Chairman, in Harrisburg, that would sup-
port in a quantitative way our position and your position on this
matter. We could provide that to you subsequently if you think that
would be helpful.

The Chairman. Thank you very much.

Mr. Wilcox. Going back to the summary of the statement I would
like to say in addition to these funds which the Commonwealth of
Pennsylvania has provided to local communities and of increased
Pennsylvania urban renewal money, we are somewhat uneasy about
the special revenue-sharing proposals because, as best we can tell —
and it is hard to tell from available data — Pennsylvania will lose and
tend to lose more as the hold harmless provisions phaseout.

We have provided to local governments in addition to large amoimts
of money a very substantial amount of technical assistance.

The Appalachian Regional Commission cited Pennsylvania as the
State to be emulated by the other member States in terms of providing
technical assistance to local nonprofit groups and local communities in
housing development.

I want to say a word of concern about the whole approach of formula
giving for Federal funds. We think it may be a way of — to some
extent evading leadership and governmental responsibilities.

There is a statement which Mr. Lynn in his appearance before you
earlier this week quoted from the President to the effect that what is
good for Detroit may not be good for New York or Newark.

That is just a general paraphrase of the statement.

I would sav that from our experience with formulas as a basis for
grants that the formula which is good for Detroit might not be the
formula which is appropriate for New York, or Philadelphia, or Pitts-
burgh, or Newark.

We have had difficulties right within Pennsylvania developing
formula systems for giving out funds.

It is our position that at least in the case of the State of Pennsyl-
vania, which has this long history of both financial and technical
involvement in community development that the States should be the
passthrough agency for community development funds.

We say this not because of the States rights issue or any abstract
principle such as that, but because we believe that the States are in a
better position to see the big picture.

We think there may even be empirical evidence to support that point
of view.

547

There are two programs for open space, one administered by the
Bureau of Outdoor Recreation, by the U.S. Department of Interior;
another administered by HUD.

The one administered by the Bureau of Outdoor Recreation passes
through the State and has been an enormously successful and useful
program, particularly because it has encouraged the State to also pro-
vide recreation funds which, coupled with the Federal funds, has
provided an enormous amount of open space and recreation land in
Pennsylvania.

The open space program administered by HUD directly to local
communities has virtually been inoperative.

I heard with some interest your discussion about the 701 program.
My department administers the 701 program for the smaller com-
munities. Here again it is working well going through the State.

We think there are economies of scale and technical assistance which
an alert State can provide and we think Pennsylvania is such a State
in providing this development assistance.

I would like to comment about the difference in the language on the
annual statement which has to be provided in the two pieces of legis-
lation. The one I guess is the Community Development Assistance Act,
and the Better Communities Act.

We prefer the language in the Community Development Assistance
Act because it is more precise. We would suggest even more precise
language be added with respect to two matters : we think that the plans
and statements submitted to the Federal Government ought to indi-
cate the relevance of the plans to disaster-prone conditions, either
flooding or earthquakes or whatever conditions might exist in a State
or an area so that the community could be required and the States
required to face the important issue of land use planning as it relates
to flood-prone areas and earthquake-prone areas.

We also think that the communities when appropriate ought to be
required to indicate housing allocation commitments in the metropoli-
tan regions.

There have been statements about the white noose around the big
cities. I think that is an unfortunate term. It is not a white noose
around the big cities. It is the rich man's noose around the big cities
and more and more exclusionarily developed communities in the
suburbs with Federal development support for sewer and water facili-
ties and other facilities are not only excluding the poor, but excluding
middle-class people such as municipal workers, policemen, firemen and
school teachers, et cetera.

We in Pennsylvania have tried to confront that issue and we think
the Federal — we would invite and welcome the Federal Government in
joining us to restrict the allocation of public funds raised from all tax-
payers when they go to communities which erclude all but the ricK
and near rich.

So in summary I would say that we believe that government should
have a series of social purposes, that open society and land-use planning
are two such proper social purposes.

We think that S. 1744, I believe it is — that is the Community De-
velopment Assistance Act — comes closer in its statement to meeting
those conditions.

99-855 O - 73 - pt. 1 -- 36

548

With some amendments it could meet the requirement.

Now, with respect to the issue of the States which have not had a
presence and do not have an interest in having a presence in commu-
nity development, we would suggest the matter be dealt with by a
provision in the act which would say that States which wish to be the
passthrough agencies could so designate themselves and States which
did not wish to get involved in community development issues would
surrender that right and permit funding to go directly to the
communities.

Mr. Chairman, I think that is a rough summary of the statement
I filed with you this morning.

The Chairman. Thank you very much, Mr. Wilcox.

I had really read your statement before you had begun. I didn't
read all of it, but most of it. I have enjoyed your statement immensely.

Let me s^y just this with reference to your comment regarding
planning in the Commonwealth of Pennsylvania.

Of course, I realize that some States do actively participate in a
statewide program, but all States do not. In many of the States, there
is almost a complete detachment of the State government from the
towns and cities.

So I think it does make a difference as to what kind of relation-
ship there is in the particular State.

Mr. Wilcox. Senator, on that point, one of our concerns would be
that there is a danger at least in the language of the draft legislation
as it now appears that the Pennsylvania assembly might be dis-
couraged from funding further activity at the State level in commu-
nity development.

I think most people believe that that would be a step backward.

The States should have a role. If we do have a major responsibility
in the administration of these Federal funds — and we believe we should
because of the reasons I have indicated, namely, our technical assist-
ance capacity and previous record of funding — that the legislation
would be continued to involve the State financially in helping local
communities.

So it is very important that the legislation as finally adopted not
discourage States from — which have committed themselves to in-
volvement with community development from continuing in this area.

[The statement follows :]

549

TESTIMONY PREPARED FOR DELIVERY BY

WILLIAM H. WILCOX, SECRETARY

PENNSYLVANIA DEPARTMENT OF COMMUNITY AFFAIRS

BEFORE THE

SUBCOMMITTEE ON HOUSING AND URBAN AFFAIRS OF THE

U.S. SENATE BANKING, HOUSING ATTO URBAN AFFAIRS COMMITTEE

WASHINGTON, D.C.
JULY 19, 1973

I appreciate this opportunity to address you today on the topics
of housing and community development, areas which are of particular concern
to us in Pennsylvania.

I believe that Pennsylvania's record and experience in these fields
provide excellent examples of what the states are capable of accomplishing,
and I think it would be useful to briefly discuss some of our achievements
and our needs for the future .

Basically, the Pennsylvania Department of Community Affairs
functions in three major areas: it provides technical assistance, it gives
grants, and it serves as an advocate for various groups.

We have a strong technical assistance and grant program which is
based on the placement of housing specialists in our five regional offices
across Pennsylvania. These specialists are available to assist nonprofit
groups and public agencies in preparing housing developments to receive
Federally-insured mortgages. To back up this technical assistance, the
Pennsylvania General Assembly provides us with a housing assistance fund,
which makes both grants and loans to nonprofit groups and public agencies,
including write-downs of construction cost, with the savings passed on to
the homeowner or tenant in the form of reduced rents or mortgage payments.

550

To date, Pennsylvania has invested $6.8 million in housing assistance
fund dollars to aid about 120 groups, and this has resulted in 8,778 units
of Federally -assisted housing in various stages of construction and
occupancy, with a total mortgage value of about $164,674,948.

In January of this year, the Appalachian Regional Conunission
released a report on housing development in the 11 states in which it is
involved. In a section of the report dealing with "Suggestions for Program
Improvement," the Commission said it wanted to "Encourage each state to
establish and provide funding for an agency similar to the Pennsylvania
Department of Community Affairs. This state agency has two assets that
would, if utilized, be helpful in many of the states in the Region."
The two assets were identified as technical assistance to nonprofit sponsors
and loans and grants .

The Department is also engaged in other activities, many of which,
I believe, are unique for a governmental agency. Some of the most significant
of these activities involve our third major Departmental function --that of
advocacy. Governor Shapp has publicly committed his administration to
achievement of what he calls "The Open Society" --which includes, among other
things, the jright of people to live where they want to live without racial
or economic discrimination being practiced against them.

Accordingly, the Department of Community Affairs has become an
advocate for the low- and moderate -income citizens of our State who have
been denied access to the suburbs by communities which have resorted to the
use of exclusionary zoning practices to keep them out.

551

As part of this advocacy, Pennsylvania is joining with other
groups in legal action against the present housing assistance moratorium
of the U.S. Department of Housing and Urban Development.

We have also taken the position that communities which indulge
in exclusionary zoning practices --such as minimum lot sizes which preclude
the construction of housing affordable by moderate -income housing, or the
barring of all apartment construction --are not entitled to State grant
monies raised from taxes paid by all our citizens. We anticipate a court
test on this issue soon.

In 1972, we withheld, based on a Pennsylvania Attorney General's
opinion, a recreation grant from a small suburban community near
Pittsburgh, after careful study showed to my satisfaction that it was
clearly guilty of exclusionary zoning practices. At the request of this
commionity, we held an administrative hearing on the matter last December,
and the Department's decision was upheld. The issue is now headed for
the courts for final resolution, and I think that the decision of the
courts will have National significance in determining whether state
government can play a role in giving low- and moderate -income families a
choice in their place of residence.

In order to help us determine whether exclusionary patterns
exist in a given community, we have contracted with the Nationally -known
Suburban Action Institute to make a number of studies for us of individual
communities in Pennsylvania. We are also developing a housing allocation
study for the metropolitan Philadelphia area, which will suggest a

552

"fair share" of low- and moderate -income housing units for dozens of
communities. Finally, we have made heavy use of Federal 701 planning
funds to undertake major housing studies, including projections of housing
need and analysis of the housing market.

We also have a new and modernized housing finance agency which is
just becoming operational. While the idea of the housing finance agency is
not a new one , our Pennsylvania Agency will probably be the first in the
Nation to finance the construction of single -family housing under a
non -insured program.

I have discussed all these things to make one important point--
the states con play a major role in housing, and, as our record in
Pennsylvania shows, some states are currently playing such a role. My
concern is that they continue to have the opportunity to do so in the
future. With the sophisticated technical capacity in housing now available
in Pennsylvania's State government to help communities of all sizes, it would
be most unwise to bypass the State in any Federal legislation for community
development or housing assistance .

And, the ability of the states to continue to play that role is
at stake. -For example, without Federal housing subsidies, which were cut
off in January, our efforts to "open up" suburban communities may be for
nothing, since such Federal subsidies are often the only way in which
moderate -income families con afford a suburban apartment or house. I urge
you to keep the needs and potentials of the states in mind during the
coming months as you consider new housing and community development legislation.

553

Finally, I wanted to offer some general thoughts on conununity
development funding. I would be the first to admit that there have been
some serious problems with the existing system of multiple categorical
grants. However, I think that adoption of the Administration proposals to
replace these programs with "formula giving" would be a serious error.
I don't believe that formula giving, while perhaps appropriate for voluntary United
Fund raising, has any place in the system of allocation of tax funds.
Formulas which bring money easily to communities as a matter of right
simply won't provide the incentive for the achievement of social goals
that government, especially the Federal government, ought to be committed
to. The allocation of funds by formula, in fact, can have opposite social
effects, depending on local conditions and laws.

It is worth noting that under the categorical grant programs
recently ended by the Nixon Administration, Pennsylvania was able to play a
much larger and more creative role in the area of urban renewal than would be
possible under the proposed Better Communities Act, which would severely
limit the states' role.

Let me very briefly summarize what Pennsylvania accomplished under

urban renewal over the past 22 -years, during which the State has had a program

which provided one-half of the local share for urban renewal programs. Some

$200 million in State funds have gone to some 80 city and county urban renewal

authorities to assist over 600 urban renewal projects, and over $1.1 billion

1 in Federal urban renewal funds have come into Pennsylvania.

1 The perspective of the State is simply broader and more comprehensive

i

I than that of an individual community or county, and in Pennsylvania we have

554

not hesitated to use our leverage through various programs such as urban
renewal to urge localities to do certain things, such as to control develop-
ment on the unprotected 100 year flood plain.

For example, following the disastrous floods in the Wilkes-Barre
area in June, 1972, the feeling of some local officials was that the most
important flood-recovery priorities were to save the business structure and
the tax base of the affected coramiinities, even if that meant rebuilding on
the flood plain and, to some extent, placing the needs of individual citizens
in a lower priority.

With the leverage of millions of dollars in State urban renewal
grants, we in Pennsylvania have been able to bring about some changes in
these priorities, and I think that the people who live in these flood-ravaged
communities may be better protected in the years ahead as a result of our
efforts. We have also made qualification for the Federal Flood Insurance
program a reqpjirement for any flood-prone community that wonts to receive
State grant monies from the Department of Community Affairs.

We, of course, applaud 100 per cent Federal funding of community
development costs, as proposed. The side effect, however, is to deny
Pennsylvania the leverage it now has with one-sixth f uj-idL ng of total urban
renewal costs in most cases to discourage exclusionary development practices
and poor flood plain development practices. Thus, the community development
legislation as finally adopted, from our point of view, should contain
strong provisions for State monitoring of allocations, from the viewpoint
at least, of these two concerns. In short, the states should continue to
be able to apply incentives for sound community development based on
appropriate social objectives.

555

This, then is the type of strong, advocacy role that the
states can play, if the Federal government will cooperate. I hope that
this Committee, as it considers various community development and housing
legislation, will enable us in Pennsylvania to continue to play a strong
role in these areas.

556

ATTACHMENT A

STATEMENT BY JOHN M. McCOY, JR.
Executive Director
PENNSYLVANIA HOUSING FINANCE AGENCY

(Submitted as a supplement to statement
of Secretary of Commxinity Affairs
William H. Wilcox)

We generally support the provisions of the legislation (S 3248)
which the Senate overwhelmingly approved in 1972. This legislation consoli-
dated the U.S. Department of Housing and Urban Development (HUD) programs
and improved the basic subsidy programs. Our recommendations, therefore,
are not for sweeping alterations , but for minor modifications which would
make these programs even more productive.

One of the most encouraging developments to spring from the 1968
Housing Act is the growth of state and local housing finance and development
agencies. Section 236 (b) contained a provision whereby state and local
agencies could participate in the program on an uninsured basis. Largely
because of this provision they have grown from two in 1967 to the present
total of 33. While many of these agencies, like our own Pennsylvania Housing
Finance Agency, are not yet fully operational, most will be shortly. We
believe that the record of those agencies that are operational is outstanding,
and that these agencies should continue to be encouraged.

Critics of these agencies have made two basic charges:

A. They only deal with a limited portion of the total housing and
urban development problem.

B. Each Agency is somewhat different from the others in powers,
procedures, and philosophical thrust.

We concede both of these points, but would argue that they are
strengths rather than weaknesses.

557

It is true that these agencies do not deal with many of the programs
administered by HUD. They have no responsibilities with regard to water and
sewer grants, historic preservation, flood relief, or interstate land sales.
In most cases, they have little or no role in comprehensive planning, health
facilities, mobile home financing, land development, pxiblic housing, or new
commionities . In fact, they only deal with housing for persons below a
certain income level. Precisely because their role is so limited, they are
able to effectively administer the programs under their jurisdiction. As
a result, to the extent that they assume responsibility for all or a portion
of the administration of a given program, they relieve the burden on the
staff of the HUD area or insuring office, freeing them for other programs.

As to the charge that there are differences between the various
state agencies, we believe such differences are necessary and desirable.
The housing conditions and housing needs of various states differ.
Philaldelphia has a large number of housing units that were occupied while
some states were still Indian territory. The needs in New Jersey, our most
densely populated state are certainly different from those of Alaska, one
of our least densely populated states. Because these agencies are differently
constitutes, and because they have freely exchanged information and experi-
ence, they have all been able to profit from the experiences --good or bad--
that one had had under a given procedure or philosophy.

Many of the programmatic changes embodied in the 1968 Housing
Act, the 1970 Housing Bill and administrative procedures established over the
last six years by HUD have been the result of experimentation by state
housing finance agencies.

558

I would like to offer some specific recommendations to you:

1. We suggest that the Section 502 program (subsidized single
family) permit financing on a non-insured basis by state and local agencies
in the same manner which last year's bill permitted for the 402 (subsidized
multi -family) program. Mr. Robert Malakoff of the committee staff has
received this recommendation in a joint paper sumbitted by the staffs of
several state agencies including the Pennsylvania Housing Finance Agency.

2 . The Secretary of HUD should have the power to increase the
percentage of low-income occupancy in the 402 program in rural areas.
Last year's bill permitted up to 60 per cent low-income persons in housing
for the elderly, but strongly recommended a 20 per cent limit in family
housing. While the bill did permit flexibility above 20 per cent, there
should be a stronger statement for increased percentage in rural areas.

3. The funds for interest reduction assistance under Section 402
and Section 502 should be combined into one appropriation and channeled
through the states for allocation. Each state should then have the
responsibility and the authority to reallocate the funds to broad geographic
areas, and to determine the percentages that should be used for elderly,
homeownership, and rental programs, based on the needs within those geographic
areas. In those states with no direct financing capability, the funds

would be administered by FHA, subject to the georgraphic allocations. In
those states with direct financing capability, either all or a portion would
be allocated to the state agency, depending upon its production capability.
In addition to the obvious Congressional concerns over Equal Opportunity,
Congress can and should make provision to insure that the geographic

559

allocation made by the state is fair and equitable, and that the state
does not use these funds, or withhold them, for political leverage.
It is important, for example, that the geographic allocations be braod,
on a county or SMSA basis, in order to provide for a wide variety of
developable sites, and to avoid the possibility of effectively excluding
certain communities. While some people have argued that housing subsidies
should be allocated directly to commujjities , we strongly oppose such a move,
which would result in enabling communities to effectively ban the program.

4. State and local agencies should be granted the discretionary
power to decrease the term of the mortgage loan, and to receive Section 502
assistance on the basis of the differences between actual interest and
principal payments on the mortgage loan and the interest and principal on

a one per cent forty year loan. (The difference here is that the hypo-
thetical one per cent mortgage carries a longer term than the actual mortgage.)
There should be a provision, however, that the maximum assistance payment
would not exceed the maximum permissible on an FHA insured basis. Again,
Mr. Malakoff has a more detailed analysis with number work prepared by the
State Housing Agency Task Force. The result of this provision would be to
reduce both" the term of the mortgage and the total contractual obligations
of HUD without increasing the basic rent. We believe that this provision
would be particularly useful in the cose of rehabilitation which is nojrmally
caught in the squeeze between shorter economic life and the need to achieve
the lowest possible basic rent.

5. We believe that rehabilitation should be closely tied to
community development programs. Much of the failure of rehabilitation to

560

date has been caused by the fact that while rehabilitation brings a
substandard housing unit up to standard condition, the neighborhood itself
remains substandard. If housing rehabilitation funds are restricted to
those neighborhoods where there is a comprehensive comraxinity development
program, we can preserve existing neighborhoods, and restore deteriorated
neighborhoods to their former condition.

We do not believe, however, that new construction should be
limited to community development efforts. The urban problem cannot be
solved so long as low- and moderate -income families are denied access
to housing throughout the metropolitan area . Our Department of Community
Affairs has been leading the battle against exclusionary zoning, but our
victories will onlybe Pyrrhic if assisted housing cannot be built in
suburban communities once the zoning is made rational.

iHHHHMMHHMHHHHHHMH^

I

561
ATTACHMENT B

Commonwealth of Pennsylvania

Department of Community Affairs

Harrisburg

i7iao

THE secretary July 17, 1973

The Honorable John Sparkmon
Chairman, Senate Banking Committee
3203, Dirksen Senate Office Building
Washington, D. C, 20510

Dear Chairman Sparkman:

The Housing Assistance Council, Inc., a nonprofit organization
seeking to increase the production of housing in rural areas of the
nation, recently sent us copies of a paper they prepared analyzing
existing Federal rural housing programs and suggesting possible new
approaches in this area. This paper was submitted to U.S. Department
of Housing and Urban Development Secretary Lynn in response to his
request for comments on existing housing programs.

We have reviewed this paper and are writing to call it to your
attention and to endorse some of the ideas it contains.

The report, entitled "The Federal Government and Rural Housing,"
is particularly useful in pointing out the consistent bias in favcr
of urban areas that has been a feature of national housing policy in
this Country for years. As just one example of this, as of 1970, total
Federal expenditure for housing, excluding public housing and rent supple-
ments, worked out to $91 per capita in metropolitan counties, $40 in
non -metropolitan counties, and only $35 per capita in most rural counties.

In the area of public housing, non -metropolitan counties, with
44 per cent of the bad housing, and 43 per cent of the poverty popula-
tion, have only 22.5 per cent of the public housing units under annual
contribution contract.

With regard to existing rural housing programs , the report states
that the Farmers Home Administration Section 502 program, its version
of FHA's Section 235, cannot serve the poverty-level rural families
most in need of decent housing. The report does this by using some
startling figures to illustrate, that, for some rural poor, operating

562

costs, including maintenance, utilities, taxes and insurance, total
more than the principal and interest costs of a house. Therefore,
some rural poor could not afford decent housing even if the house
itself were free and all they had to do was pay the monthly maintenance
and operation costs.

Housing Assistance Council notes approvingly the work of the
Farmers Home Administration in making direct loans to home buyers,
and adds that the Farmers Home Administration program has been free
of the scandal which various Federal Housing Administration programs
have suffered in the past few years.

In addition, the report makes a major recommendation which ws
would like to endorse and commend to you for strong consideration.
This is the proposal asking that the Federal government recognize that
the rural poor in the United States can be housed decently only by
creation of a housing subsidy program which includes capital grants or
a combination of capital grants and low-interest Federal loans. It
seems clear from the current record that any housing program for the
rural poor which does not include out-right grants will simply not make
possible production of housing at costs which the rural poor can afford.

The report also suggests, and we recommend for serious study, the
idea that instead of the wide variety of housing assistance programs
which currently exist, housing assistance should be placed on a single
continuum ranging from housing needs which only could be met with
100 per cent grants to housing needs which could be met with low-interest
repayable Federal loans. This would offer flexibility that current
housing programs, with fixed rates of interest, lack.

The report also urges caution in considering any proposals for a
housing allowance program for rural areas. Primarily, Housing Assistance
Council suggests that since the supply of decent housing in rural areas
is currerrtly woefully inadequate, housing allowances, without being
coupled to a means of increasing housing production, would simply
cause great inflation in the costs of the existing housing.

Finally, Pennsylvania is currently seeking funding from the
Appalachian Regional Commission for a study to prepare Pennsylvania to
deal with possible new Federal housing regulations which may be enacted
in the future. This study will be conducted by a Washington, D.C.
consultant firm, which plans to give detailed consideration to the
proposals put forth by the Housing Assistance Council, Inc.

563

We sincerely hope that you will also give the most thorough
consideration to the Housing Assistance Council's proposals as
you prepare to enact new housing legislation.

S in cere ly, 'yours

'William H. Wilcox, Secretary
Department of Community Affairs

^C^

'VW.

K

'Kc n.X?

James A. McHale , Secretary
Department of Agriculture

99-855 o

pt. 1 -- 37

564

ATTACHMENT C

A Pennsylvania Report

Urban
Renewal

COMMONWEALTH OF PENNSYLVANIA
Milton J. Shapp, Governor

William H. Wilcox, Secretary of Community Affairs

566

Commonwealth or Pennsylvania

Department of Community Affairs

Harrisburg

THE secretary

To the Citizens of Pennsylvania:

I have often felt that the urban renewal and housing assistance
programs are two of Pennsylvania's best -kept secrets.

Although the urban renewal progfram has generated millions of
dollars of investment in Pennsylvania communities, and the growing
housing program is making possible thousands of homes for low- and
moderate -income families, many Pennsylvanians are at best vaguely
aware that these programs exist.

This report is an attempt to widen public understanding of
Pennsylvania's urban renewal and housing activities. It makes clear
the incredible return the taxpayers of this- Commonwealth have
received from a very small investment of their tax dollars.

In the wake of the recent and tragic flood disaster, this
Department, like every other, is re-examining its entire program.
Many priorities will change as the recovery effort continues. In
hard -hit areas such as Wilkes -Barre and its neighboring communities
on both sides of the Susquehanna, for example, long-range redevelop-
ment plans such as the ones described in this brochure have less
immediate urgency than meeting the housing needs of displaced flood
victims and repairing the damage wrought by the flood.

This disaster increases the challenge to use our urban renewal
and housing programs even more creatively for the purpose they have
always had--meeting the most pressing needs of Pennsylvania's
communities and citizens.

Sincerely,

William H. Wilcox
Secretary

567

Urban Renewal

For more than 20 years, the urban renewal program
has been helping Pennsylvania's cities, boroughs and
townships to build and rebuild. It has touched
communities in 50 of the Commonwealth's 67
counties, generating new investment, new tax
revenues and new jobs.

The production of low and moderate income housing
was minimal at the start of the program, but has
grown steadily in recent years. Rehabilitating older
neighborhoods and acquiring land for new ones are
now among the more common uses for urban renewal
money.

The program, which is administered by the
Department of Community Affairs, is well known to
most Pennsylvanians. But the sources of its support
are less visible.

Many Pennsylvanians are not aware that almost
$200 million of their state tax dollars have gone
into the urban renewal program since it began in
1949.

It is, in fact, only because of the continued support
of the Commonwealth's taxpayers and their
legislators that Pennsylvania is first among the 50
states in urban renewal, with almost 500 different
projects completed or underway.

From the $200 million Pennsylvania has invested in
urban renewal has come more than $1 billion in
Federal funds — a bigger share of Federal renewal
money than any state's except New York — and at
least $7 billion in private spending.

568

The

Pennsylvania
Renewal
Multiplier

State Funds
$194,988,091

Federal Funds
$1,067,866,020

Since 1949, Pennsylvania has appropriated
$194,988,091 for urban renewal.'

This has made Pennsylvania eligible for
$1,067,866,020 in Federal urban renewal funds. '

Federal, state and local spending on urban renewal
has generated at least $7,000,000,000 of private
Investment In Pennsylvania communities.

Private Investment
$7,000,000,000

' As Ot 6130172
' As ot 6130171

569

How Does
Pennsylvania
Make It Work?

BY HELPING TO MATCH
FEDERAL DOLLARS

The Federal Government will pay for two-thirds or
three-quarters of any urban renewal project it
approves, depending on the size of the community.

It will also grant credits to a community for
improvements in or near the project, such as schools
and sewers and highways.

The rest has to be paid in cash. In Pennsylvania,
almost all of that cash is provided by the state.

The state puts up 72 percent of the required non-
Federal cash for the average urban renewal project.
Outside of Philadelphia and Pittsburgh, it puts up 90
percent. In some communities, it provides even more.

Mere are a lev

V examples.

State Share

of

Non-Federal

County

Municipality

Project

Cash

Allegheny

Wilkinsburg

Wilkinsburg
West

93%

Dauphin

Harrisburg

Walnut Street
Neighborhood

100%

Delaware

Chester

Development
Program

100%

Lackawanna

Scranton

Central Tech

100%

Schuylkill

Pottsville

Center Street

100%

Venango

Oil City

Gateway

96%

BY GIVING COMMUNITIES
MONEY TO PLAN

The state gives planning grants to communities to
help them qualify for urban renewal dollars.

Since 1949, it has given more than $6.8 million of
these planning grants to local redevelopment
authorities. This initial outlay has brought more
than $234 million in Federal urban renewal funds to
the communities involved — a 40 to 1 return.

In the last four years, 78 percent of these planning
funds have gone to communities with less than
25,000 people. Half of that amount has gone to
communities of under 10,000 people.

BY SUPPORTING

SOME LOCAL PROJECTS

Some state money goes to support worthy urban
renewal projects which do not meet Federal
guidelines or are unable to get Federal dollars.

In 1970-71 , the state spent $2,823,664 on these
state-local projects, about 14 percent of its total
spending.

In addition, the state has appropriated more than $2
million during the past three years for code
enforcement projects. An increasing share of this
money has been going to state-local programs for
regional code enforcement.

570

571

Erie:

Rebuilding
a Center City

The old downtown Erie was picturesque — and
obsolete. Poor traffic circulation, insufficient
parking, lack of shopper conveniences, disrepair
and neglect were all reflected in falling property
values. On some sections of State Street,
storefronts were going for $5 a month plus taxes.
There were no takers.

In 1965, Erie set out to stop this seemingly
irreversible decline. It got $2.1 million in grants
from the state, and that in turn made possible $15.8
million in Federal grants.

Erie used the money to create a new center city — a
new Municipal Building, college classrooms, office
buildings, shopping malls, hotel, high-rise housing
and housing for the elderly, parking areas,
sidewalks and sewers. Private investment helped
make it possible.

In the 12-block downtown area alone, there will be
$11 million more in tax ratables when renewal is
completed than there were when it started.
Commercial activity is growing and should grow even
more with the completion of the State Street Mall,
open only to pedestrians and public transportation.

Erie now has a firm economic base. It wants to use
that base in the 1970's, according to its
Redevelopment Authority, to help create better
housing and a better living environment for Erie
residents.

572

^P^^f«iW^^^^^^^

573

Susquehanna Borough:

Saving

a Small Town

For Susquehanna Borough, it had become a question
of survival. When the main repair and coach shops of
the Erie Railroad closed down in the '50's, poverty
began to set in. A decade later, the borough's
unemployment rate was above 1 1 percent. Its young,
productive people were moving out.

No commercial development had taken place in the
borough for years. Many stores had shut down. The
one new business the Industrial Development
Corporation brought into town had layoffs and labor
trouble and didn't really lift morale.

Yet some community spirit remained. It was reflected
in the support for a new consolidated high school and
a new fire company building, f^/lost of all, it was
reflected in Susquehanna's desire to do something
about its downtown, which was dying for lack of
anything to attract people to it.

But the borough had no comprehensive plan nor
codes and couldn't meet the Federal requirements for
urban renewal. So it turned to the state with a plan for
acquiring and demolishing three older downtown
buildings, two of them vacant. They would be
replaced with parking spaces and a lot that would be
sold to a commercial developer for new stores.

The state agreed and the project got underway last
year. The total cost to state taxpayers was $23,350 —
a small item, barely noticeable in the state redevelop-
ment budget. In Susquehanna Borough, it may have
been the price tag for survival.

574

575

Philadelphia:

Rehabilitating
A Community

Ten years ago, a section of the old sewer that runs
through the West Philadelphia neighborhood of Mill
Creek collapsed, killing three people and plunging
several houses into the sewer bed.

Philadelphia's Redevelopment Authority was called in
the wake of the disaster to acquire other houses
along the sewer bed, raze them and use the sites for
recreation purposes, not for housing.

But it was clear to many of the 14,000 residents of
West Mill Creek that a quieter, longer-lasting disaster
was taking place throughout the community. Its 2200
row homes, most of them almost fifty years old, were
only in fair to poor condition. The evidence of decay
was mounting — graffiti-covered walls, empty lots,
litter.

The Redevelopment Authority decided to try averting
that disaster. But it needed state help. The state came
through with $1.85 million in urban renewal funds.
This helped Philadelphia to obtain $11.3 million in
Federal funds. With this money, the Redevelopment
Authority was able to acquire several tracts for new
housing and several properties for rehabilitation.

So far, more than 300 new homes have been built or
are under construction and almost 500 houses have
been rehabilitated. The state helped with the housing
through grants to the non-profit Philadelphia Housing
Development Corporation. PHDC has built a
neighborhood of 55 homes in the $18-19,000 range, is
rehabilitating 80 properties and plans to build 56 more
units. Without a $306,800 grant from the Department
of Community Affairs, PHDC would have been unable
to start this work or qualify for Federal subsidies.

There have been other benefits to West Mill Creek. A
new YMCA facility is being built. Some of the home
rehabilitation work was done by a black contractor
recruited through the Philadelphia Urban Coalition.

Recently, the state gave Philadelphia almost $400,000
to plan more housing renewal in areas adjacent to
West Mill Creek. The city has had many examples of
how decay and abandonment spread from one
community to another. Now West Mill Creek may
show that renewal and rehabilitation can do the same
thing.

576

577

Lebanon:

Keeping

a Neighborhood

Together

More than a fifth of Lebanon's families live on its
north side. They are mostly working people, with
moderate incomes.

The row and semi-detached homes they live in
were built 60 to 70 years ago; many of them are still
occupied by the sons and daughters of the
builders.

But, by the mid-1 960's, the signs of physical wear
were unmistakeable. The exterior walls of many
houses were eroded; sidewalks were crumbling;
streets were cracking.

Lebanon turned to the state to prevent the decay
from getting more serious. It got a $160,000
planning grant which later enabled it to obtain $3.3
million in Federal renewal funds.

With that money, Lebanon is having 592 north side
homes rehabilitated. It has also cleared some land
for a new ci^y fire station, a small tot lot and
playground, new moderate income housing and
Industrial expansion.

The entire Neighborhood Development Program will
take two or three more years to complete. By then,
the north side will look like the stable neighborhood
its families want it to be.

578

579

Pittsburgh:

Building
All-Income Housing

The Essex House, when it is completed, will probably
be renting apartments for above $250 a month. Penn
Plaza and Pennley Park have rents ranging from $130
a month to $200. The Harriet Tubman Terrace charges
from $40 to $72, depending on your income.

What they have in common is that their construction
was made possible by Pittsburgh's East Liberty urban
renewal project.

The main goal of the 254-acre project, one of the
largest in the country, is to provide more low-and
moderate-income housing. But since 1961, when
renewal got underway, it has also been an incentive
for diverse housing and commercial development.

East Liberty was Pittsburgh's largest commercial area
until after World War II, when it began to give in to
competition from suburban shopping centers. In the
mid-1950's, Pittsburgh sought state and Federal help
to save the area. It got $8.7 million from the state; this
helped make possible $40.9 million from the Federal
government.

Since then, its Urban Redevelopment Authority has
torn down 1,500 dilapidated housing units — which are
being replaced with 1,900 new units. In addition, more
than 1,000 units are being rehabilitated.

The housing now available in East Liberty ranges from
public housing, rent subsidy and subsidized
ownership to moderate-and high-income rentals.
There are also new community facilities such as the
Tubman Terrace, which has special facilities for the
elderly and handicapped, as well as a new park,
stores and pedestrian malls.

99-855 O - 73 - pt. 1 -- 38

580

4. »

581

WilkeS'Barre:
After A Disaster

The devastating floods of June, 1972, brought on by
hurricane Agnes, occurred while this publication was
being prepared. The Commonwealth was declared a
disaster area by the U.S. Office of Emergency
Preparedness because communities across the state
had suffered serious damage to their housing and
building stock.

Most hard hit of all the areas in the state were the City
of Wilkes-Barre and its neighboring communities in
the Wyoming Valley on both the east and west sides
of the Susquehanna River.

In Wilkes-Barre, approximately 5,000 residential units
and 1 ,500 commercial structures sustained major
structural damage of an estimated $65 million.

Another 1 5,000 homes and buildings were damaged in
such West Shore communities as Kingston, Forty Fort,
West Pittston, West Wyoming, and Swoyersville.

Among the first grants provided to these beleaguered
communities was a $7 million grant from the
Pennsylvania Department of Community Affairs to the
combined Wilkes-Barre and Luzerne County
Redevelopment Authorities.

The funds were to undertake site development for
temporary housing and to face urban development
problems caused by the flood.

582

Urban Renewal
— The Job Ahead

— An even greater share of urban renewal funds must
be used to provide housing for Pennsylvania's lov» and
middle-incotne families and elderly people.

— More attention must be paid to rural poverty in
Pennsylvania. Programs to fight urban and rural blight
must be more closely linked.

— Blighted neighborhoods have human problems as
well as physical problems — crime, drug addiction,
alcoholism, unemployment. Ivlore emphasis must bo
placed on dealing with these problems.

— For less affluent communities, the Commonwealth
should develop variable funding formulas which
would take into account both the nature of each
urban renewal project and the financial situation of
the community.

— In general, there should be an effort to find new
and more productive uses for urban renewal funds.

583

Housing Assistance

"No amount of rhetoric will solve Pennsylvania's
housing problem. The Commonwealth has not done
enough on its own behalf. There is a great deal it
can do— if it has the will."

Governor's Housing Task Force, 1969

Pennsylvania has a long way to go in meeting the
housing needs of its low and middle-income families.
It still lags behind many of the major industrial states
in its efforts to spur housing production.

But there have been some major advances since the
Housing Task Force made its report:

The Commonwealth, through the Department of
Community Affairs, has given public and non-profit
housing sponsors more than $6 million. This will make
it possible for them to obtain Federal subsidies and/or
mortgage financing for almost 10,000 units of new and
rehabilitated housing.

Through the Pennsylvania Housing Agency and the
state and school employes' retirement funds, the
Commonwealth has committed itself to buying $4
million in low-cost mortgages, bringing home owner-
ship within the reach of more than 400 Pennsylvania
families.

The Department of Community Affairs has financed
job training in home rehabilitation and construction;
helped businesses to get tax credits for investing in
non-profit housing developments and supplied
professional housing consultants to the t^odel Cities
program.

In addition, an increasing share of Pennsylvania's
urban renewal money is being devoted to housing.

584

Pennsylvania's
Investment
in Housing

Aid to Housing Sponsors $6,264,895

Pennsylvania Housing Agency (Mortgages) 1 ,604,500 •

State & School Employes Retirement

Funds (Mortgages) 2,393,053

Manpower Training 547,657

Tax Credits 80,190

Anti-Poverty Programs 63.599

Model Cities 47,000

TOTAL $11,000,894

'Asol12l31l71
'As 013122172

(This total reflects Pennsylvania's direct investment in hous-
ing. It does NOT include Pennsylvania's spending on urban
renewal programs, many ol which produce housing.)

585

Pennsylvania's
Return
On Its
Investment

$
$

9,848 units of new and rehabilitated
housing

425 mortgages for low-income families'

$187,112,000 in new construction value

19,000 construction jobs for one year

$4,294,000 per year in additional local real
estate taxes

$8,863,200 per year in additional Federal
housing funds

Ms ot 3122172: all other figures as of 12131171

(These figures measure the impact ot Pennsylvania's direct
investment in housing. They do NOT include any of the non-
state-aided housing construction which is being generated
by Pennsylvania's spending on urban reneviial programs.)

586

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587

Philadelphia-Chester
Township:

To Own A Home

Building an attractive community of homes tfiat low-
and moderate-income families can afford isn't an easy
job.

But the Maple Corporation, a non-profit group, had
been set up by the Haas Community Fund in
Philadelphia in 1967 to aid just those families in ob-
taining a decent place to live.

So the Corporation eagerly took on the challenge of
building 1 54 four-bedroom twin homes for families
earning from $6,500 to $9,000 a year on 28 acres of
urban renewal land in suburban Chester Township,
Delaware County.

It decided to seek financing for the homes under
Section 235 of the National Housing Act. This
provides Federal subsidies which can push interest
rates down as low as one per-cent. Without these
subsidies, new homes in today's market are mostly
out of reach for low and middle-income families.

But the maximum cost per house allowed under the
Section 235 program is $23,000. The Maple
Corporation found it couldn't get the homes built in
the Philadelphia area for less than $25,000 apiece.

So it turned to the Department of Community Affairs
to make up the difference. The Department
responded with a housing assistance grant of
$121,220 — enough for the first stage of 58 homes.

Now, almost all of these homes are built, many
families have moved in, and plans for the second
stage of homebuilding are underway.

"It would have been impossible to build housing for
ownership by low and middle-income families
anywhere in the Philadelphia metropolitan area," the
Corporation's executive director wrote recently,
"without the assistance of the state through
Community Affairs."

588

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589

Altoona:

Housing
Versus
Empty Lots

The six houses stood facing Lexington Avenue a
few blocks from downtown Altoona, in the middle
of a neighborhood that had been residential for 75
years.

The city had red-tagged them, meaning they were
unfit for living. It was preparing to tear them down.

Improved Dwellings for Altoona, Inc., a coalition of
religious groups, asked the city not to. Why should
there be a weed patch defacing a good neighborhood,
with the city responsible forever for its upkeep — when
the houses could be rehabilitated?

The state had given IDA $129,500 in housing
assistance funds to start work on the estimated 900
to 1 500 units in the Altoona area that could use
rehabilitation. Those six houses became the first.

IDA started work in 1971. It was a total job; new
wiring, plumbing, heating, kitchen, bedrooms,
bathroom, roof, porch. By the beginning of 1972,
they were finished, in "good as new" condition. Six
houses ready for sale at $12,500 each — Instead of
an empty lot.

590

591

Fayette County:

Those
Who Help
Themselves

They are the "patch villages." Located outside the
small urban hubs of counties like Fayette, they are
held together only by their people's desire to be
there or lack of desire to be somewhere else. Their
housing reflects this; in Fayette County, 47 percent
of the housing is substandard.

Smock is a town of 454 persons, six miles north of
Uniontown on Route 51 . It was a typical "patch
village" — until 1970, when a group of former anti-
poverty workers who call themselves Concerned of
Pennsylvania, Inc., took the risk of believing it
could be something better.

They helped to form a Smock Citizens Committee.
With grants from church groups and $25,000 in
seed money from the Pennsylvania Department of
Community Affairs, they purchased several old
homes and some ground.

Then the rehabilitation began. It was an unlikely
work crew — volunteers from around the county;
students, including retarded students, from the tri-
county intermediate school; Neighborhood Youth
Corps workers; people on welfare.

But they did it. The first few units, totally
rehabilitated, have been sold for $9,500. And
Concerned of Pennsylvania has begun work in
Dunbar, another little Fayette County town.

It is too early to say what their success means.
Maybe just four or five houses in a small rural
Pennsylvania town. Or, maybe, the beginning of
hope for a lot of small towns.

592

The Homeo>A/ner's Subdivision

93 SINGLE FAMILY HOMES UNDER CONSTRUCTION BY
METROPOLITAN ERIE HOUSING DEVELOPMENT CORPORATION

3 JOri fauUQ3S jLOBffi.

KWT ISTM n

MtOJCCT ra Nf CMUriOM ANU

PLANNED RESIDENTIAL DEVELOPMENT FOR
MODERATE INCOME FAMILIES

93 SINGLE FAMILY HOMES

3 AND 4 BEDROOMS

INCLUDES SEWERS, WATER, ELECTRIC

GAS AND STREET LIGHTING

ALL UTILITY LINES UNDERGROUND

CONCRETE STREETS, CURBS

WIDE VARIETY OF SIDINGS AVAILABLE

(INCLUDING ALUMINUM)

CARPETING

■/2 INCH INSULATED WINDOWS

THROUGHOUT

DRIVE THROUGH
SITE ON 26TH STREET
TO SEE HOMES
UNDER CONSTRUCTION

APPLICATIONS
NOW BEING
ACCEPTED

SPLIT FOYER/RAISED RANCH
3 BEDROOM

IF YOU CAN FULLY QUALIFY. UNDER PROVISIONS
OF THE NATIONAL HOUSING ACT, SECTION 235

ANNUAL PERCENTAGE RATE
OF INTEREST CAN BE ^ '
AS LOW AS

EXAMPLE!

A TYPICAL $20,500 single family home under pro-
visions of NHA 235 could, for fully qualified applicants,
be acquired for as low as $200 DOWN; $66.01 PER
MONTH for 360 months.

(PRICE INCLUDES principals interest only;taxes plus
Mortgage and Fire Insurance would raise monthly
payments to approximately $1 15.00 per month.)

■ IPW^ ,"t-:-

SPLIT FOYER/RAISED RANCH
— 4 BEDROOM

SPLIT FOYER/RAISED RANCH

— INTEGRAL GARAGE

— 3 BEDROOM

STORY & HALF— 4 BEDROOM
— FULL BASEMENT

IF YOU ARE ELIGIBLE, OTHER FHA OR VA MORTGAGE LOANS • CONVENTIONAL MORTGAGES

CALL, WRITE OR VISIT PHONE: 453-5691

METROPOLITAN ERIE HOUSING DEVELOPMENT CORPORATION
811 COMMERCE BUILDING, TWELFTH & STATE STREETS, ERIE, PA. 16501

593

Erie:

The Need Is Obvious

To a group of citizens in Erie, it was obvious. The
need for moderately priced housing was there. The
land for moderately priced housing was there. The
financing for moderately priced housing could be
put together — but only if there was a non-profit
corporation with a little capital behind it.

So they created the Metropolitan Erie Housing
Development Corporation. They sought, and got,
$150,000 in seed money from the state housing
assistance program, through the Department of
Community Affairs.

With that, they were able to obtain loans to purchase
and develop a 20-acre site in Erie. They got
permanent mortgages totaling almost $2 million for 93
homes and qualified for Federal subsidy programs.
They convinced the city to construct storm sewers,
water line installation and street lighting.

Now more than a third of the homes in "The
Homeowners' Subdivision" are occupied, and Metro
Erie has gone on to a new project: a 300-unit planned
residential development in nearby Millcreek
Township.

They have obtained another $150,000 in state seed
money to get the development going. They will call it
the "Modern Average American Neighborhood" —
because they want to make clear that the only way to
get good housing today for the modern average Amer-
ican is if concerned citizens, and their government,
are prepared to help.

594

Housing Assistance
— The Job Ahead

— The concentration of low-and moderate-income
housing in Pennsylvania's center cities must be
reduced. The Department of Community Affairs is
monitoring state and local land use controls to
encourage communities to develop balanced
residential patterns. The grant programs of the
Department, including recreation and planning, are
being administered so as to encourage communities
to authorize housing for families of all races and
economic levels.

— The Department of Community Affairs will continue
to vKorl< with Federal officials to encourage the
development of new communities in Pennsylvania and
the building of "new town " projects within its cities
and metropolitan areas.

— Urban renewal funds will be used in more
innovative ways to spur the production of low and
moderate-income housing, including housing in rural
areas.

— The 12-year-old Pennsylvania Housing Agency can
begin to play a major role in helping Pennsylvania's
low and moderate-income families and the elderly to
find good housing. If proposed legislation is adopted,
the Agency will have wider powers to finance single
and multi-family housing and make loans to
developers of such housing.

— Industrialized housing production should continue
to grow with the assistance of state agencies, mailing
it easier to increase the Commonwealth's housing
supply at reasonable cost.

595

The Chairman. I would agree with you completely on that. T\Tiere
the arrangement is such that there is a close tie, that is a different
proposition. Thank you very much. You have given us a very fine
statement.

We have one more witness, Mr. Richard Tucker, Deputy Director of
the Housing Assistance Council.

STATEMENT OF RICHARD TUCKER, DEPUTY DIRECTOR, THE
HOUSING ASSISTANCE COUNCIL; ACCOMPANIED BY ARTHUR
COLLINS

Mr. Tucker. Thank you, Mr. Chairman. I am Richard Tucker,
Deputy Director of the Housing Assistance Council. With me is Mr.
Arthur Collins, one of our members of our technical staff. We have
submitted a full statement of the Council position on a number of
matters. I would like if I may to try to summarize that statement for
you.

The Chairman. Very well.

[The complete statement of Mr. Richard Tucker may be found at
p. 598.]

Mr. Tucker. The Housing Assistance Council is an organization
funded by OEO to provide training, technical assistance and seed
money to private and public sponsors of low income rural housing.
Since' its creation we have tried to perform those functions and also
publicize the need and crisis in rural housing.

Our statement contains some of the well known statistics about

situations in rural areas. I am sure you are very familiar with those

so we can skip those. Your committee has before it Senate bill 361,

-the Emergency Rural Housing Act, originally introduced by Senators

]McGovern and Abourezk.

This bill has much to recommend it, as it is addressed to the three
major rural housing problems facing us today. First, it recognizes
the necessity to develop a comprehensive system of low income hous-
ing delivery institutions to serve all rural areas of the country.

Second, "it recognizes that most housing subsidy programs, espe-
cially the home ownership programs appropriate to rural needs, do not
serve the very poor. Finally, the Emergency Rural Housing Act
emphasizes that effective Federal action requires a recognition that
the housing problems of rural areas are distinct from and equally
severe as those of our larger cities, and that they demand at least an
equal amount of attention in their own right.

I would like to briefly expand on some of these points.

First on the point of housing delivery system. You have heard
today from various representatives of the cities and States. In the
cities there are institutions that deliver housing both private and pub-
lic institutions. The major problem in the rural areas is that first of
all there are no public institutions for the most part dealing with
delivering housing and community services and the private market
is also absent in terms of lending institutions, builders, nonprofit cor-
porations, interested in housing production, et cetera.

We feel the first step is to develop public agencies needed to deliver
these housing opportunities to rural areas. We think that those kinds
of agencies should have two basic characteristics. First they should

99-855 O - 73 - pt. 1 -- 39

596

have regional jurisdiction. Earlier in the morning you made refer-
ence to the State of Alabama and the success of its regional planning
commission.

We think this same type of success could be employed in the
regional housing. The regions are nearly the same. In many rural
areas there is not a demand for housing sufficient to make that hous-
ing financially feasible in terms of management and getting the kinds
of staffing that you want to run your housing agencies.

We believe that if some of this can be regionalized, both manage-
ment and the opoprtunity to get the staffing you need will be greatly
enhanced.

Second, we think that the agencies should have the power to deal
with all housing and community development problems and that
would include water and sewer and so on. This includes everything
involved in the broad term of community development.

To establish these kinds of agencies we feel that it is necessary
for the Federal Government to provide an incentive for localities
to join together. We feel this incentive should be entitlement under
whatever community grant, or block grant legislation is finally
passed.

We believe that areas which have regionalized and which have
put together effective delivery systems ought to be entitled to a por-
tion of those grants such — just as the cities and the urban counties
and metropolitan areas are entitled to certain appropriate shares.

Let me preface my remarks now that since we are an OEO funded
organization, we are primarily interested in housing for those people
who are at the lowest level. We are talking about people at the pov-
erty level. In that respect, I think it is quite evident that most of the
subsidized housing programs today, both in FHA programs and
Farmers Home programs, do not effectively reach this level.

Again, our statement contains statistics which will supnort that
position. The one program we feel that does have the kind of sub-
sidy and the kind of overall ability to serve the people in these low-
est income areas is the public housing program.

Unfortunately, to date the public housing program has had little
or no success in the rural areas. In that regard we would urge the
committee first that we believe the public housing program should
be continued. Second, we believe that considerations should be given
to making statutory allocations in this program for rural areas.

597

I am skipping over much of this material and we ask you to read
it at your leisure. Basically, I think that summarizes our position.
I would conclude by saying that the programs that we have today
are not serving the rural areas, they are not serving the poorest peo-
ple in the rural areas ; we believe that consideration should be given
to developing an effective delivery system to serve those areas, and
that consideration should be given to developing subsidy programs
which would serve the lowest income people in those rural areas.

I think that it is time that the problems of rural areas are recog-
nized as being as bad, if not worse, than the problems in urban areas.
Thank you, Mr. Chairman.

The Chairman. Thank you, Mr. Tucker.

I have gone through your paper more fully than you presented it.
You have some very good suggestions in there with reference to
legislation that would help provide housing in rural areas.

I strongly support an active program for rural housing. We have
been slow in getting things going in rural areas, certamly to the
extent that they ought to be moving ahead. I am sure the committee
will be glad to have your suggestions and will take into consideration
your remarks about this legislation.

Thank you very much.

Mr. Tucker. Thank you, Mr. Chairman.

The Chairman. The committee will stand in recess now until
10 a.m. on Friday morning ; that is, tomorrow morning.

[Whereupon, at 12 noon the subcommittee recessed, to reconvene
at 10 a.m., Friday, July 20, 1973.]

[Complete statement of Mr. Tucker follows :]

598

Housing Assistance Council Inc.

Executive Director
Gordon Cavanaugh

Suite 600

1601 Connecticut Ave., N.W.

Washington, D.C. 20009

(202) 483-1426

STATEMENT OF RICHARD TUCKER,

DEPUTY DIRECTOR OF THE HOUSING

ASSISTANCE COUNCIL, INC.

SENATE SUBCOMMITTEE ON HOUSING AND
URBAN AFFAIRS

July 19, 1973

Mr. Chairman and Gentlemen of the Committee: I am Richard
Tucker, Deputy Director o£ the Housing Assisteince Council, an OEO
funded organization which provides training, technical assistemce,
and seed money loans to public and private sponsors of rural low-
income housing. Prior to the Housing Assistance Council, I was
the Executive Vice-President of the Philadelphia Housing Develop-
ment Corporation, and also the Executive Director of the Phila-
delphia Housing Authority. I appreciate this opportunity to share
with this Committee some of the things I have learned about rural
housing problems since leaving the nation's fourth largest city.

Since its creation the Housing Assistance Council has worked,
along with several other rural housing organizations, to document
and publicize the severe housing problems of the rural poor. We
have been pointing out the fact that rural areas have only one-
third of the nation's population, but approximately one-half of the

Lenin |uarez. Director — Southvyest Regional Olfice
1404 San Mateo Ave., S.E. • Albuquerque, New Mexico 87108 • (505) 268-4351

599

poverty and the inadequate housing. Repeatedly, we have shown that
the incidence of bad housing in non-metropolitan areas is three times
greater than in the cities; one non-metropolitan house in eight is
inadequate, as compared to one metropolitan house in twenty-five.
We have tried especially to point out the plight of minority groups -
that, for example, 3 out of every five black families in rural areas
live in bad housing, or that approximately one-quarter of a million
hard working farm labor families do not have a decent place to live.

We have, in effect, sought various ways to illustrate the same
simple point — that there is a housing crisis of vast proportions in
rural areas. Always we have hoped that each new set of figures,
each new revelation, would make more people take notice of the pro-
blem, and perhaps help in some way. We will continue bringing to
light rural housing conditions and problems, because much remains
to be investigated and documented, and so many people remain to be
convinced that the problems exist.

However, eunong us here today - legislators, policy makers,
housing professionals - there is no need to recite the statistical
litemy of rural housing problems. We, at least, are only too well
aware that they exist, and the task before us is to devise the best
ways to meet these problems.

This Committee now has before it Senate Bill 361, the Emergency
Rural Housing Act, originally introduced by Senators McGovern and
Abourezk. This Bill has much to recommend it, as it is addressed
to the three major rural housing problems facing us today. First, it
recognizes the necessity to develop a comprehensive system of low-

600

income housing delivery institutions to serve all rural areas of the
country. Secondly, it recognizes that most housing subsidy programs,
especially the home ownership programs appropriate to rural needs, do
not serve the very poor. Finally, the Emergency Rural Housing Act
eiq)hasizes that effective federal action requires a recognition that
the housing problems of rural areas are distinct from and equally
severe as those of our larger cities, and that they demand at least
an equal amount of attention in their own right. I would like briefly
to expand on each one of these points.

Housing Delivery System

Coning from a major city, I found one very serious barrier to
the development of low-income housing in rural areas for which I was
entirely unprepared. In the cities, we have acomplete set of housing
and housing related institutions - often referred to as a delivery
system - which produce low-income housing. In the cities we are con-
cerned more with the scarcity of housing subsidies than with the
adequacy of our institutions. In small towns and rural areas, how-
ever, it is not just insufficient funding of federal subsidy programs
that prevents an adequate response to housing needs, but also the
virtual non-existence of the public and private agencies and in-
stitutions necessary to deliver the subsidies that are available.

For example, a study completed last year by HAC, now receiving
wide circulation, showed that one-half of the nation's counties,
almost all of them rural, still have no public housing at all. This
is most often because they have no public housing authority to give
impetus to the development of low-income housing. Beyond public
authorities, though, the institutional scarcity includes all types

601

of housing delivery mechanisms, such as builders, lending institutions,
limited dividend and nonprofit developers , or renewal and code
agencies. Because most existing housing programs depend on some
local public or private institutions, they just will not serve
many irural areas if the institutions do not exist and the initiative
is not forthcoming.

Even the Farmers Home Administration single-family home
program, which is administered through the ?mHA county office,
often requires some sort of third party intervention, such as an
interested builder/developer or a community organization, to edu-
cate people to the housing options open to them and actively help
them qualify for assistance. While we do not have enough hard
data available, what we have discovered suggests that the wide
variations in performance among Farmers Home county offices is
largely related to the presence or absence of other housing insti-
tutions in a given area.

Based upon our experience with rural housing and community
development problems, the Housing Assistance Council is firmly
convinced that small towns and rural areas will not be able to take
full adveuitage of whatever housing and community development
assistance is made available to them until they develop the insti-
tutional-capacity that is so sorely lacking. The development of-
strong rural housing and community development institutions is a
necessary first step, and one we suggest can be simply and effec-
tively taken through a strong federal initiative to encourage the
creation of a comprehensive network of publicly created rural
housing and development agencies.

602

The type of rural housing and development agencies I an
speaking of here would have two basic characteristics. First, they
would have regional jurisdictions. There is evidence that sroall
housing and community development programs suffer from inherent
administrative problems. One of the most prevalent of these is
the inability to attract and keep competent staff. If small rural
towns are to benefit from a high level of competence in housing
and community development programs, it is necessary to create re-
gional agencies which will administer programs of sufficient size
to attract talented staff and utilize modern management techniques.

Secondly, the agencies that need to be created would have
the powers to deal with all housing and community development
problems, and be eligible for all relevant federal and state sub-
sidy assistance. This includes not only public housing, but also
the interest subsidy programs now serving more moderate income
families. It includes also such things as renewal, codes, water
euid sewer development, and industrial facilities. It has been a
mistake in the past to fragment housing and other related community
development activities among several types of agencies. It has
hurt coii5)rehensive planning and coordination, and artificially
separated activities which should be the responsibility of a single
community development agency. What we should aim for in rural areas
are multi-purpose housing and community development agencies able
to undertake a wide range of services and programs.

The federal role in encouraging the creation of these rural
housing and community development agencies is an important one.
The federal government has in the past successfully encouraged the
creation of numerous rural regional planning cind economic develop-

603

ment organizations by making available technical assistance and
funds for initial operating expenses. We would urge that any future
housing legislation also include provisions for such financial
and technical assistance to small rural tovms which wish to join in
the creation of a multi-purpose regional housing and development
agency.

We also ask that the language in existing law which prohibits
public agencies from sponsoring interest subsidy programs be re-
moved, thereby allowing rural public agencies to develop really com-
prehensive housing programs. However, only a significant incentive
is likely to bring about the formation of the appropriate regional
housing and development agencies. We believe that the potentially
most effective incentive for the formation of regional development
agencies in non-metropolitan areas would be to grant such bodies a
formula entitlement share of the community development funds pro-
posed in pending block grant legislation, just as an entitlement is
provided for cities and urban counties in metropolitan areas.

Presumably, the rationale for granting entitlement to cities
and urban counties in metropolitan areas is that they are deemed
to have public agencies of sufficient capabilities to use the
federal aids effectively. Rural areas should be given the same
opportunity. If rural counties and small towns can cooperatively
create functional-sized and properly staffed rural agencies, they
too should be given entitlement status. Anything else would be
plain discrimination. Entitlement status would be a compelling
incentive, we believe, since under this year's commiinity development
bill, S.1744, governments in non-metropolitan areas would have to
coit^jete against all other non-metropolitan governments in the co\in-
try for a portion of the non-metropolitan share of community

604

development funds. Entitlement would be a vastly prefereible sit-
uation. It also would surely lead some states to work with rural
localities in forming appropriate regional rural development
agencies to achieve entitlement status.

It is probably not possible now for the federal government to
dictate the specific form a national system of broad-area rural
development agencies should take. There may always be too many
variations among states in size,, population density, configuration,
attitudes towards governmental agencies, existing public structures
and laws for new legislation to attempt a national blueprint. How-
ever, federal legislation can provide incentives for the formation
of local public agencies which possess the powers, relationships
and general charteristics of the type of rural development agency
that is necessary. In this manner, if the incentives are effective,
better public administration and pxiblic results can be brought
about in rural areas and significant progress made in development
of STibsidized housing and related community facilities. If such
improvement is not encouraged, rural areas will continue to fall
further behind the cities and the siiburbs in meeting their housing
and community development needs.

Housing Subsidy Progreims

Institutions, of course, are only one part of a housing de-
livery system, and one part of the problem. We must also consider
the subsidy programs. Before doing so, however, let me point out
that the Housing Assistance Council, as an OEO funded organization,
is interested primarily in the housing conditions of the poorest
people — poverty level people.

605

We are all aware now that the interest subsidy programs that
have been in existence since 1968 do not serve the poor, except
occasionally in low cost areas, or when additional subsidies such
as self-help or manpower have been added. Statistics made available
by the Farmers Home Administration show that in fiscal 1972, only
11% of all interest credit Section 502 loans for homeownership went
to families with annual incomes under $4,000, which is slightly be-
low the poverty level for a non-farm family of four. The average
unadjusted income for families receiving 502 loans in fiscal 1972
was $6,502. Clearly, with such a small portion of loans going to
poor or near poor families, the 502 program cannot be considered
to be a low- income housing program. Nor can the program be con-
sidered to be meeting the most desperate need for rural housing when
we realize that the Census Bureau has recently shown us that fully
68% of the housing in rural areas which is lacking essential plumb-
ing facilities or is severely overcrowded is occupied by persons
and families with unadjusted annual incomes of below $5,000.

The interest credit Section 235 program administered by HUD
is similar to the 502 program. However, in the past this has been
largely an urban oriented program, and not often do you find a Section
235 project in rural areas and small towns. At any rate, the Section
235 program largely serves the same moderate income families now
served by the section 502 program. In fiscal 1972 the average
family income in 235 housing was also over $6,000.

The multifamily Section 236 program, with only an interest
subsidy, also cannot serve the poor, though the rent supplement
payments attached to a portion of the Section 236 projects do

606

manage to serve poverty level people. The problem with the Section
236 program, and thus also with rent supplements, is that it is hardly
ever found outside of metropolitan areas. The rural counterpart to
the 236 program is the Farmers Home Administration Section 515
multifeutiily program. But this rural interest credit program, besides
having never produced more than 4,000 units in a single year, does
not have rent supplements attached to it as does the urban 236 pro-
gram.

It appears then that the specifically rural interest credit
progrzuns that exist are not serving the poor, except occasionally,
and that rent supplements, the interest credit program that can
serve the poor, is not serving rural areas. We at the Housing
Assistance Council had to face this fact quite awhile ago, and
having done so we have come to the conclusion that the only federal
housing program that is now consistently serving poor people and
rural areas is the public housing program.

Unfortxonately , the public housing program is now experiencing
one of the most trying periods in its long history of vacillating
fortunes. I would like to take this opportxanity to caution the
Committee against putting too much weight on the criticisms of the
program that are loosely thrown about today. Careful consideration
of these criticisms show that they are superficial — of little real
svibstance. For example, we hear talk of alientating high-rise build-
ings in decaying sections of large cities. Obviously, the design
and location of piablic housing is a matter of policy that can be
easily changed if it is causing problems.

We also hear much about the costs of public housing, and how
operating subsidies are an open draw on the federal Treasury. We

607

must remember, though, that there are over one million public hous-
ing units, serving families with average incomes of approximately
$2,500, and elderly with average incomes of $1,700. Most importantly,
it is serving them for only a reasonable portion of their meager
incomes. No other housing program has such a burden. Is it sur-
prising then that this one program accounts for a large pcirt of
federal housing expenditures? In perspective, the public housing
program has done a remarkably effective job with the funds it has
had, and considering the other problems it has had to face.

The pviblic housing program is the only federal housing pro-
gram of its size which provides capital grants and subsequent oper-
ating subsidies. It is the position of the Housing Assistance
Council that no housing program will serve the poorest people unless
it includes both of these subsidy mechanisms. We therefore virge
the Committee to expand the public housing program. We also ask
that the Committee consider establishing a statutory allocation of
public housing units to non-metropolitan areas, preferably in the
area of 50% of. production. Finally, we ask the Committee to estab-
lish as the intent of Congress a policy of providing public housing
unit set-asides to encourage the creation of viable rural housing emd
development agencies where none now exist.

I realize that is is not necessary to defend the public housing
program to this Committee against those who would throw the baby out
with the bath water. The Committee has often expressed its aupport
of the program in the past, and will continue to do so, I am sure.
However, there are several suggested changes in the program which,
while not doing away with it entirely, would change it drastically.

608

These changes should be carefully investigated in terms of their
effects on the poor before they are seriously considered.

The first of these suggested changes is the concept of income
mix, which would be accomplished by adjusting upwards the income
limits for admission to public housing, ae well as the continued
occupancy limits. While few would argue that income mix is not a
worthwhile ideal, we must question if it is a particularly appro-
priate one in a country where the subsidized housing programs serve
less than 10% of those most desperately in need of housing. Until
the overall production of subsidized housing units is greatly ex-
piuided, or until all programs are required to serve a portion of the
poverty level population, income mix in public housing simply means
less housing for the pdor.

The second suggested change in the public housing program is
the establishment of minimum rents. So far we have seen at least
four formulas for computing minimum rents in public housing, none
of which have been arrived at through a systematic study of the
problem. The objective appears to have been merely to pick a number,
any number. For example, the 40% of operating costs minimum rent
Included in this Committee's new housing bill, S. 2182, is clearly
discriminatory against those areas where utility costs are very high
or against the largest cities where all costs are high emd rising
rapidly. Also, any flat percentage of operating costs minimum rent
will discriminate against those states where welfare grants are
very low, unless some agreement can be reached beforehand to some-
how stamdardize welfare grants for shelter throughout the country.

609

The disappointing thing about the whole problem of minimiom rents
is that no one, when asked, has been able to supply specific data
on how this would effect the tenants of public housing, or non-
tenant eligibles. Will it exclude 50,000 families? Or 100,000?
Clearly, the approach to minimxim rents that now being considered is
a shot in the dark, and it should be researched much more thoroughly.

With regard to the interest subsidy programs of the Farmers
Home Administration, none would deny that there is a large segment
of the population who, while not desperately poor, still cannot
afford decent housing without assistance. The programs should,
continue; to help these people. However, I would like to suggest
to the Committee several ways in which these programs could be
made more responsive to the needs of truly low-income people.

The interest credit Section 50 2 homeownership program could
reach down to serve more low-income people if a portion of the
principal on each loan made could be deferred as a second trust,
if necessary, and be repaid only after the first part of the loan
has been amortized or the homeowners income has risen s\±)stantially.
We recommend that at least 50% of the principal on the loans should
be deferrable. This type of subsidy mechanism has the best features
of other combined loan/grant programs, such as the Farmers Home
Administration Farm Labor Housing and the HUD Section 312/115 re-
habilitation programs, but it also allows for full repayment of
the entire loan in the case of upwardly mobile families. We urge
the Committee to investigate and create such a program, if only
on an experimental basis for the time being.

610

The Farmers Home Administration Section 515 multifeunily pro-
gram could also be improved considerably. First, it must be made
a major rural program. As I have mentioned, no more than 4,000
vmits have been produced under this program in a single year. If
it is to have any real impact on rural housing needs , this production
level would have to be increased to at least 40 or 50,000 units per
year. In addition, the Section 515 program must be given the same
rent supplement benefits now given to the urban Section 236 pro-
greun if it is going to serve truly low-income families and elderly.

Both of these programs, as well as all other federal housing
programs, could also be improved if they were converted over to direct
federal loans, rather than relying on private lending insti-
tutions or the insured notes of the Farmers Home Administration.
Given the limited amoiint of funds made available for subsidized
housing, we should seek the most economical use of these funds.
Elmer Staats, Director of the General Accounting Office, in testi-
mony before the Joint Economic Committee earlier this year, pointed
out that the interest subsidy commitments outstanding on HUD programs
would have eventually cost the federal government 2.5 billion dollars
less if they had relied on direct federal financing rather than
private lending institutions.

There are several other specific changes in Farmers Home
Administration programs which we consider necessary. I would like
to mention a few:

1) legislative language should be adopted to allow the
initial operating costs of Farmers Home multifamily

611

projects to be included in the mortgage, as in the HUD
multifamily programs. Existing language does nor per-
mit this, causing hardship for many non-profit housing
sponsors .

2) broader authority should be given Farmers Home to permit
the refinancing of owner-occupied homes when desirable.

3) the rural housing site development program, now limited
to Sections 502, 515, 235, and 236 housing, should be
broadened to be used in conjunction with any federally
or state subsidized housing program.

I would like to submit for the record, along with my testimony,
a list of suggested changes in Title V rural housing programs. This
list includes specific legislative language.

With regard to the interest subsidy programs of the Department
of Housing and Urban Development, I would like to strongly support
the provisions in S. 2182 which would give to non-metropolitan areas
an annual allocation of housing funds. These are the largest federal
housing programs, and more of the units produced xinder them should
go to non-metropolitan areas. This is especially true of rent sup-
plements. However, we should keep in mind that since these programs
depend upon private lending institutions, an automatic allocation
of funds to non-metropolitan areas will not assure that units will
be produced in rural areas or in those non-metropolitan areas most
in need of the housing.

The private mortgage credit market in rural areas is much too
undependable to assure the effectiveness of any programs that rely
on private credit. The Farmers Home Administration has been aware

of this for some time now, euid it has a loein system which meike

99-855 O - 73 - pt. 1 -- 40

612

intermediary institutions unnecessary. When thinking of the
effectiveness of HUD interest subsidy programs in rural areas, we
must remember that approximately 50,000 moderate income families
per year have been recieving unsubsidized Farmers Home Administration
loans over the past few years, and they all had to show that they
could not get credit elsewhere.

If the interest credit programs of HUD are to be used in rural
areas, it will be necessary to convert them to at least the type of
direct loan system used by the Farmers Home Administration.

Conclusion

The President has declared that the problems of the larger
cities have passed the crisis state. I wish that I could report
to you today that this is also the situation in rural areas. I
can not. Instead, in conclusion, I must ask for a new federal
commitment to the millions of ill-housed rural Americans who have
had decent, safe and sanitary housing promised to them since 1937.
We are all aware now that the problems of rural areas eventually
become the problems of the cities, as thousands of rural people,
particularly the poor, continue to leave their homes in search of
a better life. We must try to provide that better life for them
where they now live. Part of this is to create better rural hous-
ing and community development programs, specifically designed to
solve rviral problems, and to provide adequate funding for these
programs. But, more basically, it will require a firm position that
we have let the housing and community development problems of rural
areas go neglected long enough, and that they now deserve a higher
place on the list of federal priorities.

1973 HOUSING AND URBAN DEVELOPMENT

LEGISLATION

FRIDAY, JULY 20, 1973

U.S. Senate,
Subcommittee on Housing and Urban Affairs,
Committee on Banking, Housing and Urban Affairs,

Washington^ D.C.

The subcommittee met at 10 :07 a.m., in room 5302, Dirksen Senate
Office Building, Senator John Sparkman, chairman of the subcom-
mittee, presiding.

Present: Senators Sparkman, Proxmire, and Stevenson.

The Chairman. The committee will come to order, please. I think
we better get started. I am hopeful some other Senators may come in.
It is very difficult though with legislation going on now on the Senate
floor.

From time to time we are having rollcalls, all the more reason to
get started. Our jfirst witness is Mr. Henry Eschwege, Director of
Resources and Economic Division of the General Accounting Office.
We are very glad to have you with us and we will be glad to hear
from you. I believe you have a prepared statement.

Mr. EscHEGE. Yes, I do.

The Chairman. I will make this announcement. I do so for all of
.you. We print in full in the record statements that are presented to
us. We invite the witnesses either to read it, summarize it, discuss it,
any way he wants to.

STATEMENT OF HENRY ESCHWEGE, DIRECTOR, RESOURCES AND
ECONOMIC DEVELOPMENT DIVISION, GENERAL ACCOUNTING
OFFICE; ACCOMPANIED BY CLARENCE P. SQUELLATI, ASSISTANT
DIRECTOR AND CLARE K. ROHRER, SUPERVISORY AUDITOR

Mr. Eschwege. Thank you, Mr. Chairman. My statement is only
5 pages long and if it is all riffht with you I would like to read it.

The Chairman. Perfectly all right.

Mr. Eschwege. Before I get started I would like to introduce my
colleagues. On my right is Mr. Clarence P. Squellati, Assistant Direc-
tor in the Resources and Economic Development Division.
_ On my left is Mr, Clare Rohrer. supervisory auditor of our di\d-
sion. These people have been involved in our reidews of HUD pro-
grams.

We are here today to testifv on Senate bill 2169 introduced by Sen-
ator Proxmire on July 13, 1973. This bill calls for the establishment
of a national subsidized housing loan fund to provide for the direct

(613)

614

financing of low and moderate income housing programs under sec-
tions 235 and 236 of the National Housing Act.

As you know, section 235 authorized a j^rogram under which HUD
subsidizes a part of the homeowner's mortgage payment. This pro-
gram was suspended by the administration in January 1973, pending
a thorough reevaluation of the program.

Section 235 loans were made by HUD-approved lending institutions
at interest rates established by HUD — the most recent rate was 7 per-
cent— and HUD insured that the mortgage would be paid. The home-
owner is required to pay at least 20 percent of his adjusted monthly
income toward the monthly mortgage payment for principal, interest,
taxes, insurance, and mortgage insurance premium.

The balance of the required monthly payments are made by HUD.
However, the payments by HUD cannot exceed the differences be-
tween the total monthly payments for principal interest, and mort-
gage insurance premium and that amount which would be required
for principal and interest if the mortgage bore interest at a rate of
1 percent.

The section 236 program, which helps lower-income families ob-
tain rental housing, also w^as suspended in January 1973. Under this
program, project owners obtained loans for the construction or re-
habilitation of housing from HUD-approved lending institutions at
interest rates established by HUD.

The interest rate for section 236 loans has been the same as for sec-
tion 235 loans. HUD insures the loans and pays, on behalf of project
owners, all interest in excess of 1 percent on the loans and the loan
insurance premiums.

Because HUD makes these payments, a basic monthly rental for
each housing unit is lower than it would be if the project owners re-
ceived no Federal assistance.

In two separate reports to the Congress — B-171630, December 29,
1972, and January 10, 1973 — we commented on an alternative method
of financing both programs. We stated that the Government could
realize substantial savings if sections 235 and 236 loans were financed
directly by the Government rather than by private lenders.

These savings are possible because of the lower annual interest rate
at which the Government could borrow money, compared with the
interest rates charged in the private mortgage money market. We
estimated that savings in the sections 235 and 236 programs could
amount to $1 billion and $1.2 billion, respectively.

In computing these estimates, we used the present value method to
estimate savings because we believe this is the most appropriate method
of estimating long-range costs. Under the present value method, the
current values of fund flows over a specific period of time are calcu-
lated bv use of a discount rate.

At the time we computed these estimates, the interest yield on the
most recent issuance of long-term Treasury bonds was 6.5 percent.
We used this rate because we believed that it best represented the
Government's cost at that time to borrow funds on a long-term basis.

Our estimate also considered :

Federal tax revenues on income to private lenders and to investors
in Government securities.

615

Costs incurred by the Government under the "tandem plan"— a
plan under which the Government National Mortgage Association
and Federal National Mortgage Association provide joint financial
assistance in financing mortgages.

Costs of servicing mortgage loans under Government direct loan
program ; and

Planned loans of $39.8 billion to be provided under the sections 235
and 236 programs during fiscal years 1973 through 1978. We calcu-
lated the amount of these planned loans from information in the
President's Second Annual Report on Housing Goals.

We concluded that, if the loans to be made during fiscal years 1973
through 1978 were financed by the Government rather than by pri-
vate lenders, the present value of savings would amomit to approxi-
mately $2.2 billion.

The computation is based on HUD's assumption that homeowners
under the 235 program would receive assistance payments for 13 years
and project owners under the 236 program would receive assistance
payments for 20 years. If a discount rate equal to the average market
yield on outstanding long-term borrowings had been used in our com-
putation, the savings would have been about double.

Because of this potential interest savings, we recommended that the
Congress consider legislation which would permit sections 235 and
236 loans to be financed by the Government rather than by private
lenders.

Mr. Chairman, we believe that the bill now being considered by this
subcommittee would achieve the objectives we had in mind. We would
simply like to make a few comments concerning the bill.

Section 244(b) which is to be added by section 2 of the bill to the
National Housing Act, states in part that the aggregate loans made
' iny any fiscal year shall not exceed the limits on such lending authority
established in the annual appropriations act for such fiscal year. This
provision is in line with the concern expressed by the Comptroller
General on many occasions that the Congress maintain control by
making the programs subject to the annual appropriation process.

As vou know, however, excluding the receipts and disbursements
from the budo;et totals as provided in section 244(a) would establish
an undesirable precedent since the exclusion could with equal logic
and justification be applied to other loan programs.

In our opinion, it is impossible to differentiate between this pro-
gram and other loan programs in the budget. Our position is con-
sistent with the conclusion of the President's Commission on Budget
Concepts of October 1967, that loan programs operated by Federal
entities should be included in the budget on a net lending basis. That
is to say, the budget totals include the difference between loan outlays
or disbursement on one side, and loan reimbursements or repayments
on the other side. This budget policy has been in existence for many
years.

It was in efi'ect long before the report on the President's Commis-
sion on Bud.Qret Concepts and the adoption of the unified budget. _

The President's Commission on Budget Concepts was a bipartisan
group. It was chaired bv Mr. David Kennedy, who was later ap-
pointed Secretary of the Treasury by President Nixon. The Commis-

616

sion included the chairman and the ranking minority members of
the House and Senate Appropriations Committees.

The Comptroller General was a member of the Commission. Mr.
Robert Mayo, later Director of the Bureau of the Budget, was its staff
director.

The Commission's report was unanimous and its recommendations
were adopted by President Johnson and later President Nixon.

Section 244(e), which is to be added by section 2 of the bill to the
National Housing Act, provides that, to the maximum extent practi-
cable, the Secretary shall use the services and facilities of the private
mortgage industry in servicing mortgage loans.

The bill is not clear whether the cost of these and other administra-
tive expenses are to be funded from the appropriations to be author-
ized for the fund or from other sources.

This concludes my prepared statement, Mr. Chairman. We shall be
pleased to respond to any questions you have.

The Chairman. Thank you very much. I like your recommenda-
tion.

Of course, you know that we have had in the past different direct
loan programs.

Mr. EscHWEGE. Yes, sir.

The Chairman. Practically every one of which, if not every one,
was changed to the present, or something similar to the present
plan. This was done, as I understand it, because of the impact of the
direct loan upon the budget.

I agree with you, we could save money by following the direct
loan path. And I, personally, appreciate your presentation on that
basis. I think it makes sense. I am not sure everyone would agree
with me.

Mr. EscHWEGE. I think it is a matter of policy for the Congress
to decide whether they want to go this route.

The Chairman. If Senator Proxmire had been here, he had some
questions that he wanted to ask — well, let John Alden speak for
himself.

[Senator Proxmire enters hearing room.]

The Chairman. I was just about to present some of your questions.

Senator Proxmire. Oh, I appreciate it, Mr. Chairman, very much.

The Chairman. I may say, if you have not read his statement, that
he completely endorses your bill.

Senator Proxmire. Maybe I should just keep my mouth shut. I have
everjrthing to lose and nothing to gain by questioning. But let me
ask

The Chairman. I should have said that he endorses what I con-
sider to be the best part of it.

Senator Proxmire. Well, I think there are other parts of it I un-
derstand you knocked out. How much would the saving on direct
finance — use the average rate on all outstanding Treasury obliga-
tions, rather than the rate on long term obligations ?

Mr. Eschwege. As you know, we did figure the savings on the yield
of a recent issue of long term Treasury bonds, but we agree that you
could also figure it on the current average market yield on obligations
of comparable maturities. We have not actually computed it, but we
agree with you there that it would be about double what we had com-

617

puted. So it would be in the neighborhood of $4 to $5 billion on sec-
tions 235 and 236 housing.

Senator Proxmire. It would be between $4 and $5 billion.

Mr. EscH^^^EGE. Yes, sir.

Senator Proxmire. Is direct Treasury financing any more inflation-
ary than private financing with a Federal interest rate subsidy ?

Mr. EscHWEGE. We don't see that it would be because the funds
would still come from the private sector, either through the banks in
the one case, or through borrowing by the Treasury from the private
sector.

Mr. Proxmire. In your statement, I understand you to say that my
bill — ^and I quote — would achieve the objectives that GAO had in
mind, we had in mind. In other words, so far as the objective is con-
cerned, you think the bill carries that out?

Mr. Eschwege. That is right.

Senator Proxmire. Mr. Eschwege, I appreciate the general sup-
port the GAO gives the bill, but there is one issue we should face and
face squarely. If we do as you say and include in the budget the dif-
ference between receipts and disbursements under the bill, the bill
will never be used by the Government. The Budget Bureau will oppose
it as they have every measure of this kind in the past. What the budget
does is not charge off in the first year the total cost of the loan. No
private business does that for housing. They make a loan for, say.
$25,000, and, in turn, they get an asset, blue chip asset. That asset
is secured by a mortgage. There is land to back it up. There is a dwell-
ing unit to back it up. In addition, the amount is paid back and inter-
est is paid on it.

That is the way I think that the Budget Bureau should treat housing
expenditures, like private business does, instead of writing it all off in
the first year. And by doing this, because all of us are conditioned,
including the people in the Budget Bureau and Congress, all of us
are conditioned by our experience in our own financing, our own mort-
gages, and our own loans, we automatically assume that when the
budget reports that making a loan is an expenditure, that somehow
it is. It is not.

That is why my bill provides that the Congress would appropriate
the amount of the subsidy as it does now for sections 235 and 236.
It also provides the number of units that would have to be authorized
and that the Appropriations Committee would limit expenditures as
they do now for sections 235 and 236.

The fundamental difference is that under my. bill, the funds would
be borrowed at li/^ to 2 percentage points lower than the private
market and would create a savings of $4 to $5 billion. But if we do
what you say and say the aggregate loan should be a charge on the
budget in the early years of the program, then the charge against the
budget would be so massive as to defeat the purpose of my bill in your
proposal.

So aren't you trying to have it both ways ?

Obviously, the Treasury and Budget Bureau will never go for your
proposal, as they have refused to do this in the past, and because of
that, the American people will have to pay billions in excessive amounts
to subsidize housing for low-income groups.

618

Mr. EscHWEGE. Senator Proxmire, I think you put your finger on it.
There is a difference of opinion right here. And we are, in effect, re-
stating what the President's Commission en Budget Concepts came up
with when it developed the concept of the integrated or unified budget.
And in that case, the Presidents, both President Johnson and Presi-
dent Nixon, endorsed this concept, which would provide for showing
the net lending basis of these programs, both the disbursements of the
funds, as well as the recovery of the funds through mortgage repay-
ments.

And I can only restate some of the reasons this Commission stated
for going this route : that they felt

Senator Proxmire. I understand what they felt. But my question is
why do you have to support their position when their position is one
that would just negate the whole purpose of this? It would mean we
wouldn't make the saving of $4 to $5 billion. It means we would con-
tinue this myth that when we loan money, it is an expenditure, when it
is not an expenditure. It is an investment.

Mr. EscHWEGE. Senator, if I might say just two things : The Comp-
troller General was a member of the Commission, and he endorsed this
particular concept, and still endorses it today.

Senator Proxmire. What concept does he endorse ?

Mr. EscHWEGE. To show the direct loans in the calculation of sur-
pluses or deficits in the budget.

One reason advanced was that you also have grants which could go
for capital expenditures, and I don't think anyone at this time would
advocate that grants should be taken out of the budget.

Senator Proxmire. No, no. Certainly not.

Mr. EscHWEGE. Grants to

Senator Proxmire. That is my whole point. You see. as long as we
are going to treat loans as expenditures, housing is going to be
crippled. It is going to be — you are going to be restrained. It is going
to be one of the first things that is going to be hit, with any adminis-
tration. The way to make a massive cut in the budget is to cut lending.
That is also a big item. You cut that and your budget looks good. But
it is terribly unfair to the housing program, it is unsettling to the econ-
omy in the long run, it is inefficient and wasteful.

Mr. EscHWEGE. We recognize that there would be a substantial addi-
tional outlay in the early years after we put this program on the direct
loan basis. However, as repayments are made, as you know, the out-
lays would become less and less over a period of time. And, therefore,
the impact on the budget would be felt more significantly in the first
few years and less so in later years.

Senator Proxmire. Do you agree with me, am I right or am I wrong
in my political judgment that if we do it the way you suggest, that it
would just have no effect?

Mr. EscHWEGE. I think I would have to agree with you that it would
be much more difficult to get a bill through with this sort of a stipula-
tion in there.

Senator Proxmire. The question, as I understand it, is not whether
we can get the bill through. The question is if we get the bill through
with your recommendation, whether in the future, we will have hous-
ing programs whenever any administration wants to hold down the
budget, and make the budget look good.

619

My argument is that you won't have it without the same problem
that we have had with housing for the last 20 years.

Mr, EscHWEGE. As you know, Senator, there are other direct loan
programs which are handled the way that the Budget Commission
has advocated. And if you were to change the method of handling this
program, you would have sort of an inconsistent treatment.

Senator Proxmire. The other programs are relatively small, aren't
they?

Mr. EscH^^^:GE. Well. I don't know their current status, but there
used to be sizable ones in the Farmers Home Administration, Small
Business Administration, and the Veterans' Administration.

The Budget Commission, back in 1967, talked about $30 billion worth
of programs.

Senator Proxmire. You already agree to the precedent, when we
make loans to help out farmers, it affects both Democratic liberals and
Kepublican conservatives alike, great enthusiasm, we are all for doing
that kind of thing, we exempt them from the budget.

But when it comes to housing, we don't do it. They are included.

Mr. Eschwege. Now, there is reason for not showing some of the
loans which are the so-called soft loans that AID makes and the Com-
modity Credit Corporation's nonrecourse loans that may not get repaid.

Senator Proxmire. All right, sir. Well, I am very disappointed,
as you can tell from my questioning.

I have great respect and admiration for the GAO, and I hoped that
we had something. Here is one place we could save $4 or $5 billion in
the housing area, help housing greatly. It was just so logical and
sensible, but somehow we can't get away from this archaic, ridiculous
notion that when we invest money in housing, it is an expenditure, as it
is when we make a grant or pay a salary. We all know it is not. If I go
out today or you go out today and take $30,000 and put it into a loan
to somebody that wants a mortgage, you don't consider that an ex-
penditure ; you consider it an investment.

When the Government does it, it is an expenditure, and that para-
lyzes our housing investment.

Senator Sparkman. Senator Stevenson ?

Senator Stevenson. Thank you, Mr. Chairman.

It seems one of the problems with both subsidized and unsubsidized
housing programs is the failure to inspect. FHA does not inspect; when
it does, it does so negligently, in some cases fraudulently. And lenders
have no incentive to police these loans because they have no risk.

How do you feel about placing some risk on the lenders as an incen-
tive to your policing of the loans? I don't know what form that risk
would take. Maybe a requirement that they come up with a percent-
age of the risk; the loan, instead of being 100 percent, might be 90
percent guaranteed.

Do you think that might be one way for overcoming some of the
existing problems we face ?

Mr. Eschwege. I think this is a very valid point. I think there should
be some risk placed on the lenders. Short of that, at least, there should
be a tightening up on the part of FHA to make absolutely sure that
before the loan is placed, that all the requirements have been observed
by the lenders.

620

We have these problems in Detroit, as you know, and, as you also
mentioned, there have be«n some indictments as a result of these cases.

Senator Stevenson. When I was State treasurer, I built a $100 mil-
lion worth of housing once. The FHA maximum rates weren't com-
petitive. I started what became later a very systematic program by
depositing $100 million at competitive interest rates, but with the
understanding that the banks would, in turn, make the money available
for the construction of this housing.

Banks did so. They made nothing, or just a nominal profit, but on
dollars that would have otherwise been unavailable.

As State treasurer, I had on an average about $1 billion to invest,
short and long.

There are 50 States, many local treasurers ; there is also the Treasury
of the United States. I was only one treasurer.

As you know, the United States does not earn interest on investment
of the funds in the tax and loan accounts.

Have you or GAO given any thought to use of these public funds
for the public — what would you want to call it — national subsidized
housing loan fund, development banks. They could be set up to become
depositories for treasuries. They could then bank deposits of funds
which could be made available for public needs, such as housing as
well as other needs. Housing, in my case, was just a start. We went
into a lot of other public needs that could be served by private credit
at the start.

Have you ever thought about that concept ?

Mr. EscHWEGE. Are we talking about Federal funds made available
to the States.

Senator Stevenson. No, not available to the States. A depository
which could use this Federal liquidity, perhaps also State and local
liquidity. I can't remember the figures now.

I remember I did once add up the average balance available from
State, local, and Federal treasuries. And it was an astronomical sum
which, to a very large extent, is producing no benefits for its owners,
the public. Interest, to some extent, on a longer term, but that is
money which could be used for the public, as in that case I cited to you.
where in addition to earning the interest, the money was channeled
through the banks to a reasonable public need, housing in that case ;
low-income rental.

I don't know how you would do it at the Federal level. One thought
is banks, if the banks would use this as one source of liquidity, might
issue bonds, then make credit available on reasonable terms for these
identifiable public needs, for example, for low-income housing.

With the depositories as a potential source, you might end up with as
much as $50, $60 billion worth of capital.

Mr. EscHWEGE. Mr. Rohrer might want to comment.

Mr. RoHEER. I think the States of California and New York are
doing this on a small scale.

Senator Stevenson. Illinois was the first.

Mr. RoHRER. I am sorry.

Senator Stevenson. That was the model. I think a few others are
moving tentatively in this direction but not so far as I know in the
creation of a depository. Channeling through the banks is done to a
very limited extent.

621

Mr. EscHWEGE. Well, it is certainly an interesting idea.

As to your original question, we have not really looked into it, but
we will certainly want to consider it and see what, if anything, we can
contribute in this area.

Senator Stevenson. This is something that you would be prepared
to give some more thought to

Mr. EscHWEGE. Yes.

Senator Stevenson [continuing]. New concepts.

Mr. Eschwege. Yes.

Senator Stevenson. Just based on my own experience, it would be
worth looking into it. It is no longer theoretical. It has been done.

Mr. Eschwege. All right.

Are you studying now the 701 program ?

Mr. Eschwege. Yes, we are looking at the 701 program. We are in
the initial stages of it.

Senator Stevenson. Do you have any idea when that study will be
complete or have any conclusions at this point ?

Mr. Squellati. Senator, we initiated this survey approximately
214 months ago, and we are still in the very early stage of the survey,
and looking at approximately five different areas concerning the ad-
ministration of this program by HUD.

We have no projection as to what will be the final outcome or
results of this survey, until we have spent a little bit more time in
making a more thorough evaluation of exactly the way that HUD
administers this particular program.

So, at this point in time, it is a little bit too premature to make any
comments as to what the ultimate results of this survey will produce.

Senator Stevenson. I don't have any more questions, Mr. Chairman.
Thank you very much.

The Chairman. Well, thank you very much.

Thank you, Mr. Eschwege. You have given us some good points to
consider.

Mr. Eschwege. Thank you very much.

The Chairman, The next witness is Mr. Marshall Kaplan, senior
vice president of the Raymond Nasher Co., of Dallas, Tex.

Mr. Kaplan is accompanied by Ms. Antonia Chayes. We would
be very glad to hear from both of you.

STATEMENT OF MARSHALL KAPLAN, SENIOR VICE PRESIDENT
RAYMOND NASHER CO., DALLAS, TEX.; ACCOMPANIED BY MS.
ANTONIA CHAYES

Mr. Kaplan. Thank you. Senator.

I think instead of reading my testimony, and the same goes, I think,
for Ms. Chayes, we both would like to paraphrase and summarize,
hopefully to therefore induce questioning on the key items of 1743
and 1744 that disturb and excite both of us.

I would like to begin first by saying that I assume I am here because
I have just completed several evaluations of Federal categorical pro-
grams, including the model cities effort, and I have recently chaired
a HUD task force on simplification and consolidation which was a
principle in the firm of Marshall Kaplan, Gans & Kahn in San Fran-
cisco. So, with that pedigree, which I hope does at least permit me to
offer some insight into how the Federal Establishment administers

622

Federal programs and also the relevance of the model cities effort par-
ticularly to 1743 and 1744, I would like to begin.

I think what disturbs me row at this point in time, as I read 1743
and 1744, is that there is no present conceptual framework as to how
these two bills or whatever compromise emerges does fit in with
revenue sharing, which has already passed and whatever residual cate-
gory programs remain and whatever community acts emerge out of
HEW, DOL, or other Federal agencies. I would like to offer one
for consideration, based again on experience in evaluating other Fed-
eral programs and how cities expend their own funds.

I would like to propose that general revenue sharing, as it is, re-
main reasonably free of restrictions and that cities use such funds as
they see fit, in effect, it be permitted to be used by cities and municipali-
ties as they see fit. In effect, they will probably do as they are now
doing, use it to reduce the local property tax burden and offer specific
services, or for salaries., but I would, however, urge upon you that you
consider the opportunity for the first time to attach those type of
general performance criteria onto sj^ecial revenue sharing or block
grants, or whatever you call it, better communities act, to permit
the cities for the first time to implement a program that can remove
some of the problems that have been this Nation's, I think, real major
problems for many, many years, that is the problems of poverty,
the problems of deterioration in center cities. I think the
combination of revenue sharing, which is free of restrictions, will
permit cities for the first time politically to allocate funds if the right
performance criteria are written into special revenue sharing with
special revenue sharing, which I do not think they are at the present
time, to offer a chance to meet some of the problems we have tried to
resolve over the past 10 years but have not.

I would also say the same for any amendments and I think there
have to be statutory amendments for any residual programs that re-
main after we pass the act or a version of it and general revenue
sharing.

On to some specifics. I find that the findings and purposes of both
1743 and 1744 are short of what I think is really needed. I think in
1743 there are no, in effect, findings and purposes apart from a gen-
eral critique of how the categorical program system has really be-
haved in the past.

Conservatively, in 1744, there is a comprehensive list, a menu, and
therefore, I think what we will be left with, if either bill
passes intact is no set of national purposes that would, in effect,
lead to an allocation of Federal funds that will be anything other than
regressive. And that disturbs me from my analysis of Federal pro-
grams in the past and the behavior patterns of cities of, I think a ma-
jority of chief executives would welcome the shelter of general per-
formance criteria. I want to talk about that in a minute because I don't
think the insertion of performance criteria, you do have to have, lead
to all the problems we now have in the categorical program system, so
I don't think that argument is sound. But I would urge upon you to
consider insertion of performance criteria that are tight, that would, in
effect, divert funds in the new Better Communities Act or a version of
it to needed national priorities which are clear cut and oriented to
specific national purposes.

In terms of the issue before you called applications or paper sub-
mittles or whether or not you should have application type of system,

623

here is where I think 1743 at least in part is superior to 1744, our study
of the application type of routing systems, the paper submittles, even
as home rule oriented a general program as the Model Cities effort,
leads me to suspect that application means onerous Federal review,
that it means Federal restriction, that application means a skewing
of local funds to needs that are not consistent with national purposes,
but needs that are consistent within the Federal staff.

I would opt for distribution of funds as a limited right, at least the
first year, then I would subject cities or municipalities as they go for
their second year of funds to a postaudit.

I would insert in the present bill which emerges a clear-cut set of
national purposes which I think, based on the model cities experiences
and other experiences with other Federal programs, can be defined.

I would also insert that, in effect, the second year funding is de-
pendent on the consistency with locally defined — that cities would
have to set, when they come in with their initial application, but
this would not be reviewed with the Federal Government.

Third and most important, I would insert in your bill the require-
ment that the chief executive go out in front, be involved and ad-
minister the funds and that there be legitimate resident involvement.
My colleagues will offer some comments on that as soon as I am
through.

But I think in effect what I am suggesting is that the initial ap-
plication be a matter of limited right. But there would be a postaudit
and that would reflect the three sets of objectives or performance
criteria I mentioned just now.

Now, with a postaudit, I think the present bill would have to be
amended, either 1748 or 44, to include incentive funding for high per-
formers and in effect, a deescalation of funds for poor performances,
particularly, if they are purposeful and not any result of factors
beyond local control.

I agree with Senator Sparkman in his opening comments when he
introduced the bill that you would need a computer to understand
which of the two entitlement formulas has merit.

However, I was involved somewhat in a peripheral way last year
when the first bill came up before you in advising or at least com-
menting on the allocation formula. It is mv imDression and it is onlv an
impression or instinct that the level of funding in order if you retain
the hold harmless clause as presently existing has to be somewhere
over $3 billion to really cover cleanly the hold harmless cities as well
as to meet all the other purposes of the present two bills, if you in-
clude the model cities nroqfram in those bills.

I have a problem, however, with the hold harmless clauses in con-
cept. I would like to review that problem presently. I know there is
a legitimate political argument on the hold harmless issue. I also know
there has been a capacity argument mentioned that in effect, we can-
not afford, if we do, you know, draw off Federal fundings or provide
entitlement lower than existing programs that there will be a capacity
type of problem.

I would suggest that there is a very tenuous threat between existing
categorical program funding and the level of that funding, and in ef-
fect, the capacity of local government. In fact, if you accept the cri-
tique of categorical programs and the fact that they are fragmented.

624

you could make the argument that, in effect, those cities that have
more categorical programs at the present time have less capacity.
I guess all I am saying is that the hold harmless clause is not neces-
sarily nor should be tied by you to the capacity argument. Similarly,
given the fact that "hold harmless" favors the "haves" against the
"have nots," I would question its conceptual basis.

I would prefer ultimately a formula which would grant cities
enough funds to complete and conclude successfully their present pro-
grams and the commitments. But I would not necessarily hold in the
present bills a hold-harmless clause in perpetuity. This is where I tend
to favor the clause that is in 1743. I would question, however, in 1743,
other elements of the formula. For example, I think the issue of urban
counties inclusion ought to be debated by you, as I am sure it will.

There are very few urban counties in the country that have a broad
array of urban functions or are even concerned with the types of urban
problems that you have in your statement of purposes and in the law
of both 1743 and 1744.

I would propose that if urban counties are seen fit to be funded
that we give special attention to them in a separate bill or that they
be funded out of secretarial discretionary funds based on their prom-
ises to, in effect, attend to urban problems. I think the similar, in
terms of entitlement, I already mentioned the hold-harmless clauses
in that, in effect, it penalizes the have-nots in favor of the haves in
perpetuity. I do not really understand why, if you receive an extra
credit or you wait the term, why there isn't a formula in the bill
which would mandate that the cities allocate at least an extra per-
centage of their funds to poverty-related problems. In other words,
if they receive a credit, as they should, for the amount of poverty in
their communities as they do under both 1743 and 1744, then I would
suggest that they ought to be asked to mandate a higher proportion
of the funds, whether that is 75 percent or 70 percent or 50 percent
is a matter that isn't at issue between us, but there should be a sum
of money extra, in effect, mandated or allocated to solve the prob-
lems, I think, of poverty in a community development framework.

The last thing on the formula that I would like to talk about is
whether or not you should go for two grants under contract or regular
entitlements. Again, I favor the concept of permitting cities to receive
these funds under limited rights. I think a 2-year grant contract is
not sufficient for them to plan ahead and allocate their funds efficiently.
So here again, I would swing back to the formula initially in 1743,
but with a postaudit clause. Let me comment in conclusion about two
or three other real issues. That is, should there be a local share. The
present share provision in 1744 has cities allocating 10 percent as their
local share and 1743, there is 100-percent funding. I think, based on
my experience in evaluating both the model cities program and numer-
ous other Federal programs, I think the local contribution argument
rests on a series of mythology at the present time. That, in effect, there
is no direct tie between assumption of city responsibility and a mini-
mal local share as we have in 1744. I fear that if that clause remains,
what again we will be adding to is that bureaucracy of Federal and
local government in terms of both audit and — because the local share
can be made up through either cash, land, or services, and there isn t

625

a city in the country not smart enough to consult help perhaps to find
a way out of the 10-percent share.

I depart from my academic friends and perhaps professional friends.
I do not think the present bills ought to provide a direct pipeline for
either States or regional area governments. I think that we have long
talked about again the mythology of regional government. I think
they are important, I think they should be allowed to or encouraged
to develop.

However, I think where we have gone wrong is that we haven't
forced the States or the cities themselves to put up or shut up, and I
think that, in effect, what we ought to do is to provide incentive fund-
ing to States and to cities above their entitlements, if they want to
participate in metropolitan govermnent or metropolitan type of orga-
nization. I would not at the present time fund them directly so that,
in effect, I would provide for fimding of metropolitan groups under a
discretionary amount provided the secretary and similarly I would
provide for city participation or induce city participation in such orga-
nizations through extra incentive funding over and above their own
types of entitlements.

On the State issue. I would force the secretary to prescribe criteria
for State participation. I would not blanket States initially with
certain funding, very few States are in a position at the present time
to assist cities in sobbing their problems. They can and should be en-
couraged to do so, but their funding should be premised, in effect,
on their willingness to assume certain type of real burdens.

On the issue of 701 earmarking for a planning and evaluation or
management, I think it is fair to say, based on, again, our own
evaluation and others, that the 701 program presently is encrusted
with so many administrative bureaucratic guidelines, so many limit-
ing functions, and is so oriented to the consulting industry, which,
as a consultant, I think needs to go through its own set of reforms,
that the capacity argument that, in effect, the 701 program should be
maintained, I don't think is really relevant. T would propose instead
that in this bill or in a supplementary bill that there be funds set
aside for a broader planning grant program that would, in effect, be
allocated directly to chief executives, that would be, in effect, person-
alized if used by consultants, but would be used primarily to hire staff
and build the planning and management capacity that I think we so
richly needed in model cities but did not have.

I would say the same thing that in effect evaluation has received
short shrift both in 1743 and 1744. And I would hope some provisions
for earmarking of the evaluation fimds could be added to the present
bills so that in effect we would be assured of a national evaluation
program that makes some sense. I do thank you for your time. Sen-
ator, and I would like Ms. Chayes then to offer her comments.

Ms. Chayes. Many of the recommendations made by Mr. Kaplan
are those that emerged from a year-long subcommittee of the National
Academy of Sciences Advisory Committee to HUD, of which I was
chairman.

I want to stress some of our analyses in that committee and to men-
tion one recommendation for change in what I expect will be a com-
promise bill that he has not discussed.

First of all, I think I am in agreement with Mr. Kaplan that the
entitlement notion of 1743 is the preferable notion.

626

On the other hand, the administration bill contains no statement
of substantive purpose or objectives. In fact, there seems to be a de-
liberate attempt to strip away the legislative findings relative to the
problems of poverty and the problems of the city. While I would
support the entitlement notion, I would find the failure to deal with
national goals unsatisfactory. And I think it is going to be difficult,
but not impossible, to devise a way in which certain broad important
national goals are expressed in this legislation, but at the same time,
the application process of 1744 not be used, for all the arguments set
forth by Mr. Kaplan.

I think our experience with model cities really has shown, as well
as other categorical programs, that extensive Federal control is not
really helpful to the achievement of national goals. Therefore, our
recommendation, as Mr. Kaplan has indicated throughout his testi-
mony, is that a tight and rather specific — more specific than in 1744 —
statement of purpose be developed, and expenditure of funds be re-
stricted to these, to the purpose expressed.

So that the statement of purpose is not hortatory, it would essen-
tially restrict the expenditure of funds — whether it turns out that 75
percent or a lesser percentage of funds would be available for the
stated purpose again doesn't really mater, so long as these funds are
tied to the purposes.

I think there is a further way in which the enforcement of further
national goals can be achieved. It seems to me that there could be
a provision similar to the provision of the National Transportation
Act in which Congress sets aside somewhere between 1 and 2 percent
for monitoring and evaluation in terms of the criteria and priorities
set out in the legislation.

The evaluation studies should be conducted independently and re-
ports given to Congress as well as to HUD. This is parallel to sec-
tion 307(c) of the Federal Highway Act. It seems to me that this has
the virtue of testing out the criteria against the actual programs. The
gap between rhetoric and performance has been far too wide. This is
quite a different pattern that we are suggesting than either the pat-
tern of 1743 or 44, but I want to reiterate that I think the entitle-
ment route at this point is the preferable route. However, the alloca-
tion formula, even with the double counting of poverty, isn't adequate,
for the reason already stated, that there is no assurance that those
funds will be spent for the problems that raise the entitlement.

Now, I find in addition to these problems already covered by Mr.
Kaplan that there is an inadequacy on the issue of community par-
ticipation, essentially in both of the bills and I would like to recom-
mend a substitute that has been recommended in our subcommittee re-
port of the National Academy of Sciences.

We will make this report as soon as it is typed and finished avail-
able to the committee. The bills, I think, embody very different notions
of citizen participation. 1743, section 5, is a consultation process that
is quite minimal, and I think that 1744, on the other hand, is — seems
to be an adaptation of the model cities formula.

Neither of them really worked out. Simple consultation really is a
way of turning back the clock, I think, and that is not going to meet
anybody's expectations. And 1744, I think, though preferable, the
kind of mechanisms that have developed first in OEO and then model

627

cities have been not wholly satisfactory, either. Such mechanisms have
been ineffective in part because they have been fragmented across so
many efforts, time consuming and essentially blunt instruments; in
many cases they haven't even spoken for the poor, the people they
were designed to represent.

On the whole, I would prefer the approach of the Senate bill to
the better communities bill, but it also employs an amount of HUD
control and possible litigation as we have had in model cities, that
isn't in tune with the entitlement approach that I believe is so
important to preserve.

What we would suggest instead is a statutory requirement that
negotiations process take place between the mayor or local chief
executive and a fair representation of all significantly affected groups.
The ultimate decision would remain in the politically elected leader.
Only what would be required is the written assurance that the process
will occur and a list of groups or parties to be included. That is the
only precondition of receipt of Federal funds in order to minimize
delay. We would anticipate that the mayoral negotiations process
would result in the development by a city of a plan for expenditure
of special revenue sharing funds. We don't see this as a lengthy paper
product, for the negotiations would have to be limited, and the plan
ought to be available to HUD, but it doesn't have to be approved
by HUD.

The only precondition is that the locality has given assurance that
all affected interests have had a voice in formulating the plan. Now,
obviously, one obstacle is who is included and who is excluded. Our
recommendation is that initially, the mayor or local chief executives
make that decision, but there would be a limited right of appeal to
HUD, to a special hearing officer in the appropriate HUD assistant
secretary.

The examiner's decisions, I have spelled out this in my written
testimony, would be rendered within a brief period, let's say, 30 days,
and would be final, not the subject of further review, not subject to
judicial review, and this would take care of any complaint of arbi-
trary exclusion of parties.

There would be hearings, there would be a record, so that various
community i-iewpoints would be heard, and it seems to me that the
very process which we have seen experimentally done in Hartford, for
example, would put the kinds of pressure for allocation of funds that
we feel are necessary, because though theoretically, the democratic
election process is the most democratic, it is by no means perfect and
there are groups that are seriously excluded. This recommendation,
as I say, is spelled out in the testimony. It is spelled out in the National
Academy of Sciences report, and we feel that it is both a compromise
and a step forward beyond community participation mechanisms
which have been unsatisfactory. Beyond that, we would be delighted
to answer any questions.

Senator Stevenson. Thank you, Ms. Chayes and Mr. Kaplan.
The public participation provisions of 1744 originated with a pro-
posal that I made in the last session. The arguments against that
proposal made then and since are essentially that the public receives
its participation through the electoral process. How would you respond
to that argument ?

99-855 O - 73 - pt. 1

628

Ms. Chayes. Well, as I say, I think that is theoretically true, and
in actuality, definitely imperfect.

I think that the community participation mechanisms that have
been developed from OEO onward, have tried to make more perfect
the process of inclusion of minority groups and those who were really
not included in the electoral process, whose voice was not fully heard.
I think those mechanisms have proven also to be far from perfect, and
I think that one has to now push forward to a different measurement.

Mr. Kaplan. I think. Senator, the only element of the report that
I would demur from Ms. Chayes. I am concerned with citizen par-
ticipation, but I think that the public examiner group would lead to
a complicated bureaucratic monstrosity. I would prefer to rest citizen
involvement the postaudit provisions in effect and penalty clauses that
I had suggested as amendments to either 1743 or 1744, but I also sug-
gest that in all other aspects, Ms. Chayes and I are very close.

Senator Stevenson. Should HUD judge the merits of the commu-
nity's program as distinct from the legality and propriety of ex-
penditures through audit procedures ?

Should HUD be able to reject a community's plan if it does not meet,
in HUD's opinion, the national objectives ?

Mr. Kaplan. Yes ; I think initially, I would not have HUD in that
rejection or acceptance role. In other words, I would go along with
the concept of limited right, but on the postaudit, I think against the
three sets of criteria only, not against the traditional categorical, all
of the language, the heavy handbooks that have been created, the 7
pounds of urban renewal handbooks and 6 pounds of C. & P. hand-
books, but against a limited set of national performance criteria, a
limited set of locally selected targets that the localities would have
to select against the statute itself and local performances of the chief
executive and involvement of local residents. I think we can create,
based on the model cities experience and other categorical programs
experience and mistakes, those that come the second and third year,
we can devise a monitoring system that would permit the Feds not
to become unique of the system but in effect protect the legitimate
efforts of the Nation in its urban problems. I think the most — that most
chief executives would welcome such a shelter.

Ms. Chayes. But I think it has to be understood that our judgment
is that application process is a failure, and that a different route ought
to be tried. It seems to me, though, that a hard job is ahead for the
committee in drafting the kind of statement of purpose that will estab-
lish the evaluation at the postaudit end, because if the statement of
purpose is so loose and so abstract, there is really no way to evaluate
what the cities have done, even if you set aside one or two percent for
monitoring and evaluation.

So it seems to me that this throws the problem back to the committee,
but, on the other hand, if you leave it in the traditional application
process, as the Senate bill has done, you are going to have more of the
same.

Senator Stevenson. Who does the evaluation? Should it be done
locally?

Mr. Kaplan. I would suggest that if the HUD people, well, if there
is an entitlement and it is of limited right, there are very few tasks
that the present officials will have to do, and I would suggest that we

629

could structure in the area offices of HUD and regional offices hope-
fully through some consolidation and again one issue that bothers me
about both bills is that they do not talk to the structure on the capacity
of HUD as an agency itself, but if, in effect, we revise the agency's
general functions by implication by not having it review these very'
onerous applications from thousands of cities, that in effect, we could
then devise a legitimate and nondiscretionary, in effect, type of moni-
toring function which would leave it where it should be, that is, in the
hands of those who allocate the funds.

Senator Stevenson. Neither of you are then suggesting that the
localities should be the ones to evaluate their own programs?

Mr. Kaplan. I would hope they too, sir, would have enough funds
to do their own local evaluation. They will be defining their targets
hopefully on an annual basis.

I think the state of the art does not permit them to do what the
committee suggests in 1744. That is a 3-year timing allocation.
What we will end up with is the same thing we had in Model Cities,
if you recall it. Part Two would project 5 years ahead, and it ended
up stimulating consultant contracts and mythology but no hard data
or planning.

I think just that the planning state of the art will not carry cities
that far ahead in the wide range of endeavors that the committee and
I hope that the cities will cover.

I would hope that the cities would be asked to define one or possibly
two types of objectives, so it is almost like the capital improvement
program process or capital budgeting process, but now you are in-
volving social concerns, so every year they revise their own targets
based on their own evaluation. But the postaudit would depend on the
Federal Government and would have carried with it some incentives
and disincentives.

Ms. Chayes. More than that, if funds are not set aside for evaluation,
they will not be used for evaluation. That is always the bottom rung
of priorities, money for evaluations, unless there is a specific provision
in the bills.

It seems, also, there is a discipline in requiring that evaluation
and monitoring reports be made to Congress, as well as to HUD, so
instead of the kind of anecdotal report for evaluations that are usually
given to Congress, Congress can really look and have before it the
evaluations of specific programs and know whether the goals have
been enforced and whether the objectives have been met.

Tere is really no excuse any more, with the problems we have in the
cities, for so much Federal money to be spent and so little to be
happening.

Senator Stevenson. Ms. Chayes, I think it was you who said we
should try a new approach. We are now trying the general revenue
sharing. Does the experience to date with general revenue sharing
leave you with any expectations of what local priorities might be
under an unlimited entitlement program such as embodied in 1743 ?

Ms. Chayes. It is exactly that that has caused me and other members
of the committee to suggest that the funds in any community develop-
ment or special revenue sharing programs be limited to stated and well-
defined purposes. It seems to me that general revenue sharing does
serve a purpose. It does give complete local freedom, from swimming

630

pools to golf courses, or whatever the community wants, or essentially,
tax relief.

But if we are concerned about certain kinds of knotty problems,
it seems to me that the combination of an entitlement formula, which
means true local solution, but limited to specific problems that Con-
gress knows exist in every urban area, is the right route.

So this is why I would suggest 75 percent or something of that sort
to the problems involving discrimination, inequality, urban blight.
The solutions can be quite imaginative locally.

Senator Ste\'t:nson. A final question to both of you.

You, Mr. Kaplan, referred to relatively simple performance criteria.

Could you elaborate on that expression ? Sometimes things described
as simple don't end up being very simple.

Mr. Kaplan. Let me put it in the context of our evaluation of the
model cities program, where we looked at all the cities specifically
carved out a national sample of about 21 cities. There we clearly
found out — and it is almost predictable, too, that where the role of
the mayor, chief executive, and the role of the residents was in some
sort of parity relationship where the mayor had responsibility but did
involve the residents, the priorities in terms of allocation of Federal
funds more nearly met city objectives, got underway faster, and the
Federal dollar was spent more efficiently.

And so we can define criteria defining the role of the Chief Execu-
tive. For example, you can set up evaluative criteria in terms of what
role the Chief Executive plays in terms of allocation of Federal funds,
and how committed is he ? Has he reviewed it ? These are all evaluative
criteria.

Similiarly, with the involvement of the residents, these are evalua-
tive criteria.

The second level of performance criteria are also relatively, I think,
as simple, again.

That is, the cities would state their own targets ; in effect, at the end
of the year, you would be able to measure city achievement against
their own targets, and that is a second level of evaluative criteria,
which I think, given the knowledge we now have, which we should use,
the Federal Government funds a tremendous amount of evaluative
studies and does not use the results.

But now we do know how, in effect, a city is responsible to what they
say they are going to do. I think at the end of the first year, you would
look at the targets they set at the beginning of the first year.

Then, the final set of performance criteria, which is harder to deal
with, the national purpose, which I would suggest we can also ini-
tially inventory, at least in terms of the environment, discrimination,
job opportunities. And I am convinced, again, after looking at all of
the data that we can come up with nondiscretionary, nononerous, non-
administrative criteria, or performance criteria.

And as I suggested to one of the committee staff members, I would
be very glad to spend time and volunteer time to come up with those
things.

631

Senator Stevenson. I take it you two are volunteering. Thank you
both for the offer.

Thank you, Mr. Chairman.

The Chairman. Thank you very much.

I have enjoyed the testimony of both of you, as far as I have
heard it.

I apologize for having to leave. I had a call from the Secretary of
HUD and talked to him about some features of housing. I felt I
should talk to him, even though it pulled me away from this.

I think you have made some very fine suggestions in there, both of
you, that will be helpful to us.

In your statement, you refer to real need. It says, "To thoroughly
examine by this committee with respect to real need as opposed to
assumed need."

Well, I call your attentiton to the fact that in S. 1744, we use both
a formula and past activity to measure need. Do you have any
comment ?

Mr. Kaplan. Yes, sir. I think I was talking in this context of the
aggregate dollar amount that you have allocated or that the admin-
istration and previous Senate bill allocated to the total package, and
there having been involved earlier in some of the formula allocation
processes, I know, that the basic way the figure was arrived at, some-
where between $2.3 or $2.7 billion, was primarily related to an aggre-
gation of existing programs HUD has in its present inventory.

I would say, based again on the experience of the presnt HUD
inventory, particularly model cities, where cities were asked to inven-
tory their own real needs, that while we probably wouldn't have suf-
ficient funds in the Federal budget at present to accommodate those
needs, it would do us good to take a fresh look at what the pressing
needs of our urban areas are and a fresh look at the total budget. I an*
convinced it will come up a bit higher than the $2.3 posited in 1743,
and probably somewhere over 3 billion at the present time.

I also found it very hard to accept the program experience as a
criterion in the allocation to metropolitan areas primarily, again,
because it rewards the "haves" against the "have-nots" perpetually.

The Chairman. T think both of you have given us some very good
ideas. I assure you the staff and this Committee will be workins; with
them, because we want to pass out the very best legislation that we
can do.

Mr. Kaplan. Thank you. sir.

The Chairman. I certainly appreciate your contribution.

[Statements of ]Mr. Kaplan and Ms. Chaves follow :]

632

Marshall Kaplan
Testimony, July 20, 1973
Subcommittee on Housing & Urban Affairs
Senate Banking Housing & Urban Affairs
Committee

COKKENTS ON
S.1743 and S.1744

I appreciate the opportunity to testify on S.1743 and S.1744. I assume
the invitation for me to do so was premised on my involvement in and/or direc-
tion of several recently concluded analyses of the impact of the federal role
in urban areas' and my experience over the last decade as advisor to several
Federal agencies, states and cities.

Hopefully, my coirments will reflect my seeming pedigree as an "urbanist".
But I must warn you in advance that I shy away from the appellation expert,
given the complexity of the urban problems facing this nation. Indeed, only
a fool would come before you with certainty; only the idealogue would be able
to impart absolute truth about the correct course of action this nation should
take in responding to its- urban needs.

Because your witness list is long and quite all-inclusive as to coverage,
I feel no compulsion to be comprehensive. Rather, I would like to first offer
some brief remarks on the construct of federal aid programs in the 70's and,
subsequently, some very specific remarks on key aspects of both S.1743 and 5.1744.

As a principal in the firm of Marshall Kaplan, Gans & Kahn of San Francisco,
I directed the firm's (1) 5-year continuous study of the Model Cities program;
(2) analysis of the impact of A-95; (3) study of inter-agency coordinated
mechanisms; etc. I also chaired the HUD Task Force on Simplification and
Consolidation; served as advisor to the President's Conmission on Model Cities;
authored the Academy of Sciences report on urban grov.'th; am now on the ACHUD
Coiiimittee on planning guideline revisions; and am presently Senior Vice Presi-
dent of the Raymond D.^Nasher Company and General Manager of Flower Mound New
Town, Ltd.

633

A. NEW AND OLD INVENTORY - A PROPER MIX AND FRAMEWORK

Criticism of the categorical program system has now become conventional
wisdom. The continuous addition of new aid programs during the 60 's and
early 70's, combined with numerous amendments to existing ones, has resulted
in an inventory more noted for its variety than quality; more significant in
terms of its size and nunber than its impact. Further, the continuous efforts
of each Agency to define groundrules governing administration of their respec-
tive programs have generated conflicting, often onerous review processes and
submittal requirements.

Certainly the role of the federal government in the seventies should be
different from what it was in the sixties. In this context, the Administra-
tion and Congress are to be congratulated for their willingness to recognize
and advocate the need for a basic restructuring of federal aid programs. Yet,
the desire for reform on the part of both has not generated a clean cut pic-
ture of what the varied pieces of new inventory will look like, or how these
pieces will all fit together. Instead, rhetoric associated with the "need to
rely on cities" or the alternative "need to reform cities" has seemingly sub-
stituted for hard thinking concerning the ability of the nation to respond to
legitimate national as. well as local priorities. As a result, current program
reform efforts 'could well generate a regressive distribution of public funds
and policies irrelevant to many of the key social, economic, and environmental
problems evident in our urban areas. Equally important, such program reform
efforts may well deny the legitimacy of articulated and seemingly agreed upon
national priorities with respect to elimination of poverty, discrimination,
etc. . •

634

Certainly, the advent of revenue sharing and special revenue sharing,
combined with the diminuation of categorical programs should not relegate
the Federal government to the role of eunuch in the federal system. Indeed,
revenue sharing, if thought of as only one element in a coordinated federal
aid system, could provide the heretofore missing link in the federal arsenal
of tools directed at improving the quality of urban life. That is, avail-
ability of revenue sharing funds, free of statutory restrictions, should
make it possible for local officials to more easily allocate special revenue
sharing monies (Better Communities) and residual categoricals to areas of
concern defined in part by national priorities and national performance cri-
teria. To put it bluntly, revenue sharing has and v;ill continue to permit
local officials to provide visible and perhaps legitimate rewards to the
majority population (property tax, relief, etc.). This fact should, in turn,
make it easier for these same local officials to use other federal funds for
pressing needs related to the reduction of blight, the prevention of deteri-
oration, and the development of more effective local management and planning
capacity (i.e., institutional reform).

If the "balance of payments" does not always sound convincing to one or
more groups making up local constituencies, inclusion of specific performance
criteria as noted below in either 1743 or 1744, and development of specific
Congressional language clarifying the purposes of remaining categorical pro-
grams, would provide welcome s_helter to local officials and assure an al-
location process consistent with the national and long term local interests.

635

ELEMEilTS OF COORDINATED FEDERAL INVENTORY

Statutory Performance Criteria Use

1. General Revenue Sharing Minimal General

2. Special Revenue Sharing Allocation of funds to meet specific Specific popula-

national objectives and priorities tion

3. Residual Categoricals Allocation of specific problem Specific areas of

areas; R&D efforts; reform incen- concern
tives

B. SUGGESTED AMENDf'lENTS - S.1743/S.1 744

Acceptance of the above conceptual frame of reference, and a v/illingness
to borrow on the lessons learned from the Model Cities experience (as well
as recent administrative efforts to "simplify" and consolidate the present
inventory) v;ould, I think, lead this Committee to at least consider the fol-
lowing in its deliberations on S.1743 and S.1744:

1 . Findings and Purposes

Neither the statement of findings and purposes in 1743 or 1744 seem
to adequately provide recipients with a clear-cut mandate relative to the
expenditure of authorized and ultimately appropriated funds. 1743 neg-
lects to define any real parameters relative to local use of federal funds,
while 1744 presents such an all-encompassing menu that it ends up with
little in the way of Congressional direction concerning national priorities
or local performance criteria concerning use of proposed funds. In essence,
both statements fail to mandate local attention to specific national pri-
orities with respect to community development. Similarly, both fail to

636

recognize the probability that without specifics, allocated funds may be
used for purpores which divert considerably from national priorities.

Those who argue that reinsertion of defined and clearly limited
national purposes would, in effect, result in merely another categorical
program fail to observe one of the more meaningful results of the Model
Cities Program. Clearly, the statement of purposes in that program,
although in retrospect overly complicated and diffuse, generated an
expcndituie pattern more attentive to the needs of a targeted population
than similar patterns recorded for other recent federal aid efforts and
programs, including general revenue sharing. As important, interviews
with local chief executives conducted during our Model Cities evaluation
suggested a willing acceptance on their part of such Congressional direc-
tion concerning national priorities. Quite clearly, only the virtuous
and politically omnipotent elected official would v/ant to completely
remove the ability of federal prescriptions to offer shelter from often
shifting, sometimes temporary majorities and minorities angered by City
Hall decisions reflecting unpopular but ostensible long term public in-
terest decisions.

I am convinced that language can be developed by staff which narrows
the general area of concerns associated with community development, yet
avoids the detailed earmarking of funds associated with the present cate-
gorical programs and, as implied above, even the Model Cities program.

637

Such language ought to grant priority emphasis to coirmunity development
efforts' which expand the environmental choices of less than affluent
urban dwellers. Indeed, amendirents ought to mandate expenditures by
recipients of a specific amount of their respective entitler^.cnts for
such community development efforts; that is, for efforts precisely
oriented to expanding the quality of life of the poor^.

2. Paper Submittals: The Need For an Application

Results from our extended evaluation of the Model Cities Program,
as well as our studies of numerous other federal programs illustrate
the irrelevancy and negative impact of most paper submission require-
ments. Localities more often than not view such submissions as obstacles
to overcome, rather than capacity building or strategy inducing tools.
Conversely, most, if not all, federal agencies neither have the staff
capacity nor the understanding of varied local environments to easily
meet statutory intent in judging local submittals. Even in such an
ostensible "homierule" oriented program as Model Cities, the requirement
that the Secretary approve local plans was converted initially into
weighty, often obtuse guidelines; irrelevant administrative prescriptions
concerning local planning processes (understandable only to PhD students,
and clearly out of sorts with the planning state of the arts); and,
often tortuous review and amendatory processes. More traditional 'cate-

' I am assuming that the Committee will consider the relationship of "HUD" spe-
cial revenue sharing to Administration proposals with respect to consolidating
HEW or "software" programs.

^ In both proposed bills, recipients receive extra rewards for the amount of
poor, but both bills do not mandate particular concern with the poor.

638

gorical progrcT^s have (and will continue to) fared worse. Indeed, at
tires the only beneficiary of continuous Federal concern with paper
is the local consultant industry.

I would certainly prefer granting participant; an initial "right" to
funds as proposed in S.1743. Conversely, however, I would strengthen
the Federal role in post auditing resulting expenditures and in vary-
ing future levels of funding. To be more specific, I would require
that localities submit a brief statem.ent of one- or possibly two-
year objectives, targets, and programs. I would not prescribe a
national planning process or model for cities to follow. I would
initially accept such submittals merely on the certification, by
local chief executives, of consistency with statutory objectives.
Prior to the receipt by localities of their second year allocation,
I would permit federal officials and staff to monitor local performance
with respect to several defined criteria. These \.'ould include:

a. Consistency with statutory defined national purposes (i.e., elimi-
nation of discrimination, protection of environment, allocation of
funds for the benefit of targeted populations, etc.);

b. Consistency with locally defined objectives; and

c. Consistency with stated statutory defined criteria related to the
involvement of elected local officials and residents in the plan-
ning process generating the allocation of federal funds.

With respect to the above. Model Cities offers us insight on how, and
at times how not, to structure performance standards. I am convinced that
relatively simple performance criteria can be defined in each of the above

639

areas, v.hich rcc'uco - if not eliniinote - federal discretion relative to
project ccnteiiL and the precise local expenditure of federal dollars.
In the process of developing such criteria the Committee, given Model
Cities data, should grant emphasis to the roles played by relevant local
participants in resource allocation decisions. Evidence from Model Cities
strongly suggests that the program's impact was much more significant in
cities v.'here the chief executive v;as "out in front"; was visibly committed
to the progrcji,; v.as willing to provide leadership in coordinating resource
allocation; and, was willing to legitimize serious discussions with a
variety of relevent resident groups. Certainly, amendments strengthen-
ing chief executive responsibility and resident involvement should be part
and parcel of any modification of 1743 or-1744, and should join proposed
suggestions ccncerning refin^iiicnt of national purposes and provision of
a specific allocation forr'ulae suggested in my earlier comments.

Insertion of monitorable performance criteria suggests the need to
consider reward and penalty mechanisms. Incentives to high performers
should be part and parcel of any new legislation. These could come in
the form of an earmark of residual categoricals or an extra allotrr:ent
of appropriated funds above and beyond a base entitlement from monies
subject to Secretarial discretion. Poor records, if purposeful, should
be miot with a gradual reduction of base funding.

3 . Entitlements, Hold Harmless and Level of Funding

Access to data relative to program use during the previous 5-year

period (as well as access to a computer) would be necessary in order to

weigh the specific merits of the different formula proposed in each draft

640

bin. r'y ov.n initial instincts (given some involvement in discussions
concerning the ellocaticn forirula in last year's proposal) are that a
figure sonev.here over $3 billion during fiscal year '75 would be neces-
sary to clearly (and cleanly) hold cities harmless as well as maintain
ccnmitments concerning Kodel Cities and other programs.

Both formulas (1743 and 1744) should, I think, be thoroughly examined
by this ccr..mittee with respect to real need as opposed to assumed need
premised on the mere aggregation of existing categorical programs. I
would hope that this re-analysis would also consider possible variations
in the final formiula, given the revised set of statutory purposes and
m.ethod of allocation of funds proposed above. Finally, I would hope
that your analysis would consider;

a. The wisdom of including urban counties as direct beneficiaries of
special revenue sharing:

° 1743 crants urban counties status as a direct fund recipient.
Evaluative data emanating out of Model Cities, as well as
studies of other federal programs indicates the relevance of
only a handful of urban counties to the present statement of pur-
poses (as well as any proposed revisions) in both drafts. Per-
haps the Comjiiittee might want to develop a separate program for
urban counties if further deliberations suggest it would be in
the national interest, or perhaps those few urban counties
presently responding to urban problems with urban functions could
be funded subsequent to Secretarial review and from discretionary
set-asides.

b. The rational for extending "hold harmless":

° Both 1743 and 1744 include "hold harmless" clauses. 1744 would
extend the "hold harmless" principle well beyond the marginal
period provided in 1743.

I realize the political arguments in favor of hold harmless pro-
visions. More important, I understand the need to maintain and

641

ccnclude existing coii-,::iitnients as v;ell as insure retention by
localities of "capacity" built up as a result of categorical
program funding. I have, hcv;ever, a distinct "conceptual"
problem with "hold harmless" for, in effect, it grants prio-
rity to "haves" in favor of "have nots". Further, knovjing the
grant gair.e as I do, I also find the link betv.een administrative
capacity and use of federal funds to be in scrr,e areas quite
tenuous.

Assuming continuation of a politics of scarcity, I v/ould find
the hold harmless provisions in 1743 more palatable for, in
effect, they meet program commitments vn'thout maintaining the
principle in perpetuity. However, my ultimate preference v/ould
be to combine an increased level of total funding vnth a speci-
fic federal guarantee to provide funds to conclude already
initiated projects and a base level of entitlement weighted
heavily in favor of indices related to blight and poverty.

c. The criteria used in defining entitlement:

° Without the aid of a computer, it is difficult to determine the
precise effect of the criteria used to define local entitlements.
Both programs appear to weigh poverty twice^ in determining basic
allocations v.'hich I think, as implied earlier, has merit. Cri-
teria related to program experience as included in 1744 disturb
me for much the same reason as the "hold harmless" clause (note
above paragraph). That is', those that "have" are perpetually
rewarded, and those that "have not" are perpetually penalized.

d. The benefits associated with two year grants or regular entitlem.ents:

o

As indicated above I am, based on past Federal and city perfor-
mance with respect to numerous categorical application submittal
and application review requirements, prone to favor the provisions
of 1743 as opposed to 1744 with respect to initial funding. That
is, I would eliminate the need for a local application and subse-
quent Secretarial review prior to initial funding. I would also,
given the negative effect uncertainty has on localities, provide
monies to cities as a matter of "limited right"2 subject to post
audit and variable levels of aggregate funding instead of through
two year contracts as proposed in 1744.

While localities are granted more funds if they have more poor people, no pro-
visions in either 1743 or 1744 mandate expenditures for the benefit of the poor.
I v;ould, for reasons related to national purposes, insert in the final bill a
mini[;ium level of funds which must be allocated for community development objec-
tives related to improving the lives of the disadvantaged.

In earlier pages I proposed a post audit based on defined national objectives,
local targets, and performance criteria.

642

The rationale for a local share:

° 1743 and 1744 differ on the issue of a local share; 1744 mandates
a IC;; local contribution from participating ccrnunities, while
1743 provides IOC;, funding. I realize that conventional wisdom
v/ould have it that "putting up dollars" translates into local
assumption of responsibility. Yet, there is little evidence in
the history of categorical grant progrfrs succesting a one-to-
one relationship between provision of local funds and provision
of local interest and involverrent. Rather, such idiosyncratic
factors as local leadership and resident interest affect local
stewardship more than local contributions. Given the relatively
small local share required in 1744 {IC:'.) and the alternate ways
it can be secured (cash, land, services), I fear that retention
of the provision will result in more bureaucracy rather than
more resncnsibility. Because of this I would prefer to eliminate
the provision, relying -- at least until the post audit -- on
the willingness of responsible local officials to govern effec-
tively and efficiently.

4. Roles of r'etropolitfn Entities and States

Both 1743 and 1744 e.re silent on the issue of direct funding for
existing Metropolitan planning and developir^ent groups. I assume you will
be hearing from those who claim that the absence of such funding will
cause such groups to wither away or that the absence of such funds will
"slow down" or stop the movement toward "rational" metropolitan govern-
ment. I guess here again I would have to depart from most of my acade-
mic friends and perhaps most of my associates involved in efforts to
encourage area-wide planning. While not denying the validity of their
interests, the marginal involvement (and interest) of Metropolitan enti-
ties in Model Cities; the negligible effect of the A95 process; the
the marginal impact to date of Metropolitan planning, and the growing
competitiveness of constituencies in central city and suburb suggests
that the legitimacy of their claims and the ultimate strength of their

643

institutions nust rest on State end/or local willingness to strengthen
their functions and sanction their responsibilities, rather than on aggre-
gate federal dollars. I v;ould, instead of including Metropolitan entities
directly in the Better Corrrnunities pipeline, provide funds to states de-
siring to create and work with such Metropolitan entities and incentive
funds, above base line entitlements, to cities willing to participate in
a meaningful, bonafide way in Metropolitan groups.

In a similar vein, I question the validity at this time of moving
tc.'ard blanlcGt funding of States as provided in 1743. Given the minimal
role of most States in Model Cities, and the minimal interest and capacity
of all but a relatively few states in the specific com,munity developmient
problems of most urban areas, I would premise funding of states, at
least initially, on Secretarial review and approval of State willingness
to: (1) create internal capacity to help urban areas resolve problems;
(2) use State and other federal funds to meet ccmnunity development areas
of concern; and (3) initiate R&D programs with respect to community
developmient problems. In effect, I would tie the funding of states to the
discretion of the Secretary. ^ I would also establish precise criteria
consistent with national purposes end local performance criteria for

1

Although the issue of funding states may not in reality become a real one,
given the fact that hold harmless provisions will limit the level of avail-
able funds in the near future, I think it important that the Committee debate
how best to make states a responsible participant in efforts to resolve com-
munity development problems. As indicated above, blanket funding without
major prerequisites as now provided in 1743 is, I think, a mistake at this
point in time.

99-855 O - 73 - pt. 1 -- 42

644

state pass-throughs to metropolitan cities, etc. (Presently no such cri-
teria exists in 1743. In this regard, it is conceivable that states
could allocate whatever residual funds are provided them to the same
metropolitan cities that receive funds under their ov;n entitlement or
hold harmless provisions.).

5. Technical Assistance/Management & Planning

Senator Sparkman's comrrients accompanying introduction of 1743 and
1744 concerning the need for imm,ediate fresh thinking on the nation's
housing problCmS deserve priority attention by this Committee. In a
similar vein, I would hope that the Committee would provide in the com-
munity development legislation, which emerges from present deliberations,
the framework and means necessary for states and cities to develop local
planning and management capacity. I would offer the following observa-
tions -- observations again based on analyses of current and post federal
planning assistance programs:

a. Presently federal planning assistance programs to cities are frag-
mented and limited as to focus. Most do not even "pass through" the
office of locally elected chief executives, let alone provide him
(or her) with funds to hire staff and develop appropriate resource
allocation priorities.

b. hud's primary planning assistance program is the 701 program. It
has only a marginal impact on cities; is encrusted with irrelevant
administrative criteria concerning use and function; and, is limited
as to focus and product.

645

c. The effort to prescribe a planning model from Washington for cities
has been an unmitigated disaster. It did not work in Model Cities
and will not work in new legislation. The state of the 'planning
art" is marginal and cities should be left to define their own plan-
ning process; such process consistent with their own needs, priorities,
and institutional environment.

d. Most federal planning aids have served to increase consultant capa-
city rr-f^-rr th?n city c?p?rit,y. Most efforts at federal technical
assistance have been partial and inept.

This brief historical overview should correctly imply the need for
new means to build "local capacity". I would propose that you consider
"earmarking" directly in the present bill funds for management and plan-
ning assistance. Further, I would propose limiting severely the amount
of funds within such an earmark which can be used for consultants. Fur-
ther, I would clearly direct earmarked funds at locally elected chief ex-
ecutives and/or locally defined chief administrative officers. Finally, such
funds should be free of federal prescription relative to how a city should
plan and such funds should clearly be capable of being used to hire staff. "I

The Relevance of Evaluation

Neither 1743 nor 1744" is specific about the federal role with respect
to evaluating the results of_the proposed new legislation. Mention of

In this context, I would hope that the Committee would pay particular attention
to the needs for smaller and middle-size cities to secure competent staff. Just
as we in this country have a con-niitment, admittedly tenuous, to "mildly" redis-
tributed incc"2 (inccr;o tax, federal grants), we should begin to think about a
policy to redistribute skills through salary and educational incentives as well
as through such means as an urban talent bank (national recruitment and place-
ment efforts).

646

evaluation is referred to, but no specific sum of money is allocated
or earmarked. Given current hold harmless priorities and other recog-
nized demands, evaluation needs would probably receive, at best, resi-
dual; and, at worse, haphazard attention. It is essential that the
Administration and Congress Initiate and maintain a policy and program
relevant evaluation effort with respect to \.'hatever legislation emerges
from your studies. I would propose, as with planning, that you consider
earmarking a definitive sum of money for national evaluation purposes.

I have prevailed on your time and patience long enough. I hope my critique
of the existing bills has not been too harsh; I hope my suggestions for modifica-
tion are helpful. Perhaps Lewis Carrolls' statement in Alice in Wonderland pro-
vides a fitting close to my testimony and a fitting frame of reference for yours
and the nation's cui'rent dialogue concerning future urban policy.

"that's the effect of living backwards," the Queen said kindly:
"it always makes one a little giddy at first..."

"Living backwards!" Alice repeated in great astonishment, "I
never heard of such a thing!"

"But there's a great advantage in it, that one's memory works
both ways."

"I'm sure mine only works one way," Alice remarked. "I can't
remember things before they happen."

"It's a poor sort of memory that only works backwards," the Queen
remarked.

Through the Looking Glass
by Lewis Carroll

647

Testimony of Antonia Handler CTnayes
Chairman, Subcommittee on Urban Planning and Dcvelopi;;c-nt
National Academy of Sciences Advisory CcrruTiittae to
The Department of Housing and Urban Devolopinent

before the
Subcommittee on Housing and Urban .". sirs
of the
Senate Committee on Banking, Housing and Urban Affairs

I asked to testify today because as a member of the
Academy's Advisory Committee to HUD, I have been chairing a
subcommittee on the implications of revenue sharing for urban
planning and development. VJe put together a group of people v.-ith
both practical and theoretical experience, (the list is attached)
and though I am speaking for myself today, the rccGrru-endaticns
I offer are ones that the subcommittee thrashed out and v;ill
present in its Report. I will make this report available to
this Subcommittee as soon as possible.

Vie have ex£imined both bills, S-1743 and S-1744 as well
as the State and Local Fiscal Assistance Act, and precursor
block grant programs. Both pioposals before this subcomiaittee
embody a nav; philosophy of domestic assistance looking towards
local government for the initiative and energy to deal v/ith major
social and economic problems. Vvhile the inadequacy of past

648

federal prograiTis is widely recognized, the proposed shift in
responsibility does not imply a changed locus of financing.
Financial relief for cities continues to be a necessity, but
the federal government has failed to respond to the need. It
is urgent that an adequate compromise between these two bills
be worked out, and that passage be secured very soon. Our work
with the Department of Housing and Urban Development and in
particular v/ith Undersecretary Hyde leads me to believe that
there is both capability and eagerness in that agency to work
with cities to make a major dent on their most intractable
problems.

There are a few major points on which I wish to con-
centrate, and recon"imend revisions for a final version of the
legislation before you.

1. The Better Communities Act creates an entitlement
to funds without substantive preconditions. It contains no
statement of substantive social purposes or objectives. There
seems a deliberate effort to strip av/ay the legislative findings
of social evils and target problems characteristic of reiaadial
legislation since the 1930 's. The only findings concern
governmental waste and overlapping. The recipient local governraent
has only to present a statement of community development objectives

649

and projected use of funds for the fiscal year and at the end .
of the year must report publicly on activities initiated and their
relationship to the objectives stated. By contrast S-1744
outlines in general terms the social objectives of programs
subsumed under the bill. It does not create an entitlement.
In § 1 , of that bill, the coinmunity is required to present an
application, including a statement of objectives and a work plan
specifying how the funds will be applied to achieve the statutory
purposes. The plan must be approved by HUD before funds become
available.

I would find the failure to deal with national goals
in the Better Communities bill - eliminating all rcfcrcrcc to
equity and redistribution to be unsatisfactory. But, on the
other hand, I also recognize how difficult it is to devise a
formula that will enhance local freedom of choice - itself an
important national priority - while at the san^e time ensuring
■adherence to broad and important national goals. Prior ?IUD
experience illustrates the difficulties that mur.t bi; overco.r.e.
The preamble and § 101 of the Model Cities legislation set forth
both the federal goal of eliminating urban blight by coraprehensive
attack and local choice about specific program configuration
as the method of achieving that goal. But HUD was unable to

650

respond to the local option method, and almost from the beginning
burdened the program with detailed, time-consuming bureaucratic
requirements, as the Banfield Report has shown. The Annual
Arrangements process, also designed to encourage local priority
setting has been burdened by the Project Selection System,
designed to superimpose certain national goals. The insistence
by federal agencies on detailed bureaucratic control over
programs might be justified, if it could be shown that it
resulted in achievement of the nationally-mandated roals. But
this has not been the case. One can cite and docu;aont many
examples - from urban renewal to the Health, Education and Vfelfare
program of school asfsj. stance to disadvantaged children under
Title I of the Elementary and Secondary Education Act. Our
Report goes into some detail on this matter. The inability of
HUD and other agencies to respond to pressures for local freedom
shouJ.d not be attributed to venality or stubborness. It is more a
manifestation of the well-knovm inability of administrative
agencies to deal bureaucratically with issues that require
flexibility, or to embark on approaches that depart radically from
their past patterns.

We have several suggestions to deal with this dilemma.

651

(1) The bill should have a clear statement of the
problems it is designed to attack, and the national goals that
it embodies. Neither bill attempts to define what is meant

by "community development" beyond stating that it represents a
consolidation of pre-existing categorical programs. It is
crucial that a careful definition be v/orked out. I suggest that
the drafters reaffirm the goals of the Housing Act of 1968 and
Model Cities, and include a clear statement of Congressional
intent to redress the effects of racial and economic inequality and
the deterioration of the cities.

(2) The enforcement of these goals should not be
remitted to HUD to be accomplished by means of planning requirements
and detailed program regulations. Yet I am aware that a serious
question is raised if statements of national priorities are not to
be enforced by the application i^rocess. My concern v/ould be
greater if existing methods of bureaucratic enforcement had been
more successful in achieving the state objectives. The specification
of national goals will serve at least as a point of reference for
planners and political leaders. Conversely they can provide
leverage for constituencies whose objectives coincide with the
nationally enacted goals.

(3) Thus I would urge, as the majority of our Subcommittee
has, that a specific percentage, perhaps 75% of funds appropriated

652

under the compromise bill be earmarked for the carefully defined
goals of reducing racial and economic inequality and urban blight.
Although the Better Communities bill has a need formula heavily
weighted in favor of deteriorated urban areas, with poverty counted
twice, there is no assurance that the benefits would be distributed
to the poor and in the eradication of blight. Under our proposal
funds would be distributed by entitlement, based on a formula
similar to that now proposed in S-1743, but three-fourths would
have to be spent on purposes specified in the bill. This would
still leave localities the freedom to find their own solutions
to the problems recognized nationally for some years as m.ost
intractable. The argument for this change in the legislation is
more fully developed by my colleague, Marshall Kaplan.

(4) I want to concentrate on the other major rccoinmen-
dations of our group - a mayoral negotiating process. The bills
embody rather different approaches to the question of citizen
participation. The Better Communities bill requires only that
the statement of objectives be made public in draft for sixty days
in order to permit comraent by interested parties. The
Senate bill requires certification that the applicant has
afforded adequate opportunity for citizen participation in the
application process and "meaningful involvement" of the residents

653

of the area in v/hich community development activities will be
conducted. This is an adaptation of the Model Cities formula.
Neither provision is adequate. The form of consultation provided
in the Administration bill would simply be insufficient to give
effective voice to the most excluded groups in our society.

While the democratic electoral process, in theory,
is the best method for inclusion of all groups in the decision-
making process, in reality, it does not operate perfectly. On
the other hand, the kinds of mechanisms established under the
Economic Opportunity Act and Model Cities have not proven wholly
satisfactory either. They have been ineffective in part because
fragmented across too many program efforts, they have been time-
consuming and far too blunt an instrument for policy choices.
In many cases, these mechanisms set up to speak for the poor were
not very representative. tVhile I would prefer the approach of the
Senate bill to the Better Communities bill, it does imply an
amount of HUD control and possible litigation that is inimical to
the entitlement approach that is so important to preserve. I
therefore have an alternative process to support, also a
recommendation of the Committee to which I have been referring.

It is a statutory requirement that a negotiation process
take place between the mayor, or local chief executive, and a fair

654

representation of all significantly affected groups. The
ul-timate decision would remain with the politically elected
leader. Only the v/ritten assurance that the process will occur,
and a list of groups or parties to be included, should be pre-
conditions to receipt of federal funds, in order to minimize
delay. It is anticipated that the mayoral negotiation' process
would result in the development by the city of a plan for the
expenditure of special revenue sharing funds. Such a plan is not
envisaged as a lengthy paper product, for negotiations will have
to be limited in time and scope. The plan ought to be available
to HUD, but HUD approval should not be a precondition of funding.
Its primary usefulness to both HUD and the locality would be as
assurance that all affected interests had a voice in formulating
the plan and as a basis for evaluation of the uses mada of the funds.

A potentially serious obstacle to the effectiveness of
the negotiation process is the decision as to inclusion and exclusion
of particular groups. Initially, that decision would be that of
the mayor, or local chief executive v.'hose concern would be to
balance representativeness against the inevitable consumption of
time and energy resulting from an expanded negotiation. In
order that the negotiations process not become obstructive, there
would be a further statutory provision limiting right of appeal on

655

the issue of exclusion, to a special hearing examiner from the
Office of a HUD Assistant Secretary. The examiner's deCision
should be rendered within a brief period - no more than thirty
days - and would be final, that is, not subject to further
administrative or judicial review. This limited right of reviev/
gives little potential for delay, and is designed to deal
seriously with any complaint of arbitrary exclusion of parties.
Public hearings should be a preliminary to the nego-
tiation process, to assure widespread publicity of divergent views,
and a v/ritten record of the hearings should be made to aid uoth
negotiation and decision. While hearings will give voice to
interested groups, information dissemination is necessary to
permit development and articulation of alternative viewpoints.
Moreover, the ability to use information is not now evenly
distributed; thus, any mechanism for airing viewpoints will be
crude and not constructive, unless funds are made available for
overcoming these deficiencies. Therefore, I would further
recommend: The provision of the right to utilize federal funds
for staff for the designated bargaining community groups; free
and full access to information, data, studies relevant to the
city's decision-making process; and continuation of assistance for
the formation of regional and national community participation

656

organizations, to foster exchange of information and to provide
technical assistance.

I recognize that for community interests, seeking greater
control over services, this recommendation may not be a wholly
satisfactory solution. But coraraunity control over city -wide
revenue shares is not practicably possible, and the amount of
federally prescribed community participation in residual
categorical programs is increasingly called into question. In
any case, that issue would not be foreclosed by the proposal made
here.

A required process of negotiation v/ill not insure that
the interests of the least powerful and articulate groups will
be protected. Nor does the process establish a parity of
bargaining strength. In the event agreement could not be reached,
the ultimate power would be vested in the democratically elected
chief executive, not in an independent arbitral body. Despite
the imperfections of the electoral process in giving full weight
and access to all groups, the mayor, or other chief executive,
is legally the representative of all the people. However, analogy
to the Labor-Management Relations Act is misplaced because local
political interests are too ccm.plex and overlapping to be subsumed
in a simple two-sided bargaining process.

657

The negotiation process must not be considered a
substitute for national policy goals, nor should it become an
end in itself. The suggested process, however, in light of
the experience and expectations of the 1960 's, will have a
forcefulness and constructivencss that will lead to choices
both wiser and wider-based for revenue shares, than would obtain
under a simple consultation requirement.

(5) Finally, I v/ouid urge that a provision be added to
enable Congress to learn whether the national goals it has defined
are being implemented. In far too many pieces of social legislation
the gap between goal and achievement is alarming, and more
alarming is the abseiioe oL explanacion of failure. Our Comiaittee
therefore urged that Congress set aside approximately 1-2 percent
of special revenue sharing appropriations for monitoring and
evaluation of the program in terms of the criteria and priorities
set out in the legislation. The evaluation studies must be
conducted independently and tlie reports given to both h'UU and to
Congress. This recommendation is modeled after Sjction 307 (c)
of the Federal Highway Act which has required that states set
aside one and one half percent of their allocations from the
Highway Trust Fund for planning and research. Under the Highway
Act, states have the option of deciding how rriuch is spent for

658

each function and they have the i.nitjatiYo o.f prQoosing actual
programs of planning and research which are then submitted to the
Department of Transportation. I am proposAng fn^
"set-aside" for monitoring and evaluation rather than for
planning and research. These funds will permit HUD to develop
far better evaluative measures than are now available.-

In conclusion, I want to reiterate my sense of urgency
for the passage of a compromise bill on community development
revenue sharing. I hope the changes suggested here will be
included. Our full argument in the Report v;ill be available soon,
and it covers many important issues that I do not have time for
today. T do want to mention, though, that we em.phasize the
importance of planning and management funds - v/hother a revision
of § 701 or scm.e form~of the Administration's Responsive Government
bill. We spell out our conclusions about what it should contain.
That legislation, together with a nev/ Housing bill should be
brought forth at once to give the cities and HUD effective means
to attack urban problems that should be closer to solution than
they now ai'e.

659

Summary of Final Chapter of MKGK's Final
Report on Model Cities

SECTIO"! FIVE: THE MEANING OF MODEL CITIES

Probably the most promising domestic program in the 1960s, Model Cities
proposed to effect a significant change in the quality of life of selected
American cities vn'thin the short span of five years. In contract to other
then existing federal assistance programs. Model Cities sought a comprehen-
sive approach to urban problems; it sought to deal with social, physical and
economic issues at one and the same time.

Today, some six years after initiation of the Model Cities Program, it
is clear tliat the goal cf a 3igr,if1c::r,t improvem3nt in the quality of life
of selected urban neighborhoods was not and is not likely to be attained.
A paucity of funds, minimal federal and local capacity to define and manage
end use pjblic end private resources were among the factors which limited
the ability of Model Cities to meet stated objectives.

Despite its failure to achieve quality of life goals, the Model
Cities Program does offer much relative to understanding the ability of
the federal and local gcverninsnts to mount relevant urban programs. The
analysis of tv.enty-cne cities contained in this report offers substantial
data on the interrelationships between city hall, chief executive respon-
sibility, resident roles, and federal involvement in urban programs. This
information is perhaps all the more relevant because Model Cities was
viewed as reflecting a major departure from the then existing federal
delivery system and at the halfway point between categorical programs
and proposed general and special revenue sharing.

Twenty-One City Analysis: Meaning and Impact

This analysis, as well as those preceding it, appears to illustrate
that individual cities responded to the Model Cities Program in five
significantly different ways. Certainly, each of the 21 studied cities
"fits" into one of five systems or one of five categories descriptive of
patterns of Model City behavior.

Each system according to this and previous studies was determined
by the specific interaction of the chief executive, residents, HUD, and
the level of city turbulence. Similarly, each system consistently
manifested a set of characteristics or outcomes related to HUD's Model
Cities requirements.

99-855 O - 73 - pt. 1 -- 43

660

Understanding the relationship among determinants and character-
istics, as illustrated in this report, should permit the develo-:aent
of a r.ore effective federal urban policy and core meaningful lo>:al
response to local problems. To do this, however, will require a
strategic hardening of the phrase "local capacity" and a concurrent
reordering of the federal delivery system.

- Local Capacity - An Operational Definition

Cities "fitting" within the parity system seemed to do best in
responding to the Model Cities Program. They appeared to :'.nitiate
more relevant planning processes and were better able to relate
developed plans to HUD-prescribed activities and performance criteria,
than cities in ctucr classifications. In effect, they had "more
capacity." Their chief executives were involved in the program for
longer periods of time than chief executives in other cities; their
resident group was more cohesive and politically integrated than
similar groups in other cities; the level of turbulence or civil
unrest was less than in most cities; and the federal agencies gen-
erally played a more supportive role than in other cities.

Unfortunately, the lack of visible "quality of life" improvements
inahes it difficult to more than speculate on the "v'isdom" of defining
a federal strategy which wou].d try to induce more cities toward the
parity r.ystem. But in an era when the Admiiiistration is reducing
prescriptive federal regulations relative to program content and spon-
sorship, it seems reasonable to place a bet on the pattern of city
and federal behavior indicated by the parity system. Based on Model
Cities experience, it is probable that cities meeting parity character-
istics v/ill more effectively plan and manage the use of scarce resources;
will move faster and more efficiently to meet national as well as local
objectives concerning the quality of urban life.

Future Federal Policy Framework

Certainly, the role of the federal government in the seventies
will be different from what it was in the sixties. Yet the diminu-
tion of categorical programs/and the rise of "home rule" types of
aid, such as general and special revenue sharing, should not lead ipso
facto to the conclusion that the federal government has no role other
than the distribution of income for general or more narrowly defined
purposes. Hopefully, elimination of urban blight, still very much
with us, despite Model Cities, and discrimination will remain part
and parcel of the national cornmitment (and federal role), along with
conti.nued federal interest in such issues as the environment, poverty,
and the general economy. In a similar vein, hopefully, in the rush

661

toward "reliance" on local government, the c-dninistration will continue
Its laudable interest in reform of institutions at all levels o': govern-
ment.

Perhaps central to what federal policy ought to be in the £;even-
ties is the question whether federal involvement in urban problens
need always generate the supposedly onerous red tape, duplication and
confusion associated with the present federal delivery systcj^i. Indeed,
any argu~ent for an active federal role, whether based on this analysis
or another, nust respond to this question, if it is to nerr'.c political
and institutional legitimacy in V.'ashington as well as in tie cities.

Fortunately, the ti>renty-one cities analysis and its resultant
findings concerning city behavior patterns offers initial and convinc-
--Z Pvid'-'^ce that flexible criteria can be defined with respect to
the new generation of federal prograiaS. These criteria would be, at
one and the same tine, no re effective in assuring a city response to
national as well as local objectives, and less restrictive in terns
of limiting city use of federal aid than similar criteria associated
with categorical programs. They would be directed at affecting the
groundrules v.-ith which local governance takes place and not primarily,
particularly in the short-run, the specific products of that govern-
ance. They would be based on the long-tem "value" of the parity
system as opposed to other systems. In turn, they vrould be premised
on the ability of the federal government, through strategic direction
of its aid and through nonitoring and evaluation, to affect city move-
ment into and city maintenance of the parity system.

Specific Policy Guidelines: As indicated earlier, HUD Model Cities
guidelines or "model" asked cities to respond to structural, process,
product and performance requirements. Significantly, as indicated in
this report, neither HUD's product nor structural requirements really
."assisted" cities to significantly improve their capacity to effec-
tively allocated resources, or initiate particular systems. Structural
characteristics were Idiosyncratic to cities and not endemic to each
system; product requirements meant little to most cities, and rarely
measured anything but the speed and competence of somebody's pen — most
often the pen of a consultant.

Clearly, the primary' requirements that affect system outcome were
those related to role-playing (i.e. role of chief e:cecutive, role of
residents, role of HUD), and the prdmary requirements related to
quality of life were those related to performance criteria (coordina-
tion, institutional change, innovation, mobilization of resources,
etc.). Given continuous federal commitment to Model Cities objectives
(rather than the specifics of the program) , criteria with respect to
role-playing could and should be developed and utilized with respect
to future federal urban aid programs. Given Model Cities experiences.

662

it is reasonable to assuae that these criteria would, if met, generate
ijnproved city pcrfornance with respect to coordination etc., and subse-
quently core effective city allocation of resources.

To he more specific, to the extent current statutes percit:, cate-
gorical progrant criteria concerning product and structure should be
"siripliiied" and/or eliminated, and replaced by less "onerous" (and
more r.oaitorablc) criteria — criteria concerning the relationship
of chief executivfis and residents to the planning and administration
of progrvira funds. Similarly, current provisions concerning general
and special revenue sharing should be aziended to reflect the respec-
tive roles of chief executives and residents, and the redu'ition of
all product requirements. Finally, groundrules relative to role-
playing, once defined, should be monitored by the federal governnient
and jud^od acccrc'ing to a set of refined' "knovm in advance'' criteria,
as vrell as city-defined achieveinent objectives or targets. In turn,
exceptional city performance should be recognized with incentive/dis-
incentive funding patterns — patterns above and beyond "base funding"
provided by respective revenue shares.

Role of the Chief Executive: As indicated in this study, the
role of the chief executive was one of the primary determinants
governin3 the type of system each city initiated over the course of
their respective Model Cities activities. If the chief executive
played a minimal role, either a staff or resident influence system
emerged and the city's resultant Model Cities effort proved least
effecti.ve in responding to Programi expectations. Conversely, if the
chief executive naintained a continuous, visible and supportive
interest and participation in the program, a staff dominant, parity,
or residc;nt doninant system developed, and the subsequent character-
istics of the progran came closer to initial Model City hopes. Clearly,
cities in the parity system — in great part because of the ability
of respective chief executives to help set, legitimize, and subse-
quently riaintain program efforts — approached more than cities in
the other systems, the range of program objectives concerning the
planning and action period.

Chief executive involvement iu the program led to several obser-
vable phenomena. For example, such involvement in cities where
resident groups were strong, was necessary for meaningful resident
participation to take place. Certainly, continuous and visible
participation by the chief executive permitted the development and
loaintenance of groundrules concerning roles which could be lived with
by city hall and residents alike. In a similar vein, chief executive
involvement and support was necessary to achieve even minimal agency
response to program needs and general public support relative to the
"fairness" of resource distribution.

663

To avoid borrowing on Model Cities experience in reforming the
present catccorical system or in defining those nininal groundr ales
governing tr.a contir.ucd distribution of general or special revenue
sharing funds, vould negate at the outset the impact of the total
federal delivery system. Given the Model Cities experience, and
assuning federal cor^itnent to "assist" cities help build "capacity,"
particularly capacity defined in terns of the characteristics associ-
ated with the parity system, the federal government should consider:

1 . Establ jshin z the politically elected chief executive's office as
the sin .;:le point of entry for r.ost, if not all, federa f'lnds
directed at resolving urban problcjns.

Movenent toward this recommendation can occur immediately through
anendnent of administrative criteria associated with existing
categorical programs. V.liere statutory guidelines associated with
such programs restrict such amendment, the issue is sufficiently
important to seek Congressional action.

Revenue sharing and special revenue sharing pose a different prob-
lem. Language governing the now existing revenue sharing program
and the still anticipated special revenue sharing effort implies
a primary role of the chief executive but, according to recent
interviews V7ith many Mayors, does not guarantee it. .-^gain, the
role, given the Model Cities experience, is of such import as to
seek clarifying verbiage in the present law and to tough langu-
age in the proposed statute and associated legislative history.

2. Establishing a consolidated management and olanning c;rant directed
at assj.sting cities develop improved resource allocation skills .

Model Cities experience, particularly the experience of the 21
cities, illustrates the atill minim.al staff capacity inherent in
most city halls and the often deleterious impact of competitive
federal planning aids. These same experiences also suggest the
minimal impact of consultants and othe forms of "outside" tech-
nical assistance in building capacity.

KUD should take the lead in converting its present planning pro-
grams, including 701 and, in part, Model Cities, into more flexi-
ble city-v;ide management/planning aids. Similarly, other agencies
should be asked to do the same v;ith their respective planning
oriented inventories. The conversion process, to the extent
statutes permit J should entail; (1) reduction of geographic and
content constraints with respect to city planning efforts; (2)
increasing the city's ability to use respective agency planning
funds for the hiring of general purpose management oriented staff;

664

and (3) eliminating, or at worst reducing, paper subnission
associated with, nost planning aids.

More v;ill be nrjcdcd, however, to nake federal planning assiiitance
aaenable to city needs and the "new role of the chief executive."
Clearly, the federal govcrn;.;cnt ought to ultl-atcly consolidate
all planning efforts aiined at helping cities into a single manage-
ment and planning grant, capable of being used at the discretion
of tliC chief executive — a discretion subject only to role and
ultijaatc pcrfornance tests.

3 . Establi.shing a n-.eans to effectively help cities build t p staff
expertise.

Certainly, the planning and action periods of r.ost of the 21
cities would have been nade Eore relevant if they had ready access
to better, and at times r.ore, staff. This was particularly true
of sr.ialler cities, particularly those citj.es not able to pay
"competitive" v;ages or offer sustained conpetitive professional
and avocational incentives.

Sevprnl proposals appear in order. First, just as the federal
goverr.r.ent plays a key and important role t'nrough tliC t2->: and
grant-in-aid systen in directing and distributing revenue, it
can and should play a key role in re:-.oving ir:pedin:ents to the
pi'opcr distribution of skills; a distribution cognizant of
national priorities concerning urban proble-s. HUD should take
"the lead in developing a national "urban talent bank" progran,
one that permits the federal gover:— ;ent to help recruit, train,
relocate and place urban specialists in cities throughout the
country. Similarly, HUD si;ould take the lead in assisting
institutions of higher learning develop norc appropriate basic
as well as short-tera curricula concerning specific city manage-
ment and planning needs. Anended federal aid to such institutions
to develop curri.cula alternatives would sceni in this regard to be
appropriate.

Monitoring Performance - Chief Executive: Initiation of the above
proposals will place the chief executive in a nuch nore responsible
position vis-a-vis the federal inventory than heretofore. Further,
initiation of these proposals vrill help build r.is "capacity" to effec-
tively nauage federal as v/ell as local resources.

Conpleraentary vrith atteiapts to purposely increase the role of
the chief executive along the lines suggested in this chapter, should
coce a strengthened but different federal monitoring and evaluation role.

I

665

This role, consistent with the findings of this study, should emphasize
the racasurenicnt of actual roles rather than cither the ceasurcn^nt of
the leii^.th or content of cities' paper submissions, or the forni or
structure associated with the locus of resource allocation activities.
That is, based on the 21 cities study, appropriate criteria related
to the resource allocation role of the chief executive can and should
be defined. These, for cxanple, would relate to, aniong other items:
(1) the frequency and level of public support for programs; (2) the
scope, frequency, and type of involvement in decisions related to
the planning and nanagcment of federal funds; and (3) efforts to en-
courage resident involvement in policy and plan fomulatio;i. As indi-
cated, these criteria would, in effect, substitute in part for reliance
on nore often than not unreal plans in judging city perfomance or,
worse, inflexible categorical program restraints. Together with cri-
teria with respect to citizen participation and judgments relative to
local achievement, they would permit the federal government to fairly
judge local commitment and local success in meeting primarily locally
defined objectives. They would also generate more confidence, if the
Model Cities experience means anything, that the gap between quality
of life objectives and city realities could be narrowed.

Role of the Residents; Characteristics associated with the nature
of resident groups participating in the Model Cities Program helped
deterr.ine city response patterns; in effect, the type of planning and
action systems initiated and/naintained by cities. To briefly recapi*
tulate, j'.f the residents involved in the program v:ere cohesive and
politically integrated — that is, if they were internally strong and
their lenders players in the political process — parity with respect
to decision-making v,-as possible, particularly in environments with mini-
Eal turbulence. Conversely, if residents were neither cohesive nor
integrated, staff dominance or resident/staff influence systems resul-
ted; the former, if the chief executive was clearly involved in the
.program; the latter if he v:as not.

It is clear that federal guidelines with respect to citizen par-
ticipation are often confusing and many times inconsistent. HUD ' s
guideline changes, as indicated in this study, clearly had an impact
in moving cities from resident influence patterns to parity, or indeed
staff, dominant systems. That these same guidelines had relatively
little ;lispact with respect to Dayton, the one resident dominant system,
reflects more KUD's tolerance for the uniqueness of that city's effort
than any basic departure from KbT)'s desire to avoid resident control
of planning or action year activities.

Those cities that secured a meaningful resident role — one illus-
trating involvement and influence, not merely legitimacy, or conversely,
dominance — v/ere apparently able to develop more relevant plans and
more effective linkages between planning and implementation. They

666

were clearly better able to provide nore examples, even if anecdotal,
of irctitutional change, innovation, coordination, and resource
iTiob ill nation.

Given the importance of a certain kind of resident involvenant
on the characteristics of a city's resource allocation capacity, it
behooves the federal govcrir-;.ent to build into revenue s'naring and
special revenue sharing as v:ell as categorical prograns, a consistent
set of criteria. Obviously, these criteria should be subject to ready
evaluation. Hopefully, for rc:asons expressed earlier, they vJ.ll be
responsive to parity type relationships. Among the criteria proposed
are:

1. Chief executives should be asked to take the key role in initiat-
iv;^ and L.r.intair.::-r.g a G-JStair.cd ar.d •.ucaningful resident role in
resource allocation.

2. Ko prcscriptivp organi?!ational forr.at relative to resident involve-
nent should be imposed ou cities. Criteria related to local per-
formance should include, but not be limited to, the follov;ing:

(a) local creation of a citizen organization appropriate to the
area of concern; (b) possible local provision of independent
technical assit; Lance to resident groups; and (c) nuziber, type,
level of involveinent , and ir.pact of resident groups on public
cccision-maliing. 1',o o£!e_ standard of tiieasurer.ent should be in
and of itself rca«on to discount city corr.nitnent to resident
involvement. Rather, "reasonable -nan" standards should be used
by the federal- governrjient in monitoring and evaluating local
activity.

Role of P'ederal Govern."!ent : Clear].y, the "computer in the
basement of the V.'hite House" is not, and should not, be upon us. Model
Cities illustrated, even in its failure to achieve basic quality of life
changes, the need for a continued federal concern for the problems of
the national's cities. Without such a concern, many of the 21 cities
v;ould not have directed, to the extent they did and in the manner they
did, time and resources to Congressionally-def Ined Model City objectives.

As indicated in this study, the federal government can eliminate
much that is problar.isome concerning categorical program criteria.
Free of the need to reviev; numerous paper submissions as well as the
need to e>:amine the detailed content of city funding proposals, the
federal government should be able to assume a more relevant monitoring
and evaluation function. To do' tliis veil v/ill require more, rather than
less, inter-agcncy discipline than shown in the Model Cities Program.
A coordinated, VHiite House-supported federal evaluation role should be
initiated. This will involve Washington as well as Regional based

667

agencies; It should be set up on an inter-departmental basis; inte-
grate analysis with technical assistance; and emphasize on-site
rather than distant evaluation activities.

la this regard, national objectives such as the elininaticm
of urban blight and discrimination, criteria related to the role
of locally-elected chief executives and resident groups, and local
progress in achieving locally set goals concerning community develop-
ment, should replace categorical program criteria as governing factors
determining the upper limit of federal aid.

Funding: The fact that Model Cities did not achieve its goal
doe^ not mean that the nation should turn its back on the goal
itself. Indeed, it may be possible for the first time, given
the advent of general and special revenue sharing, to really
mount an effective attack on urban problems. For such an
attack to occur, however, v.'ould require some basic re-thinking
concerning the relationship of general to special revenue sharing.

Conceptually, revenue sharing, apart from the need for cities
to expend funds consistent v/ith national objectives, and £part
frcm a possible addition of criteria relating to local role
characteristics defined in this report, ought to enter cities
free of restrictions. Conversely, special revenue sharing funds
might well be allocated to problems related to urban blight or
poverty. If this occurred, general revenue sharing would pro-
vide cities with the leverage to deal with the difficulties
faced in disadvantaged areas of cities. Put another way,
gei.-eral revenue sharing, particularly if the funds were ample
encrugh, could grant local chief executives the political and
institutional freedom — freedom not entirely present in Model
Cities — to allocate m.oney to resolve service problems associa-
ted with areas inhabited by the poor or in areas characterized
by extreme urban blight.

As iiaplied, both general and special revenue sharing funds would
be subject to a post audit relative to national objectives and
roles. In addition, local use of special revenue sharing funds
vowld have to illustrate attention to a range of issues related
to deteriorated or deteriorating areas or areas inhabited by
lovrer income households, and would be evaluated on the basis
of local progress in meeting locally-defined targets. Options
novr not available ought to be provided by the Congress with
respect to incentive funding; that is, the provision of funds
for high "performers." Similarly, special revenue sharing pro-
visions now apparently sought by Congress with respect to city
provision of paper plans ought — again, based on findings of
the 21 cities study — to be removed.

668

Technical Assistance: Elimination of raost categorical program
type criteria, the proposed change in the "entry" point of most
existing federal funds, and the advent of revenue sharing, should
cause federal agencies to gradually change their comnitrccnus to
tratlitlonal client groups — coiznitnients causing federally-
provided technical assistance to fcc viewed in nany city haJ.ls
during the Model Cities Program, as "iionest subversion." Further
clinination of paper subaiission requirements should permit more
sustained technical assistance.

The. type of technical assistance that the federal governi.ient
can do best, given the Model Cities experience, relates lo:
(1) providing knowledge about the federal system; (2) providing
working knov/ledge about v.'hat works or does not work with respect
to service strategies; (3) providing select specialist assistance
in T-.ey functxor!--il areas; and (4) brokering non-federal technical
assistance being employed in cities around the country. The for-
mat for technical assistance that works best, again given Model
Cities experience, is that which is "closest" to the city. The
federal governinent should experiment V7ith such agenda items as:
(a) a full-time presence in select cities; (b) on-site technical
assistance for sustained periods of time; (c) revolving intern-
ships for federal officials in cities; and (d) increasing use
of inter-departnental TA t;eams. They should also look increas-
ingly to "technology" advantages and costs, for example, of two-
way cable-TV hook-ups between federal agencies and cities.

State/Metropolitan Role: States and Areaxvide governments, con-
sistent'v/Ith their interest and client groups, played a limited role
in t]ie/}fcdel Cities Frogram. Given the present routing system associ-
ated v.'itli general and special revenue sharing, only states really are
effectively tied into the nev; system of federal aid to cities.

Perbsps this is as it should be. Federal efforts to "force"
rather tlisn influence the creation of Metropolitan governi.ients would,
given current instituti.onal and political facts of life, be a mistake.
As important, efforts by individual federal departments to create
seemingly exogenous Areawide groups for certain functions would,
unless receiving state/local support and federal funds, end up as
luany already have — an obstacle to overcome rather than a partner
in the federal system.

States ought to play the key role in creating Metropolitan bodies.
Incentive funding in return for city agreement to participate in coordi-
nated planning and action strategies, would be the most appropriate
means to stimulate a meaningful Metropolitan development program. Such
incentive funding could come from a bonus on top of revenue sharing or
special state/federal set-asides.

669

Just as an cx-panding federal role in technical assistance should
bo conLcijplatcd, so too should an eiipanded state role. Of key import
in this regard, however, will be the state capacity to put the;.r "ov.-n
house in order" with respect to urban strategies and to build up staff
nu:nbers and, core ir.iportant, staff e:<pertisc. Recoirjuondations concern-
ing a managcn-?nt/planning grant to cities would be equally appropriate
to states. Similarly, recoi?j:iendations concerning a single point of
entry for funds to cities would be relevant for current funds going
to states for state development purposes.

Postscript

Model Cities v/as seen by most cities as directed at iiiproving the
quality of "hard" and "software" sei-vices 'provided the poor. This
"policy" chapter has therefore concentrated on outlining strategies
relative to the next wave of service strategies — general and special
revenue sharing. It is important to conclude on the note that a needed
coraplement to a federal effort to assist cities fund services v.'ould be
a federal effort directly oriented at improving resident ability to
purchase such services, either in the market-place or through local
taxes, lleiicc, there is a need to clearly coordinate a service approach
with proposed Administration efforts in the income and welfare reform
area.

670

The Chairman. We have one more witness, Miss Maxine Kurtz,
board of governors, American Institute of Planners. We are glad to
have Senator Haskell here who I understand will present Miss Kurtz
to us.

Senator Haskeix. Mr. Chairman, thank you very much.

Senator Stevenson. It is a great pleasure to introduce an old
friend

The Chairman. You mean a longtime friend.

Senator Haskell. A longtime friend is far better, right. Miss
Kurtz is well known to all of us in Colorado. And she has had great
experience in long-range planning to make the best use of our land
and make the best use of rehabilitation of our cities.

She is currently the personnel resource officer with the city and
county of Denver. Her credentials indeed are impressive. She was
technical director and program evaluations administrator of the Den-
ver model cities program, head of the research and special projects
division of the Denver planning office and research analyst for our
Tri-County regional planning commission.

She has served as a member of the national board of governors,
American Institute of Planners, and also a secretary-treasurer of
that organization. In addition to her work as planner Miss Kurtz is an
attorney. Please don't hold that against her.

I am an attorney, also. She is a member of the Colorado Bar Asso-
ciation. After earning her bachelor's degree and outstanding achieve-
ment award at the University of Minnesota, slie took her law^ degree at
Denver University and also in addition to other things holds a mas-
ter's degree in government from Denver University.

Gentlemen, it is a great pleasure to introduce Miss Kurtz to you and
I am sure you will find her testimony extremely productive.

Thank you very much indeed.

The Chairman. Thank you. Senator Haskell. We appreciate your
coming over.

You have given a very fine introduction. Miss Kurtz, we shall be
very glad to hear from you. I believe we have a statement that you
have prepared. Yes, we do. That will be printed in its entirety in the
record and you may present it as you see fit (see p. 679) .

STATEMENT OF MAXINE KURTZ, ON BEHALF OF THE AMERICAN
INSTITUTE OF PLANNERS; ACCOMPANIED BY ALBERT MASSONI,
DIRECTOR OF NATIONAL AFFAIRS

Miss Kurtz. Thank you very much, Senator. In order to conserve
the time of the committee I will summarize the statement since you
have the full text before you.

The Chairman. Very well. For the benefit of the record will you
identify the gentleman who is with you ?

Miss Kurtz. Yes, sir. With me today is Mr. Albert Massoni, direc-
tor of national affairs for the American Institute of Planners. He is
a member of our staff and is available to work with the committee as
the committee may desire.

The American Institute of Planners is the national professional
planning organization devoted to the study and advancement of the
art and science of city, regional, State, and national comprehensive

671

planning. Over 8.000 members have major responsibilities in govern-
ment and in private practice, working with elected officials as well as
with private organizations whose actions and policies directly affect
the quality of the national environment and the development of com-
munities of this Nation.

On behalf of the members of the institute, I wish to thank the com-
mittee for the opportunity to appear and present our views on the
various issues and challenges w^iich the committee faces in preparing
legislation on the important subjects of community development,
comprehensive planning, and housing.

The American Institute of Planners has had long and continuous
involvement wih the national issues and local development problems
inherent in planning and community development. Planning is con-
cerned with the unified social, economic and physical development of
urban and rural communities and their environs, and of States,
regions and the Nation.

The essential objective of such concern is the same as the basic
objective of all government and political action — guiding the patterns
and forces of society for the benefit of its people. Planning provides the
means by which a unit of government may fulfill its commitment to
its people by anticipating and preparing for future needs inherent
in the process of growth and change.

Thus the primary objective of planning is achieved in improving
the effectiveness of government.

We are concentrating today on the major pieces of legislation before
this committee ; namely, S. 1743, the administration's proposed "Better
Communities Act,'' and S. 1744, the "Community Development Assist-
ance Act of 1973.''

We will comment on a vitally related piece of legislation which
has been introduced by Senator Stevenson as S. 854. Also included in
our remarks are certain institute policy positions relative to housing
programs.

We have urged that the concept of block grants, contingent primarily
on the effective conduct of continuous comprehensive planning, be
developed and implemented as the principal means of distributing
Federal aid.

Both the bills before you achieve this funding concept but only
S. 1744 would mandate adherence to a comprehensive plan. In essence
both S. 1743 and S. 1744 would consolidate into one comprehensive
grant program most of the hardware grant, community development
assistance programs of the Department of Housing and Urban
Development.

AIP recognizes the need for and supports these efforts within Con-
gress to simplify and consolidate under a bloc-grant approach the
various Federal programs affecting community development.

We strongly urge this committee to maintain an application require-
ment based on the preparation and implementation of plans that
address themselves to national goals and require States and local gov-
ernments to address these national priorities and assist in the realiza-
tion of national growth policies.

All community development plans should be developed in accord-
ance with the expressed comprehensive plan for the community as a
whole.

672

One of the reasons for our concern over an application process re-
lates to the Federal review and comment practice established under
the auspices of 0MB circular A-95. Without an application process,
a thorough review and comment process as well as environmental
impact statement process apparently would be negated.

AIP strongly endorses a multiyear funding concept in order to
enable communities to develop effective programs and implementa-
tion strategies. Our policy suggests biennial funding, with an alloca-
tion for 2 additional years. The reservation would be subject to an
evaluation of previous performance and the submittal of an applica-
tion including an adequate plan for its use.

Last year the Senate included in its omnibus housing and urban
development bill a title IV which would have reasserted congressional
support of the comprehensive planning process.

It recognized the needs to expand the purview of the program in
areas of implementation, and streamlined sections of the present public
law in order to support community development activities legislated
under the Senate bill.

This year. Senator Stevenson has reintroduced that same title, with
minor technical changes, as S. 854. It is important that this bill be
considered at the same time that this committee debates a new com-
munity development assistance program.

In part the Senate has recognized this important interrelationship
by requiring that all community development programs assisted under
S. 1744 be consistent with local and areawide comprehensive plans
and national growth policies. Any rewrite of the section 701 compre-
hensive planning assistance programs should reflect an understanding
of its relationship to community development programs and to all
other programs of domestic assistance, whether they be social serv-
ices, environmental pollution control, and multimodal transportation,
law enforcement control, housing, land use, natural resources pro-
tection, and the like.

The importance of S. 854 lies in the fact that it continues section
701's emphasis on planning, but would also provide management assist-
ance so that States and local governments can better implement their
planning. This makes good sense when one understands that plan-
ning is not a static function but is in fact, a process; a process that
requires continuing update and change, based on the actual imple-
mentation or lack thereof relative to the proposed plan.

Over the last 2 years, the administration has discussed the possi-
bilities of converting the comprehensive planning program to a man-
agement assistance program. Where we find major differences between
the approaches of S. 854 and the administration proposals is then in
the eligible activities.

S. 854 is concerned with the development and implementation of
comprehensive plans as a part of an ongoing planning process.

It rightfully recognizes the policy-planning-evaluation needs of
elected officials and continues the identification and evaluation of
community needs relative to a broad variety of community develop-
ment activities.

The administration has proposed that, in addition, the program
should support the development, improvement and modernization of

673

specific governmental management processes including personnel,
revenue and resource allocation systems.

Granted, Government reform is a noble objective and the need
might be extensively supported around the country. If that is the case,
should we not establish a new program for State and local government
reform ? The 701 program is barely meeting the established planning
needs of the country, let alone the projected needs under new com-
munity development programs.

We concur with the mandatory language of S. 854 relative to estab-
lishing a comprehensive planning process and hope that through this
requirement, planning will be a more meaningful implementation tool
for elected public officials.

S. 854 requires a local share, in this case a 20 percent match. We
believe that a local matching requirement is important and should be
maintained in the legislation rather than 100-percent financing as
has been suggested by the administration.

S. 854 would also establish an evaluation process that would measure
the progress made under this program w^hich would be taken into con-
sideration before the awarding of any new grants. We feel that this
is an important new requirement that should be intrinsic to any valid
comprehensive planning process, and we feel this will assist in tying
management implementation to the planning process.

We feel, however, that the acquisition of historic properties or struc-
tures of architectural value should be part of the community develop-
ment block grant program, and respectfully urge that this provision
be stricken from S. 854.

Plans are an extravagance if their only function is to ornament the
walls of the mayor's office or occupy space on his bookshelf. Contem-
porary planning is action planning and an essential part of the plan
is the implementation section.

People cannot live in plans; they live in houses or apartments. We
cannot solve the problems of decent housing by plans or fair share
agreements. We can only solve them by actions. Housing is one of the
greatest users of land in any metropolitan area and its actual location,
density and quality uniquely is governed by the Federal funding pro-
grams— and I do not care what the land use map shows in this regard.

S. 1744 recognizes that there is a definite relationship between the
community development program and federally assisted housing pro-
grams. The administration's Better Communities Act on the other
hand has made no provision to insure that a recipient community
would undertake a program to meet its housing needs as part of its
community development efforts.

AIP supports a mandated requirement that would link subsidized
housing to community development programs.

AIP urges that the supply of low- and moderate-income housing be
increased and its distribution be expanded throughout metropolitan
areas in order to improve accessibility to transportation facilities, de-
cent jobs, and high quality schools and services.

In pursuit of these goals AIP urges the following :

1. The expansion of Federal funding for housing assistance.

2. The consolidation of Federal housing programs into a set of
simplified and unified programs and administration procedures, em-
phasizing dispersal rather than concentration of subsidized housing.

674

3. The provision of authorization for public agencies as well as pri-
vate groups to act as sponsors for federally assisted housing both in
below-market interest rate programs and in mortgage insurance
programs.

4. The review of all requests for all Federal housing assistance by
States and regional agencies and the allocation of housing assistance
in accordance with approved overall State and regional housing plans.

5. The development of an areawide review process directed at low-
and moderate-income housing, in order to effectuate "affiiTnative ac-
tion" in dispersing such housing throughout metropolitan areas.

6. Priority funding for Federal housing programs to those com-
munities making active efforts to provide, encourage, or permit low
and moderate income housing, and establishment of Federal require-
ments that relate grant programs, such as urban renewal, water, sewer,
and open space development, be consistent with the housing plans and
ordinances of a municipality.

7. The provision of additional financial incentives for States that
undertake actions to increase the supply of low- and moderate-income
housing through efforts emphasizing the production of such housing
units and the dispersion of such housing throughout metropolitan
areas and in scattered site development.

8. The provision of additional financial incentives to housing devel-
opment agencies that undertake the development, administration and
management of low-income housing on a metropolitan, county, re-
gional, or State basis.

9. The inclusion in Federal housing assistance programs of addi-
tional financial assistance in the form of public service grants to those
communities actively participating in the provision of housing for low-
and moderate-income families. This assistance would offset the added
burden on municipal revenues from this housing, including but not
limited to reimbursement of all property tax losses incurred by virtue
of the tax exempt or tax abatement status of such housing.

In conclusion, the American Institute of planners supports the
idea of reducing the limitations of the categorical funding programs
in community development, but not to the point where we repeat the
mistakes so painfully discovered in the past few years.

"We support the requirement for and funding of comprehensive
planning processes as the way to avoid those pitfalls.

We support a flexible housing program in order to implement the
one land use in a comprehensive plan most affected by Federal legis-
lation.

Mr. Chairman, we have attached to our statement for this com-
mittee's considerations a series of specific policy recommendations re-
lative to community development and housing legislation. We v/ould
be glad to answer any questions or provide additional materials.

Thank you.

The Chairman. Thank you very much. You have given us some-
thing to think about, a very good idea.

Let me ask this: I was down home in Alabama Wednesday. And
people interested in housing plans and so forth talked to me. Actually,
these were people who were connected with regional setups, maybe
four or five counties in one region. They were very much disturbed
by the report that starting sometime in the future, I don't know just

675

when, maybe the beginning of the new fiscal year, that funds for sec-
tion 701 planning would be allocated to the States, instead of to local
governments, and communities, as it has been since its inception.

Do you understand that to be the plan ? What do you think of it ?

Miss Kurtz. Well, Senator Sparkman, I would say this. There
should be an alternate procedure. There are some States in the coun-
try which are well equipped to handle 701 funds on behalf of the com-
munities within those States. And I particularly would site those in
the Tennessee Valley as an example of the States that have done quite
effective jobs in providing technical assistance and handling 701 funds
for the subdivisions within those States.

On the other hand, I would say most of the States in the region from
which I come, Rocky Mountain region, are at best marginally quali-
fied to do this type of activity. I would say that I would not go all the
way either direction.

I think I would have to suggest an alternative, that if the State
is equipped to handle this, then it should be allowed to do so. And if
it is not, I would suggest that there be direct funding into these re-
gional organizations or metropolitan areas of the type that you indi-
cate.

I recognize further that part of this is the traditional antipathy
between the cities and the States, the traditional attitude that the
States are kind of an anachronistic type of unit of government that
is there but to be ignored as enthusiastically as possible.

I don't personally subscribe to that view of the States. But I think
that unless we make it possible for the States to do something meaning-
ful, they are just simply not going to gear up to that sort of activity.

The Chairman. Well, we talked about this some yesterday in con-
nection with the hearings that we had. And I commented at that time
that I thought it depended largely upon the extent to which a State
had set itself up to participate in programs that would call for
planning.

Some States actively participate in programs of this type. And
other States I am of the opinion pay very little attention to these things
as a State government. So it seems to me that probably in those States
that do have an active participation, it might work very well.

But in those States that don't have, it seems to me it would be better
to stay on the local government level.

Miss Kurtz. I might add this further comment. Senator, that it has
been my observation over the 30 or so years I have been in the planning
field that it is amazing how quickly units of government will gear up
in response to Federal programs.

I happened to make a study of that for some research work I was
doing for one of the universities in the southern part of the country.
And It is amazing. Within 1 or 2 years, people can gear themselves up
if they have the incentive.

The Chairman. You have quite a reputation shall I say of being a
down-to-earth planner. Just how do you work in connection with
planning out in Denver where you operate ?

]Miss Kurtz. I have never been a believer in plans as sort of a pie-in-
the-sky type of operation. I think that you have to have a reasonable
conceptual framework, for instance, if you were going to put $135
million into building a water diversion project, we ought to have some

99-855 O - 73 - pt. 1

676

relatively good idea of what we think is going to be the volume of
consumption and for what purposes and this sort of thing.

I am not, as I say, a great believer in abstract research and I am not
a great believer in abstract plans. I have the feeling that plans have
these functions or should have.

First you set the framework for not only the locality in which you
are working, but in which the State and Federal Governments can
make their decisions and for that matter the private sector as well.

If we all agree to what it is we think is going to happen it becomes
a self-fulfilling prophecy. That is one aspect of it. I think a second
aspect is to review the alternatives that a community has in any given
problem area, indicating the pros and cons and what is practical and
what may be totally impractical.

For the benefit of the decisionmakers of the community, by that in
my case, the mayor and city council. And say, gentlemen, if we have a,
say a problem with providing hospital caie, it is absolutely impossible
from an engineering and architectural standpoint for us to remodel
this hospital.

It has to go. It is no longer useful. So our alternatives in providing
hospital care are one, and two, and three. And indicate why those alter-
natives are either good or bad. And now our policy board might make
a recommendation to it.

But the actual staff report that goes ahead to the mayor and the city
council identifies the viable alternatives and the pros and cons for each.
And then the political decisionmaking process takes over and a decision
is made as to what should be a disposition of the case.

The Chairman. Well, thank you very much.

Senator Stevenson ?

Senator Stevenson. Thank you, Mr, Chairman,

And thank you. Miss Kurtz, for a very helpful statement and those
kind words about S, 854. There is a respectable body of opinion in the
country now which says generally speaking that the regional bodies
are ill-equipped to plan for the reason that they have great difficulty
overriding, reconciling, and reaching political differences.

We have seen this problem in our own States, State versus metro-
politan planning council. You say agencies gear up when given the
incentive. I don't believe Congress really has given the States the
incentive in 701. The administration is doing so, but I think it is doing
so outside of the intent of the law, outside of congressional intent.

But how do you perceive the role of the States in planning, and
specifically, should the Congress give the States an incentive to go into
planning?

Miss Kurtz. Well, to answer the second question just categorically,
in my opinion the answer would be "Yes." I think that the Congress
should give States a financial incentive to enter planning.

Now the relationship of the States to its various segments would be as
variable as the States themselves are. For instance, some of you may
know from some of the gentlemen that we have had in the Congress
from Colorado from time to time, our State is very different in its vari-
ous sections.

In fact we have just concluded the longest local legislative session in
the history of the Colorado general assembly.

677

And the whole delay, and it never was resolved, had to do with at
what level would you administer a statewide land use control plan. And
the reason was that nobody really felt that the State government would
really know what happens in the dryland areas to the east, and the
momitains bisect the community with an entirely different set of prob-
lems, and in the valleys on the western slope from which our water is
drawn and all these types of consensus. There are really almost four
distinct areas in the State and have very little in common with each
other. And the one thing that everybody can agree on was that they
did not want the State to do it, because the State was too diversified
and we would have roughly the same attitude among the various sec-
tions of the State toward the State government that the various parts
of the country occasionally have toward certain more or less bureau-
cratic decisions that are made about certain standards to which the
States must conform and which are not relevant to our particular
problem.

On the other hand I can imagine some of the States that are smaller
and rather homogeneous in their character and general development
could very well be handled by the State. I think there is no such thing
as a pat answer as to what should be the relationship of the States, the
regions within the State, and the local governments within them.

I think that is one of those things that should be worked out with a
degree of flexibility so that we can adapt to the diversity.

Mr. Massoni. Senator Stevenson, I would like to make just one com-
ment relative to that question. We definitely believe that every juris-
dictional level of government must have some kind of plamiing and
assistance to meet the public investment of the rest of the Federal
domestic programs of the country.

That means the State also, and impact 701 has funded certain State

■planning programs. Because the Senate has approved a National

land-use and planning bill, there probably will be more incentives for

States to be involved in land-use planning as it relates to an umbrella

comprehensive planning process.

I think the question gets down to something that all of us don't
know about. The movement on the part of the administration to begin
to administer the program outside of Washington at the State level,
in terms of a draft proposal that none of us have seen, which makes it
quite difficult to assess whether it might be even a viable solution.

There are definitely as Miss Kurtz mentioned, areas where direct
funding of States without any coordination with the local jursdictions
would be abominal)le in our minds.

There are certain cities and metropolitan areas that are so far ad-
vanced that their State structure would become just another bureau-
cratic level impediment to go through.

But until a proposal is actually on the table that all of us can assess
it really makes it difficult to answer.

Senator Stevenson. The point for us is that we cannot legislate
separately for 50 separate States. If we were to legislate that incentive
it would be available presumably for all of the States, which if your
generalization is accurate, would all gear up in response to the incen-
tive for planning.

678

Would you make funds available to States that are planning an ap-
plication process which would permit the bureaucrats to differentiate
between one State and another ?

How would we go about that ?

Miss Ktjrtz. I would allow a degree of local autonomy. I am not im-
pressed with the capability of the bureaucrats to evaluate the ability
of a solution with respect to the internal organization of any given
State.

What I am suggesting is that there be an alternative situation so that
if the State is in it, that perhaps along the lines of what Marshall
Kaplan was talking about, that there be some criteria as to whether or
not the funding goes to the State or goes to jurisdictions within the
State independently of the State, if the State does not meet these
minimum capability criteria.

Senator Stevenson. Thank you very much, Mr. Chairman.

The Chairman. Thank you very much.

We are indebted to both of you for this dissertation. It will be hope-
ful to us in considering this legislation.

That concludes the hearing for this morning. The committee stands
at recess until 10 o'clock Monday morning.

[Whereupon, at 12 noon the subcommittee recessed, to reconvene at
10 a.m., Monday, July 23, 1973.]

[Complete statement of American Institute of Planners follows:]

679

STATEMENT OF MAXINE KURTZ, AIP, BOARD OF GOVERNORS OF THE AMERICAN
INSTITUTE OF PLANNERS BEFORE THE SUBCOMMITTEE ON HOUSING AND URBAN
AFFAIRS OF THE SENATE COMMITTEE ON BANKING, HOUSING AND URBAN DE-
VELOPMENT, COMPREHENSIVE PLANNING AND HOUSING LEGISIATION, JULY
20, 1973, WASHINGTON, D, C,

Mr, Chairman and Members of the Committee, I am Maxine Kurtz,
member of the Board of Governors of the American Institute of Planners, and I
am presently the Personnel Research Officer for the City and County of Denver,
Colorado. With me today is Albert Massoni, Director of National Affairs for
the Institute .

The American Institute of Planners is the national professional
planning organization devoted to the study and advancement of the art and
science of city, regional, state and National comprehensive planning. Over
8,000 members have major responsibilities in government and in private practice
working with elected officials as well as with private organizations whose
actions and policies directly affect the quality of the national environment and
the development of communities of this Nation.

On behalf of the members of the Institute, I would like to thank the
Committee for the opportunity to appear and present our views on the various
issues and challenges which the Committee faces in preparing legislation on
the important subjects of community development, comprehensive planning and
housing.

The American Institute of Planners has had long and continuous in-
volvement with the national issues and local development problems inherent in
planning and community development. Planning is concerned with the unified
social, economic and physical development of urban and rural communities and

680

their environs, and of States, regions and the Nation. The essential objective
of such concern is the same as the basic objective of all government and
political action--guiding the patterns and forces of society for the benefit of
its people. Planning provides the means by which a unit of government may
fulfill its commitment to its people by anticipating and preparing for future needs
inherent in the process of growth and change. Thus the primary objective of
planning is achieved in improving the effectiveness of government.

Last year's Senate Housing and Urban Development bill, written by
this Committee, went a long way in attempting to improve the effectiveness of
government in dealing with the critical issues of housing, community develop-
ment, planning, and mass transit through a variety of urban and rural assist-
ance programs. We would like to concentrate today on the major pieces of
legislation before this Committee namely, S. 1743, the Administration's pro-
posed "Better Communities Act," and S. 1744, the "Community Development
Assistance Act of 1973". We would also like to comment on a vitally related
piece of legislation, which in fact was included in last year's omnibus bill
under Title IV - Comprehensive Planning and Management and which this year
has been introduced by Senator Stevenson as S. 854. Also included in our
remarks are certain Institute policy positions relative to housing programs.

Community Development Block Grants

As the former technical director of a Model Cities program, I worked
for many months testing the categorical funding system and documenting its
shortcomings. Many of tlie problems we identified in our work with the residents
of the Model Neighborhood were those prol)lcms that fell between the cracks

681

of those categorical programs; no one had noticed that the various programs did
not mesh. It also was a favorite game to exploit the overlapping programs of
various agencies. Further, administration of the detailed provisions of some
of these narrow acts could be ridiculous. For instance, some years ago a
regional HUD official proposed to disallow the renewal of our Workable Program
because Denver's housing code did not provide for screening against malarial
mosquitoes. Denver is located on a semi-arid mile high plateau at the base of
the Rocky Mountains, and local medical history nas no records of any malarial
mosquitoes for at least a century. When I pointed this out, HUD decided to
withdraw its objections. But on the broader scale, these types of problems have
led us planners basically to support the concept of block grant funding.

It is equally true that the subject of community development is very
broad, and the early failures to recognize that breadth has led this country in
the past to adopt simplistic solutions to complex problems. A real estate ap-
proach to housing for low income families led to the Pruitt-Igoe disaster in St.
Louis. A lack of appreciation for the human costs of urban renewal led to the
formula: urban renewal equals Black removal. As early as our national con-
vention in 1965, Walter Reuther of the Auto Workers Union was telling the
Nation's planners:

The old piecemeal installment approach will not be adequate.
What we need also to keep in mind is that it is not good enough
to tear down the old slums and to build modern slums, because
the quality of the plumbing does not create a satisfactory living
environment. I believe that we've got to think in terms not of
housing developments, but community developments in v>/hich we
create a wholesome, healthy, total living environment, worthy
of free men ,

At this same conference, Robert I,. Carter, General Counsel for the NA/\CP

682

observed:

There has been a lot of talk about cleaning up the slums, but
the various current efforts labeled urban renewal or rehabilitation
all seem to be related to fulfilling the needs of the white upper
middle class. This usually connotes the building of residential
areas from which Negroes are expressly or tacitly excluded, or
beautifying commercial areas or the development of cultural
centers which cater to interests far removed from the bread and
butter survival concerns of the average nonwhite city dweller.
While this kind of city renewal and rehabilitation moves forward,
the stench and decay of the Harlems of our cities are increasing.

We cannot afford to ignore these painful lessons in our enthusiastic
pursuit of simplification of the grant process. In other words, we cannot throw
out the baby with the bathwater. Comprehensive planning is required to meet
the need.

These are just some of the reasons AIP has long supported the concept
of program and grant consolidation. We have urged that the concept of block
grants, contingent primarily on the effective conduct of continuous comprehen-
sive planning, be developed and implemented as the principal means of distri-
buting Federal aid. Both the bills before you would achieve this funding concept
but only S. 1744 would mandate aJherance to a comprehensive plan. In essence
both S. 1743 and S. 1744 would consolidate into one comprehensive grant pro-
gram most of the hardware grant, community development assistance programs
of the Department of Housing and Urban Development. AIP recognizes the need
for and supports these efforts within Congress to simplify and consolidate
under a block grant approach the various Federal programs affecting community
development. The multiplicity of present programs which related to these
priority public concerns and the wide range of provisions and regulations as-
sociated with the different programs may have impeded achiGveincnt of the goals

683

which these various programs collectively seek to achieve. Each program has
been fraught with red tape and excessive requirements which lack flexibility
and often do not address the full set of problems or overall objectives which
may exist in a particular locality. In most cases there is no guarantee of con-
tinuity of funding. For these reasons AIP recognizes that a block grant approach
to community development programs should help alleviate the conflicts, dupli-
cation and lack of coordination between present national programs dealing with
the improvement of the Nation's communities.

While recognizing the need for simplification and coordination in the
Federal support of community development programs, we at the same time
believe that the Congress should maintain certain basic requirements to insure
that certain national priorities and goals are achieved. We strongly urge this
Committee to maintain an application requirement based on the p'-eparation and
implementation of plans that address themselves to national goals and require
States and local governments to address these National priorities and assist in
the realization of national growth policies. All community development plans
should be developed in accordance with the expressed comprehensive plan for
the community as a whole.

Priorities should be given to the revitalization of older urban areas,
with a clear emphasis on neighborhoods that are deteriorated, deteriorating or
under direct threat of decline. More than G0% of the activities presently
funded under the categorical grants address themselves to areas of blight or
deterioration. We therefore believe that this should be a priority within any
newly coordinated approach to community development. We must insure that
expenditures of funds are done in furtherance of national purposes and toward

684

elimination of national problems. Therefore it is necessary to require some
form of application process with its inherent review and approval requirements.
Federal guidelines seem essential to assure that (1) the funds will be expended
in accordance with the intent of Congress; (2) all necessary safeguards to pro-
tect the process against corruption are incorporated therein; and (3) all affected
persons or businesses will be held harmless within the limits of reasonable
monetary compensation and procedural safeguards. We believe that this can
be achieved without sacrificing aspects of greater flexibility through the
simplified use of a wider scope of eligible activities to carry out innovative
and effective community development strategies adapted to local conditions .
We believe that a completely "no-strings" approach would be neither appropriate
nor practical.

As we have mentioned, one of the reasons for our concern over an
application process also relates to the Federal reviev/ and comment practice
established under the auspices of OMB Circular A-95 . Without an application
process, seemingly, a thorough review and comment process as well as en-
vironmental impact statement process vi?ould be negated. These processes have
provided us vv'ith a means to insure the wise expenditure of public investment.
These Federal review processes have contributed to intergovernmental coor-
dination and a more open public decision proc;ess. Congress should insist that
all block grant legislation require that recipient governments and agencies
comply with Section 204 of the Demonstration Cities and Metropolitan Develop-
ment Act of 1956, Title IV of Intergovernmental Cooperation Act of 19G0 and
Section ]02(2)C of the National Environmental Policy Act of 19G9.

S. 1744 comes fJ.osest to fulfilling th-: above needs. It requires

685

communities to prepare and implement plans. Its application process can be
subject to review and comment. It does require that the applicant's proposed
activities be consistent with comprehensive planning at the local and areawide
levels. And above all the bill does stress goals and objectives to meet the
housing needs of low and moderate income individuals and families residing or
working in the community and that a community take steps to prevent and
eliminate slums and blight and upgrade neighborhood environments through
urban renewal, code enforcement and similar programs. It is for these reasons
that we support S. 1744,

Other provisions in S. 1744 also bear commenting on. S. 1744
contemplates a two-year advance funding program to insure continuity from
year-to-year. Two-year contracts would be made by the Secretary which would
be renewed each year in order to provide for continuing support on a two-year
cycle subject to adequate contract performance. AIP strongly endorses a multi-
year funding concept in order to enable communities to develop effective pro-
grams and implementation strategies.

Let me give you a couple of examples from my experience. During
World War II, the Federal government interned many Nisei from California in
camps near Denver. When the War was over, many of these citizens chose to
remain in Denver, and because of the housing shortage at the time, they
settled in marginal housing near the Tri-State Buddhist church on the edge of
the downtown area. I found they could afford better housing, but it was not
available in the part of the City where they Vi'antod to Jive. Over time, a major
urban renewal project has allowed the Church to move from a converted ware-
house into a now buildiiig,a residence for elderly citizens h;is just been opened.

686

and a business and cultural center for the Japanese-American community was
dedicated a few days ago. Other buildings in the area also are being renovated.
This has involved a considerable time span because the community is closely
knit socially and culturally, and a major effort mounted all at once would have
shattered it. Yet, it was necessary to know that the funds would be available
to assure that the project would be consummated before the necessary invest-
ment capital could be raised.

In contrast, a NDP (Neighborhood Development Project) program was
started in a semi-rural slum on Denver's outskirts. Funding, of course, was
on a year-to-year basis. The population, who had been residents of the Ozarks ,
were uprooted by the depression dust bowls and stopped in Denver instead of
going on to California. By now, they are elderly and are not particularly affluent.
I guess most of them would be called "the working poor." In any event, our
inability to schedule assistance for the entire area let unscrupulous real estate
men and contractors pray on them; many sold out at a pittance and others paid
unconscionably high rates for repairs to "fly-by-night" outfits who accurately
pointed out that the housing did not meet City codes and frightened the residents
into assuming hugh bills. We could not offer a firm alternative, and many
families in that area were the victims. Had we been able to say with a degree
of certainty that we could provide low-cost rehabilitation loans next year or
the year after, most of this exploitation could have been avoided.

AIP has established a policy that suggests biennial funding contract
with an allocation for two additional years, the reservation for v.'hich v.'ould be
subject to an evaluation of previous performance and the submittal of an appli-
cation including an adequate plan for its use.

687

Related to the idea of multi-year funding is the important concept of loan
provisions also included in S. 1744. Without a Tederally supported loan pro-
vision substantial development or redevelopment for many communities would
not be feasible. Land acquisition under urban renewal has been largely financed
with temporary loans locally issued, but backed by a Federal loan commitment.
Communities have been able to capitalize their programs and commit up to
several years worth of funds at one time, thereby maximizing their ability to
undertake substantial projects with large, front-end costs. This principle is
still valid under any funding mechanism used for community development.

Comprehensive Planning

As I mentioned earlier in this statement, comprehensive planning is
vita.! if we are not to rehearse, again and again, the mistakes so painfully
discovered in the past. Since the 19G5 American Institute of Planners con-
ference, our profession has been working intensively to update our skills and
to broaden our knowledge so that we can better cope with the social, cultural,
economic, governmental and physical problems of our cities, metropolitan
areas, States, and multi-state regions. We are on the verge of a new legal
revolution in my opinion. I have been a member of the AIP advisory committee
for the American Law Institute's draft model land use code. That code could
well sweep the Nation as fast as the Standard Zoning Enabling Act did in the
1920's. These are but a few of the developments which are dramatically in-
creasing the demand for tlio services of planners. In several of the Tennessee
Valley States, the State provides consulting planners to its regions. In other
areas, several small jurisdictions Ik.vc banded together to r m[)]oy professional

688

skills. But small jurisdictions in general are at a decided disadvantage in
securing the services they need.

Obviously, areas which anticipate urbanization do not have the fiscal
resources that they will have after urbanization occurs. But by then, it is too
late. The "701" program is clearly one of the best investments against future
slums by enabling urbanizing areas to obtain competent, professional planning
assistance.

Historically, planning was concerned almost exclusively with the
physical environment. However, since World War II, it increasingly has been
concerned with social, economic, cultural, and governmental aspects. In my
opinion, the Model Cities program was a landmark in this movement, demon-
strating, as it did, the techniques for truly comprehensive planning. The "701"
program can be a vehicle for sharing those newly developed techniques witli
other public jurisdictions.

Last year the Senate included in its omnibus Housing and Urban
Development bill a Title JM which Vv'ould have reasserted Congressional support
of the comprehensive planning process, recognizing the needs to expand the
purvievv; of the program in the areas of implementation and streamlining
sections of the present public law in order to support community development
activities legislated under the Senate bill. This year Senator Stevenson has
reintroduced that same title, with minor technical changes, as S. 854. It is
important that this bill be considered at the same time that this Committee
debates a nev/ community development assistance program. In pjirt, the
Senate has recognized this important interrelationship by requiring tliat all
corrmiunity df:veiopment piograms assisted untJor S. 1744 be consistent with

689

local and areawide comprehensive plans and national growth policies. Any
rewrite of the Section 701 Comprehensive Planning Assistance Program should
reflect an understanding of its relationship to community development programs
and to all other programs of domestic assistance whether they be social services,
environmental pollution control, multi-modal transportation, law enforcement
control, housing, land use, natural resources protection and the like.

The importance of S. 854 lies in the fact that it continues Section
70rs emphasis on planning, but would also provide management assistance
so that States and local governments can better implement their planning. This
makes eminent good sense when one understands that planning is not a static
function but is in fact a process; a process that requires continuing update and
change based on the actual implementation or lack thereof relative to the pro-
posed plan.

Congress has taken significant steps in recent years to assert the
need for comprehensive planning, and clear and comprehensive definitions of
planning functions and activities have evolved. It is our understanding that
S. 854 is designed to strengthen and to simplify the existing comprehensive
planning program and to add to the list of fundable activities under this law,
those management activities that are directly related and necessary to the im-
plementation of comprehensive plans.

The "701" comprehensive planning assistance program has already
had broad application across tliis country. It lias protected the Pedc'ral invest-
ment in Tedcral projects. It bus bc:comc a "glue" mechanism to coordinate all
functional or more specialized pLinning and prorjr<irn dcvelopmrnt . It lias pro-
vided a coordinativc management framovv-ork. It helps produce policy and

690

decision-making documents and tools. It has served as a measure for com-
munity values. It has worked as a check-point of accomplishment, and served
as an administrative tool for short term decision making and long range policy
and goal formulation.

The "701" comprehensive planning assistance program has served all
levels of government. It has supported the Federal review and comment pro-
cess, assisted States, counties, and cities of all sizes. It has fostered
regional cooperation throughout the country both on a metropolitan and non-
metropolitan level and in fact has been the major source of funding for metro-
politan and regional councils of governments. It has funded planning for
economic development districts and Indian tribal planning councils. The need
for comprehensive planning funds at every level of government is important.
The intergovernmental legislation over the last few years has provided the in-
centives to plan not only at each of the levels of government, but also coop-
eratively among the various levels of government. Comprehensive planning
must be continued and expanded to reflect our new approaches to community
development and other programs of domestic assistance.

Over the last two years, the Administration has discussed the
possibilities of converting the comprehensive planning program to a management
assistance program. Ambiguous statements and drafts of proposed legislation
have spoken of the needs to support management activities in their broadest
concepts. Any attempt to change the nature of rho comprehensive planning
assistance program, so drastically v.'ould, in fact, spread this fiscally small
program so thinly as to Iiave no mcaningf'u] effect on cither tlic planning or
management processes of State and local government.

691

The American Institute of Planners does not question the need to
integrate planning and traditional management functions to achieve greater
effectiveness in government, but given the apparently arbitrary amounts re-
quested to support both management and planning functions, vvfc believe that
the former should be defined as rigorously within the law as the latter has been
articulated in order to avoid unnecessary waste and potential conflict in allo-
cation of extremely scarce funds. In fact, this would result in a supportive
system that furthers the planning process.

S, 854 maintains and clarifies the definitions of comprehensive planning
that have evolved over the last twenty years. This new definition relates
planning to governmental policy objectives. The Administration would also
discuss planning in relationship to policy objectives but then adds many broad
management or programatic definitions to the legislation.

Both S. 854 and the Administration proposals have recognized the
need to consolidate the numbers of eligible recipients into generalized cate-
gories without eliminating any of the present categories of recipients. This is
commendable.

Where we find major differences between the approaches of the tvv'o
proposals is in the eligible activities. S. 854 is concerned with the develop-
ment and implementation of comprehensive plans as a part of an on going planning
process. It rightfully recognizes the policy-planning-evaluotion needs of
elected officials and continues the identification and evaluation of community
neecJs relative to the broad variety of community development activities. The
Adiiiinistration has proposed tliat, in addition, IIk; program sliouJd support the
devolopnT''nt, improvement and modernization of specific govcrnmenl<il inanagc-

99-855 O - 73 - pt. 1 -- 45

692

ment processes including personnel, revenue and resource allocation systems.
Granted, government reform is a noble objective and the need might be ex-
tensively supported around the country. If that is the case, should we not
establish a new program for State and local government reform? The "701"
program is barely meeting the established planning needs of the country, let
alone the projected needs under new community development programs. In this
regard we are pleased to note that the Senate last year recognized the increasing
demands being put on Section 701 Comprehensive planning, especially as it
relates to the proposed community development program, and suggested increased
appropriation authorizations to $150 and $200 million for each of the next two
years of the program. Due to the increased number of clients established under
the community development block grant who must conform to a comprehensive
plan, we wholeheartedly agree with this fiscal projection.

S. 854 mandates the establishment of a comprehensive planning
process rather than simply calling for comprehensive plans. This in itself would
be a valuable reform of government by impressing upon elected officials the
need to adopt and implement plans and the public policies th&y represent. It
has become traditional to place the blame for ineffective plan implementation
on the planning process itself or the plans produced. The real failure in inef-
fective plan implementation is more fundamentally a failure of community com-
mitment and politico! leadership, rather than failure of planning concept or
technique in the preparation of alternatives among which communities may
choose in deciding politically, how, when, where and undc;r what terms growth
or change shall occur. If planners v^erc to Jim.it their scope, content and thrust
rather th.m p;esc;nt the comr^rehcMisivc implicationr: of necessary plans for

693

development, then possibly, plans would be more palatable and implementable ,
However, those types of plans would not be worth making because they thrive
on the avoidance of controversy and look at multifaccted problems in limited
perspective. We concur with the mandator^' language of S . 854 relative to
establishing a comprehensive planning process and hope that through this re-
quirement, planning will be a more meaningful implementing tool for elected
public officials ,

S. 854 requires a local share, in this case, a 20% match. There must
be a local commitment to the planning process. We have found that throughout
the history of Section 701, most State and local jurisdictions have committed
double and sometimes triple the amount of required matching funds in order to
have a comprehensive program that took into consideration all factors . We
believe that a local matching requirement is important and should be maintained
in the legislation rather than 100% financing as has been suggested by the
Administration.

S, 854 would establish an evaluation process that would measure the
progress made under this program and which would be taken into consideration be-
fore the awarding of any new grants. We feel that this is an important new
requirement that should be intrinsic to any valid comprehensive planning process
and we feel this will assist in tjeing management implementation to the planning
process ,

One section of S. 854 that wc take specific objection to is the pro-
vision which v;ould allow Ihc; Secretary of HUlO to t.uthorize grants to assist
local jurisdictions in mnking a survey of, or acquiring structures and sites
which arc of historic or archJtnctur.il value. It is definite Jy witliin the purview

694

of comprehensive planning legislation to make surveys of historic properties
and structures of architectural value, but the acquisition of such properties or
structures should be a part of the community development block grant program.
Historic preservation grants have traditionally been granted by the open space
program and because that program is to be a part of the community block grant
program we feel that this would be a misappropriation of planning funds and
would be duplicative of the block grant program. We respectfully urge that that
provision be stricken from S. 854.

Housing

Plans are an extravagance if their only function is to ornament the
walls in the Mayor's office or occupy space on his bookshelf. Contemporary
planning is action planning, and an essential part of the plan is the imple-
mentation section.

People cannot live in plans; they live in houses or apartments. We
can not solve the problems of decent housing by plans or fair share agreements.
We can only soJve them by actions. Housing is one of the greatest users of
land in any metropolitan aica, and its actual location, density, and quality
uniquely is governed by the Federal funding programs--and I do not care what
the land use map shows in this regard. Will the poor reside in high density
ghcttoes or in dispersed lower density housing? Will wc rehabilitate marginal
homes in the central city or construct new homes in the suljurbc? Will tlie
poor h.avc a housing choice through liousing allowance programs or will govern-
ment dictate whore they will live through subsidised housing programs? The
ansv.'crs to tli';\'3c questionr-.--in short, the implementation of the housing plans.

695

depends on what you gentlemen in Congress do in the field of housing legis-
lation.

I am not trying to suggest simplistic solutions in housing any more
than I am in comprehensive planning. America is a wonderfully diverse country;
Denver doesn't have Texas malarial mosquitoes and Albuquerque doesn't have
New York's high rise apartments. This is the strength of our Nation and of our
democratic society. If we don't like things one way, we can try another, and
it certainly is not the role of the Federal government to try to fit everyone into
a strait-jacket of life styles. I saw recently a discussion that pointed out the
allegedly inconsistent policies of the Federal government in providing FEI\
insurance and highway construction funds wliich encouraged suburban develop-
ment and at the same time, urban renewal programs and mass transit subsidies
were encouraging central city renovation. Mayl:)e we sliould have both; one
form of the much discussed decentralization of power is to afford choice to
the local governments tlirough devices such as tlicse.

My point is, howe\'cr, that the viable choices for implementalion of
the housing part of t'le comprehensive plan tu-e going to be m.ade from among
the alternatives presented in the programs authorized and funded by Congress.

S. 17 A4 recognizes that there is a definite relationship between the
community development program and Federally assisted housing programs. The
Administration's Bettor Coi^imunjties Act on the other hand has made no pro-
vision to insure that a recipient community would undcrtal^c a program to meet
itr; housing needs as part of its coinrr.unity development effor'.s . AIP supports
a mundatocl rcciuiremrmt that would lir:!: su:)S]dir":i! housing to c(;mmunity devel-
opment progriifi'.s . Wc realize that tlie Achrdnjsli ai Jon has j.iromised to submit

696

to Congress its housing proposal in September, but we believe that this integral
part of community development tnust be addressed even within their Better Com-
munities Act. Federal Iiousing policy has and must be an integral part of any
community development program.

AIP has long endorsed the national goal of a decent home for every
American. Extra efforts are needed to acliicve this goal and to make real the
national commitment to provide equal opportunity of choice of Iiousing type and
location for Americans of all different racial and economic backgrounds . A
national community development program linked to meeting our housing needs
becomes one more leverage for helping to achieve those goals .

AIP urges tliat the supply of low and moderate income housing be in-
creased and its distribution be expanded throughtout metropolitan areas in con-
sideration of increasing also accessibility to transportation facilities, decent
jobs, and high quality schools and services. In pursuit of these goals AIP
urges the follov;ing: (1) The expansion of Federal funding for housing assist-
ance. (2) The consolidation of Federal housing programs into a set of simplified
and unified programs and administration procedures, emphasizing dispersal
rather than concentration of subsidized housing. (3) The piovision of authori-
zation for public agencies as well as private gro\ips to act as sponsors for
Federally assisted housing, in both bclow-market-intcrest-iate prograins and
mortgage insurance programs. (4) The review of all requests for all Federal
housing assistance by state and regic^nal agencies and the aJlocalion of housing
assistance in accordance witli approved overall state and icgionaJ housing
plans. (S) Tlie c'evoloprnent of an arcawidf: review process diiected at low
and rnoderatf iiH;c)m.c housing, in orrJer to erjf;ct\iato "affinn.iiive .iction" in

697

dispersing such housing throughtout metropolitan areas. (6) Priority funding
for Federal housing programs to those communities making active efforts to
provide, encourage, or permit low and moderate income housing and establish-
ment of Federal requirements for related grant programs, such as urban renewal,
water, sewer, and open space development be consistent with the housing plans
and ordinances of a municipality. (7) The provision of additional financial
incentives for states that undertake actions to increase the supply of low and
moderate income housing through efforts emphasizing the production of such
housing units and the dispersion of such housing throughovit metropolitan areas
and in scattered site development. (8) The provision of additional financial
incentives to housing development agencies that undertake the development,
administration, and management of low income housing on a metropolitan,
county, regional, or state basis. (9) The inclusion in Federal housing assist-
ance programs of additional financial assistance in the form of public service
grants to those communities actively participating in the provision of housing
for low and moderate income families to offset the added burden on municipal
revenues from this housing, including but not limited to reimbursement of all
property tax losses incurred l^y virtue of the tax exempt or tax abatement status
of such housing,

Summ.ary

In conclusion, the American Institute of Planiicis suppt.its the; if!f;a of
reducing the limitations of the catcgoricjl funding pioyrams in c;on.inunity
dovolopriicnt , but not to th.e point where wo rcjjoat \\;c rni:3tol:os so p'linfully
discovered in the past few years.

698

We support the requirement for and funding of comprehensive planning
processes as the way to avoid those pitfalls.

We support a flexible housing program in order to implement the one
land use in a comprehensive plan most affected by Federal legislation,

Mr. Chairman we have attached to our statement for this Committee's
considerations a series of specific policy recommendations relative to community
development and housing legislation. We would bo glad to answer any questions
or provide additional materials. Even though our comments have been rather
lengthy, we thank you i:or the opportunity to present our views on these vital
issues .

699

AIP COMMUNITY DEVELOPMENT POLICY

Adopted in Conference Session
February 24, 1973

1. That AIP supports the establishment of a new program under which:

a) All activities previously permitted under urban renewal including new-
towns in town, open space and predominantly open space projects, code
enforcement, legacy of parks, and neighborhood facilities programs, and
all social programs directly required for their implementation would be con-
solidated into a community development program.

b) The time frame would be a biennial funding contract with an allocation
(subject to overall program appropriations) for two additional years, the
reservation for which would be subject to an evaluation of previous per-
formance and the submittal of an application including an adequate plan
for its use.

c) There would be a closer coupling of community development and housing
programs, including first priority distribution of housing funds in furtherance
of housing which is a part of community development activities and housing
fund allocation, or even reservation where possible, for all the housing re-
quired to implement the approved community development activities.

d) The program would provide for block grants equal in amount to the
aggregate tax abatement granted year by yeur by each community plus an
add-on incentive av.-ard for all existing and future governmentally assisted
housing within its boundaries. This would encourage the production of low-
and moderate- income housing and at the same time help municipalities
which in the past lived up to their housing responsibilities. These block
grant funds should be available for broadly specified community develop-
ment activities v/hich local municipalities could use in any area, since it
can be logically argued that the entire municipality is making a contribution
In the form of tax abatem.ent in furtherance of low- and moderate-income
housing goals. Funds for this part of the program should be appropriated
above and beyond the allocation for the basic community development program,

2. That AIP urges that any new community development program preserve those
features of past components of such program.s which have proven to be useful
and necessary. Key among these are the following:

a) Accountability to the Federal government, and through it, to Congress,
largely established through a review of an application including a plan
outlining the purposes for which the funds are intended to be spent in
advance of their disbursement.

b) Maintaining a concept of need, performance, and capacity as the basis
for disbursement of community*development block grants rather than relying

700

on any formula-based "automatic" distribution of funds which is bound to
under-emphasize performance and reduce incentive. In this connection,
the AIP supports the allocation of funds to eligible communities on the
basis of a priority system including factors such as: population and popu-
lation changes; extent of housing problems; other economic problems in the
community and its region; past performance; need for assistance to com-
plete previously initiated HUD-supported development plans; management
capability of the municipality and of the entity responsible for program
implementation; commitment to low- and moderate-income housing; apparent
degree of economic feasibility of the program; and other important factors,
such as loss of a major manufacturing plant or military installation or
special opportunities created by new major public investment such as mass
transit systems; and the activation of the reservation for the subsequent
two years based on a review and reallocation of funds_ among potential
recipients based on performance during the first two years.

c) If a local contribution is required, traditional non-cash grants-in-aid
local-Federal funding relationships and regulations should be maintained
to encourage cities to make substantial efforts on their own to install re-
lated community facilities, thereby expanding the leverage of Federal funds
in the community development process. Eligible non-cash grant-in-aid
should be clearly relevant to the community development program and their
validity should be limited to a reasonable period.

d) Recognition that certain essential programs, such as disaster areas,
new-towns in town, and large-scale revitablization projects, require a
longer range fiscal commitment in order to be feasible by making available
a maximum of 25 percent of all appropriated community development funds
for longer term reservations wherever the necessity therefore can be clearly
demonstrated.

e) Maintaining the protections built into the process over the years, largely
through amendments to the basic statute, all of which were enacted in re-
cognition of abuses, potentials for scandals, and loose interpretation of
Congressional intent by grant recipients. Among the requirements which
should be maintained are the following:

— The one-to-one replacement requirement for low- and moderate-income
housing unless the lack of need therefore can be demonstrated;

— The requirement that at least half of the housing erected or rehabilitated
as part of the overall program be for low- and moderate-income families;

— The justification of acquisition of every structure in terms of either its
physical condition, its relationship to the elimination of environmental
blight, or the need for its removal to permit the achievement of plan ob-
jectives. (The elimination of the requirement for advance approval of an
area plan would make the community development process again subject
to a constitutional challenge, since the basis for the Herman v. Parker
decision--that individual properties acquired need not in themselves meet

701

the criteria of substandardness if their acquisition is required in furtherance
of the implementation of an overall plan--would be lost);

— The requirement that property acquired as part of a community develop-
ment program be used for specific purposes in accordance with the approved
plan, that the improvement of the acquired property be undertaken within

a reasonable time, and that the identity and plans of all redevelcpers be
disclosed fully; and

— The requirement that each locality establish a mechanism, especially
including citizens who will be directly affected for full citizen participation.

3. In those instances where an overall community development plan has been
approved via the A-95 review process, in keeping with the intent of the Inter-
governmental Cooperation Act of 1968, and to accelerate the implementation of
such an approved plan, AIP urges that all program components which are in
accord therewith be provided with expeditious administrative review. This
should include further A-95 reviews as well as environmental impact statement
requirements, HUD project selection criteria, and other similar requirements,
if any.

4. That AIP urges further simplification of the process by exempting approved
community development plans from any subsequent Federal agency reviews or
ex post facto administrative policy changes.

5. That AIP opposes any stoppage and diminution in Peroral support of current
community development activities which would risk the scattering of the body
of expertise built up in cities throughout the country. Specifically, it opposes
the termination of community development programs effective June 30, 1973, as
proposed in the President's budget Vv-ith no replacement proposed until a year
later;

a) That, while we support a community development program, AIP vigorously
supports continued funding of all community development programs at least
at current fiscal year levels until such a community development program is
enacted;

b) That, as a transition to a community development program, some
existing programs (such as urban renewal) should continue to be funded
to assist in completing on going local programs;

c) That, in recognition of the fact that over the twenty-four years of the
program's existence, the average Federal contribution approximated only
some $240 million per year for all of the more than thousand participating
communities, AIP expresses its concern with the consistent past under-
funding of the urban renewal component of the future community develop-
ment program and urges a major expansion in the funding level to enable
the process to m.ake its expected contribution to the realization of the
Nation's housing and environmental goals.

702

AIP HOUSING POLICY

Adopted in Conference Session
Febi-uaP)' 24, 1973

The American Institute of Planners reaffirms housing and community development
as a basic priority of concern.

Housing Assistance

1. Recognizing the need for Federal housing assistance to low .and moderate
income families, we:

a) promote the concept of subsidies to encourage the construction, re-
habilitation and conservation of housing units for low and moderate income
families;

b) endorse the continuation of the housing allowance experiment;

c) support the inclusion of social services to such families;

d) endorse giving assistance to communities having such housing.

2. We regret the current moratorium, and urge a speedy reintroduction of sub-
sidized programs at the Federal level with a full level of funding.

3. At the same time the Institute questions whether existing Federal housing
subsidies do, in fact, accrue to those most in need or accomplish the objectives
established by the programs themselves; we advocate an evaluation of subsidy
programs in terms of their effectiveness in providing assistance to disadvantaged
families, and offer our assistance to undertaking such a program.

New Governmental Approaches

1. Needing affirmative housing policy at the state level, AIP national and
chapter efforts will be directed to increasing the capacity of states to deal with
housing, in establishing priorities lor housing, state subsidy programs, state
finance agencies and state development corporations .

2. As the housing market is related to regional, social and economic patterns,
we urge the continuation of housing planning at the metropolitan and regional
level and the development of implementation means such as Metropolitan and
Regional Housing Authorities.

3. We will work as individuals, chapters and a national organization to en-
courage local governments to develop local housing programs and priorities,
which utilize a portion of revenue sharing funds to meet the needs of low and
moderate incomic families.

703

Rc-sidential Growth

1. Recognizing the importance of housing and its environment at all levels of
society, and our role in influencing private development and ownership, we:

a) affirm the importance of continued residential growth in concert with
environmental concerns;

b) promote the use of sevv?er and utilities as a means to achieving desirable
growth patterns;

c) reject the use of exclusionary zoning to prevent residential growth;

d) urge that housing be planned in context with total community develop-
ment and services;

e) will pursue all avenues to promote housing choice by type and location.

2. We urge the reevaluation of taxing and financial policies as they affect
housing .

3. We recognize the role that mobile homes are serving in meeting housing
needs and urge the development of mobile home standards and planning for their
accommodation .

Housing and Equal Opportunity

1. Recognizing the ver^' large issue of dJrnrimiration in housing, we will tpke
affirmative action to:

a) expend housing choice throughout metropolitan areas through fair share
housing plans and by ending exclusionary zoning;

b) increase the access to all housing for all individuals and families;

c) amend the non-discrimination clauses in state and Federal housing lews
to include the prohibition of discrimination based on sex, martial status,
and family status .

1973 HOUSING AND URBAN DEVELOPMENT

LEGISLATION

MONDAY, JULY 23, 1973

U.S. Senate,
Subcommittee on Housing and Urban Affairs,
Committee on Banking, Housing and Urban Affairs,

Washington^ D.C.

The subcommittee met at 10 :10 a.m. in room 5302, Dirksen Senate
Office Building, Senator John Sparkman, chairman of the subcom-
mittee, presiding.

The Chairman. The committee will come to order, please.

I am hopeful some other Senators will be able to join me but we have
quite a number on the witness list. I think we had better get started.

Our first witness this morning is Mr. George C. Martin, president
of the National Association of Home Builders. Mr. Martin, we are
very glad to have you, sir.

Mr. Martin. Thank you.

STATEMENT OF GEORGE C. MAETIN, PRESIDENT, NATIONAL ASSO-
CIATION OF HOME BUILDERS; ACCOMPANIED BY CARL A. S.

- COAN, JR., LEGISLATIVE COUNSEL AND MICHAEL SUMICHRAST,
CHIEF ECONOMIST

The Chairman. I do not believe you are any stranger to this com-
mittee, Mr. Martin. You know, of course, all of you that will testify,
I want you to take note of this. You have prepared statements and
we will place those statements in the record in their entirety and you
can continue any Avay you want.

]Mr. Martin. Thank you, Mr. Chairman.

[Mr. jNIartin's complete statement is printed at p. 715.]

Mr. Martin. I am George Martin, from Louisville, Ky., a builder
since 1949. I am appearing today as president of the National Asso-
ciation of Home Builders, a trade association that represents 71,000
firms in this country and in all 50 States and with me are Carl A. S.
Coan, Jr., our legislative counsel, and Michael Sumichrast, our chief
economist.

We appreciate this opportunity to testify today on housing and
community development legislation and we commend the subcom-
mittee for moving ahead with these hearings at this time.

While we realize that the administration has not yet forwarded its
proposals on the housing subsidy programs, we feel strongly that the
present programs are a good and effective means of meeting the needs

(705)

706

of the low and moderate income and that they have been under sus-
pension too long.

Before I touch upon the legislative proposals pending before the
subcommittee and our views on them, I would like to talk about a
very serious problem confronting housing and the homebuilding indus-
try today. I am referrhig, of course, to the rapidly escalating interest
rates for mortgage money and the diminishing supply of that money
at any interest rate.

The premature movement to phase III earlier this year and the con-
tinuing failure to develop an appropriate antiinflation policy mix,
demonstrate that this administration, like every other administration
on the past 25 years, has not yet found any solution to inflation and
an overheated economy than to take steps to hit housing first and
hardest. With interest rates rising and the demand for money run-
ning at a high rate, the monetaiy authorities authorized an increase
in the rates paid savers on the theory that this would divert funds
into long-term savings.

Although the evidence is not in yet on exactly what has happened
since the »July 5 movement by the Federal Reserve Board to savings
flows, indications are that we have achieved nothing more than a
shift of savings around from one type of institution to another. This
has been accompanied by wild bidding between commercial banks and
thrift institutions for the available savings dollar, especially for 4-year
deposits on which there is no interest ceiling. I have a couple of
things from the newspapers yesterday. Some of them are hooked to
the primate rate, some of them are hooked to the Cost-of-Living
Counsel.

The first institution in any town that comes up Avith a 7V^- or 8-
percent rate is followed by another institution, trying to protect
themselves from disintermediation. The consequences have been a
rise in the cost of savings, enormous confusion among mortgage lend-
ers and, in all too many instances, the closing down of the lending
windows in mortgage lending institutions until the dust settles.

The Chairman. Mr. Martin, I am glad you brought that out. I have
been very much disturbed about some of the things I have seen ad-
vertised in the papers recently. I was in my hometown a few days
ago and at the airport one of the local banks has a branch there and I
went over to speak the the persons there, and immediately my atten-
tion was directed, in fact, the two attendants there, pointed to a sign
over there and said, "Look at that. That is the highest interest rate
anybody has ever paid.'- They had a great big 8 percent posted up
there. For as little as $1,000, too, over a period of 4 years.

I have noticed that in ads here and elsewhere throughout the
country.

Now, you tell me there is no interest ceiling, on these certificates
that are held for 4 years.

Is there anything particular why they are tied to a 4-year period or
is that just an arbitrary time, a minimum of 4 years? On anything
somebody will

Mr. Martin. Well, that is an arbitrary time, a minimum of 4 years.
There is no ceiling on what they can pay. In Elgin, 111., there is one in-
stitution offering 8.5 percent; Orlando, 7.5 percent, and Atlanta, 7.5
percent.

707

'\^nienever the first institution in the town offers to pay 8 percent for
4-year certificates and there is any amount of withdrawals from other
institutions they immediately go over to protect themselves to offer
the same

The Chairman. Yes; I realize the operation. I am trying to find
out about this 4 years. I have noticed so many with this 4-year limit.
What is there particularly about the 4 years. Is there an interest
ceiling for instance for 3 years? or for 2 years?

Mr. Martin. Yes; there is an interest ceiling for deposits under 4
years. That intei'est ceiling

The Chairman. That is what I wanted to find out.

Mr. Martin. That is at Q% percent for 30 months to 4 years. So,
from 21/2

The Chairman. But no ceiling on the 4-year period ?

Mr. Martin. That is correct. This has caused absolute chaos in the
thrift institutions around the country. It is not creating any more
money. People are running into institutions where they already had
money at 41/^ percent on time deposits or — 5 percent on time deposits
and they are taking it out of the 5 percent and putting it into the 7
percent or 714 percent.

So, it is narrowing the margin under which these institutions have
to operate and it is a fact that they will have to raise their rates. We
have had an emergency meeting in the National Housing Center with
economists from all over the country from the various thrift insti-
tutions. They are paying a quarter percent increase required when the
banks went up a half.

That quarter percent since they have their money out in mixed
return mortgages, they will have to raise their rates for the new
money they put out on their 10 percent turnover up to 150 base points
or 11/^ percent.

We do not know to what extent people have taken their money out
of 5 percent accounts and put it into 7 percent accounts. For that
reason they are closing down their windows and they say they will not
make any commitments until they see what damage has been done.

The Chairman. I must say the chairman of the home loan board,
one of his staff members, came to me and called my attention to the
fact that so many savings and loans institutions without portfolio
for mortgages were paying a much smaller percent than they can
alford to pay now.

They are not prepared to handle — they are not getting the savings
necessary in order to make mortgages that would go at the current
rate.

Mr. Martin. Well, that was the release that was issued stating that
it was done for the purpose of assuring a stable flow of money into
the thrift institutions.

But the facts were that there had been growth in that it was second
only to the last year's all-time recordbreaker, and the thrift institu-
tions did not feel they were in any trouble.

They felt like they were getting substantial growth, and they were
able to hold the line on interest rates. So this move at this time in
their judgment was not necessary and has only added to the cost of
the existing supply of money and will not in fact increase the quantity
of money.

99-855 O - 73 - pt. 1

708

The Chairman. I brought this question up the other day when Mr.
Dunlop was before us, just on an informal basis when he was discuss-
ing with us this new program being put into effect.

I called his attention to this, and I asked what might be done —
you know, there is a committee, not really a part of the controls.

It is headed by Dr. Burns, Chairman of the Federal Reserve Board,
to keep watch on interest, profits, and dividends.

Mr. Martix. Right.

The Chairman. Are you aware of whether or not that committee
has been looking into this in any way ?

Mr. Martin. Well, I had an opportunity to meet with Dr. Bums
on Friday afternoon for about an hour. He was not aware up to that
time that there had been any serious problem caused by this 2 weeks
of auction-type bidding for money.

If you pick up any newspaper in the country, there are full-page
ads on this. I was in Boston last Sunday, a week after the increase,
and they were repainting the billboards in town advertising 6.6,
coming out at 7.08 with compound interest.

Dr. Burns was not aware that this was having any damaging effect
at this time, and he stated that it was not their intention to have it
that way. But he did not indicate that it was any cause yet for alarm.
He did not indicate that he was going to call any meeting of the
committee on interest and dividends, which he chairs. We view this
thing with grave alarm, and although that was not the subject of
testimony this morning, I felt that it is so vital — we have already
'been shot out of the saddle on 235 and 236 and Farmers Home Loan
Administration and Indian housing and standard FHA business
which has gone to the dogs.

With 95-percent loans disappearing over the past 30 to 60 days,
they will be nonexistent now. So the only source left of mortgage
funds is going to be seriously damaged and will create a ratchet
effect. If a lot of money gets out in these 4-year series at high interest
rates, it wall lock in the rates for 4 years. If the heated economy were
to cool down in 6 or 9 months and they tried to reverse the situation,
there is no way they can reverse it.

We will be locked in with high interest and mortgage rates in the
thrift institutions for 3 or 4 years.

The Chairman. What prediction does your organization have as
to the number of housing starts we may have this yeai" ?

Mr. Martin. Well, it is covered in an addendum that we have sub-
mitted with the statement. Do you have that ?

Mr. SuMiCHRAST. The first quarter of 1973 was 2.41 million units,
and the second quarter was 2.21 million on an annual basis.

We expect the third quarter to be down to 1.9 million, and the
fourth quarter to 1.75 million units. The first quarter of 1974 will
go down to about 1.65, and the second quarter to about 1.5 million.
That is about a million unit drop.

The Chairman. Do you have an annual estimate for 1973 ?

Mr. Sumichrast. 2.1 million. We already have 1,100,000 units in
for the first 6 months. You cannot change that. It is in the pipeline.
We are worried about the last quarter of 1973 and obviously about
1974.

!

709

The Chairman. If I am not mistaken, I heard a discussion yester-
day in which one person was predicting 1,800,000 for the year.

Mr. SuMiCHRAST. That would be very hard to achieve beacuse we
have 1,700,000 units under construction now. The problem is we do
not have money to fund these, and I do not know what will happen
to these units, because the money just is not there, the commitments
are not there.

We need about $50 billion on an annual rate basis for the next 6
months, close to the rate for the first 6 months, for mortgage money
for residential housing alone. The problem is that the money will not
be there.

The Chairman. Thank you. Proceed, Mr. Martin.

Mr. Martin. Higher interest rates are not only in prospect, they
are already here. The only prospect is for even higher rates at a level
of from 9 to 9.5 percent. This is vividly illustrated by the results of a
survey we made of 83 of our largest associations asking them to report
on the state of mortgage commitments, interest rate levels, and the
outlook for the next 90 days. We did that last week, and we have
attached the results of that survey as exhibit A. This cannot help but
have a very serious effect on housing starts and the ability of people
to buy homes in general.

We already covered what we think will happen. Really, I will not
be surprised if it starts dropping to somewhere below the 2 million
mark, because right now the thrift institutions are not making com-
mitments for new starts at all. It is against this rather ominous back-
ground that we find ourselves discussing today housing legislation.
Further clouding the situation is the state in which we find the various
Federal housing programs. We testified at length before this subcom-
mittee on April 5, concerning the subsidy programs of HUD as well
as those of the Farmers Home Administration.

However, the situation has worsened since April when at least the
regular FHA programs were operating. For over 3 weeks now, FHA
has been out of business with no authority to insure mortgages except
for commitments that were outstanding on June 30. Some of those
commitments cannot be closed because the discounts are so high. To
cap this situation, the GNMA tandem plan was summarily cut off
about noon on June 28 without any warning. To date it has not been
reinstated for either the subsidized or the unsubsidized programs,
although the Secretary of HUD has promised to put it back into being
for the subsidized programs to some unknown extent. Whereas, during
the last credit crunch during 1969-70, the FHA programs were alive
and operating at full steam, we today find them dead, dying, or at
best very anemic.

We, therefore, think that the first order of business is to see that
the programs we now have in being are reactivated as quickly as
possible. We applaud the action of the Senate on Friday afternoon in
passing by a vote of 81 to 0 House Joint Resolution 512, which would
reinstate FHA and as well direct that the various subsidy programs
be put back into operation.

We urge that a conference between the Senate and the House be
held at the earliest possible date, and that the Senate conferees hold
fast on those provisions of the resolution, which would assure that

710

the PHA programs are fully available to provide the support which
will be needed so badly during the coming months, to provide a
viable Federal alternative to the very tenuous situation in the con-
ventional mortgage market.

I would like now to turn to the legislation pending before the
subcommittee. Just a little over a week ago, the chairman introduced
S. 2182 as the proposed Housing Act of 1973. Since this bill was not
available until the middle of last week, we have not had time to pre-
pare detailed comments on it. I would, therefore, like to ask the sub-
committee's indulgence to submit later, for the record, our detailed
commentary on the many provisions of S. 2182.

S. 2182 in many ways is similar to chapters I and II of S. 3248
passed by the Senate in March of 1972. It contains the essence of
the simplification and consolidation of the National Housing Act
and the U.S. Housing Act of 1937, first requested by the administration
in 1970.

As we have testified twice before, we generally support the con-
cept of simplifying the present complex laws which govern HUD's
housing programs.

In reviewing S. 2182, we find that there are only a few basic changes
from last year. However, some of these are quite disturbing. Prob-
ably the most disturbing feature in section 9 of the proposed Revised
National Housing Act. While S. 2182 would retain the basic struc-
ture of of the present 235 and 236 progrrms as new sections 402 and
502 of the Revised National Housing Act, section 9 would drastically
alter the method by which housing subsidy funds under these two pro-
grams would be made available. Instead of the present method of
allocating these funds through the 70-some HUD area and FHA
insuring offices, a whole new system, tied to individual communities,
would be instituted. This, we believe, would be a serious mistake.

Under section 9, it is proposed 60 percent of the funds available in
any given year for both of these progi'ams would be allocated to
metropolitan areas, based on the incidence of poverty and over-
crowding in that metropolitan area and its population, in relation to
that of all other metropolitan areas. From the funds available for
each metropolitan area, funds would be allocated to each city of
50,000 population or more, using the same formula.

Half the fmids for each city would apparently be made available
to the city, with the other half made available to liousing sponsors
for use in accordance with the city's housing plan. The remainder
of the metropolitan area's allocation would be allocated to the otlier
cities and counties in the area, with none of the funds being made
available directly to sponsors.

The rest of the funds available in each year would be split up 30
percent to nonmetropolitan areas and for research and demonstra-
tion purposes, and 10 percent to State and regional bodies for use
primarily in nonmetropolitan areas. Apparently, the funds under
the 30-percent allocation would be available directly to eligible spon-
sors and would not have to go through a governmental body.

The first question that occurs to us is, why the cumbersome and
complicated process proposed by section 9? "We realize that there
have been reports by GAO and others indicating that the allocation
of funds under the present programs has not necessarily been on a

711

reasonably proportional basis. However, we have seen no evidence
that indicate that this is a result of any malfunctioning of the present
system. Instead, it is our belief and understanding that the areas which
have not received their so-called share of housing subsidy funds, are
primarily those whose cost levels have exceeded the allowable mort-
gage limits under present law.

Furthermore, there have been some areas of the country where
exclusionary practices, or antigrowth activities, have stymied the
ability of sponsors to produce housing under the present programs.

Hopefully, the shift to a prototype approach contained in S. 2182
for the purpose of calculating the maximum permissible mortgage
amount, will eliminate many of the problems presently experienced
in providing housing in higher cost areas.

With this inhibition removed, we believe that the ills w^hich would
flow from the proposed allocation system in section 9 will far out-
weigh any minor changes which might occur as a result of a formula-
based allocation. A most serious problem is the proposal to count
poverty twice in the formula for determining the amount of assist-
ance which would be made available for a city with a population of
50,000 or more.

We all know about the problems that have come about because of
the concentration of the poor in our central cities. This type of provi-
sion will only intensify that problem, since the more poor a com-
munity has, the more housing funds it will be getting, and the more
likely it will be that that community with a low incidence of poverty
will have few funds available to provide subsidized housing for the
poor from the inner city.

One of the principal, though not loudly articulated, goals of the
present program has been to achieve a degree of dispersion of our
lower income families in order to avoid large concentrations and the
attendant problems we all know thus occur. This allocation formula
would reverse that direction.

I was in Oklahoma yesterday. They were telling me one of the
things about section 235 and the Farmers Home Administration in
Oklahoma was that they had been able to get housing for the poor
in rural areas, and businesses were now going to the rural areas in-
stead of continuing to concentrate in the center cities where housing
was not available. This would reverse or discourage that process, of
course.

Another major concern with this section 9 is its requirement that a
community would have to have a 3-year plan or certify that such a
plan is under preparation before any funds could be made available
to it. There is no question that our major cities will have such plans,
but we doubt seriously whether many smaller suburban communities
will ever get around to adopting such plans, especially when they
realize that the plan will only bring low- and moderate-income housing.

The result will be the same as that which has occurred under the
rent supplement program's requirement that a community either have
a workable program or officially endorse the provision of rent supple-
ment housing within its boundaries. This has kept rent supplement
housing out of many smaller and suburban communities. This type
of provision only reinforces the exclusionary tendencies we see in com-
munity after community in the suburbs. In effect, section 9 will

712

concentrate the great bulk of this subsidized housing in our central
cities.

We are also seriously concerned about the fact that section 9 would
place the responsibility for allocating the great bulk of the subsidy
funds in the hands of local officials. These are the very same officials,
in a number of cases, who now use zoning, land use controls, and
other devices to prevent the production of low- and moderate-income
housing. Even where this is not true, involving local officials in the
allocation of these funds would establish one more redtape burden for
the builder seeking to produce low- and moderate-income housing.

Builders today have to deal with local governments tO obtain zoning,
subdivision approval, building permits, and many other local ap-
provals. Those building FHA housing also have to meet a myriad of
Federal requirements which, in some cases, are duplicative of those
imposed locally.

Section 9 would only further complicate what is already a compli-
cated process. We fear that a builder seeking an allocation of some
of the subsidy funds controlled by a local government would have to
meet the other requirements imposed by that government most likely
in good faith, but also most likely burdensome.

We feel very strongly that section 9 is not needed, and that its
effect will be to deter the provision of low- and moderate-income hous-
ing, not to encourage it, and urge the subcommittee to reject section
9 and, instead, rely on the present system which, in general, has worked
very well.

Another new departure from last year's bill would be authoriza-
tion for HUD to guarantee taxable mortgage bonds, issued by public
bodies to finance multifamily projects meeting the requirements of the
new section 502.

We have two basic questions about this proposal. The first is why
is it necessary to put public bodies into the business of developing and
owning housing which under present programs has been fairly well
handled by private sponsors, profit and nonprofit? If there was a
demonstrated need which would be filled by moving public bodies into
this area, there might be some basis for this proposal. However, we
know of none.

Secondly, we wonder why it is necessary to establish what is in
essence a whole new program on top of a program in order to achieve
a goal which probably could be achieved much more simply. We see
no reason why public bodies could not be made eligible sponsors under
section 502, with a prohibition against their obligations being tax free.
The basic subsidy available under 502, which would also be available
under this new program, would serve to meet the need to bring rentals
down to a level that could be afforded by lower income families.

There seems to be no question that one subsidy is simpler than two
subsidies, especially when one performs the function of two. We urge
the subcommittee to think long and hard before instituting this new
program.

One significant change from last year's bill with respect to 402 and
502 programs would be to remove the mortgage insurance premium
from the calculation of the maximum allowable subsidy. This would re-
sult in no mortgage insurance premium being paid with respect to any

713

subsidized 402 or 502 mortgage as long as any subsidy payments is
made in connection with it. We belieA^e this would be a serious mistake.

Under the present system, the mortgage insurance premiums col-
lected in connection with 235 and 236 mortgages go into special risk
insurance fund, to be available to meet claims against that fund for
both the operation and administration of the programs as well as to
honor insurance claims.

While we realize that to date the premiums collected have not been
adequate to meet all claims against this fund, the situation, however,
would have been much woi-se if there had been no premiums paid into
the fund at all. The cost to the Federal Government is the same,
whether the funds is maintained on an incremental basis, through
mortgage insurance premium payments, or on an as-needed basis
through annual appropriations.

However, we believe that the present system is much preferable to
that proposed in the bill.

We would like to strongly endorse the new provision contained in
section 402 (m) of the proposed Revised National Housing Act to re-
quire HUD to provide counseling assistance to home purchasers under
section 402.

To the extent there have been problems in connection with the 235
program, it is our belief that a large percentage of those problems are
attributable to HUD's failure to request the necessary funds to coun-
sel home purchasers under this program.

Amazingly, when funds were provided by Congress for fiscal year
1972, HUD failed to use them except on a demonstration basis and
then only with respect to mortgages that had gone into default.

This, we feel, is inexcusable. Many of the individuals who went into
default probably could have avoided it, if they had received adequate
counseling beforehand. We, therefore, strongly endorse section 502 (m) .

I was in Oklahoma yesterday, and they have such an operation in
Tulsa, in conjunction with the FHA office. It is a voluntary service by
the homebuilding industry. It has been extremely successful in help-
ing people to avoid getting into trouble on their mortgages.

We note that there are several changes in the revision of the U.S.
Housing Act of 1937 adopted last year. Some of these we would like
to comment on in our addendum to be filed later. However, we do note
with regret that the proposal contained in last year's bill, calling for
full real estate taxpayment with respect to public housing projects,
has been dropped in favor of a limited experiment. We urge your
considering reinstating last year's provisions.

We realize that there are many other bills dealing with housing
pending before the subcommittee. In the interest of time, we will not
comment on those now but we will comment on some of them in our
addendum. Howe^'er, we would like to comment on two bills introduced
by Senators Proxmire and Williams, S. 2169 and S. 2179.

Both of these would establish a method of direct Federal financing
for mortgages under sections 235 and 236. The result of this direct
Federal financing would be to reduce the overall cost to the Govern-
ment of these programs.

This would be highly desirable, especially if it can be done by re-
moving this type of direct Federal mortgage lending from the budg-
et. This, of course, is a prerequisite to such a move, since otherwise

714

such direct financing would result in a large budgetary deficit which
would be totally unacceptable. In view of the recent precedent estab-
lished with respect to the Export-Import Bank, we see no reason why
these housing programs cannot be similarly treated. We also indorse
the proposal in these bills that, to the maximum extent practicable,
private mortgage lenders be used to initiate and service these direct
loans.

We urge the subcommittee to give serious consideration to adopting
these proposals.

I would like now to turn to the community development proposals
pending before the subcommittee. These are S. 17J:3, the administra-
tion's proposed Better Communities Act and S. 1744 chapter III of
last year's bill.

Unfortunately, the administration's proposal goes too far in elimi-
nating a Federal concern as to how limited funds are to be used to meet
the Nation's community development needs. It contains no assurances
or means of assuring that the proposed $2 billion or more that would
be involved annually would continue, after its enactment, to be allo-
cated toward meeting the important goals toward which these funds
are presently directed.

We believe this to be a fatal deficiency in S. 1743. As drafted, a city
receiving funds pursuant to it could use these funds to carry out prac-
tically any physical development activity it wished without regard
to other activities or any relationship to the achievement of such im-
portant goals as the elimination of slums and blight. Funds allocated
under S. 1743 could be used to provide community facilities in wealthy
parts of a city and completely ignore a more desperate need for such
facilities in a poorer part of the city. This should not be permitted.

On the other hand, S. 1744 does not ignore the present serious needs
of our cities to correct blight and deterioration and it would require
that the funds made available on a block grant basis be used in accord-
ance with a HUD-approved plan to meet the community's housing
needs, to prevent and eliminate slums and blight and to carry out other
neighborhood improvement programs.

We, therefore, endorse the concept embraced within S. 1744 as a
more viable and appropriate use of limited Federal funds.

Again, I would like to compliment the subcommittee on its moving
forward with these hearings. The Nation's needs, for housing for its
low- and moderate-income families and to eliminate the conditions of
blight and deterioration which are too prevalent in its cities, are too
important to be delayed indefinitely. S. 3248, passed last year by the
Senate by the overwhelming vote of 80 to 1, was a very good bill to
deal with these problems.

"VVHiile there may well be provisions of that bill which could stand
improvement, it established a legislative f ramxcwork within which the
subcommittee can move forward expeditiously. We urge quick action
on such an omnibus Housing and Urban Development Act.

Thank you for this opportunity to appear here.

The Chairman. Thank you very much, Mr. Martin. You have given
us some good suggestions and you can be assured that, when the sub-
committee starts to write up this legislation, full consideration will be
given to it.

[Following was received for the record from the National Associa-
tion of Home Builders :]

715

NATIONAL ASSOCIATION OF HOME BUILDERS

GEORGE C. MARTIN
PRESIDENT

1625 L STREET, N.W., WASHINGTON, D. C, 20036

TELEX 89 2600 TFLFPHONE (2021 737 Ti 3^

STATEMENT OF
THE NATIONAL ASSOCIATION OF HOME BUILDERS
before the
SUBCOMMITTEE ON HOUSING & URBAN AFFAIRS

Of The

BANKING. HOUSING, AND URBAN AFFAIRS COMMITTEE

UNITED STATES SENATE

on

HOUSING AND COMMUNITY DEVELOPMENT

July 23. 1973

Mr. Chairman and members of the Subcommittee:

My name is George C. Martin, I am a home builder fronn Louisville,
Kentucky, I also serve as the President of the National Association of Home
Builders which is the trade association of the home building industry, NAHB's
membership totals more than 71. 000 throughout the 50 states and Puerto Rico,
Appearing with me today are Carl A. S, Coan. Jr, . our Legislative Counsel,
and Michael Sumichrast, our Chief Economist,

716

We appreciate this opportunity to testify today on housing and
community development legislation, and we commend the Subcommittee
for moving ahead with these hearings at this time. While we realize that
the Administration has not yet forwarded its proposals on the housing
subsidy programs, we feel strongly that the present programs are a good
and effective means of meeting the needs of the low and moderate income
and that they have been under suspension too long.

Before I touch upon the legislative proposals pending before the
Subcommittee and our views on them, I would like to talk about a very
serious problem confronting housing and the home building industry today,
f am referring, of course, to the rapidly escalating interest rates for
mortgage money and the diminishing supply of that money at any interest
rate. This situation, which has grown much graver in the last two weeks,
illustrates the inadequacies of overall economic policy-making which have
caused the impending crisis.

The premature movement to Phase III earlier this year, and the
continuing failure to develop an appropriate anti -inflation policy mix,
demonstrate that this Administration, like every other Administration in
the past 25 years, has not found any solution to inflation and an overheated
economy than to take steps to hit housing first and hardest. With interest
rates rising and the demand for money running at a high rate, the monetary
authorities authorized an increase in the rates paid savers on the theory
that this would divert funds into long-term savings.

717

Although all the evidence is not in yet on exactly what has happened
since July 5 to savings flows, indications to date are that we have achieved
nothing more than a shift of savings aroiind from one type of institution to
another. This has been accompanied by wild bidding between commercial
banks and thrift institutions for the available savings dollar, especially for
four -year deposits on which there is no interest ceiling. The consequence
has been a rise in the cost of savings, enormous confusion among mortgage
lenders, and, m all too many instances, the closing down of the lending
windows in mortgage lending institutions until the dust settles.

Higher interest rates are not only in prospect, they are already here.
The only prospect is for even higher rates at a level of from 9 to 9 1/2%.
This is vividly illustrated by the results of a survey we made of 83 of our
largest associations asking them to report on the state of mortgage commit-
ments, interest rate levels, and the outlook for the next 90 days. We have
attached the results of that survey as Exhibit A.

This cannot help but have a very serious effect on housing starts,
and the ability of people to buy homes in general. During the first half of
this year, housing starts were at an annual rate of over 2.2 million units.
It is our expectation that, before the end of this year, the starts level will
drop to an annual rate in the neighborhood of 1. 5 to 1. 6 million units,
unless action is taken to insure an improved flow of funds into the mortgage
market at reasonable rates. For your information I am attaching a copy
of our Housing Starts Bulletin dated July 18, 1973. It details several aspects
of the problems facing us.

718

ft is against this rather ominous background that we find ourselves
here today discussing housing legislation. Further clouding the situation
is the state in which we find the various Federal housing programs. We
testified at length before this Subcommittee on April 5 concerning the
subsidy programs of HUD as well as those of the Farmers Home Administration.
We seriously questioned at that time the real basis for the moratorium that
was imposed on January 8 and we have yet to be presented with any evidence
since then justifying the moratorium.

However-, the situation has worsened since April when at least the
regular FHA programs were operating. For over three weeks now, FHA
has been out of business with no authority to insure mortgages except for
commitments that were outstanding on June 30. To cap this situation, the
GNMA Tandem Plan was summarily cut off about noon on June 28 without
any warning. To date it has not been reinstated for either the subsidized
or the unsubsidized programs, although the Secretary of HUD has promised
to put it back into being for the subsidized programs to some unknown extent.
Whereas during the last credit crunch during 1969-70 the FHA programs
were alive and operating at full steam, we today find them dead, dying or
at best very anemic.

We, therefore, think that the first order of business is to see that
the programs we now have in being are reactivated as quickly as possible.
We applaud the action of the Senate on Friday afternoon in passing by a
vote of 81 •- 0 H.J. Res. 512, which would reinstate FHA and as well direct

719

that the v.iriouK subsidy programs be put back jn operation. We urge that
a conference between the Senate and the House be held at the earliest
possible date and that the Senate conferees hold fast on those provisions of
the resolution, which would assure that the FIIA programs are fully available
to provide the support which will be needed so badly during the coming months,
to provide a viable Federal alternative to the very tenuous situation in the
conventional mortgage market.

I would like now to turn to the legislation pending before the
Subcommittee. Just a little over a week ago the Chairman introduced S. 2182
as the proposed Housing Act of 1973. Since this bill was not available until
the middle of last week, we have not had time to prepare detailed comments
on it. I would, therefore, like to ask the Subcommittee's indulgence to
submit later, for the record, our detailed commentary on the many provisions
of S. 2182.

S. 2182 in many ways is similar to Chapters I and H of S. 3248
passed by the Senate in March of 1972. It contains the essence of the
simplification and consolidation of the National Housing Act and the U. S.
Housing Act of 1937, first requested by the Administration in 1970. As we
have testified twice before, we generally support the concept of simplifying
the present complex laws which govern HUD's housing programs.

This is not to say that we are disenchanted with the present laws,
because we believe that they have, on the whole, worked very well and have.

720

until recently, contributed to record levels of housing production. Therefore,
as before, we urge that the Subcommittee, in acting on these proposals,
assure itself that good programs and provisions of existing law are not
vitiated or inadvertently omitted from any new law. We believe that the
Banking Committee and the Senate last year, in acting on the Administration's
proposals, did an excellent job of simplification without harming .good
features of present law. We hope that the same will be true this year.

In reviewing S. 2182 we find that there are only a few basic changes
from last year. However, some of these are quite distui-bing. Probably
the most disturbing feature is Section 9 of the proposed Revised National
Housing Act. While S. 2182 would retain the basic structure of the present
235 and 236 programs as new Sections 402 and 502 of the Revised National
Housing Act, Section 9 would drastically alter the method by which housing
subsidy funds under these two programs would be made available. Instead
of the present method of allocating these funds through the 70 some HUD
area and FHA insuring offices, a whole new system, tied to individual
communities, would be instituted. This, we believe, would be a serious
mistake.

Under Section 9, 60% of the funds available in any given year for
both of these programs would be allocated to metropolitan areas based on
the incidence of poverty and overcrowding in that metropolitan area and
its population, in relation to that of all other metropolitan areas. From the

721

fiinds available for each metropolitan area, funds would be allocated to
each city of 50, 000 population or more using the same formula. Half the
funds for each city would apparently be made available to the city, with
the other half made available to housing sponsors for use in accordance
with the city's housing plan. The remainder of the metropolitan areas's
allocation would be allocated to the other cities and counties in the area,
with none of the funds being made available directly to sponsors.

The rest of the funds available in each year would be split up, 30%
to nonmctropolitan areas and for research and demonstration purposes,
and 10% to state and regional bodies for use primarily in nonmetropolitan
areas. Apparently the funds under the 30% allocation would be available
directly to eligible sponsors and would not have to go through a governmental
body.

The first question that occurs to us is, why is the cumbersome and
complicated process proposed by Section 9 necessary? We realize that
there have been reports by GAO and others indicating that the allocation
of funds under the present programs has not necessarily been on a
reasonably proportional basis. However, we have seen no evidence that
would indicate that this is a result of any malfunctioning of the present
system. Instead it is our belief and understanding that the areas, which
have not received their so-called share of housing subsidy funds, are
primarily those where cost levels have exceeded the allowable mortgage
limits under present law. Furthermore, there have been some areas of

722

the country where exclusionary practices, or aiill-growth activities, have
stymied tiic ability of sponsors to produce housing under the present
programs.

Hopefully the shift to a prototype approach contained in S. 2182, for
the purpose of calculating the maximum permissible mortgage atnount,
will eliminate many of the problems presently experienced in providing
housing in higher cost areas. Prototype limits recalculated annually, or
more often where necessary, will avoid the problems experienced recently
where mortgage limits, last set in 1970, have been far outpaced by
inflation -caused housing cost increases.

With this inhibition removed, we believe that the ills which would
flow from the proposed allocation system in Section 9 will far outweigh
any minor changes which inight occur as a result of a formula-based
allocation. A most serious problem is the proposal to count poverty twice
in the formula for determining the amount of assistance which would be
made available for a city with a population of 50, 000 or more.

We all know about the problems that have come about because of
the concentration of the poor in our central cities. This type of provision
will only intensify that problem, since, the more poor a community has,
the more housing funds it will be getting and the more likely it will be
that communities with a low incidence of poverty will have few funds
available to provide subsidized housing for the poor from the inner city.

723

One of the principal, though not loudly articulated, goals of the present
programs, has been to achieve a degree of dispersion of our lower
income families, in order to avoid large concentrations and the attendant
problems we all know thus occur. This allocation formula would reverse
that direction.

Another major concern with Section 9 is its requirement that a
community would have to have a three -year housing plan or certify that
such a plan is under preparation before any funds could be made available
to it. There is no question that our major cities will have such plans,
but we doubt seriously whether many smaller suburban communities will
ever get around to adopting such plans, especially when they realize that
the plan will only bring them low and moderate income housing.

The result will be the same as that which has occurred under the
rent supplement program's requirement that a community either have a
workable program or officially endorse the provision of rent supplement
housing within its boundaries. This has kept rent supplement housing out
of many smaller and suburban communities. This type of provision only
reinforces the exclusionary tendencies we see in community after
community in the suburbs. In effect. Section 9 will concentrate the great
bulk of this subsidized housing in our central cities.

We are also seriously concerned about the fact that Section 9 would
place the responsibility for allocating the great bulk of the subsidy funds
in the hands of local officials. These are the very same officials, in

99-855 O - 73 - pt. 1 -- 47

724

many cases, who now use zoning, land use controls, and other devices to
prevent the production of low and moderate income housing. Even where
this is not true, involving local officials in the allocation of these funds
would establish one more red-tape burden for the builder seeking to produce
low and moderate income housing.

Builders today have to deal with local governments to obtain zoning,
subdivision approval, building permits and many other local approvals.
Those building FHA housing also have to meet a myriad of Federal
requirements which, in some cases, are duplicative of those imposed
locally. Section 9 would only further complicate what is already a complicated
process. We fear that a builder seeking an allocation of some of the subsidy
funds controlled by a local government would have to meet the other
requirements imposed by that government, most likely in good faith, but
also miost likely burdensome.

We feel very strongly that Section 9 is not needed and that its effect
will be to deter the provision of low and moderate income housing, not to
encourage it. We urge the Subcommittee to reject Section 9 and, instead,
rely on the present system which, in general, has worked very well.

Another new departure from last year's bill would be authorization
for HUD to guarantee taxable mortgage bonds, issued by public bodies to
finance multifamily projects meeting the requirements of the new Section 502.
HUD would be authorized to moike grants to such public bodies in an amount

725

not exceeding 1/3 of their interest costs. This we presume is aimed at
bringing the interest costs for the bonds approximately into line with
what it would be if the bonds were tax free.

We have two basic questions about this proposal. The first is, why
is it necessary to put public bodies into the business of developing and
owning housing which under present programs has been fairly well handled
by private sponsors, profit and nonprofit? If there was a demonstrated
need which would be filled by moving public bodies into this area, there
might be some basis for this proposal. However, we know of none.

Secondly, we wonder why it is necessary to establish what is in
essence a whole new program on top of a program, in order to achieve a
goal which probably could be achieved much more simply. We see no
reason why public bodies could not be made eligible sponsors under Section 502,
with a prohibition against their obligations being tax free. The basic subsidy
available under 502, which would also be available under this new program,
would serve to meet the need to bring rentals down to a level that could
be afforded by lower income families. There seems to be no question that
one subsidy is simpler than two subsidies, especially when one subsidy
perfornns the function of two. We urge the Subcommittee to think long and
hard before instituting this new program.

One significant change from last year's bill with respect to the 402
and 502 programs would be to remove the mortgage insurance premium
from the calculation of the maximum allowable subsidy. This would result

726

in no mortgage insurance premium being paid with respect to any subsidized
402 or 502 mortgage as long as any subsidy payment is made in connection
with it. We believe this would be a serious mistake.

Under the present system, the mortgage insurance premiums
collected in connection with 235 and 236 mortgages go into the Special Risk
Insurance Fund, to be available to meet claims against that fund for both
the operation and administration of the programs, as well as to honor
insurance claims. While we realize that to date the premiums collected
have not been adequate to meet all claims against this fund, the situation
would have been much worse if there had been no premiums paid into the
fund at all. The cost to the Federal government is the same, whether the
fund is maintained on an incremental basis, through mortgage insurance
premium payments, or on an as-needed basis through annual appropriations.
However, we believe that the present system is much preferable to that
proposed in the bill.

We would like to strongly endorse the new provision contained in
Section 402(m) of the proposed Revised National Housing Act to require
HUD to provide counseling assistance to home purchasers under Section 402.
To the extent there have been problems in connection with the 235 program,
it is our belief that a large percentage of those problems are attributable
to HUD's failure to request the necessary funds to counsel home purchasers
under the program. Amazingly, when funds were provided by Congress
for fiscal year 1972, HUD failed to use them except on a demonstration

727

basis, and then only with respect to mortgages that had gone into default.
This is inexcusable. Many of the individuals who went into default
probably could have avoided it, if they had received adequate counseling
beforehand. We, therefore, strongly endorse Section 402(m).

We have several other comments with respect to the various
provisions of the proposed Revised National Housing Act which we would
like to include in the addendum I mentioned earlier to be filed later.
However, there is one matter which I believe should be mentioned at this
time. This is Section 103 of S. 2182 which would initiate an experimental
dual-interest rate program. Under this system, until July 1, 1975, HUD
could insure mortgages without regard to the interest rate, as long as
no charges in the nature of discounts or points were made in connection
with the mortgage transaction. This we believe to be inappropriate and
unnecessary for mortgage loans that are covered by government insurance.
We urge that this provision be dropped from the bill.

We note that there are several changes in the revision of the U. S.
Housing Act of 1937 adopted last year. Some of these we would like to
comment on in our addendum to be filed later. However, we do note with
regret that the proposal contained in last year's bill, calling for full
real estate tax payment with respect to public housing projects, has been
dropped in favor of a limited experiment. We endorse the concept of
increasing the annual contribution of housing projects to the extent necessary

728

to permit these projects to pay full real estate taxes. We believe that it
is a necessary prerequisite to having such projects accepted in many
communities which are now reluctant to permit them. We Urge the
Subcommittee to give serious consideration to reinstating last year's
provisions.

We realize that there are many other bills dealing with housing
pending before the Subcommittee. In the interest of time we will not
comment on those now, but we will comment on some of them in our addendum.
However, we would like to comment on two bills introduced by Senators
Proxmire and Williams (S. 2169 and S. 2179). Both of these bills would
establish a method of direct Federal financing for mortgages under
Sections 235 and 236. The result of this direct Federal financing would
be to reduce the overall cost to the government of these programs.

This would be highly desirable, especially if it can be done by
removing this type of direct Federal mortgage lending from the budget.
This, of course, is a prerequisite to such a move, since otherwise such
direct financing would result in large budgetary deficits which would be
totally unacceptable. In view of the recent precedent established with
respect to the Export-Import Bank, we see no reason why these housing
programs cannot be similarly treated. We also endorse the proposal, in
both bills that, to the maximum extent practicable, private mortgage
lenders be used to initiate and service these direct loans. We urge the
Subcommittee to give serious consideration to adopting these proposals.

729

I would now like to turn to the community development proposals
pending before the Subcommittee. These are S. 1743, the Administration's
proposed Better Communities Act, and S. 1744. Chapter III of last year's
bill.

Both bills would restructure the Federal Government's present
method of providing assistance to communities for carrying out community
development activities. They would replace the various categorical grant
programs now existent, such as urban renewal, water and sewer facilities,
neighborhood facilities, and open-space land. This concept of simplification,
we strongly endorse. The present categorical grant programs have over
the years been overburdened with complex requirements which have only
served to make it more difficult for our cities and counties to use them.
We also believe that the present deep involvement of Federal officials in
the making of development decisions, which more properly should be made
at the local level, needs to be decreased to the lowest possible degree.

Unfortunately, the Administration's proposal goes too far in
"eliminating a Federal concern as to how limited Federal funds are to be
used to meet the nation's community development needs. It contains no
assurances, or means of assuring, that the proposed $2 billion or more
that would be involved annually would continue, after its enactment, to
be allocated toward meeting the important goals toward which these funds
are presently directed. We believe this to be a fatal deficiency in S. 1743.

730

As S. 1743 is now drafted, a city receiving funds pursuant to it
could use these funds to carry out practically any physical development
activity it wished, without regard to other activities or any relationship
to the achievement of such important goals as the elimination of slums and
blight. Fxmds allocated under S. 1743 could be used to provide community
facilities in wealthy parts of a city and completely ignore a more desperate
need for such facilities in a poorer part of the city. This cannot be
permitted.

On the other hand, S. 1744 does not ignore the present serious needs
of our cities to correct blight and deterioration. It would require that the
funds made available on a block-grant basis be used in accordance with a
HUD approved plan to meet the community's housing needs, to prevent and
eliminate slums and blight and to carry out other neighborhood improvement
programs. This is the priority we believe should apply to the use of these
funds. We, therefore, endorse the concept embraced within S. 1744 as a
more viable and appropriate use of limited Federal funds.

Again, I would like to compliment the Subcommittee on its moving
forward with these hearings. The nation's needs, for housing for its
low and moderate income families and to eliminate the conditions of blight
and deterioration which are too prevalent in its cities, are too important
to be delayed indefinitely. S. 3248, passed last year by the Senate by the
overhwelming vote of 80 - 1, was a very good bill to deal with these

731

problems. While there may well be [jrovisions of that bill which could
stand improvement, it established a legislative framework within which
the Subcommittee can move forward expeditously. We urge quick action
on such an omnibus housing and urban development act.
Thank you for this opportunity to appear today.

732

EXHIBIT A

Results of Survey of 83 cities conducted July 16-18, 1973

AVAILABILITY OF MORTGAGE COMMITMENTS

(Percent Distribution)

Almost nonexistent

Very tight

Tight

Availability limited

Readily available

Par cent
23. 3%

23.3

16.4

9.6

27.4

100.0%

Economics Department

National Association of Home Builders

i

I

733

31 Yli'l •

INTEREST RATE QUOTED

FOR PERMANENT MORTGAGES

July 18, 1973

EXHIBIT A-1

Interest Rate

7

7

1/2

7

3/4

8

8

1/A

8

1/2

8

3/8

8

3/4

8

7/8

9

9

1/4

9

1/2

Prime Rate +

1%

2%
3%

TOTAL

Percent Distribution

1.5%
5.1
6.6
15.3

8.8
24.1

0.7
15.3

0.7

13.1

5.8

0.7

0.7
0.7
0.7

9 9.8%

Median Interest Rate

8.51%

734

OUTLOOK FOR NEXT 90 DAYS

EXHIBIT A -2

Percent Distribution

No Change

Uncertain

Continuing Tight Money

Rate Increase Anticipated

Poor

Improvement Anticipated

Ample Money

Good

15 .1%

8.5

16.9

19.7

26 .8

1.4

5.6

5 .6

100.0%

735

Economics Department
National Association
of Homebuilders

1625 L Street. N.W.
Washington. D.C. 20036

Subscription -

$72 a year.

&U A

Michael Sumichrast, Chief Economist
Robert G. Enzel, Assistant Director
Elizabeth Conn, Economic Research Analyst

Housing Starts Bulletin

Charles P. McMahon, Publisher

in

ECONOMIC NE\/\/S NOTES

For the Building Industry

Starts Rate Declines

The seasonally adjusted annual rate of
housing starts fell 1 2.3% in June to
2,1 19,000 units from a May rate of
2,41 7,000 units. The single family rate
decreased 11.2% to 1,129,000 units
from 1,272,000 units, and the multi-
family rate declined 13.5% to 990,000
units from 1,145,000 units.

Regionally, the Northeast had a 33.9%
jump to 344,000 units from 257,000
units. But the North Central fell by 20.3%
to a rate of 479,000 from 601,000, the
South declined 15.3% to 850,000 units
from 1,004,000 units, and the West de-
creased 19.6% to 446,000 units from
555,000 units.

Actual Starts Decline

Actual starts dipped 1 3.6% in June to
202,000 units from 233,800 units in May.
Single family starts decreased to 1 1 5,200
units from 131,600 units, or 12.5%. Multi-
family starts fell by 15.1% to 86,900 units
from 102,300 units.

Regional starts show the Northeast up
8.2% to 30,300 units from 28,000 units;
the North Central down 10.9% to 50,000
starts from 56,100 starts; the South minus
18.3% to 79,500 units from 97,300 units;
and the West with a decline of 19.3% to
42,300 units from 52,400 units.

Building Permit Rate Increases

The seasonally adjusted annual rate of
building permits issued increased 9.1% in
June to 1,969,000 units from 1,804,000
units in May. The single family permit
rate declined slightly (4.1%) to 882,000
units from 920,000 units. However, multi-
family permits jumped 23% to 1,087,000
units from 884,000 units.

Regionally, the North Central's de-
cline of 14.8% to 328,000 units from
385,000 units was partly offset by a 6%
increase in the Northeast to 246,000 units
from 232,000 units, a jump of 27.2% in
the South to 945,000 units from 743,000
units, and a slight 1.4% increase in the
West to 450,000 units from 444,000 units.

VOLUME XIX, NUMBER 7
July 18, 1973

Mobile Home Shipments Down

May mobile home shipments declined 7%
to 57,300 units from April's total of
61,600. However, shipments were 1 1.1%
higher than the 51,800 units for May 1972.

The 1973 January-May cumulative to-
tal of 259,500 units was 13.8% more than
the 228,090 units shipped during the com-
parable period in 1972.

The May seasonally adjusted annual
rate for mobile home shipments was
661,000 units, 2.8% below April's
680,000 unit rate.

In Summary •

in the first quarter of 1973, the annual
rate of starts was at a 2.41 million unit
level. The second quarter is down to a
2.21 million rate. From the beginning of
1973 to mid-year, the decline is 1 5.2%,
a drop from the January rate of 2,497,000
to a June rate of 2,1 19,000.

In June 202,000 units were started—
14% below actual starts in May and 9.5%
under the starts figure for June 1 972.

Still, the first six months showed un-
usual strength; the January-June total of
1,128,800 starts in only 48,900 units
below the first six months of last year.

However, important to remember is
that with the exception of May, this year's
starts have been down every month com-
pared to the same months in 1972. The
outlook for housing has darkened con-
siderably. Mortgage commitments liter-
ally disappeared overnight after July 5,
1973, the date when lending institutions
were permitted to increase payments on
deposits.

The S&Ls have had a negative inflow
of funds since July 5. The magnitude of
outflow is uncertain at this time as the
war for savings between thrift institutions
and commercial banks intensifies.

The same thing is happening to mutual
savings banks. In the state of New York,
nearly 30 banks have had an outflow of
$86 million since July 5, compared to a
$45 billion inflow during the same period

last year. This level of outflow is close to
the level registered during the latest
money crunch in 1969.

An NAHB telegraphic survey, done
between July 16-18, 1973 shows
commitments generally unavailable In
most parts of the country; the median
quoted permanent mortgage rate was at
8.48%, with 23.5% of the respondents
quoting rates over 9%.

Such a rapid change in interest rates
and the availability of funds has never
occurred before. The regulation permit-
ting the raise in payments for deposits has
created a great deal of confusion and
uncerrainty. In addition, the permissible
increase in the savings interest rate makes
it mandatory for lending institutions to
raise loan rates sharply, from Vi% to
one percentage point.

The combination of commitments
drying up, plus the highest rates on record,
will result in a very drastic decline in
housing starts for the balance of the year
and into 1974. The drop from the high
first quarter 1973 rate of 2.41 million
units probably will be 38%, to a 1 .5
million rate in the first quarter of 1974.

The 9% increase in June permits can
be explained by the unprecedented
building activity in the South, especially
in Florida. During June, Florida permits
increased 1 5% to over 30,000 units-
a level never achieved in Florida or Cal-
ifornia (a state where housing activity
used to run at record levels). California
permits were at about 20,000 units in
June.

Over the last 12 months Florida has
issued more than 300,000 permits-an
all time record for any state. Nearly
two-thirds of these permits were in
multi-family-condominium type units.

NAHB Economic News Notes, Copyright Na-
tional Association of Home Builders of the
United States, 1973, published monthly by the
National Association of Home Builders of tfie
United States, 1625 L Street NW, Washington,
D. C. 20036. Reproduction in vuhole or in part
prohibited without written authorization.

736

MONTHLY COMPARISON OF ACTUAL HOUSING STARTS, 1964-1973

ivew nuu^

my Muiiviiy

\ 1 nuu^nu^

oi uniisr

Seasonally"

Total

Private

Private

-Government Programs-

Adjusted A

nnual Rate

Private

Total

One

Multi-

FHA

FHA

FmHA

VA

Public

Total

Total

May

& Public

Private

Family

Family

Home

Project

Housing

Housing

Housing

Private

Building

1964-

Housing

Housing

Housing

Housing

Units

Units

Units

Units

Units

Housing

Permits

1973

Starts

Starts

Starts

Starts

Started'

Started^

Started 3

Started

Started-*

Starts

Issued

1973

202.8

202.0

115.2

86.9

NA

NA

NA

8.3

2.6

2119

1969

1972

226.3

223.1

131,9

91.2

17.1

16.1

11.9

9.6

10.9

2315

2121

1971

196.8

193.8

116.9

76.9

28.0

18.2

13.3

9.0

10.0

2008

1913

1970

141.9

135.2

83.0

52.2

21.1

18.9

5.0

5.1

7.9

1396

1322

1969

150.5

147.3

82.7

64.6

13.9

7.2

1.5

4.6

5.8

1528

1349

1968

142.5

137.9

81.4

56.4

12.3

7.0

-

5.0

_

1405

1300

1967

131.6

125.4

87.6

37.8

14.3

5.0

-

5.2

—

1248

1169

1966

123.5

120.6

79.8

40.8

12.2

2.8

—

3.9

_

1194

956

1965

158.6

151.8

97.4

54.4

15.5

3.8

—

4.9

—

1488

1241

1964

162.4

157.2

100.9

56.3

15.3

3.3

-

6.0

—

1550

1280

NEW HOUSING ACTIVITY
(In Thousands of Units)

Total

Private

Private

Private &

Total

One

Multi-

Total

FHA

FHA

Public

Private

Family

Family

Building

Home

Project

VA

FmHA

Housing

Housing

Housing

Housing

Permits

Units

Units

Units

Units

Year

Starts

Starts

Starts

Surts

Issued

Started

Started

Started

Started

1972

2378.5

2356.6

1309.2

1047.3

2130.4

198.5

192.1

104.0

91.4

1971

2084.5

2052.2

1151.0

901.2

1924.6

300.9

233.1

94.3

74.7

1970

1469.0

1433.6

812.9

620.7

1351.5 .

233.5

182.0

61.0

57.7

1969

1499.6

1466.8

810.6

656.2

1323.7

153.6

79.7

52.2

43.6

1968

1545.5

1507.7

899.5

608.2

1353.4

147.8

79.4

56.1

43.0

1967

1321.9

1291.6

843.9

447.7

1141.0

141.9

37.8

52.5

38.3

1966

1195.9

1165.0

778.5

386.5

971.9

129.1

29.3

36.8

25.2

1965

1509.6

1472.9

963.8

509.1

1239.8

159.9

36.7

49.4

12.5

1964

1561.0

, 1528.8

970.5

558.3

1285.8

154.0

50.7

59.2

11.4

1963

1642.0

1610.3

1020.7

589.6

1334.7

166.2

54.9

71.0

15.8

1962

1492.4

1462.7

991.3

471.4

1186.6

197.3

62.2

77.8

9.0

1961

1365.0

1313.0

974.4

338.6

1064.2

198.8

44.9

83.3

7.0

1960

1296.0

1252.1

994.7

257.4

998.0

225.7

35.2

74.6

4.2

MANUFACTURER'S SHIPMENT OF MOBILE HOMES

MONTHLY 1963-1973
(ACTUAL SHIPMENTS IN THOUSANDS OF UNITS)

Month

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

1973

Jan

8.5

10.9

12.8

11.6

12.2

19.0

27.1

23.9

24.7

33.5

40.7

Feb

10.2

12.8

14.2

14.3

14.4

21.2

29.4

24.1

28.7

40.0

42.9

lyiar

11.7

16.1

18.7

20.1

18.4

24.0

37.5

29.5

36.0

49.1

57.0

Apr

13.6

16.7

17.9

19.6

19.4

27.1

36.0

40.0

43.3

53.7

61.6

May

14.7

17.8

18.9

20.2

21.9

27.6

34.6

32.9

41.3

51.8

57.3

Jun

13.7

18.9

21.0

21.7

22.6

26.5

36.4

35.7

47.8

55.0

Jul

13.1

16.9

17.7

18.0

19.5

27.2

35.2

37.1

45.6

48.5

Aug

13.7

17.9

21.1

22.4

24.7

30.5

38.1

38.4

50.0

52.1

Sep

14.2

19.0

21.4

20.0

24.2

29.9

40.1

41.4

54.0

49.1

Oct

15.6

18.2

20.5

19.3

24.3

33.5

43.4

40.8

50.8

54.4

Nov

11.8

14.3

17.9

17.4

21.0

27.6

32.7

30.5

39.9

50.7

Dec

10.0

11.6

13.8

12.9

17.9

24.0

27.2

27.0

34.4

38.0

Total: 150.8 191.3 216.5 217.3 240.4 318.0 421.7 401.2 496.6 575.9

Source: U. S. Department of Commerce, B. D. C, Construction Review, Jan. 1972, Table B-7. Bureau of Census, C-20 Construction Reports.

1— FHA Home Starts include rehabilitated units.
2— FHA Project Starts exclude rehabilitated units after 1967.
3— Farmers Home Administration Starts for the last month reported have been revised dovunvi/ard 25% by the NAHB Economics Department to adjust for rehab-
ilitated units and existing unit purchases. All other figures reflect actual starts.

4— Public Housing as defined by the Department of Housing and Urban Development includes conventional, public, leased and turnkey. Effective January 1971,
units are shown by month reported, not month started.

Source-Bureau of the Census, U. S. Department of Commerce, Housing Starts 1959 to 1971, C-20 Supplement, Census, Housing Starts, series C-2n, November
1972; Census C-20 monthly nevus release; Federal Housing Administration, Farmers Home Administration. Veterans Administration.

ECONOMIC NEWS NOTES/JULY 1973

737

NEW HOUSING ACTIVITY
(Thousands of Units)

Year

1973

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

1972

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

1971

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

1970

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

1969

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Total
Private
& Public
Housing
Starts

150.9
153.6
205.8
213.2
227.9
226.3
207.5
231.0
204.4
218.2
187.1
152.7

114.8
104.6
169.3
203.6
203.5
196.8
197,0
205.9
175.6
181.7
176.4
155.3

69.2
77.2
117.8
130.6
127.3
141.9
143.5
131.5
133.8
143.8
128.3
124.1

105.8

94.6

135.6

159.9

157.7

150.5

126.5

127.5

132.9

125.8

97.4

85.3

Total
Private
Housing
Starts

Private

One

Family

Housing

Starts

Private
Multi-
Family
Housing
Starts

FHA
Home
Units
Started^

ACTUAL STARTS
Government Programs

FHA
Project
Units
Started^

FmHA
Housing
Units
Started^

VA
Housing
Units
Started

Public
Housing
Units
Started*

Seasonally
Adjusted Annual Rate
Total Total

Private Building

Housing Permits
Starts Issued

147.3

146.6

77.1

69.4

6.3

6.8

7.2

6.6

2.4

2497

2218

139.5

138.0

73.6

64.4

7.2

8.3

4.2

6.8

2.0

2456

2191

200.0

199.0

105.4

93.6

7.9

12.2

5.7

8.3

2.4

2248

2071

205.3

205.0

120.5

84.6

6.8

11.4

6.3

8.6

2.7

2123

1834

233.9

233.8

131.6

102.3

7.7

11.2

5.7

10.5

2.4

2417

1804

202.8

202.0

115.2

86.9

NA

NA

NA

8.3p

2.6

2119

1969

Remain

ng space to be developed

in monthly

progression.

m

149.1

76.2

72.9

24.1

13.8

6.1

7.5

2.5

2439

2204

152.2

76.3

75.9

19.5

10.1

5.8

8.0

2.6

2540

2056

203.9

111.4

92.5

23.6

15.5

7.9

10.5

7.7

2313

2007

211.6

119.8

91.8

19.2

11.4

7.3

8.5

2.1

2204

1991

225.8

135.2

90.7

18.8

15.3

8.6

9.4

3.6

2318

1955

223.1

131.9

91.2

17.1

16.1

11.9

9.6

10.9

2315

2121

206.5

119.1

87.4

14.5

14.4

6.2

9.4

0.5

2244

2108

228.6

131.3

97.4

16.9

15.1

8.5

9.9

3.3

2424

2237

203.0

120J

82.5

14.1

15.4

7.7

8.9

3.3

2426

2265

216.5

117.0

99.5

12.8

12.6

7.8

8.5

1.7

2446

2216

185.7

97.4

88.4

10.3

12.4

8.0

8.0

1.4

2395

2139

150.5

73.2

77.3

7.6

40.0

5.7

5.8

1.4

2369

2377

110.6

54.9

55.7

23.7

9.1

4.1

4.6

10.9

1810

1668

102.2

58.3

43.a

18.5

9.2

4.3

4.7

8.6

1794

1572

167.9

91.6

76.3

23.9

10.3

6.0

6.9

5.2

1938

1722

201.1

116.0

85.0

27.1

17.5

6.1

8.4

3.7

1951

1721

198.5

115.6

82.9

24.5

16.2

6.5

8.3

8.2

2046

1971

193.8

116.9

76.9

28.0

18.2

13.3

9.0

10.0

2008

1913

194.3

107.7

86.6

25.4

17.5

1.6

9.2

2.8

2091

2079

204.5

111.7

92.8

29.3

16.5

7.1

9.4

3.4

2219

2046

173.8

102.1

71.7

25.1

23.2

7.3

8.7

5.5

2029

1987

179.7

102.9

76.9

24.6

13.9

6.6

8.1

2.4

2038

2027

173.7

92.9

80.9

24.1

23.2

7.0

9.1

6.9

2228

2092

152.1

80.4

71.8

27.1

58.3

4.8

7.4

7.5

2457

2191

66.4

33.4

33.0

10.3

5.9

2.0

3.4

7.1

1108

1062

74.3

41.4

32.9

12.1

5.3

2.4

3.9

3.8

1322

1118

114.7

61.9

52.8

15.9

9.4

3.8

4.8

5.9

1364

1132

128.4

73.8

54.6

20.2

11.7

4.9

5.4

8.0

1230

1224

125.0

74.8

50.2

18.8

17.8

5.2

5.2

6.0

1280

1328

135.2

83.0

52.2

21.1

18.9

5.0

5.1

7.9

1396

1322

140.8

75.5

65.3

22.6

20.1

3.1

5.2

5.7

1506

1324

128.7

77.3

51.4

20.8

13.0

7,1

5.6

6.7

1401

1394

130.9

76.0

54.9

21.2

13.2

5.8

5.3

8.6

1531

1426

140.9

79.4

61.5

23.9

16.5

7.0

5.8

6.3

1589

1564

126.9

67.4

59.5

21.2

12.4

5.5

5.5

5.5

1621

1502

121.4

69.0

52.4

25.3

37.8

5.0

5.7

5.6

1944

1767

101.5

51.3

50.2

8.8

4.4

4.8

3.8

4.8

1769

1459

90.1

47.9

42.1

9.2

3.5

2.5

3.5

3.3

1705

1495

131.9

71.9

59.9

12.7

5.9

1.4

3.9

3.8

1561

1438

159.9

85.0

74.0

16.0

6.7

3.3

4.4

2.6

1524

1441

155.5

91.3

64.3

13.4

7.3

4.0

4.3

3.1

1583

1328

147.3

82.7

64.6

13.9

7.2

1.5

4.6

5.8

1528

1349

125.2

73.5

51.7

13.1

7.2

1.1

4.7

4.9

1368

1278

124.9

69.5

55.4

12.6

9.3

5.8

4.2

5.5

1358

1317

129.3

71.5

57.9

13.1

4.9

6.1

4.8

5.8

1507

1263

123.4

68.0

55.3

15.1

9.3

4.4

5.0

6.1

1381

1216

94.6

55.1

39.5

12.2

5.8

3.1

3.9

8.1

1229

1191

84.1

42.8

41.3

13.4

8.3

2.7

4.2

6.9

1327

1155

ECONOMIC NEWS NOTES/JULY 1973

738

HOUSING TRENDS 1

SEASONALLY ADJUSTED ANNUAL RATES |

(Millions) .

(Millions)

2.4-

SEASONALLY
ADJUSTED ,
ANNUAL A ■
RATE' I/:

's^

2.4-

BUILDING

PERMITS ISSUED

2.2-
2.0-

If/W

/ir

f

2.2-
2.0-

'P>

v/

V

1.8-

4- 1

RIVATE ROUS
STARTS

NG

1.8-

-I

V

1.6-

-/ A 12 MC
I V MOVIi

)NTH

SIG TOTAL

1.6-

i

1.4-

-

1.4-

—

1.2-

1.2-

—

1.0-
n_3

^

11111111111=

1.0-

r nJ

-

1 1 1 1 1 M 1 1 1 l=r 1

(Million

0 R_

1971 1972 ' 1973

s)

(000)

1971 1972 1 1973

2.0-

SINGLE vs
HOUSING <

MULTIPLE
STARTS

200-

TOTAL ST/
UNITS STA

^RTS vs F.H.A
RTED (Actual

1 \

4|

t.5-

- 5j

1

150-

r Total 5

5 Starts s

_ : 5

J 1

"J

1.0-

- A/

; Single 1

h

100-

0.5-

.--'-^

Multiple

w

50-

J

1 F.H.A.

fV

lllllllllll

10^

1-

N

II nil II 111^

_

1971 ' 1972 ' 1973

1971

1972 1973

--— --zJ

ECONOMIC NEWS NOTES/JULY 1973

739

The Chairman. Thank you very much.

Next is Kennon Rothchild, president of the Washington Committee
of the Mortgage Bankers Association.
We are glad to have you, sir.

STATEMENT OF KENNON V. ROTHCHILD, CHAIRMAN, MORTGAGE
BANKERS WASHINGTON COMMITTEE; ACCOMPANIED BY LEE
HOLMES, LEGISLATIVE COUNSEL

Mr. Rothchild. Thank you, very much, Mr. Chairman.

The Chairman. We have your statement and it will be printed in
full in the record (see p. 744).

Mr. Rothchild. Yes ; we would, Mr. Chairman, like to have our full
statement placed in the record. I would like to summarize.

The Chairman. It will be ; go ahead.

Mr. Rothchild. Mr. Chairman, I am Kennon V. Rothchild. I am
president of H. & Val J. Rothchild, Inc., St. Paul Minn., and chair-
man of the Mortgage Bankers AVashington Committee. Accompany-
ing me is Mr. Lee Holmes, MBA legislative counsel.

Mr. Chairman, on April 11, 1973, Mr. Mattson made a detailed
statement on the role of the mortgage bankers before this committee.
I would summarize that by saying that mortgage bankers have pro-
duced over half of all FHA, one- to four-family mortgages since 1950.
With that history we are distressed over FHA's present condition
and concerned about its future. We feel the Mortgage Bankers' in-
volvement with the Government's several housing programs, prin-
cipally those of FHA and VA, has benefited both the industry and
these programs.

At the same time, this involvement has made the mortgage banker
vulnerable to instabilities that have always been a part of these pro-
grams. Expiring authority to insure and variations in the implementa-
tion of administrative rulings have been hazards that mortage bankers
and others have encountered in these dealings.

In recent years, however, they have occurred with greater frequency
and in concert with other less manageable factors such as tight credit
and rising costs. Thus far, 1973 has provided all who deal with Gov-
ernment housing programs a much clearer understanding of how
fragile and tenuous the involvement in these programs truly is.

Surely, the events of the last 2 or 3 weeks serve to create an atmos-
phere of urgency for the Congress and the administration to act with
deliberate speed in developing and implementing sound Government
housing programs.

Legislation before the committee today focuses on a number of
critical housing issues. The proposal to consolidate and simplify the
multiplicity of programs and purposes of the National Housing Act,
S. 2182, is perhaps the most significant.

This legislation, a revision of S. 3248 which was passed by the Sen-
ate last year, retains the principal elements to which this association
has addressed itself before this committee for the last several years.
We continue to support many elements of this proj^osal. The events
of the past 6 months, however, have necessitated some alteration in
several of our previous responses relative to this proposal.

99-855 O - 73 - pt. 1 -- 48

740

The association still considers the consolidation and simplification
of the Government-insured housing programs to be a necessary step to
a more efficient system of providing shelter. Similarly, and with par-
ticular reference to the current rising cost of housing, a system of
flexible maximum mortgage amounts appears to be far superior to the
current approach than providing statutory ceilings which cannot be
readily adjusted, nor can they be varied to meet the needs of local
markets.

Additionally, the provisions by which the Secretary is vested with
permanent authority to prescribe maximum interest rates that meet and
keep pace with this market is particularly important in view of the
current situation.

The association does not favor the experimental dual interest rate
authority which would be established by this legislation. A free in-
terest rate with no points may be workable under some market condi-
tions, but it will be neither practical, nor desired by the mortgagor in
today's market.

Therefore, the association feels that the experiment will not pro-
vide a valid test of the free market and mortgagees would still be
faced with the problem of whether the administered rate was main-
tained at an appropriate level.

As the committee knows, there would be little need for a free interest
rate for Government-insured or guaranteed housing programs if the
Secretary merely exercised his ratesetting authority in a timely
fashion. The interest rate whipsawing that the FHA and VA pro-
grams commonly experience is totally unecessary and would not be
commonplace but for the fact that all too often the rate becomes a
matter of political expediency rather than consumer need.

Mortgage bankers have given a great deal of thought to the role
or roles they play in the Federal Government's housing delivery system
and, in light of current events, the industry has concluded that either
their role must change or the system must be altered if there is to be
any meaningful continuing relationship with these programs.

Fundamental to the industry's deliberations has been the status of
FHA. We do not question that there must be both subsidized as well as
unsubsidized programs available to the public, nor does the mortgage
banker consider that these parallel means of providing housing are
alternatives which demand a choice of participating with one or the
other, but not both.

MBA's deliberations have produced the firm conviction that FHA's
unsubsidized programs must be clearly severed from those which are
subsidized. While much of the difficulty which FHA has experienced
over the recent years can be attributed to complications in administra-
tive redtape, we feel that it is the confusion that surrounds the man-
agement of both subsidized and unsubsidized programs by the same
people which has given rise to these administrative complications.

It is the considered conclusion of the association that the portion of
FHA which deals with market-oriented, unsubsidized housing pro-
grams must be removed as far as possible from those which are
subsidized— hence the MBA's position that the unsubsidized programs
of FHA should be independent and free of HUD.

Viewing this conclusion from another vantage point, we do not
see how subsidized housing programs can ever be made to function

741

as they should for the people they serve and be as economically
sound as possible unless they are administered separately.

We strongly recommend that the unsubsidized programs embraced
by section 401 of title IV — home mortgage insurance — in the com-
mittee's proposal be made the operating responsibility of an inde-
pendent Federal mortgage insurance corporation.

The new independent Government corporation would be gov-
erned by a board composed of Government officials. The administra-
tion of the corporation should be the responsibility of a Commis-
sioner appointed by the President of the United States. All of the
functions, powers, duties, and responsibilities of the Secretary which
are related to the standard risk insurance programs should be trans-
ferred to and vested in this Commissioner.

With this transfer of authority must go the control and use of
the mutual mortgage insurance fund which has been operated solely,
since 1938, in connection with FHA operations under section 203
of the National Housing Act. There would be no budgetary impact
by this transfer of responsibility, since the corporation we envision
would remain a Federal instrumentality.

We do not believe there can be a true insurance concept applied
to the subsidy programs which is why the special risk insurance fund
is presently operating in a deficit position as is the general insurance
fund.

The fact that assisting low-income homeowners and renters is
expensive and risky has b^en clearly established. That does not mean
that the task should not be undertaken; rather, it makes it that
much more important to accomplish.

It also means that we should not delude ourselves by applying
insurance concepts and the other paraphernalia that apply to sound
risks to the subsidized programs. This is a guarantee situation
wherein the Treasury stands ready to pay ; let it be so.

Since its inception in 1934, the mutual mortgage insurance pro-
gram of the Federal Housing Administration — FHA's major unsub-
sidized program :

Insured over $100 billion in mortgage loans.

Enabled moderate-income families to purchase 9 million homes.

Provided shelter for 30 million people.

Set property and credit standards that were emulated by the en-
tire housing market.

Paid its own cost of operation and all claims.

Built an insurance reserve fund of $1.6 billion — most of which is
invested in U.S. Treasury securities.

All of this, and it did not cost the taxpayer a penny. It can provide
enormous support during the next few years of Federal housing pro-
gram turmoil if it is used properly — as the basis for providing home-
ownership to the great middle economic segment of our home buying
public.

We go on, Mr. Chairman, to point out support of S. 1329, which
would authorize FNMA to purchase conventional mortgages up to
$45,000 and to increase their loan evaluation from 75 to 80 percent.

This proposal is timely and will provide much needed additional
mortgage funds for home buyers. We urge the committee to seek its
passage.

742

The MBA also supports legislation which would provide an effec-
tive means of dealing with the problems in the closing and settlement
area that were pointed out by the February 1972 HUD-VA report
to the Congress on mortgage settlement costs.

We agree with the views expressed last year by the Federal Home
Loan Bank Board that any attempt to get at these problems by means
of federally imposed maximum limits on charges for settlement serv-
ices is certain to be less effective and will place an unfair burden on
thousands of companies and individuals whose present charges are
reasonable.

By attacking the underlying problems, such as the ack of con umer
understanding of the nature and costs of settlement services and the
existence of kickbacks or referral fees, MBA believes that settlement
costs can be kept to reasonable levels without incurring the many
drawbacks of having the Federal Government fix the charges that
can be made for settlement services.

Furthermore, any steps taken to control settlement costs must apply
to all mortgage lendere, not just those involved in federally insured
or guaranteed programs, in order that all borrowers are benefited.

S. 971, introduced by Senator Taft, suggests a new approach to
stem the tide of deterioration and abandonment of lower income
housing. It may be desirable to authorize a demonstration program
of the type suggested by this proposal to establish the viability of
the preservation concept.

Section 403 in S. 971 would have FHA-approved mortgages assume
some or all of the functions relating to the processing and approval
of applications for mortgage insurance under the several HI^D-FHA
programs. Determination of the functions involved and the extent
of responsibility to be assumed by mortgagees would be vested in
the Secretary in the form of a report on these matters to the appro-
priate congressional committees.

MBA worked with HUD on precisely this matter some months
ago and developed a program which HUD now calls accelerated
processing. The program has been successfully operating for a year
in six HUD area offices. Benefits are derived by both HUD and
mortgagees and we consider the effort to be mutually beneficial.

The association considers that greater responsibility for mortgagees
involved in the Government-insured and guaranteed programs is
appropriate.

While the mortgage banker is quite adaptable and not solely de-
pendent upon specific investors or specific programs, he is very de-
pendent upon the presence and availability of a viable Federal
mortgage insurance program in order to provide the necessary secu-
rity to investor's capital which is lent at long distances in these insured
Government programs.

We doubt very much that a simple program guarantee can ever
produce the nationwide market that has been developed as a result
of section 203(b) and the mutual mortgage insurance fund. The real
need for a national market will be seen again in the next few months
as credit tightens further and moderate-income home buyers in typi-

743

cally credit surplus, as well as credit deficit areas, find it impossible to
purchase a home in the conventional market. It is this borrower and
others with even lower incomes that the FHA 203(b) program and
the mortgage banker have served over the years. We need the assur-
ance that we can continue to serve him in the soundest and most effi-
cient manner.

Thank you, Mr. Chairman. I would be glad to answer any of your
questions.

The Chairman. Thank you, very much, Mr. Rothchilcl. You have
given us a very interesting and effective discussion of this whole prob-
lem. You have pointed out some strong points of some of the pro-
grams ; some points that need strengthening or changing.

Let me ask you just this one question: The GAO has from time to
time recommended or certainly has pointed out that the Government
could save money in many of these programs by making direct loans
rather than having some other form of subsidy or assistance.

"V\niat are your thoughts on that ?

Mr. RoTHCHiLD. Mr. Chairman, my history with direct loans goes
back to a long involvement with local housing authorities and their
attempt to provide low-income housing through direct lending.

I have really never seen an effective delivery of low-income hous-
ing through direct loans. I personally believe that the concept of the
235 and 236 programs is one that has delivered the most low-income
housing and if that is our purpose, that concept should be main-
tained.

Our belief is that the subsidy portion of that concept should be de-
livered to the home buyer separately. Someone should make the de-
cisions relative to subsidy other than FHA people. The subsidy should
be added to the other elements of the transaction in order to make it
appropriate for the loan.

Thus, I think the continuation of the 235 and 236 concept with
administrative safeguards is the best program that we could follow.
I continue to urge that concept for the committee.

[Complete statement from the Mortgage Bankers Association
follows :]

744

STATEMENT OF

KENNON V. ROTHCHILD

CHAIRMAN

MORTGAGE BANKERS WASHINGTON COMMITTEE

Before the

SUBCOMMITTEE ON HOUSING AND URBAN AFFAIRS

of the

SENATE COMMITTEE ON BANKING, HOUSING

AND URBAN AFFAIRS

JULY 23, 1973

YOUK COMMUNITY GROWS
ON MORTGAGE FINANCE

745

July 23, 1973

Mr. Chairman and members of the Subcommittee, my name is
Kennon V. Rothchlld. I am President of H. & Val J. Rothschild,
Inc., St. Paul, Minnesota, and Chairman of the Mortgage
Bankers Washington Committee. Accompanying me is Mr. Lee
Holmes, MBA Legislative Counsel.

We appreciate the opportunity to present our views today on
matters which the Subcommittee is considering relative to
the development of the Senate's 1973 housing legislation.

MORTGAGE BANKING AND FHA
Mortgage bankers are unique in the business of extending
real estate credit. We do not hold mortgages as investments,
but we do extend mortgage credit. We are not wedded to any
specific type of property or loan, instead we originate all
- types of mortgage loans. Nor are we wedded to specific
types of Investors; we sell the mortgages we originate to
all types of investors. Accordingly, we must be knowledgeable
about sources of funds throughout the nation as well as the
maze of regulations and practices that determine the type
mortgage each distant lender is willing and legally able to
purchase for his portfolio. (See Table ffl)

These statements could not have been made in the early
postwar years. At that time, modern mortgage banking became
the vehicle used by life insurance companies to invest in
home mortgages across the nation. The mortgage banker met
life company requirements for local originators who would

746

look out for their interests during the life of the loan
as well as when the loan was made. The home mortgage insured
by the Federal Housing Administration under Section 203(b)
of the National Housing Act met their investment requirements
by assuring the maintenance of minimum property and credit
standards and by insuring the investor against much of the
risk of long-distance lending.

As a result, the mortgage banker was and has been the
principal instrument in the growing use of FHA mortgages and
in the development of a nationwide market for mortgages. In
short, mortgage bankers have contributed significantly to
the success of FHA's varied, complex, and, at times frustrating,
programs. Mortgage bankers have been and are the principal
originators of FHA mortgages. They accounted for:

PERCENT OF NUMBER OF LOANS INSURED

1971* 1950 through 1971*
All FHA 1- to 4-Family 69-8% 55.8f»

Section 203(b) 64.2 52.4

All Other 1- to 4-Family 76.3 73-2

*Latest Year Available

We feel the mortgage banker's involvement with the government's
several housing programs, principally those of FHA and VA,
has benefited both the industry and these programs. At the
same time this Involvement has made the mortgage banker
vulnerable to the instabilities that have always been a part
of these programs. Government administered interest rate
ceilings that do not meet the market, expiring authority to

747

Insure and variations in the implementation of administrative
rulings have been traditional hazards that the mortgage
banker and others have encountered when dealing with FHA and
VA, however, in recent years they have occurred with greater
frequency and in concert with other less manageable factors
such as tight credit and rising costs.

The net effect of these difficulties can be seen in Table #2.
The stability of VA program management is indicated by the
relatively constant amount of business with that program.
The decline in mortgage banker originated FHA single-family
mortgages from the third quarter of 1971 is apparently
attributable to the increasing difficulties being experienced
by FHA. The dramatic increase in conventional loan originations
can be attributed to the development by FNMA of their
conventional secondary market program and it has now been
clearly demonstrated that this program is viable. Tight
credit will affect the conventional program to spme degree,
as it will affect other mortgage finance programs, and it is
in this situation that we will see the greater need for the
FHA 203(b) program.

Thus far, 1973 has provided all who deal with government
housing programs a much clearer understanding of how fragile
and tenuous the Involvement in these programs truly is.
Surely, the events of the last two or three weeks serve to
create an atmosphere of urgency for the Congress and the
Administration to act with deliberate speed in developing
and implementing sound government housing programs.

748

HOUSING' ACT OF 1973
Legislation before the Committee today focuses on a number
of critical housing issues. The proposal to consolidate and
simplify the multiplicity of programs and purposes of the
National Housing Act (S. 2182) is perhaps the most significant,
This legislation, a revision of S, 3248 which was passed by
the Senate last year, retains the principal elements to
which this Association has addressed itself before this
Committee for the last several years. We continue to support
many elements of this proposal. The events of the past six
months, however, have necessitated some alteration in
several of our previous responses relative to this proposal.

The Association still considers the consolidation and
simplification of the government-insured housing programs
to be a necessary step to a more efficient system of
providing shelter. Similarly and with particular reference
to the current rising cost of housing, a system of flexible
maximum mortgage amounts appears to be far superior to the
current approach of providing statutory ceilings which
cannot be readily adjusted nor can they be varied to meet
the needs of local markets. Additionally, the provision by
which the Secretary is vested with permanent authority to
prescribe maximum interest rates that meet and keep pace with
this market is particularly important in view of the current
crisis.

The Association does not favor the experimental dual interest

749

rate authority which would be established by this legislation.
A free interest rate with no points may be workable under some
market conditions, but it will be neither practical, nor desired
by the mortgagor in today's market. Therefore, the Association
feels that the experiment will not provide a valid test of
the free market and mortgagees would still be faced with
the problem of whether the administered rate was maintained •
at an appropriate level. As the Committee knows, there wouJLd
be little demand for a free interest rate for government-
insured or guaranteed housing programs if the Secretary
merely exercised his authority in a timely fashion. The
Interest rate whipsawing that the FHA and VA programs commonly
experience is totally unnecessary and would not be commonplace
but for the fact that it all too often becomes a matter of
political expediency rather than consumer need.

Mortgage bankers have given a great deal of thought to the
role or roles they play in the federal government's housing
delivery system and, in light of current events, the industry
has concluded that either their role must change or the
system must be altered if there is to be any meaningful
continuing relationship with these programs. Fundamental to
the industry's deliberations has been the status of FHA. We
do not question that there must be both subsidized as well as
unsubsidized programs available to the public, nor does the
mortgage banker consider that these parallel means of providing
housing are alternatives which demand a choice of participating
with one or the other, but not both.

750

MBA's deliberations have produced the firm conviction that
FHA's unsubsidized programs must be clearly severed from
those which are subsidized. While much of the difficulty
which FHA has experienced over the recent years can be
attributed to complications in administrative red tape,
we feel that it is the confusion that surrounds the management
of both subsidized and unsubsidized programs by the same
people has given rise to these administrative complications.
It is the considered conclusion of the Association that the
portion of FHA which deals with market oriented unsubsidized
housing programs must be removed as far as possible from
those which are subsidized — hence the MBA's position that the
unsubsidized programs of FHA should be independent and free
of HUD. Viewing this conclusion from another vantage point,
we do not see how subsidized housing programs can ever be
made to function as they should for the people they serve
and be as economically sound as possible unless they are
administered separately.

We strongly recommend that the unsubsidized programs embraced

by Section 401 of Title IV — Home Mortgage Insurance — in the

Committee's proposal be made the operating responsibility

of an independent federal mortgage insurance corporation.

The new independent government corporation would be

governed by a board composed of government officials.

The administration of the corporation should be the responsibility

of a commissioner appointed by the President of the United

States. All of the functions, powers, duties and responsibilities

of the Secretary which are related to the standard risk insurance

751

programs should be transferred to and vested in this
commissioner. Such powers and the responsibilities should
include, but not be limited to, (1) authority to recommend
to the board appropriate fees and premium charges to meet
the actuarial requirements of the corporation's insurance
programs, (2) authority to coordinate and contract with other
government agencies, corporations and commissions for
appropriate use of the corporation's services not inconsistent
with its functions, (3) the requirement that the commissioner
report the corporation's activities to the board, the President
and the Congress on a fiscal year basis, and (k) authority
to issue temporary and permanent regulations to implement
the corporation's programs, administration and activities.
Additionally, the affairs of the corporation should be
audited annually by appropriate agencies of the United States,

With this transfer of authority must go the control and use
of the Mutual Mortgage Insurance Fund which has been
operated solely, since 1938, in connection with FHA operations
under Section 203 of the National Housing Act. There would
be no budgetary impact by this transfer of responsibility
since the corporation we envision would remain a federal
instrumentality. The Cooperative Management Housing Fund,
insuring Section 213 cooperative projects and mortgages,
could also be transferred and administered by this new
corporation, as it has substantial reserves which would be
adequate to finance its program.

^IBA has objected to the turn Title IV would have the FHA

752

insurance program take since the first hearings on this
legislation In 1970. The home mortgage insurance operation
of FHA was patterned after that of mutual decreasing term
life Insurance coverage. The premium has been set high
enough to cover the preassumed level of risk and meet all
administrative expenses. Accumulated funds in excess of
those needed to meet contingencies also accrue to the
benefit of those who pay the premiums, that is, the
mortgagor or borrower may receive a share of the Participating
Reserve Account upon termination of the mortgage. This
arrangement has had the advantage of providing FHA with
sufficient income to assure a self-sustaining operation.

Section 201 of S. 2182 eliminates the entire MMI Fund,
and apparently distributes its assets to the other funds.
No assurance is provided that future premiums will be set
with a viable mortgage insurance operation in mind. Mortgage
limits, maturities, and other mortgage terms may be determined
without regard to economic soundness or the encouragement
of the participation of private investors. Instead of
arrangements for the creation of adequate, privately-created
reserves, direct access to the Treasury is provided for
covering losses. The main thrust of the mortgage Insurance
operation thus becomes, not one of strengthening the private
Involvement in the government mortgage market, but one of
serving subjectively determined welfare purposes. Unsubsidized
FHA borrowers will be doubly taxed to support subsidized FHA
borrowers by the loss of reserves when foreclosures
consume more than the premiums collected and by the
added tax bill for all citizens.

i

753

The General Insurance Fund and the Special Risk Fund should
remain in HUD to be utilized as they are now with those
programs which are essentially actuarily unsound — Sections
213, 220, 221, 231 and 232 in the General Fund and Sections
223(e), 223(a)(2), 235, 236 and 237 in the Special Risk
Fund. These funds should run the course of their out-
standing loans on these programs and the insurance thereon
and then become straight guaranty funds, for that is in
fact what they are.

We do not believe there can be a true insurance concept
applied to the subsidy programs which is why the Special
Risk Insurance Fund is presently operating in a deficit
position as is the General Insurance Fund. The fact that
assisting low-income homeowners and renters is expensive
and risky has been clearly established. That does not mean
that the task should not be undertaken, rather, it makes
it that much more important to accomplish. It also means
that we should not delude ourselves by applying insurance
concepts and the other paraphenalia that apply to sound
risks to the subsidized programs. This is a guarantee
situation wherein the Treasury stands ready to pay. Let it
be so.

The MMI Fund, particularly, is sound actuarily and financially.
Since its inception in 193^, the Mutual Mortgage Insurance
Program of the Federal Housing Administration — FHA's major
unsubsidlzed program:

* insured over $100 billion in mortgage loans

754

* enabled moderate-income families to purchase
9 million homes.

* provided shelter for 30 million people

* set property and credit standards that were
emulated by the entire housing market

* paid its own cost of operation and all claims

* built an insurance reserve fund of $1.6
billion — most of which is invested in U.S.
Treasury securities

All of this, and it did not cost the taxpayer a penny.

It can provide enormous support during the next few years of

federal housing program turmoil if it is used properly —

as the basis for providing homeownership to the great middle

economic segment of our homebuying public.

FNMA AMENDMENTS
The Association supports legislation (S. 1329) which would
authorize FNMA to purchase conventional mortgages up to
$45,000 and to increase their loan-to-value ratio from
75% to 80^. This proposal is timely and will provide much
needed additional mortgage funds for homebuyers. We urge
the Committee to seek its prompt passage.

MORTGAGE SETTLEMENT COSTS
MBA supports legislation which would provide an effective
means of dealing with the problems in the closing and
settlement area that were pointed out by the February, 1972
HUD-VA Report to the Congress on Mortgage Settlement Costs,
We agree with the views expressed last year by the Federal
Home Loan Bank Board that any attempt to get at these problems
by means of federally imposed maximum limits on charges for
settlement services is certain to be less effective and will

755

place an unfair burden on thousands of companies and
Individuals whose present charges are reasonable.

We have seen in other areas of the economy that the imposition
of artifical or unreasonable limits inevitably has the
effect of forcing economic and human rosources to shift
into endeavors where such constraints do not exist. This
may very well happen if a system of federal rate regulation
as was proposed by HUD on July 4, 1972, for FHA assisted
transactions, is imposed on those who provide settlement
services. In the long run, this can only reduce competition
for settlement services.

By attacking the underlying problems, such as the lack of
consumer understanding of the nature and costs of settlement
services and the existence of kickbacks or referral fees,
MBA believes that settlement costs can be kept to reasonable
levels without incurring the many drawbacks of having the
Federal government fix the charges that can be made for
settlement services.

Furthermore, any steps taken to control settlement costs
must apply to all mortgage lenders, not Just those involved
in federally insured or guaranteed programs, in order that
all borrowers are benefited.

HOME PRESERVATION ACT OF 1973
S. 971, introduced by Senator Taft, suggests a new approach
to stem the tide of deterioration and abandonment of lower
income housing. It may be desirable to authorize a

99-855 O - 73 - pt. 1 -- 49

756

demonstration program of the type suggested by this proposal
to establish the viability of the preservation concept.

Section 403 in S. 971 would have FHA approved mortgagees
assume some or all of the functions relating to the processing
and approval of applications for mortgage Insurance under
the several HUD-FHA programs. Determination of the functions
involved and the extend of responsibility to be assumed by
mortgagees would be vested in the Secretary in the form of a
report on these matters to the appropriate Congressional
Committees.

MBA worked with HUD on precisely this matter some months
ago and developed a program which HUD now calls "Accelerated
Processing." The program has been successfully operating
for a year in six HUD area offices. Benefits are derived
by both HUD and mortgagees and we consider the effort to be
mutually beneficial.

The Association considers that greater responsibility for
mortgagees involved in the government insured and guaranteed
programs is appropriate. We cannot comment further on
Section 403 without knowing in greater detail what the
additional responsibilities might be.

While the mortgage banker is quite adaptable and not solely
dependent upon specific investors or specific programs, he
is very dependent upon the presence and availability of a
viable federal mortgage insurance program in order to provide

757

the necessary security to investor's capital which is lent at
long distances in these Insured government programs. We
doubt very much that a simple program guarantee can ever
produce the nationwide market that has been developed as a
result of Section 203(b) and the Mutual Mortgage Insurance
Fund. The real need for a national market will be seen
again in the next few months as credit tightens further and
moderate income homebuyers in typically credit-surplus as
well as credit-deficit areas find it impossible to purchase a
home in the conventional market. It is this borrower and
others with even lower incomes that the PHA 203(b) program
and the mortgage banker has served over the years. We need
the assurance that we can continue to serve him in the
soundest and most efficient manner.

Thank you.

758

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760

The Chairman. Well, thank you very much. We appreciate your
presentation today.

Our next witness is James Scheuer, president of the National Hous-
ing Conference.

STATEMENT OF JAMES H. SCHEUER, PRESIDENT, NATIONAL
HOUSING CONFERENCE; ACOMPANIED BY A. N. PROTHRO

The Chairman. It is good to see you, sir.

Mr. Scheuer. I have with me Mr. A. N. Prothro who has been as-
sociated with FHA for 34 years and has been General Counsel of
FHA and is formally associated with the National Housing Confer-
ence. I have provided stajff with some resolutions of the National
Housing Conference which I would be grateful to have printed in
the record.

The Chairman. It will be done (see p. 791).

Mr. Scheuer. I have another detailed statement and a seven-page
synopsis of my statement which I would also like to have printed in
the record and then I will speak even more briefly than that.

The Chairman. We would be very glad to put your whole state-
ment or statements in the record (see p. 765).

Mr. Scheuer. Thank you, Senator. I will speak very briefly. First
of all may I make it clear that the National Housing (!^onference sup-
ports strongly provisions of S. 1744 and S. 2182. They have been en-
dorsed by the membership of the National Housing Conference and
by the legislative policy and resolution committee and the board of
directors. We share your concern that we should have a housing pro-
gram that establishes national goals and objectives.

We are concerned that the administration's Better Communities
Act has no link to the housing needs of the Nation and includes no
provisions for a community to borrow money at reasonable rates to
carry out very costly development programs such as urban renewal and
other programs.

There is no provision in the administration bill for directing funds
to meet national objectives defined by Congress and defined by the
administration. We have met on several occasions with the Secretary
of HUD and with his top staff associates. They are going to come up
with some recommendations on September 7. The Secretary of HUD
is a highly intelligent individual. I have hopes that they are going
to come up with constructive and useful suggestions.

I also hope that your committee in the meantime will be doing its
thing in formulating the kind of legislation that is embraced by 1744
and 2182. We believe that 1744 preserves the integrity of national
goals and programs for community development that have been
established by Congress in many pieces of legislation since the pas-
sage of the historic Housing Act of 1949. We believe that that should
continue.

We believe there is a proper role for the executive branch and legis-
lative branch of Government in devising national goals and objectives
and devising specific legislative programs, and in the case of the execu-
tive branch in implementing them and in the case of legislative branch
in providing proper oversight.

761

"We do believe that the concept of the block grant is a useful one and
provides opportunity for decisive simplification and acceleration of
programs. We also believe in local responsibility and local initiative
within nationally established guidelines and policies.

We believe that where there are Federal funds needed to attack
national problems such as slums and community development, then
Congress and the administration must define national goals and na-
tional policies and produce national housing guidelines.

We are concerned about the moratorium, about the suspensions,
about the impoundments, about the program terminations. We don't
believe that programs can or should be lightly turned on and off. Wlien
that happens it produces serious breakdowns in productivity and
confidence.

We are concerned also with the need for spending Federal money
on housing. There is no way, considering the present costs of land and
present costs of money, the present costs of construction and the pres-
ent costs of operations, to build cheap housing, and until we achieve
some spectacular breakthrough, in perhaps several of these directions,
housing is going to have a legitimate claim on the National Treasury.

We have heard some criticism of the so-called housing scandals. We
have had housing scandals in the last 20 or so years that I have been
familiar with — in Democratic and Republican administrations. The
scandals that we have heard about recently have been primarily in the
nonsubsidized programs, strangely enough, and this has been docu-
mented most recently by Henry Schechter, the senior specialist in
housing of the Congressional Research Service. I don't think an occa-
sional wrongdoing or occasional inefficiency which have been endemic
to these housing programs for the generation that we have had them
should blind us to the need for continuing the programs, improving
them, strengthening them, working out the kinks.

"Wliere there are basic flaws we can remove them, by rethinking them
through, and by applying what we have learned from experience — but
not by pouring the baby down the drain with the bath water.

One particular problem that has plagued low-income housing, public
housing, and assisted housing is the problem of the multiproblem fam-
ily. We have not learned in this country very well how to manage the
problem of the multiproblem family. We have been perplexed as to
how to educate children from these families ; we have been perplexed
as to how the welfare program and housing programs have worked.
We had not envisaged a generation ago that we would have three- and
four-generation multiproblem families on welfare and in public hous-
ing. But these programs have not been created by the housing pro-
grams or by our education programs or by a welfare program; to a
large extent they have been uncovered and revealed by our housing
programs.

Our fine housing programs that over a generation have provided
decent and safe residential dwelling units should not be labeled as
failures because of the fact that they have largely uncovered problems
that society has not been able to cope with very successfully in the
past.

One problem that has not been dealt with effectively by the legisla-
tive or executive branch is the problem of security — physical secu-

762

rity — that is plaguing communities across tlie country. Entire neigh-
borhoods and projects are beino- torn down because people are fear-
ful for their personal security and their lives. Vandalism, muggings,
and ripoft's are a daily occurrence.

Residents are callino^ for tearing down or blowing up of projects
and they are running away from them because of the fear for their
safety.

Now, HUD has done good work — demonstrations and so on — in the
area of security. So has the Department of Justice through their Na-
tional Institute of Law Enforcement and Criminal Justice. The re-
search arm of the Department of Justice which was created 4 or 5 years
ago and which I sponsored as a Member of the House of Representa-
tives has been doing work in this area. I think in giving credit to HUD
and to the Justice Department, it is fair to say that now is the time
to put into the stream of commerce the information and technology
and systematic application of knowledge which they have developed.

Let me show you a manual prepared for HUD, at HUD's expense,
entitled "Immediate Measures for Improving Security in Existing
Residential Areas," done by Oscar Newman, president of the Center
for the Principal Space Design in New York City.

In the preface he mentions this manual was prepared with funds
provided by HUD. The research upon this work is funded by the Na-
tional Institute of Law Enforcement and Criminal Justice of the U.S.
Department of Justice and the Criminal Justice Coordinating Council
of the city of New York.

This very excellent manual gives detailed instructions on the various
means of improving security in existing residential developments by
the application of hardware, security personnel, electronic equipment,
and modification of grounds. I want to congratulate HUD for having
done this and I want to congratulate the Dej^artment of Justice for
having made its contribution.

May I also show the committee a draft foi- minimum building
security guidelines developed by the Department of Justice, also; and
draft of minimum secunty guidelines for elderly housing, also de-
\ eloped by the Department of Justice. They include substantially the
same approach that is in the HUD study.

That is, the application of science and technology in terms of locks,
alarms, communication devices, modification of ground-floor space
within the building, modification of ground-floor space outside of the
building. I believe it is time that Congress provided funding to make
these security programs that have been developed very soundly and
thoughtfully by HITD and the Department of Justice a reality for
peoj:)le in the counti-y.

"VVe have codes in our cities that govern the construction of all
housing and certainly including Government-assisted housing; codes
that ar-e related to fire and health. I think it is an outrage and a shame
that virtually no Government agencies have mandated that new hous-
ing live up to these security minimums just as we require them to live
up to certain health and fire minimums.

Now, at least two cities have adopted the Department of Justice
guidelines for minimum security requirements for new housing: the
city of Oakland, Calif.; and the city of Los Angeles. I would hope
that in your legislation you would provide both funding for the

763

application of these various security measures to existing housing,
and also require that in the MPR's — minimum property require-
ments— that FHA applies as minimum standards for new housing,
in addition to health standards and fire standards and so on, the very
standards that they have developed in this very thoughtful and ex-
cellent HUD study. And that the standards the Justice Department
has developed through the National Institute of Law Enforcement
and Criminal Justice, for housing generally, and housing designed for
the elderly, would be included.

I want to commend Senator Williams; I am sorry he isn't here
today, for his Housing Security Act of 1973, S. 2180, which does pro-
\'ide funding to apply many of these developments that HUD has
produced. One thing the Senator's act doesn't do is to require that the
minimum standards produced both by the HUD and Justice Depart-
ment's study should be built into the FHA mininnun property require-
ments and I hope to have a chance to testify and recommend that
that be added to Senator Williams' very excellent bill to provide for
increased security and protection for certain federally related housing
projects.

Senator, let me congratulate you and your committee for the great
service that you have rendered the American people; for your will-
ingness to deliberate, to evaluate, to change as circumstances indicate
that we should change programs, and to be challenged. I believe you
have a right to be very proud of the legislation that this subcommittee
has produced.

Experience has certainly proven that changes and improvements
can be made. It certainly indicates that some of the programs that we
started a generation ago had flaws like most human endeavors. These
programs were not perfect, they didn't spring from the heavens. Of
course, they can be improved; of course they can be refined; of course
they can be strengthened. This is the challenge that faces our country,
not decimating the programs but enhancing them and protecting them
and strengthening them and I congratulate you and your committee on
the diligent and imaginative way in which you have approached that
challenge.

The Chairman. Thank you very much. You have mentioned Senator
Williams' bill. Of course that is before us in these hearings. I shall
make it a point to tell him of your good words that you have said about
it. Let me say that — of course, I am familiar with the organization that
you represent. I believe I have met with it evei-y year for maybe a
quarter of a century, I am not sure. It has been a long, long time.

Mr. ScHEUER. That is absolutely correct. I didn't know whether that
figure of years would embarrass you, Senator, that is the reason I did
not mention it. But it is true that you have plaved a tow^ering leader-
ship role m our housmg legislation for a quarter of a century and that
the National Housing Conference has had the kindest of relations with
you, formal and informal, and we are very much in your debt for the
years of assistance you have given us.

The Chairman. I can assure you it would not embarrass me because
I have been actively associated with this subcommittee now for 26
years. I came on in January of 1947. I have enjoyed the work; I like
very much what you have had to say about the need of recognizing «•

764

that a piece of legislation in the field of housing is not necessarily per-
fect when it is put on the statute books.

It is true, as a matter of fact, I am sure you know, that every year we
reviewed the housing programs in this subcommittee and full commit-
tee, also, and studied them to see if they are performing as we had
hoped they would perform when we wrote them into law\

We recognize the fact that they need changes from time to time
and we proceed on that basis. Every year we review them, prepare new
legislation, make changes, write new programs where we think thei
programs will work, but also eager to find out if there is any weakness
that we can correct. I think that that is the only way to go about it. I
like to go back over the different acts that we have been successful in
putting on the statute books and I like to refer to the bill last year
that we put through the Senate which I think was an excellent bill.

Mr. ScHEUER. It was indeed, it is a shame that the House never
got around to passing it.

The Chairman. I am sorry that the House did not complete action
on it, I thought it was a very fine piece of legislation.

Mr. ScHEUER. That is right, Mr. Chairman.

The Chairman. I remember the first housing bill that I handled
on the Senate floor was the act of 1949 which I consider as a basic post-
war housing act.

Mr. ScHEUER. It was the daddy of them all.

The Chairman. That is the one that stated the housing policy.

Mr. ScHEUER. A decent home and a suitable living environment;
yes.

The Chairman. Of course, as you know, one of your friends, in New
York, Senator Wagner, was one of the authors of that ; Senator El-
lender was one; Senator Taft, whose son by the way is a very highly
valued member of this committee and of this subcommittee. I point,
as you did in your statement, to the pledge that we made to the Amer-
ican people that every American family might have an opportunity
to have a home, decent, safe, and sanitary home in good surroundings.
I believe we have tried to hold to that pledge.

As a consequence when we do have these annual reviews, and nearly
always annual legislation in order to develop programs in the most
practical way to make it possible for all American families to have
that opportunity. We surely appreciate the presentation that you
have given us, and the help tliat you and your organization have given
throughout the years. Thank you very much.

Mr. ScHEUER. Thank you, Senator.

[Complete statement of National Housing Conference, Inc., fol-
lows :]

765

STATEMENT BY JANES H. SCHEUER
President of The National Housing Conference
before the Subcommittee on Housing and Urban Affairs of the
Senate Committee on Banking, Housing and Urban Affairs

July 23, 1973

I welcome the opportunity to present the views of the National Housing

Conference on the important legislative proposals on housing and community

development which are pending before this Subcommittee. I will address my

remarks to S 2182, the Housing Act of 1973; S 1743, Better Communities Act;

and S 174A, Community Assistance Act of 1973. At a later date we will submit

a statement with our views concerning other bills before this Committee;

also, our later statement will cover certain changes embodied in S 2182 which

were not a part of the bill that passed the Senate last year, S 3248.

1. PRESIDENTIAL SUSPENSIONS AND IMPOUNDMENTS OF HOUSING FUNDS- -FORMULA FOR DISASTER

The President has ordered the Secretary of Housing and Urban Development to
suspend its community-development and assisted-housing programs. Quite apart
from the serious Constitutional questions raised by this action, the President
is creating serious problems which will lead to new urban crises in the future,
Increased inflation, and eventual recession.

If the President's program cuts are allowed to stand, HUD- assisted housing
commitments will be reduced 629,000 units in the next 18 months. The loss in
total expenditures from those projected will be $27 billion--most of it in private
funds. On top of that, employment will drop by three million man years. And
this is only part of the effect of the President's impoundment of funds totalling

$860 million of funds and contract authority in HUD programs and $940 million in

I

rural housing and development programs. In addition, every HUD-assisted housing

program and every HUD grant program is either suspended or terminated -- 9 of
them on January 5, 1973 and the other 6 on June 30, 1973.

766 51 1

With this action to cut off housing assistance for those in low and moderate
income groups, the pipeline of previously committed housing starts will have
virtually dried up by mid-1974. Filling the pipeline again to the point where
all of the projects needed have been re- initiated and processed to the point of
construction starts will take another 18 months. As a result, the housing industry-
often the bellwether of the nation's economic health--is due for extremely lean
years between mid- 1974 and 1976. Economists point to this factor alone as very
likely to trigger a national recession before the middle of next year.

Six million assisted housing units were set as the goal in the Housing and
Urban Development Act of 1968. Now, six years later, only 1,680,000 units have
been built or started. Yet, the President evidently relied on the existence of
those units as a basis for his assertion that Americans are better housed than
ever before in history.

If the President should need proof of the major need for the remaining 4.4
million units promised by the Housing Act, he does not need to look far. He will
find it in rotting neighborhoods within a short walk of the White House itself. —
and in every major city in this land.

With the President's impoundment of funds, people of low and moderate income
will be denied decent housing they otherwise could have had with HUD's assistance.
With this arbitrary reversal of the Federal Government's commitments, legitimate
expectations of such people are again being grievously frustrated. No doubt
the feeling that they are being ill used by an uncaring Administration will be
sharpened when their rents, now uncontrolled, go up on the unsatisfactory units

I

,i

767

they now occupy--for such inflation in their living costs is virtually guaranteed
by the President's action to limit available housing. That these factors will
lead to new explosions in our cities seems foregone.

Nor is this sudden and arbitrary cut-off of funds any less serious at
the other end of the housing production line. Numerous groups, including churches,
labor unions, and others, have been encouraged by the law and HUD officials to
Invest substantially in assisted-housing projects.

Speaking before the National Housing Conference a short time ago, Senator
John J. Sparkman, Chairman of this Committee, noted that one church group faced
a possible loss of $250,000 as a result of the President's action. "Commitments
and promises," he said, "whether oral or written, should be no less honored by
government than they are by individuals." It is too bad the government must be
so reminded.

Yet, despite all the heavy social and economic costs described above, the
President's cuts of funds supporting HUD assisted-housing programs will "save"
less than $925 million in annual assistance commitments for housing during the
next 18 months.

While serious charges have been leveled at HUD's programs, most are false
and seem clearly motivated by budget-cutting considerations. Contrary to the
Administration's charges, the programs direc^:ly involved in the cut-off have
generally been effective in serving the needs of the income groups they were
intended to help.

Evidence is overwhelming that those problems which do exist stem from
maladministration of the law — not from the design of the law itself. Correction
of such maladministration is the President's duty -- or, failing that, recommending
an orderly transition to new programs to Congress. Unilateral repeal of laws on
which malfunctioning programs are based is not the President's duty--nor even
his right.

768

Under the Constitution, the President has never had the power to effectively
frustrate the will of Congress by suspending and terminating programs required
by law and refusing to spend Congresslonally appropriated funds essential to the
support of such programs. To the contrary, the Constitution charges the President
to "take care that the laws be faithfully executed." And he is sworn so to do.

In confirmation, William N. Rehnquist, then the President's Assistant Attorney
General and now a Supreme Court Justice, said in 1969, "With respect to the
suggestion that the President has a constitutional power to decline to spend
appropriated funds, we must conclude that existence of such a broad power is
supported by neither reason nor precedent."

Proposed legislation is now under consideration in Congress which will
effectively prevent Presidential action to execute major shifts In national
policy by executive fiat. Such legislation will require the President to notify
Congress of impoundment actions and to forestall implementation of such action
unless Congress affirms it within 60 days.

In introducing such legislation. Senator Sam Ervin, Jr., said, "Impoundment
amounts to government by decree, and if the practice is permitted, the collective
voice of 535 members of Congress could be overridden by one man... That would be
government without law." It is hardly a point for dispute.

2, CONTINUANCE OF HOUSING AND COMMUNITY DEVELOPMENT PROGRAMS DURING

TRANSITION PERIOD

Contrary to the President's assertion that the urban crisis has passed,
America's cities continue to be in a struggle for survival. Even though many
dollars have been spent, the decay of decades, and the failure to take adequate

769

action which will improve the quality of American life, have taken their toll.
While inner-city people continue to be ill-housed and live in despair and dis-
illusionment, the suburbs gain in affluence. The need for decent housing,
community services, and a pollution- free environment continues to be at the
heart of our urban crisis.

We must take vigorous and immediate action toward achieving our goal of
providing good homes and good neighborhoods for all who are ill-housed. It is
not enough to build new housing or rehabilitate existing housing. We must also
assure that the housing is in a suitable living environment. At the same time,
there must be an expansion of educational and social programs and other community
services for the people to eliminate the causes of inner-city decay and decadence.

Existing housing and community development programs should be continued
during the period of transition until modified housing programs or special revenue
sharing community development programs are made effective. This is necessary to
keep faith with public agencies and private citizens who made their plans and
investments in reliance upon existing laws which have long been a part of Federal
assistance programs. These programs should not be suspended or terminated until
action is taken to repeal or modify these laws and until authorized alternative
or modified programs begin.

The new and modified programs ultimately enacted can be effectively Initiated
only if there is an orderly transition from continuing existing programs. This
would give time for the development of procedures and guidelines for their
administration. Meanwhile the present programs could continue to serve the
needs of our cities and towns and -- as they have in the past contrary to

770

unsubstantiated charges of the Administration -- the needs of low and moderate
income families. The housing industry would be able to make the transition to
the new programs, without the convulsions to its productive capacity which the
suspensions are creating.

The Presidential suspensions and impoundments will have an adverse and
serious impact on the economy and the Nation in both Fiscal 1973 and 1974.
However, the most disastrous effect will occur in Fiscal 1975, starting the
middle of next year. There is a time lag in a typical project of as much as 18
months from the initiation of a project to the start of construction. The
housing starts for Fiscal 1973 and 1974 will use up the pipeline of projects
previously initiated and committed. By Fiscal 1975, there will be no pipeline
of previously committed projects. Even with the present productive capacity to
initiate and develop projects. It would then take about 18 months to get projects
to the start of construction. However, if all HUD-assisted programs continue
to be suspended, there will be a destruction of that productive capacity which is
now initiating HUD-assisted housing. Then we will be unable to achieve housing
starts for an even longer period following the lifting of a moratorium and the
effective date of modified or alternative housing programs.

We urge that Congress take such steps as are necessary to reassert its
constitutional legislative powers and responsibilities and to protect, from
Executive nullification, legislation which it has enacted, such as the housing
and community development programs initiated over the last four decades.
Accordingly, we recommend that the following Amendment be added to the Housing
Bill of 1973:

771

AMENDMENT TO RELEASE HOUSING IMPOUNDMENTS

PART I. Housing assistance programs under Department of Housing and Urban
Development.

Sec. The Secretary of Housing and Urban Development shall immediately
cease any suspension of Federal housing assistance programs, or any withholding of
funds for such programs, and shall carry out such programs in the current and each
succeeding fiscal year to the full extent possible pursuant to the contract authority
or other funds appropriated or otherwise authorized or made available by the Congress
for such programs in each such fiscal year.

Sec. The Secretary, in carrying out his responsibilities under this Act,
shall not withhold or delay the approval of applications for contracts under the
Fedesal housing assistance programs, the entry into contracts under such programs,
or the expenditure of funds appropriated for such programs. He further shall take
no action which effectively precludes or delays the approval of applications for
contracts for such programs, the entry into contracts for such programs, or the
expenditure of funds appropriated for such programs.

SeiCi "Federal housing assistance programs" means the programs established
unidet Section 235 and section 236 of the National Housing Act, section 101 of the
Housing and Urban Development Act of 1965, title IV of the Housing Act of 1950, and
the United States Housing Act of 1937. . For purposes of this Bill, Federal housing
assistance programs shall also include loans entered into under section 312 of the
Housing Act of 1964.

PART II. Rural housing programs under Department of Agriculture.

Sec. Section 517(c) of title V of the Housing Act of 1949 (42 U.S.C,
1487(c)) is amended by (1) striking out the word "may" and inserting in lieu thereof
the word "shall"; and (2) inserting before the period at the end of the sentence a
comma, and the words "in the amounts specified in the appropriations Acts for that
purpose: Provided, That not less than 60 per centum of such loans in the aggregate
be made at the reduced rates provided for under section 521 of this title".

Sec. Section 516(a) of title V of the Housing Act of 1949 (42 U.S.C.
1486(a)) is amended by striking out the words "is authorized to" and inserting in
lieu thereof the words "shall, in the amounts specified in the appropriations Acts
for that purpose,".

99-855 O - 73 - pt. 1 -- 50

772

This Amendment would direct the HUD Secretary to release unutilized contract
authority for HUD-asslsted housing programs. This Includes those already authorized
and appropriated by Congress for the home ownership assistance program, the
rental housing assistance programs, and the rent supplement program. The release
of this contract authority -- some $440 million of commitments for payments per
annum -- should enable the programs to continue until modified programs become
effective.

It is Imperative that these funds already made available be utilized. Assuming
that the housing bill is passed late this year or next year, there will be a long
time lag before the modified programs are effectively Implemented and operative.
Therefore, it is imperative that HUD and FmHA be instructed by Congress to
continue the current programs until new programs are fully operational.

3". RELIEF OF HARDS]1IPS CAUSED BY IMPOUNDMENTS,
SUSPENSIONS, AND TERMINATIONS

The precipitous action of the President in impounding appropriated funds
and contract authority and suspending or terminating programs should not be
retroactive on pending plans, applications, and projects of intended participants
under. the HUD-asslsted programs which were suspended or terminated on the dates
listed above.

It would be most unjust and inequitable to deny further participation in
these programs which have long been a part of Federal legislation and which
have been relied upon by private citizens or public agencies who acted in good
faith, often with assurances or encouragement from the Federal officials admin-
istering the programs. To avoid serious difficulties which would result, with

773

large losses to the parties Involved and hardships to the consumers, we recommend
that -- pending enactment of the ant 1- Impoundment amendment -- the Coramlta:ee
call upon the Administration to issue commitments for subsidy assistance to fulfill
program commitments or relieve hardships on assisted housing projects, urban renewal
and other community development projects. Our resolutions cite a long list of
cases that demonstrate the kinds of hardships and difficulties that will result
unless such relief is granted.

4. EXISTING HOUSING PROGRAMS HAVE BEEN A SUCCESS
Prior to these hearings, NHC reviewed the success of the subsidized housing
programs. This was done in response to the unwarranted criticism of these programs
and the failure of HUD to respond to such criticism.

NHC has found that most of the complaints and criticisms about HUD programs
did not involve new construction or rehabilitation of housing under Section 235
or 236. From its review of the 235 and 236 programs, NHC has concluded that they
have generally been effective in meeting their objectives and that their continuance
is imperative to provide housing which is urgently needed by those of moderate
incomes.

NHC is pleased that its conclusions were verified on November 9, 1972, by a
release of a comprehensive study by the Real Estate Research Corporation. This
study concluded that since 1968, the housing subsidy programs have generally met
four of the objectives established by Congress: meeting the physical housing
needs of urban low and moderate income households; encouraging home ownership;
stimulating the economy through greater housing production; and Increasing the

774

supply of decent housing. However, they have been only partly effective in
serving two other primary objectives: meeting the financial needs of urban low
and moderate income households and improving deteriorating neighborhoods.

NHC agrees with many of the findings of the study by the Real Estate Research
Corporation, which are summarized below:

(a) Based on an analysis of seventeen existing and two proposed new
forms of housing assistance, the study demonstrated that the
Sections 235 and 236 new construction programs and certain
rehabilitation programs are the most effective in both meeting
Congressional subsidy objectives and conforming to other criteria
of desirability, such as low annual budgetary cost per unit.

(b^ The study found that the Section 235 and 236 basic designs were
sound, although some modifications (recommended in the Report)
can improve them. The major inadequacies so far have stemmed
mainly from either poor administration by the Department of
Housing and Urban Development or from the inherently higher risks
of investing capital in housing for relatively low income households
in relatively deteriorated areas.

(c) As also concluded in the NHC Report, the Real Estate Research
Corporation's study found that the often drawn conclusion that
existing subsidy programs are failing or generally are ineffective
is based upon three errors frequently made by critics: (1) These
critics either focus solely on deficiencies of the programs and
ignore their benefits. (2) These critics fail to recognize that

775

any program designed to serve multiple objectives will logically
be Ineffective in achieving some of those objectives because there
are inconsistencies among objectives. (3) These critics use
performance standards for non-subsidized housing creation (such as
default rates) to evaluate subsidy programs, even though the subsidy
programs must cope with major social problems not typically present
in non-subsidy programs. Those problems include poverty, deteriorated
neighborhood surroundings and accommodating destructive households.
These programs must not only provide housing but they must also
bear large "excess burdens" of coping with major social problems.
This extra burden distorts the success of providing safe and decent
housing -- not because of any inherent deficiencies in the programs,
but because of society's failure to cope with social problems in
more direct ways .
(d) While defaults on FHA insured homes in the inner-city portions of

a few cities have risen sharply in the past two years, yet -- contrary
to both HUD statements and many news reports -- most have not involved
directly subsidized units such as 235 and 236. Rather, they occurred
on non- subsidized loans -- such as 221(d)(2) -- made under legal
provisions that allow extremely low downpayments , acceptance of
marginal credit risks, or location in declining neighborhoods.
Default and foreclosure rates on both Section 235 and 236 new
construction programs have been such that well over ninety percent
of all units so subsidized have encountered no serous financial
problems so far. Moreover, at the end of 1971, the fifteen cities
with the highest default rates under home ownership programs
contained over sixty percent of all such defaults; so, default
rates were relatively low in most other areas.

776

This study reaffirms NHC's earlier statements that the Section 235 and 236
programs are a success and that they must be continued at the levels of production
recommended in this statement.

5. ADDITIONAL AUTHORIZATIONS FOR ASSISTED HOUSING

Congress in the 1968 Housing and Urban Development Act declared that "the
highest priority and emphasis should be given to meeting the housing needs of
those families for which the national goal has not become a reality." Since
then, there has been a steady deterioi-ation of that priority.

By the President's unilateral action in stopping the housing programs, he
has obviously relegated assisted-housing programs to a low order of importance
within the budget. This action represents a major decision of national policy
concerning the priorities which should be followed in allocating Federal funds
and resources for commitment and expenditures within the budget. Surely this is
a matter which has so great an impact upon the Nation that it must be determined
not by the Executive Branch alone, but by action by Congress as well, through
Federal legislation.

To fulfill the high priority for assisted housing which is still a part
of our Federal laws, the first imperative for meeting our housing goals is full
funding and full use of all authorizations contained in the housing laws. We
urge that Congress move quickly to enact the authorizations in the Housing Act
of 1973, S 2182, for our present housing programs since there are no authorizations
available for public housing and (except for carry-overs) for Sections 235, 236,
and Rent Supplements.

777

6. NHC SUPPORTS HOUSING ACT OF 1973. S 2182, WITH AMENDMENTS
NHC supports S 2182 with the amendments recommended in this Statement under
applicable headings. The Bill will consolidate, simplify, and improve existing
housing legislation. It achieves a complete overhaul of legislation involving
the FHA mortgage insurance program initiated in 1934, the public housing program
initiated in 1937 and all other legislation since that time relative to housing
and housing assistance.

This consolidation and simplification program is long overdue. It will
establish uniform policies which will replace present differences between programs
which have separate income limits, construction and design standards, income
definitions, and ratios between income and required housing payments. It provides
a uniform and flexible' housing formula to serve families who cannot afford the cost
of housing on the private market. It will help to promote a policy of economic
integration in assisted housing to discourage the segregation of low income
families in housing projects.

NHC supports an authorization for counseling and related social services ,
as these are necessary to help cope with the social problems that are typically
present in subsidized housing. These expenditures help to create better
communities. They eliminate difficulties that are more costly than the pre-
ventive measures involved in counseling and social services.

We note that Section 9 of S 2182 (pg. 15-20) contains new provisions for
block grants for housing. These provisions for allocation of housing assistance
appropriations raise serious questions concerning their effect on the achievement
of national goals and policies for housing. At a later date we will submit a
statement concerning our views on these provisions on block grants for housing --
and the shift to taxable bonds on public housing -- after we have had an opportunity
to carefully consider this matter.

778

7. HOUSING PROGRAM TO MEET ALL NEEDS AND
ACHIEVE ECONOMIC INTEGRATION

We are pleased to note that Section 502(e) of S. 2182 provides that the
Secretary shall seek to assure that in each assisted project there is a rea-
sonable range in the income levels of tenants. Moreover, the Bill provides for
a uniform and flexible housing assistance formula which will make it possible
to serve a cross section of all families who cannot afford the cost of housing
on the private market.

We believe that economically integrated housing developments are a key
factor in achieving sound and wholesome comnunities -- not just housing. We
should stop the present segregation of a stratified low-income group in assisted
housing, as this concentrates families with problems and creates unhealthy
communities. Both in the selection of initial occupants and their continuance
in residence, the community should be protected by excluding or evicting the so-
called multi problem families where there is a clear pattern of serious criminal
and anti-social activity and conmunity disturbances, and whose presence jeopar-
dizes achieving secure and peaceful communities.

In an interest-assisted project, a cross-section of moderate income
families will include people who are largely self-supporting but need some help
in obtaining decent housing. It will include people with upward mobility who
will provide leadership in developing good and stable communities.

The amount of subsidy allocated for an assisted housing development should
be based upon making dwelling units available to a cross-section of income groups,
as follows:

(i) Up to 20% for occupancy by families or persons whose incomes are

779

much below the maximum income limits and who require subsidies at
or above the amounts which have been available for rent supplements
and public housing.
(ii) Up to 207. for occupancy by families or persons who would not be
subject to an income limit.
(iii) The 60% remainder for occupancy by families or persons who are at
or below the median or higher income limit established by the
Secretary and who require subsidies in the form of interest
assistance to cover their interest and the FHA insurance premium.

Through the foregoing program, it would be possible to achieve economic integration
on new projects during tenant or resident selection for initial occupancy. There
would be a periodic re-examination of income only for occupants who are paying
less than the maximum established charge. If their income increased, they v;ould
make housing payments on the larger income, but not more than the maximum
established charge.

8. INCOME LIMITS

We concur in the recommendation of the Administration last year that the

income limit for assisted housing should be the median income in that area, with
authority in the Secretary to exceed the median by the amount required in order
to meet the housing needs of the locality based on its income and cost factors.
We recommend that the provision in S. 2182 be amended to provide for an income
limit equal to the median in the area. This is necessary to facilitate the
economic integration required by the Bill.

An unrealistically low income ceiling does not reduce the Government's
expenditures for housing assistance, because the legislative formulas require
an assisted family to pay a certain percentage of its income for rent. Experience

780

shows that it is not sound housing policy to establish such low income ceilings
that projects are largely limited to the poorer families. Better and more stable
communities are created when occupancy is permitted for a broader cross-section
of the moderate income group. The lower income limits create a gap of unfilled
housing need which discriminates against families who are largely self-supporting
but need some help i^n obtaining decent housing.

The past practice of committing maximum subsidies has resulted In unused
contract authority because the commitment was based upon the maximum amount
needed for everyone. Several years ago, the Senate Committee recognized the
undesirability of pursuing this practice. The commitment of contract authority
should be based on the estimated need based on serving a cross- section of income
groups. There should be a national reserve of a reasonable amount of contract
authority for commitments to meet over- runs in subsidies above the estimates.

The program we recommend would make housing available to families of all
Incomes. There would be no gaps or areas of unmet needs in our housing programs.
Each family whose income is too low to obtain decent housing would receive the
amount of assistance it needs to get such housing. We must reach the unserved
income group below the level now eligible for public housing or rent supplements.
Likewise, we must avoid a gap or area of unmet need above the level now eligible
for moderate income private housing assisted with federal interest subsidies
or below-market Interest rates.

9. • CONSUMER PROTECTIONS TO AVOID PAST ABUSES

Too little attention has been given to the protection of consumers in
housing programs. Present laws do not give them enough protections. That is

781

one of the reasons that defects have been found in some homes on which HUD
insured mortgages, particularly existing houses insured under Section 221(d)(2)
without subsidies.

At a time when we are consolidating and improving our housing laws, V7e
must give first priority to providing consumer protections which will avoid
past abuses and difficulties in the HUD programs. In part, these difficulties
have been due to lax administration of our housing laws, but they are also partly
due to inadequate consumer protections in existing laws. We need legislation
which will require that all housing constructed with HUD mortgage insurance or
assistance must be of good quality and that the prices and rents must be
reasonable.

We recommend amendments to S. 2182 to require that all housing constructed
with HUD mortgage insurance or assistance must be of good quality. Before insur-
ing a loan on existing housing, HUD should, by inspection, determine that the
property meets all state and local requirements related to public health or
safety and that there are no defects seriously affecting use and livability. A
warranty from the builder should be required that new or rehabilitated housing is
constructed or rehabilitated in substantial conformity with the plans and speci-
fications on which HUD based its valuation. On housing approved for mortgage
insurance prior to the beginning of construction or rehabilitation, we are pleased
that S. 2182 authorizes HUD to make esqienditures to correct structural defects
that later develop if the builder fails to do so as required by the warranty.

These provisions and amendments of S. 2182 will avoid past difficulties and
abuses. They will protect the consumer against defects in housing and assure
their correction if they occur.

782

10. OPERATING SUBSIDIES FOR PUBLIC HOUSING

The suspension of HUD-assisted housing programs did not apply to the
payment of operating subsidies to meet deficits in public housing projects.
The President's budget contemplates the payment of $350 million of operating
subsidies for Fiscal 1973, but it reduces this amount to $280 million for Fiscal
1974. We are pleased to note that Section 9(c) under Public Housing of S, 2182
(pg. 139) Increases the ceiling on contracts for annual contributions to $350
million. Under present conditions in public housing, we believe this ceiling is
too low and would recommend that it be increased to $500 million.

These operating subsidies are necessary to offset the loss of rental income
in public housing which has resulted from the Federal statutory limit -- the
Brooke Amendment — placed on the percentage of gross income to be paid by the
tenants of public housing units. The Federal Government is committed to make
these payments under contracts made by it pursuant to Federal laws. Sufficient
operating subsidies should be provided to every public housing agency to cover:

(a) adjustments for inflation;

(b) reimbursement for losses on welfare families and others whose rentals
were reduced by the limitations in the Brooke Amendment ;

(c) establishment of adequate operating reserves which should be at a
level -- approved by HUD in the past -- which would equal 507. of the
operating budget for routine expenses of the housing authority; such
increase in the operating reserves to be achieved over a period of

5 years;

(d) payments in lieu of local taxes of 107. of shelter rents including
the operating subsidies which offset reductions in such rents
required by the Brooke Amendment;

(e) deferred maintenance, modernization, and tenant services.

All funds authorized for operating subsidies should be promptly released.
There should be forward disbursements in a manner to assure that the operating

783

subsidies are received by every local public agency in time to meet its payroll
and bills and to fulfill its obligations as they become due. Moreover, the
required amounts of subsidies should be determined in a realistic manner,
taking into account present price and pay levels and operating costs.

11, IMPROVEMENTS IN PUBLIC HOUSING PROGRAM

We recommend the following amendments in public housing laws -- together
with the full payment of operating subsidies as urged above -- to avoid the
bankruptcy of local housing authorities and to restore their financial
Stability:

The total rents in all of the housing projects of a local housing
authority should represent 20% oi the total net income of all its
tenants. Housing authorities should have local autonomy to
establish graded rents for different families to meet this
requirements.

Welfare programs should be required to pay rents of welfare tenants
In public housing in an amount which is not less than the operating
costs attributable to the dwelling based on the operating cost
experience with all of the public housing administered by a local
housing authority. Welfare programs shall be required to pay an
additional amount to cover the difference between the required
rent under existing formulas and such current operating expenses.

To the maximum extent possible, each housing authority should be
required to have families in their projects which will serve a
cross-section of income levels within the low income range. At
least 20% of the units should be occupied by very low income
families.

Over-income families should be permitted to continue in occupancy,
provided that they pay 25% of their net income as rent up to the
market rent as a maximum. If people feel that they are permanent
residents of a housing development, they will take better care of
it. As a matter of public policy, it is vitally important to
achieve greater stability in housing communities and their economic
integration.

There should be a coordinated program between HEW and HUD to achieve
the foregoing objectives concerning the payment of rents of welfare
renants who live in public housing, along with such necessary ad-
justments as may be required by law.

784

The foregoing amendments are intended to help restore the financial
stability of local housing authorities by increasing their income from projects
along with obtaining sufficient annual contributions for operating subsidies
as recommended above .

We note that the same objective is contemplated by Section 3 under Public
Housing (pg. 111-113) which provides that the minimum rental for any dwelling
in public housing will be 40% of the operating cost attributable to the dwelling,
including the cost of project supplied utilities. At a later date we will sub-
mit a statement stating our views concerning this alternative amendment after
we have an opportunity to give careful consideration to this matter.

12. HOUSING ALLOWANCE PROGRAM IS NOT AN ACCEPTABLE SUBSTITUTE

HUD has activated an experimental program under the 1970 Act to determine
the feasibility of a Housing Allowance Program. We urge that this program in-
volve explorations to determine whether federal housing allowances will add to
the inadequate supply of standard housing and whether adequate housing can be
provided at a cost which does not exceed the cost under existing programs. We
are also concerned about federal housing allowances inflating housing charges
by creating competition for a limited supply of housing. Until the results of
the HUD experimental program are available and determinations are made on these
major questions, we recommend that there be no further expansion of the Housing
Allowance Program. The experience with housing allowances in other countries
shows they have been unable through an allowance system to stimulate necessary
additional production of housing for those who are assisted.

The Housing Allowance Program is not an acceptable substitute for present

785

housing subsidy programs. If housing allowance funds were recommended in amounts
sufficient to take care of all people of low and moderate incomes in need of
decent housing, the immediate impact on the budget would be so large as to
preclude the likelihood of its approval by the Executive Branch and the Congress.
Moreover, if such a program were adopted, it would greatly inflate the charges
for the limited supply of available housing which meets proper standards. If
we tried to produce all of this housing at one time to meet the needs of all
vho would qualify for housing allowances, there would be an inflation in the
cost of the land, materials, and labor required to produce the housing.

The only way to avoid such inflation would be through a program v;hich
would make housing allowances available gradually on a small scale. However,
when checks are bein^ mailed for housing allowances, all people who are eligible
will want and expect their checks when a distribution starts. This is different
from the present programs where the subsidies are properly tied to the additional
housing production which is required. People understand that they have to wait
their turn until the additional housing is produced at an annual rate which
is geared to the productive capacity of the building industry and which avoids
inflating housing costs.

13. RURAL HOUSIWG-

The extensive substandard housing in rural areas has been too long neglected.
There should be an increase in the authorizations for rural housing and renewal
and the perfection of existing rural housing and planning programs. This is
necessary to achieve the goal to make rural America more attractive and livable
for all, including the young and better educated. The same kind of financial
assistance as is provided for urban housing and renewal should be available for
rural housing and renewal.

786

14. EQUAL HOUSING OPPORTUNITY AND FREEDOM OF CHOICE

We should provide an opportunity for freedom of choice in our housing
programs. The choice of individual or cooperative homeownership or rental
housing and the choice of city, suburban, new town or country living must
not be limited by race, color, religion or national origin. With housing in
each development available for a cross-section of income groups and a broader
market, we can provide freedom of choice to people of all incomes to select
vhere they want to live.

15. SECURITY FOR RESIDENTS OF PUBLIC HOUSING

Many of the concerns with crime and vandalism now associated with public
housing developments can be eliminated by proposals in three areas which we
have discussed in my brief accompanying oral statement to the Committee. These

are:

first, the adoption of minimum security standards should be a
part of the Minimum Property Standards and included in HUD's
rules and regulations for all new housing developments. Two
model security codes do exist — one for buildings generally,
and the other for the elderly specifically. They were developed
by the Department of Justice's National Institute of Law Enforce-
ment and Criminal Justice, and are readily available;
second, for existing assisted projects, funds should be made
available to provide the necessary hardware — locks, bolts,
communications systems — and space modifications which have
proven to be effective in reducing crime; and

787

third, software program money (relatively small sums) should be
available for assisted projects, to meet the cost of volunteer
citizen patrols and resident's meeting expenses.
We recommend amendments to S. 2182 to include a security element in that pro-
posed housing legislation. We will forward the language of these legislative
recommendations to you when they are formulated.

16. COMMUNITY DEVELOPMENT SPECIAL REVENUE SHARING

Last year, NHC supported the community development special revenue sharing
system as embodied in the Bill enacted by the Senate, but which did not reach

•

the House Floor for action. However, our support of that legislation was and is
conditioned upon the continued availability, at an adequate level, of categorical
grants for community development programs until special revenue sharing becomes
effective. This is what the President' recommended last year but opposes this
year. It is also conditioned upon the release of the President's suspensions of
HUD-assisted housing programs and additional authorizations for those programs.

S. 1744 provides for a two-year Federal authorization with obligation
authority of $5.9 billion of which $2.7 billion would become available on July 1,

1974, and the balance of $3.2 billion would become available on July 1,

1975. In view of the major programs which would be merged into the proposed
Community Development Program and in order to assure adequate financing and con-
tinuity, NHC recommends a three-year program of $12.1 billion, with $3.7 billion
available for obligation in the first year and $4.2 billion in each of the second
and third years.

Until the authorization for the Community Development Program becomes

99-855 O - 73 - pt. 1 -- 51

788

available at the beginning of the fiscal year after legislative enactment,
there should be an orderly transition from the present categorical grant
programs to the special revenue sharing programs. Accordingly, we recommend
authorizations and appropriations for Fiscal 1974, commencing on July 1, 1973,
which would equal $3.7 billion to cover the categorical grant programs that
would be consolidated under the Community Development Program.
NHC supports S. 1744 with the following amendments:

(1) an amendment providing for a 100% grant -- as contained
in S. 1743 and in last year's House Bill HR 16704 --
instead of the 907» grant in the Senate Bill; and

(2) an amendment providing that there be a final separate
urban renewal appropriation, to become available upon
the effective date of the CDP program. This should be
ample for the completion of all on-going urban renewal
projects including NDP programs in order to avoid a drain
on CDP grant funds .

S. 1744 would consolidate five categorical grant programs into one block
grant. There would be a total Community Development Program (CDP) prepared by
the local community, including all physical development, rebuilding and rehabili-
tation activity, and eligible for federal funding on an annual basis. In draft-
ing its CDP, the locality would have to take stock of its physical inventory,
set priorities, describe the local program for meeting housing needs, and relate
each component in the plan to the specific public need it seeks to meet.

The plan, if approved, would receive federal funding on a yearly increment
basis, similar to that in the NDP program. The locality's application to HUD

789

would contain a three-year forecast of community development activies and
objectives needed, Including a one-year budget and program, and a request for
a second-year reservation of funds.

The funds would be distributed to localities by a formula based on size
and need with a statutory provision to assure a continuity of funding based on
recent program experience. An important feature of the program is the provision
for an assured and adequate level of funding in 2-year cycles with assurance
of funds for one year in advance of each current year. The program would be
effective upon date of enactment, but no funds would be available for disbursement
until July 1, 1974.

The broad principles of S. 1744 are in accord with the objectives endorsed
by the membership of the National Housing Conference at our annual convention in
March of this year recommending legislation establishing a total community develop-
ii£nt program based on the premise that_ "Federal grants should provide incentives
to promote national programs and objectives relating to housing and community
development".

The National Housing Conference supports the basic principles of S. 1744 on
two primary grounds.

First, The bill preserves the integrity of the national goals and objectives
for community development which have been established by the Congress in successive
legislative enactments since the passage of the historic Housing Act of 1949. All
of this legislation had, of course, the support and leadership of this committee.
We believe it is of the utmost importance to preserve these national standards,
which are the product of years of study, investigation, hearings and floor debate
in the Senate and in the House of Representatives. These standards also represent
an impressive concensus of the views and support of a broad range of public inter-
est and private enterprise organizations and should not be abandoned.

790

Second , the bill, by substituting block community development grants for
the numerous related but separate grant programs for urban renewal and related
activities, offers the opportunity for a decisive simplification and acceleration
of activities essential for the welfare of urban areas, large or small.

At this point, I would like to explain the reasons for the strong preference
of the National Housing Conference for the basic provisions of S. 1744 as com-
pared with the Administration's proposed program as set forth in S. 1743, Wiile
there are numerous similarities in the stated objectives, in contrast with S. 1744,
S. 1743 would surrender to local communities the allocation of Federal funds among
the various categories of community development without regard to any over-all
plan dealing with all aspects of the conmunity development program.

The National Housing Conference is a strong believer in local responsibility
and Initiative within nationally established guidelines and policies. But we
also believe strongly that national problems such as community development require
that the use of Federal financial assistance be channeled to relieve problems
defined by such national guidelines and policies. In our opinion, this objective
would be well served by the provisions of S. 1744.

17. NHC RESOLUTIONS ON HOUSING AND COMMUNITY REDEVELOPMENT

NHC's 1973 resolutions are the result of studies and extensive consultations
last year with the Administration and Congressional leaders. We also consulted
with a broad spectrum of the housing industry and public interest groups. Many
of our recommendations parallel in broad principles the provisions contained in
S. 2182 and S. 1743. We refer you to those resolutions for our recommendations
concerning further amendments to these bills and our other legislative proposals.

791

KATIOKAL KOUSBIG COJIFERIiIICE RESOLUTIONS
ADOPTED BY
NHC MEtfflERSHIP AT ITS ANNUAL MEETING
OK MARCH 5, 1973
RELATING TO
PRESIDENT'S IMPOUT^miENTS, SUSPENSIONS AND TERMINATIONS
OF HOUSING AND COMMUNITY DEVELOPMENT PROGRAMS

(For the legislative policies of the National Housing Conference,
see its separate accompanying report. )

1. SUMMARY OF FINDINGS AND RECOMMENDATIONS

By direction of the President, HUD issued orders V7hich hecame effective on Jan-
uary 5, 1973, to suspend immediately all HUD-assisted housing programs and to suspend
or tenninate community development programs either on that date or on June 30, 1973.
Every HUD-assisted housing program and every HUD grant program is either suspended
or terminated -- nine of them as of January 5, 1973^ and the other six as of June 30,
1973. *

In addition, the Farmers Home Administration (FmHA) ordered the immediate dis-
continuance, on January 8, 1973, of its subsidized programs of loans and grants for
low-income farmers and fann laborers (except as to self-help participants) and sus-
pended water, sewer and other programs as of January 1, 1973*

There will be a cut of 629,000 units in HUD-assisted housing commitments during
the 18-month period until June 30, IS'jk. The total economic impact will be $27 bil-
lion in expenditures and 3 million man years in employment as a result of these sus-
pensions in the urban housing programs. With the further impact of the suspension
or termination of community development programs and other social, health and welfare
programs, these reductions will contribute to a recession starting the middle of ne:ct
year as forecast by some leading economists.

The cutback in these programs without a concurrent replacement with other pro-
grams designed to increase housing opportunities and housing choices, at prices most
minorities can afford to pay, will cause incalculable harm, further disillusionment
with the Federal Government, and Increased racial unrest and conflicts In our cltisrE.
During the I8 month moratorium, there will be a loss of 106,500 subsidized housing
units under the FmHA programs in 9OO rural communities and a loss of water and sewer
programs in a much larger number of such communities. The poorly housed in rural
areas will be the victims along vjith a devastating effect on the rural economy.

Over $860 million of funds and contract authority were impounded in the HUD
programs. This consists of $529 million of appropriated funds and $331 million of
contract authority for Rent Supplements and Sections 235 and 236. In addition, there
have been $93^ million of Impoundments in the programs of FmHA, the Rural Electifi-
catlon Administration, and other rural development programs. These Presidential iu-
poundments were part of a larger pattern of similar actions totalling $8,723 billion
In impoundments of appropriations f(^ the Federal Government which do not include
additional amounts covering impoundments of contract authority.

* These suspensions or terminations do not apply to the payment of operating subsi-
dies to meet deficits in public housing projects or the other subsidies required
to meet -out standing contract commitments on HUD-assisted housing.

792

These unilateral Executive actions are the most disastrous on housing and com-
munity development that have occurred in the history of this organization. They will
deny fulfillment of unmet needs for decent housing among people of low and moderate
incomes. In combination with the elimination of rent controls, they will contribute
to inflation and an increase in the cost of living for hundreds of thousands of low
income families who will be denied decent housing.

These actions by the President are equivalent to the repeal of many laws which
have been enacted by the Congress and signed by the President, some of which have
been in effect for as long as 35 years. We believe they are an unconstitutional
exercise of the powers of the Executive. As Senator Samuel J. Ervln, Jr. (Chairman
of the Senate Judiciary Committee) has said:

"impoundment amounts to government by decree, and if the practice is
permitted, the collective voice of 535 members of Congress could be
overridden by one man. ..That wouJ.d be government without law."

The suspension and termination of these programs constitute a breach of faith
to the thousands of housing sponsors and the many communities which have invested
heavily in housing and community development activities in the expectation they
could carry them to completion under existing laws and appropriations and frequently
the encouragement of Federal officials. They will result not only in severe finan-
cial hardships to these participants, but also in the disruption in productive capa-
city so essential to a resumption of the suspended activities. In his speech before
the National Housing Conference, Senator John J. Sparkman (Chairman of the Senate
Committee on Banking, Housing, and Urban Affairs) pointed out the urgency of action
by HUD to relieve the hardships which have resulted from the sudden cutoff of pro-^
mised funds for individual projects:

"Regardless of how the impoundment issue is resolved, the sudden
and arbitrary cutoff of promised funds for individual projects is an
indictment of the integrity and creditability of the Federal Govern-
ment. Commitments and promises, whether verbal or written, should be
no less honored by Government than they are by individuals. It is not
fair that financial losses incurred by the arbitrary cutoff be borne
by church groups, labor unions, homebuilders, and a variety of public
and private citizens who, in good faith with the cooperation and
understanding of the local HUD officials, proceeded to spend money
and make plans. I have received a letter from one church group which
indicated a possible loss of $250,000 in front-end money that will be
lost as a result of the sudden cutoff of funds."

The National Housing Conference is sympathetic with the President's stated ob-
jective of consolidating the several community development programs into a special
revenue sharing system. Last year, NHC supported the community development special
revenue sharing system as embodied in the Bill enacted by the Senate, but which did
not reach the House floor for action. However, ovir support of that legislation was
and is conditioned upon the continued availability, at an adequate level, of cate-
gorical grants for community development programs until special revenue sharing be-
comes effective. This is what the President recommended last year but opposes this
year. We also recommend that the legislation providing for community development
revenue sharing include provisions for the release of the President's suspensions
and terminations of HUD-assisted housing and community development programs.

NHC's 1973 legislative proposals, which are being presented separately, are in
fact a result of studies and extensive consultations with the Administration, Con-
gressional leaders and a broad spectrum of the housing industry and public interest

793

groups. They parallel in broad principles the major legislative recommendations of
the President during the last two years and the provisions contained in the housing
bills passed in 1972 by the Senate and reported favorably by the House Banking and
Currency Committee.

But the new and modified programs \iltimately proposed by the President and
enacted by the Congress can be effectively initiated only if there is an orderly
transition from continuing existing programs. This would give time for the full
consideration and debate these proposals warrant and for the development of proce-
dures and guidelines for their administration. Meanwhile the present programs could
continue to serve the needs of our cities and towns and -- as they have in the past,
contrary to unsubstantiated charges of the Administration -- the needs of low and
moderate income families. The housing industry would be able to make the transition
to the new programs, without the convulsions to its productive capacity which the
HUD suspensions are creating.

We recommend and hope that the President will cause the rescission or modifica-
tion of these orders suspending and terminating programs. We recommend and urge
that Congress take such steps as are necessary to reassert its constitutional legis-
lative powers and responsibilities and to protect, from Executive nullification,
legislation which it has enacted, such as the housing and community development
programs initiated over the last four decades.

The suspension of HUD-assisted housing programs as of January 5, 1973 <3id not
apply to the payment of operating subsidies to meet deficits in public housing pro-
jects. The President's budget contemplates the payment of $350 million of operating
subsidies for Fiscal 1973, but it reduces this amount to $280 million for Fiscal 157^-.
It is imperative that at least $500,000,000 be appropriated for each of Fiscal Years
1973 and 197^ for operating subsidies in public housing projects.

These operating subsidies are necessary to offset the loss of rental income in
public housing which has resulted from the Federal statutory limit -- the Brooke
Amendment — placed on the percentage gross income to be paid by the tenants of
public housing units. The Federal Government is committed to make these payments
under contracts made by it pursuant to Federal laws. Sufficient operating subsidies
should be provided to every public housing agency to cover:

(a) adjustments for inflation;

(b) reimbursement for losses on welfare families and others whose rentals
were reduced by the limitations in the Brooke Amendment;

(c) establishment of adequate operating reserves which should be at a level --
approved by HUD in the past -- which would equal 50^ of the operating b_d-
get for routine expenses of the housing authority; such increase in the
operating reserves to be achieved over a period of five (5) years;

(d) payments in lieu of local taxes of 10^ of shelter rents including the
operating subsidies which offset reductions in such rents required by tbo
Brooke Amendment;

(e) deferred maintenance;

(f) modernization; and

(g) tenant services.

794

All funds authorized for operating subsidies should he promptly released.
There should be for^iard disbursements in a manner to assure that the operating sub-
sidies are received by every locel public agency in time to meet its payroll and
bills and to fulfill its obligations as they become due. Moreover, the required
amounts of subsidies should be determined in a realistic manner, taking into account
present price and pay levels and operating costs. .

2. PRESIDEM"S DENIAL OF SEMTOR SPARKMAH'S PLEA

We are attaching as Exhibit "A", a statement inserted in the Congressional
Record by Senator Sparkman. That statement includes a telegram v;hich Senator Spark-
man sent to the President urging that he reject the reported l^ite House plan to cut
off subsidies, v;hich telegram stated in part:

"Such a plan would be a clear violation of intent of Congress as
expressed in Appropriation Acts and of the 19^9 and 1968 housing laws
requiring Federal assistance to eliminate slums and blight and provide
a decent home for every American family. Without Federal assistance,
little hope for decent housing can be held out for six million families
still living in substandard housing.

"The proposed plan would not only represent a breach of faith on
the part of our government to the poor and ill-housed of the nation,
but it wouJLd create unemployment and have a disastrous effect on the
housing industry and the nation's economy. Without subsidized housing,
the nation's cities would be frustrated in carrying out their public
improvement plans.

"My Committee plans to have extensive hearings on the need for
subsidy programs early in the next Session, and I strongly urge that
no cut off be made before completion of the hearings. "

The President denied Senator Sparkman' s plea to reject the reported IVhite House plan
to suspend or terminate subsidy assistance for housing and community development
programs.

3. PRESIDENT'S SUSPENSIONS AM) TERMINATIONS OF HUD PROGRAMS

In the Budget submitted to the Congress by the President, the following housing
and community development programs in HUD were suspended or tenninated by the Presi-
dent as of the following dates :

Programs Suspended Effective Suspension Date

1. Assisted housing including rent supplements, January 5, 1973
Section 235 and 236 and Public Housing

2. Non-Profit Sponsor Assistance January 5, 1973

Programs Terminated Effective Termination Date

1. College Housing January 5, 1973

2. Community Development Programs

(a) Open Space Land January 5, 1973

3.

795

ProGrams Terminated (Cont'd. )

(b) Water and Sewer Facilities

(c) Public Facilities Loans

(d) Model Cities Programs

(e) Neighborhood Facilities

(f) Urban Renewal Programs

(g) Rehabilitation Loans

Commimity Planning and Management Programs

(a) CommiAnity Development Training and
Fellowship Programs

(b) Supplementary Grants for Nev;
Communities

Effective Termination Date

January 5, 1973
January 5, 1973
June 30, 1973
June 30, 1973
June 30, 1973
June 30, 1973

June 30, 1973
June 30, 1973

By suspending the HUD-assisted housing programs as of January 5^ 1973^ HUD will
only recognize (i) HUD commitments Issued by that date; (ii) feasibility letters is-
sued by that date which met its acceptable standards of quality processing or docu-
mentation; and (lii) certain specific program commitments which are to be identified
in future HUD instructions. HUD will not recognize (i) fund or program reservations
issued by January 5j 1973^ which were not then covered by HUD-qualified feasibility
letters or commitments; (ii) feasibility letters Issued between December 15, 1972
and January 5^ 1973 which HUD determines did not have quality processing by its
offices; or (lii) other assurances which were given by HUD officials that projects
would receive feasibility letters or funding on pending applications which were in
process by that date.

h. PRESIDENT'S IMFOUNDMEMTS OF HUD AMD OTHER FUTOS

Over $860 million of funds and contract authority were Impounded for the fore-
going HUD programs. This consists of $529 million of appropriated funds and $331
million of contract authority for Rent Supplements and Sections 235 and 236. In
addition, there have been $93^ million of impoundments in the programs of the
Farmers' Home Administration, the Rural Electrification Administration and other
rural development programs.

These Presidential impoundments were part of a larger pattern of similar actions
totalling $8,723 billion in impoundments of appropriations for the Federal Government
which do not include additional amounts covering impoundments of contract author! 'v.
"^ substantial part of these impoundments relate to social, housing, health and wel-
fare programs, with particular deprivations among the underprivileged who most need
help.

5. REDUCTION IN PROGRAM LEVELS OF HOUSING
FOR LOW AND MODERATE INCOME GROUPS

As a result of tbe foregoing- actions, diiring the Fiscal Years 1973 and 1974,
there will be the following reductions totalling 629,000 units in the program levels
of housing for low and moderate income groups who cannot obtain decent housing with-
out HUD assistance:

796

Fiscal 19T2 Fiscal 19T3 Fiscal 197^

Homeownership Assistance Program (235)
Reservation of authority
Number of units

Rental Housing Assistance Program (236)
Reservation of authority
Number of units

Rent Supplement Program
Reservation of authority
Number of units

Low Rent Public Housing

Annual contributions contracts
approved (units)

Total Units Covered by
Authorizations Use

152,135

157,5^1
16,386*

100,862
k26,92k

1*0,100

100,100

8,800*

k6,ooo
195,000

29,800

29,800

In addition to the foregoing programs, the modernization program of lov; rent public
housing was terminated as of June 30, 1973-

The total reduction in HUD-assisted housing program levels will be 232,000
units from Fiscal 1972 to 1973 -- tnore than a 50^ cut in Fiscal 1973 as a result of
the Presidential suspension of these programs on January 5, 1973 and his impoundmf.nt
of fiinds and contract authority. The reduction in Fiscal 197^ in HUD-assisted pro-
gram levels will be 397,000 units in Fiscal 197U as compared with Fiscal 1972 — a
cut of 93/^' In fact, the remaining Tfo is a carry-over to fulfill commitments in
the preceding year.

6. HUMAN IMPACT OF REDUCTIONS IN HUD-ASSISTED HOUSING PROGRAM LEVELS

The human impact of these reductions is to deny fulfillment of the unmet needs
for decent housing among people of low and moderate incomes. These are the groups
who cannot afford decent housing without HUD assistance to reduce the housing charges
to their financial reach. The budget cuts and impoundments were made without compas-
sion for the poor or underprivileged who shovild have a priority in the allocation of
Federal funds and resources.

By the end of Fiscal 197^, only 1,680,000 units of assisted housing will have
been built or started to meet the goal in the Housing and Urban Development Act of
1968. The ten year goal was to produce 6,000,000 units of housing for low and
moderate income families. VJith four years remaining, it will be impossible to
build the balance of 4,320,000 units unless the suspensions are removed. The stop-
page of HUD-assisted housing wi3J. seriously jeopardize meeting that goal and ful-
filling the commitment in the 1968 Act of a decent home and a sxiitable living envir-
onment for every American family.

Vttth the reduction in the building of additional HUD-assisted housing, there
will be a grossly inadequate supply of housing for those of low and moderate incomes.
Since rent controls have been removed, the resulting scarcity will result in rent
increases for existing unsubsidized housing. This will create serious hardships.
It will contribute to inflation and an increase in the cost of living.

*These figures do not include 25,998 units for Fiscal 1972 and 20,000 units for Fis-
cal 1973 that receive piggy-back rent supplements, since these units are in the 236
figures above.

797

7. ECONOMIC P/IPACT OF REDUCTIONS M HUD-ASSISTED HOUSING

The economic impact is disastrous as a result of the reductions in HUD-assisted
housing program levels. As to the cut in HUD-assisted housing commitments in Fiscal
197^, they will result in total reductions in expenditures of over $l8 hillion. This
is due to the housing commitment cut of 397,000 \inits. This is the total of the
following:

(a) direct expenditures for housing construction, land, and community
facilities;

(b) indirect expenditures through the multiplier effect; and

(c) expenditures for related services such as taxes, interest, utilities,
and operating expenses.

There will be an estimated loss of over 2 million man years of employment.

As to the cut in housing commitments during Fiscal 1973 — which started with
the program suspensions on January 5, 1973 -- the economic impact will be $9 billion
in expenditures and 1 million man years in employment due to the housing commitment
cut of 232,000 units.

As to the cut of 629,000 units in HUD-assisted housing commitments made during
the l8-month period until June 30, 197^, the total economic impact will be $27 bil-
lion in expenditures and 3 million man years in employment. These figures do not
include the impact relating to the suspension and termination of the community
development or rural programs.

The Administration claims that the economy is strong enough to withstand any
adverse impact on it during the next eighteen months. The Administration cites the
figures on estimated starts on HUD-assisted housing and states that the level will
be approximately the same for the Fiscal Years 1973 and 1974. The President's Bud-
get contains the following comparison of HUD-assisted starts for Fiscal Years 1971
through 197^:

Fiscal Year 1971 7/l/70 - 6/30/7I Actual 388,526

Fiscal Year 1972 7/l/71 - 6/30/72 Actual 338,^91

Fiscal Year 1973 7/l/72 - 6/3O/73 Estimate 275,900

Fiscal Year 191k 7/l/73 - 6/30/74 Estimate 239,955

Housing starts in any fiscal year are different from the housing commitments
made in that year. Thus, the housing commitments made in Fiscal 1972 covered
452,922 units, but the starts were 338,526 units.

The housing starts for Fiscal 1973 will be 62,000 units less than in Fiscal
1972 and 102,000 units less than in Fiscal 1971. For Fiscal 1974, the housing
starts will be 98,000 less than Fiscal 1972 and 148,000 less than Fiscal 1971. This
reduction in housing starts reflects the cut off in commitments due to the suspension
of programs on January 5, 1973.

These reductions in housing starts will have an adverse impact on the economy
in Fiscal 1973 and a more serious impact in Fiscal 1974. In addition to the

798

reductions in expenditiires and employment due to the lower level of housing starts,
there will be large reductions due to the stoppage of any HUD-assisted project ini-
tiation, with a stoppage of all of the \;ork and investments that would otherwise
occur.

The most disastrous effects will occur in Fiscal 1975^ starting the middle of
next year. There is a substantial time lag between the issuance of a commitment and
the start of construction. There is a much greater time lag between the initiation
of a project -- which starts long before the filing of an application with HUD --
and the start of construction. In a typical project, the lead time may be as much
as eighteen months from initiation to the start of construction.

The housing starts for Fiscal Years 1973 and 197*+ will use up the pipeline of
HUD-assisted projects previously initiated and committed. So by Fiscal 1975 there
will be virtually no pipeline of such previously committed projects. It would then
typically take about eighteen months to get HUD-assisted projects initiated and
processed to start of construction, even with the present productive capacity to
initiate and develop such projects. However, if all HUD-assisted programs are sus-
pended, there will be a destruction of that productive capacity which is now initia-
ting and developing HUD-assisted housing. Builders, workers, lenders, sponsors,
and others will seek other work. Then we will be unable to achieve housing starts
for a long period following the lifting of a moratorium.

As part of the cutback in HUD-assisted housing, there are large reductions in
staff within HUD both in headquarters and the field offices. Along with continuing
the existing HUD-assisted housing and community development programs during the
period of transition, we urge that this staff be retained. They represent an im-
portant national resource of trained and experienced personnel who are required to
administer HUD programs.

The foregoing Presidential suspensions and impoundments in HUD-assisted housing
programs will have a most disastrous effect in Fiscal 1975^ starting the middle of
next year. The reductions of $27 billion in expenditures and 3 million man years
in employment due to the lower program levels of HUD-assisted housing — in addition
to the further impact of suspending or terminating community development programs
and suspensions in other social, health and welfare programs -- will contribute to
a recession starting by the middle of next year as forecast by some leading econo-
mists.

In order to keep faith with the people who relied upon existing laws and to
avoid the serious adverse impact on the economy of discontinuing the initiation of
any HUD-assisted projects, it is necessary that existing housing and community de-
velopment programs be continued during any period of transition to modified or new
housing programs or block grants for community development.

8. PRESIDEMT'S SUSPENSIONS AITO TERMINATIOHS OF FmHA PROGRAMS

Along with HUD's subsidized housing programs, the housing programs of the
Farmers Home Administration (FmHA) have been suspended. The moratorium immediately
ceases most interest credit loans under the 502 home ownership program, the 515
rental program, and all loans and grants for farm labor housing. Clearly, low in-
come families in rural America who need better housing no longer have a rural
agency to serve them. V/ith the suspension of HUD subsidized housing programs,
most importantly public housing, no alternative source exists.

799

The FmHA housing and community development programs, affected by the moratorium
are as follows:

(a) Farm Labor Housing Loans and Grants - (Sections 5li!-5l6) - No additional
applications for loans and grants will be approved.

(b) Rural Rental Housing Loans and Rural Cooperative Housing Loans - (Section
515) - Only applications that do not require interest credits may be
approved.

(c) Homeownership Loans (Section 5O2) - unsiibsidized homeownership loans will
continue to be approved at the unsubsidized interest rate.

(d) Interest credit loans may continue to be approved if any of the following
conditions exist:

(1) The applicant is a member of a self-help housing group. (This ex-
ception is reported to be eliminated after June 30, 1973- )

(2) The applicant is a low income family whose home will be built with
the assistance of manpower trainess. (This exception is reported
to be eliminated after June 30, 1973' )

(3) The loan is made to a low income family to buy a home built or being
built as a result of a written commitment made to a builder or de-
veloper, or where verbal coinmitraent was made and construction was
actually started (footings poured) prior to January 9, 1973.

(h) Subsequent 502 and 515 Rl^, where sole purpose is to complete con-
struction related to cost overruns,

(5) Those who filed 502 applications prior to l/9/73 and written evi-
dence was in the county office prior to then that either: (a) had
option for site or home, (b) owned site for planned home, .(c) pack-
aged data was complete, (d) owned home to be improved or repaired,
(e) received written confirmation of RH eligibility from FmHA.

(6) Families purchasing sites where a rural housing site loan was ap-
proved prior to 1/9/73 and (a) interest credit is necessary, and (b)
failure to extend interest credit loans wovild jeopardize repayment
of the FtaHA site loan.

(7) Certain transfer loans.

(8) For existing loans when necessary to avoid foreclosure, under
certain circumstances.

(9) Renewal of interest credit agreements is authorized where the pro-
cessing of same was not completed in the 1972 review period, for
reasons beyond the control of the applicant or county supervisor,

(e) V/ater and Waste Disposal Grante (Consolidated RnHA Act of I961) - No addi-
tional grants will be approved.

800

9. REDUCTION IN FmHA PROGRAM LEVELS

Unlike the HUD subsidized housing programs. Farmers Home programs do not build
up a sizeable pipeline of unit reservations and commitments. The effect of the
moratorium will therefore be much more dramatic in rural areas. Except for the
minor exceptions mentioned above, there v;ill be no FmHA subsidized housing starts
for either homeovmership or rental housing in Fiscal 197^.

Units Provided Under Section 502 Program, by Fiscal Year:

1972 1973 ■ 197^

projected actual projected actual projected actual

Subsidized 57,590 76,683 70,650 1*0,430 -0- -0-

Unsubsidized 55,210 35,^99 67,650 69,500 69,500 M

TOTAL 112,800 112,182 138,300 109,930 69,500 NA

In the current fiscal year, there will be a k^fo decrease in the program level
expected ijnder the subsidized section 502 homeownership program. Over the full I8
months at the moratorium, there will be a loss of approximately 100,000 subsidized
502 units, if we assume that the program level in Fiscal 197^ wo\ild be the same as
in the current fiscal year.

The original Fiscal 1973 budget projected $70 million for the Section 515
rental housing program. Based on the level of activity during the first half of
this fiscal year, it is difficult to see how that level can be reached, but FmHA
contends that it has enough rental applications in the pipeline to still make its
original target. However, if the Fiscal 197^+ level were to have been 50^j above the
original projection for Fiscal 1973 (and this is less than the increase targeted
for 1973 over 1972), the level next year would have been $105 million instead of
the $kh million now programmed by the Administration. This shortfall represents
an estimated 5,300 units.

Congress appropriated $3,750 thousand for grants under the Farm Labor Housing
program for Fiscal 1973- If FmHA loaned t'jice as much as it granted under this
program (roughly the pattern during the first half of this fiscal year), the total
program level would have been $11.3 million. The agency now indicated that it will
make less than $2.2 million in grants, implying a program level of only $6.5 mil-
lion. The shortfall here is estimated at ij-50 units for the rest of this fiscal year.
If the program for Fiscal 197'<- increased by only 20^ (the amount of increase origin-
ally projected from Fiscal 1972 to Fiscal 1973), i't would have reached a level of
$13.6 million, representing an estimated 1,200 \mits.

The Congress has authorized FmHA to make $100 million in development grants
for water and sewer facilities each fiscal year and $15 million for planning grants
for such facilities. It appropriated more than enough money for that level for this
fiscal year. Based on Fiscal 1972 statistics, FmHA lends $7.50 for every $1 in de-
velopment grants it provides. Therefore, the program level which would have met the
Congressional mandate would be $865 million each fiscal year. Instead, the Adminis-
tration plans a level of only $330 million this year and $3^5 million next year (the
latter in loans only, and for water systems only). The implicit shortfall is there-
fore more than a half -billion dollars each fiscal year. Based on RnHA's Fiscal 1972
program statistics, the shortfall in the water and sewer programs represents more
than 950 communities this fiscal year and nearly 900 more which will go unserved by
the RnHA program.

801

10. HUMAN IMPACT OF BEPUCTIOMS CT FmHA ASSISTED HOUSING

Non-metropolitan areas of the country, • with only 30^ of the population, have
fully i+3^ of the poverty and U4^ of the inadequate housing. One house in seven in
non-metropolitan areas is either overcrowded or lacking essential plumbing, as com-
pared to one house in 25 in metropolitan areas. There are approximately 2.5 million
rural families now in need of a decent place to live.

With the exception of public housing, HUD programs do not address the housing
problems of rural areas. The burden of providing decent housing for low and moder-
ate income naral families rests squarely on the Farmers Home Administration. With-
out continued high levels of production under FmHA subsidized housing programs, non-
metropolitan areas will once again become the housing wasteland they were prior to
1968.

The moratorium is clearly against the intent of Congress as expressed in the
rural development act of 1972 and the Farmers Home Administration subsidized housing
programs.

11. ECONOMIC IMPACT OF REDUCTIONS IN FmHA ASSISTED HOUSPIG

While the poorly housed are the most obvious victims of the freeze on FmHA
subsidized housing funds, the effects on the rural economy will be widespread.
Rural America's potential direct loss of just housing dollars over the proposed 18
month moratorium is nearly $1.6 billion. Potential direct employment losses are
estimated at 133,120 man years.

Employment losses due to the termination of the water and sewer grant program,
estimated on the basis of the FtaHA figure of 80 man years for each $1 million in-
vestment, could be as high as 84,000 man years. These funds would have generated
additional loan funds at a ratio of 7 to 1.

These losses are direct construction related losses. The actual losses due to
the economic multiplier effect could very well be 2 to 3 times greater.

Construction trades have been one of the fastest growing employment sectors in
rural America. The loss of these jobs will have a devastating impact on the hopes
for accelerated rural growth. These losses will have a serious impact on the poorly
housed, the rural communities in which bad housing exists, and the construction
industry.

12. II^ACT OF REDUCTIONS ON RACIAL MINORITIES

A. Impact Upon Minority-Owned Businesses

In the President's Statement of June, 1971, on Federal Policies in Equal
Opportunity in Housing, the President stated that his administration is committed
to "correct for the effects of past discrimination". Statistics collected in the
1970 Census indicate that blacks and other non-white minorities occupy a dispropor-
tionate amount of housing classified as deteriorating, substandard and dilapidated.
In rural housing, over 50^ of blacks occupy such housing compared to 8fo for whites.
A recent HUD-issued report entitled "Blacks Pay More" indicates that, in the cities
surveyed, black minorities pay a higher cost for housing, often of less quality,
than whites do.

802

The effects of the current moratorium upon minority enterprises which
were spawned and nurtured by subsidized housing programs may be termed disastrous.
The economic momentum gained through housing production will hit hardest those
minority -owned businesses involved in the housing industry. These firms lack the
financial resources to withstand even minimal production cutbacks and face the
choice of immediate bankruptcy or going out of business.

B. Impact Upon Patterns of Housing Segregation

The incidence of housing segregation in the cities and subiirbs continues
to increase. In 1972, Federally assisted programs began to require a number of
affirmative actions to help expand housing opportunities beyond racial ghettos.
These programs designed to further equal housing opportunity have begun to take
hold. Subsidized housing has done more than any other housing program to provide
new opportunities for minorities to escape the confines of ghettos, to move nearer
to new job opportunities and to improve the quality of life and environments neces-
sary for minorities to become a part of our overall society.

C. Recommendations

Any cutback in these programs without a concurrent replacement with other
programs designed to increase housing opportunities and housing choices, at prices
most minorities can afford to pay, will cause incalculable harm, further disillus-
ionment with the Federal Government, increased racial unrest and conflicts in our
cities, and prolong the fulfillment of the government's policy to assure every
American a decent home in a suitable environment.

NHC believes that the Administration has overlooked the impact that the
program terminations and suspensions will have upon racial minorities. Accordingly,
we call for the needed exceptions to be granted in each of the affected programs
to assure that the civil rights and equal housing opportunity program requirements
will be fulfilled.

13. COKTIKUAKCE OF HOUSING AND COMMUTJITY DETOLOFME.m'
PROGRAMS DURING TRANSITION PERIOD

Existing housing and community development programs should be continued diiring
the period of transition vintil modified housing programs or special revenue sharing
community development programs are made effective. This is necessary in order to
keep faith with public agencies and private citizens who made their plans and in-
vestments in reliance upon existing laws which have long been a part of Federal
assistance programs. These programs should not be suspended or terminated until
action is taken to repeal or modify these laws and until authorized alternative or
modified programs begin.

The new and modified programs ultimately proposed by the President and enacted
by the Congress can be effectively initiated only if there is an orderly transition
from continuing existing programs. This would give time for the full consideration
and debate these proposals warrant and for the development of procedures and guide-
lines for their administration. Meanwhile the present programs could continue to
serve the needs of our cities and towns and — as they have in the past contrary to
unsubstantiated charges of the Administration -- the needs of low and moderate in-
come families. The housing industry would be able to make the transition to the
new programs, without tVie convulsions to its productive capacity which the suspen-
sions are creating.

803

It is necessary to maintain an orderly transition from present programs to new
or modified programs, without any interruption in Federal assistance, in order to
accomplish the following purposes and objectives:

(a) Avoid hardships and difficulties for those who acted in reliance on
existing laws as described elsewhere in this Report. The suspensions

and terminations of programs constitute a breach of faith to the thousands
of housing sponsors and the many communities which have invested heavily
in housing and community development activities on the expectations they
could carry them to completion under existing laws and appropriations and
frequently the encouragement of Federal officials. They will result not
only in severe financial hardships to these participants, but also in the
disruption in productive capacity so essential to a resumption of the sus-
pended activities.

(b) Meet the unmet needs among those of lovj and moderate incomes who cannot
afford decent housing without HUD assistance and continue to fulfill the
commitment in the I968 Law to achieve the ten-year goal of six (6) million
units of such housing.

(c) Avoid the disastrous economic impact of the reductions in the initiation
and development of assisted housing authorized by existing laws. During
an eighteen-month period, such reductions in urban housing program levels
would reduce expenditures by $2? billion and employment by 3 million man
years.

(d) Enable the completion of pending HUD-assisted housing projects under the
applicable present laws to permit an orderly transition to modified or
alternative programs enacted into law. Sufficient assistance funds should
be provided to finance whatever amendments are necessary to carry these
projects to completion.

(e) Enable the completion of community development and housing programs which
are closely related in the planning and execution of urban improvement
activities.

(f) Enable communities with conventional urban renewal projects in execution
to complete these projects under present laws (Title I of the Housing Act
of 19^9> as amended) rather than under the community development special
revenue sharing system. Sufficient Title I funds should be provided to
finance whatever contract amendments are necessary to carry these projects
to completion, including orderly close-outs.

(g) Continue the current spending levels for community development categorical
grant programs through Fiscal 197'+ to prevent a fall-off in the current
levels of these acti-'/ltles. The Administration's proposed budget for Fis-
cal 197^, by eliminating the funding of these programs, would not permit
an orderly transition to the special revenue sharing system, which would
start in Fiscal 1975 if enacted.

(h) Assure communities that they will be able to protect the private and pub-
lic investments already made in renewal project areas by extending the
boundaries of these areas to the extent necessary to permit feasible
renewal and protect the local and Federal investment previously agreed
upon and contracted for. This protection should apply to conventional
urban renewal projects. Neighborhood Development Program projects, and
Model Cities areas.

99-855 O - 73 - pt. 1 -- 52

804

(i) Enable communities to complete programs for designated large areas under
the Neighborhood Development Program --as permitted by Federal regula-
tions -- even though the Federal and local governments realized that the
renewal of these large areas had to be funded and undertaken in smaller
annual increments over a period of several years. Otherwise, there would
be a breach in the general understanding that the renewal of these large
areas was to be completed over a period of time in compliance with Federal
regulations.

The first imperative for meeting our housing goals is full funding and full
use of all authorizations contained in the housing laws. We urge that Congress
move quickly to enact authorizations for our present housing programs since there
are no authorizations available for public housing and (except for carry-overs)
for Sections 235, 236 and Rent Supplements for Fiscal 197^ beginning on July 1,
1973. We recommend the following legislative authorizations and appropriations:

On July 1, 1973, for Fiscal 197I+ an additional authorization of
$300 million for Section 235;

On July 1, 1973, for Fiscal 197^+ an additional authorization of
$300 million for Section 236;

On July 1, 1973, for Fiscal 197U an additional authorization of
$100 million for Rent Supplement program; and

On July 1, 1973, for Fiscal 1974 an additional authorization of
$i+00 million for Public Housing.

We urge the foregoing authorizations and full funding in the foregoing amounts
for Fiscal 197^ and advance authorizations and funding in like amounts for Fiscal
1975.

As to the community development special revenue sharing program, last year's
Senate Bill provided for a two-year Federal authorization with obligation authority
of $5.9 billion of which $2.7 billion would become available on Jiily 1, 1973^ and
the balance of $3.2 billion would become available prior to July 1, 1975- In view
of the major programs which would be merged into the proposed Community Development
Program and in order to assure adequate financing and continuity, NHC recommends a
three-year authorization of Federal funding at higher levels than in the Senate-
passed bill. NHC recommends a three-year program of $12.1 billion, with $3.7 bil-
lion available for obligation in the first year and $4.2 billion in each of the
second and third years.

Until the authorization for the Community Development Program becomes available
on the beginning of the fiscal year after legislative enactment, there should be an
orderly transition from the present categorical grant programs to the special re-
venue sharing programs. Accordingly, we recommend authorizations and appropriations
for Fiscal 1974, commencing on July 1, 1973j which wovQd equal $3.7 billion to cover
the categorical grant programs that would be consolidated under the Community Devel-
opment Program.

805

Ik. RELIEF OF HARDSHIPS CAUSED BY IMPOUNIMEiyrS ,
SUSPENSIOMS, AND TERMINATIONS

The precipitous action of the President in impounding appropriated funds and
contract authority and suspending or terminating programs should in no event be re-
troactive with respect to pending plans, applications, and projects of intended par-
ticipants in programs. They acted in reliance upon legislative authorizations and
appropriations under the HUD-assisted programs which were suspended or terminated on
the dates listed above. It would be most unjust and inequitable to deny further
participation in these programs which have long been a part of Federal legislation
and which have been relied upon by private citizens or public agencies who acted in
good faith, often with assurances or encouragement from the Federal officials admin-
istering the programs. This is another reason why these programs should be con-
tinued during any transition or re-evaluation period until other programs are made
effective and also thereafter with respect to projects initiated under present legis-
lation.

By way of illustration -- and not as a complete list — we cite some examples
of cases that demonstrate the kinds of hardships and difficulties that will result
unless relief is granted by lifting the moratorium and pro\'lding adequate funds
under the budgets for Fiscal 1973 and 197^. To avoid serious difficulties which
would result, with large losses to the parties involved — and hardships to the
consumers -- we recommend that commitments for subsidy assistance be issued in the
following types of cases :

(a) To date, HUD has not issued instructions enumerating what types of HUD-
assisted housing projects would be recognized as justified exceptions to
fulfill specific program commitment's or to relieve hardships. However,
it has cited two examples of such justified hardship exceptions which are
described in the following sub-paragraph. Moreover, HUD has not estab-
lished any exception categories for the fulfillment of specific program
commitments or otherwise under community development programs.

(b) HUD has cited two examples of the type of projects which justify excep-
tions, namely:

(1) Cases which involve succeeding sections of cooperatives in which the
project concept has been approved and the first section had been given
a feasibility letter before January 5, 1973, with succeeding sections
covered by fund reservations before then where the succeeding sections
are required in order to support the community facilities. This ex-
ception should be extended to cover such succeeding sections of coop-
eratives and other types of projects (i) which are not covered by
fund reservations or (li) which were funded before January 5> 1973 »
but received feasibility letters after December 15, 1972, that were
later withdrawn because HUD deteitnined there had not been quality
processing by its offices.

(2) Cases involving state-aided projects where the state has proceeded
with the project in reliance upon the reservation of funds before
January 5, 1973, and no feasibility letter from HUD was required.
HUD has recognized as justified exceptions cases where the state
agency was providing the loan financing so that no HUD feasibility
was required. This should be extended to cover cases which do not
have a feasibility letter, but where a state or commonwealth agency
will provide part of the interest subsidies, but not the loans.

806

(c) We recommend that HUD-assisted housing projects and community development
programs of the kinds described in the follov;ing sub-paragraphs should be
recognized as justified exceptions. These exceptions would be justified
in order to fulfill specific program commitments or to relieve hardships
or for other meritorious reasons.

(d) On 236 projects which were planned to be developed in sections, HUD offi-
ces have provided funding or assurances that the remaining sections of the
housing developments would be assisted. Acting in reliance thereon, the
developers acquired all of the land and installed over-size utilities to
serve the entire developments. Community birildings and facilities were ,,
constructed in the earlier sections which require the later sections of
the developments to contribute their share to support the community build-
ings and their operations. Consumers are awaiting occupancy of the hous-
ing and have changed their housing plans accordingly.

(e) In conventional urban renewal and neighborhood development project areas
where HUD has approved a planning advance or execution funds, the following
actions are necessary to enable the contemplated renewal projects to be
carried out:

(1) to construct the HUD-assisted housing planned for such areas;

(2) to provide the relocation housing planned on the assumption that
these subsidies would be available; or

(3) to meet the statutory requirements applicable to projects where the
planned reuse is predominantly residential and the subsidized units
are necessary. Among these requirements are: (i) the necessity to
show that 50^ or more of the units to be constructed in predominantly
residential reuse renewal projects in the community are for residents
with low or moderate incomes; (ii) the need to show that at least 20^-.
of all units in such projects are for residents with low incomes; and
(iii) the need to show that a replacement housing unit will be made
available for every occupied housing unit removed from a renewal area.

(f) Communities have committed themselves to provide, as agencies of last
resort, subsidized housing units to carry out the relocation or other
requirements of urban renewal or neighborhood development projects —
or projects in model cities areas -- for which planning advances or
execution funds have been approved.

(g) Communities have proceeded to make development plans for subsidized hous-
ing as contemplated in a Federally approved Workable Program for Community
Improvement or in understandings reached in negotiations for Federal-local
Annual Arrangements made with local councils of governments. In addition,
exceptions should be granted where subsidized housing is required in order
to meet project selection criteria.

(h) HUD-assisted housing is required for new communities which are being built
with private financing involving a Federal guaranty for which a charge is
made. The law and the HUD contracts require that some of the housing in
these new communities must be provided for those of low and moderate in-
comes. These new communities were undertaken with the understanding that
there would be liUD assistance to enable this housing to be built. New
industries, hospitals, and community facilities are being located in the

807

new communities, v;hich employ some people who will be tmable to afford the
housing to be built unless they get HUD assistance.

(i) Firm commitments under Section 235 should be issued pursuant to prelimin-
ary reservations of 235 contract authority or pursuant to conditional com-
mitments which have been issued and are outstanding; also, relief and ex-
ceptions should be granted for hardship or meritorious cases.

(j) In addition to the illustrative types of HUD-assisted housing cases listed
above, there are other cases involving program commitments, hardship or
meritorious and productive cases, where relief and exceptions should be
granted for the following purposes: (l) project rehabilitation; (2) relo-
cation housing; (3) housing for the elderly, Indians, or disaster victims;
and (h) college housing. The hardship cases include planned housing devel-
opments in which subsidy funding has been provided or assured by a HUD
representative, including feasibility letters issued between December 15,
1972 and January 5^ 1973 which HUD later withdrew because HUD determined
there had not been quality processing by its offices. The sponsors, devel-
opers, and public agencies acted in reliance on such funding assurances and
invested heavily in preparing plans, filing applications, and making com-
mitments for the HUD-assisted housing projects. Relief and exceptions
sho\ild be granted in these cases involving public housing -- including
conventional, turnkey, or leasing programs -- rent supplements, or Sec-
tions 235 and 236. Similar relief should be granted for specific program
commitments, hardship and meritorious cases in housing assisted by the
Fanners' Home Administration or loans from the Rural Electrification
Administration,

(k) Cases involving loans or grants under Section IO6 to provide seed capital
to non-profit organizations for HUD-assisted housing projects on which
the organizations have proceeded in reliance upon feasibility letters or
reservations of funding which HUD should honor.

(1) Communities have designated large areas for treatment under neighborhood
development programs, even though HUD and the local governments realized
that the renewal of these large areas had to be funded and undertaken in
small increments over a period of several years. The termination of funds
for these areas would be a breach of the general understanding that there
would be a completion of these large areas, the boundaries of which had
received Federal approval. Unless HUD urban renewal assistance is pro-
vided to complete these projects, serious difficulties and losses will
result from the actions taken by the communities in good faith in compli-
ance with Federal regulations.

(m) Commiinities with conventional urban renewal projects require continued
assistance to complete these projects under existing legislation. This
includes sufficient funds to finance necessary contract amendments to
carry these projects to completion. Since many of these programs were
initiated some time ago, it is necessary to compensate for inflationary
increases in costs in order to enable the proper completion of on-going
programs, rather than requiring the scope of the program to be cut back
to meet the limits of past funding.

(n) In addition to the illustrative types of community development projects

listed above, there are other cases of specific program commitments, hard-
ship or merit where relief and exceptions should be granted u-~lc-r ■■be

808

following programs: (l) water and sewer facilities; (2) urban renewal;
(3) model cities; (4) public facilities loans; (5) neighborhood facili-
ties; (6) open space land; (?) rehabilitation loans; (8) community devel-
opment training and fellowship programs; and (9) supplementary grants for
new communities.

(o) The unique situation of rural areas must be considered. There is no
"pipeline" of Farmers Home Administration subsidized housing, as there
is of HUD-assisted housing. Merely because of different administrative
procedures, rural areas will suffer greater damage from the housing mora-
torium as all subsidized housing starts will end sometime this spring.
Rural subsidized housing funds should be released in an amount adequate
to provide for a reasonable level of housing starts.

In his speech before the National Housing Conference, Senator Spartanan pointed
out the urgency of action by HUD to relieve the hardships which have resulted from
the sudden cutoff of promised funds for individual projects:

"Regardless of how the impoundment issue is resolved, the sudden apd
arbitrary cutoff of promised funds for individual projects is an indict-
ment of the integrity and creditability of the Federal Government. Com-
mitments and promises whether verbal or written, should be no less hon-
ored by Government than they are by individuals. It is not fair that
financial losses incurred by the arbitrary cutoff be borne by church
groups, labor unions, homebuilders, and a variety of public and private
citizens who, in good faith with the cooperation and understanding of
the local HUD officials, proceeded to spend money and make plans. I have
received a letter from one church group which indicated a possible loss
of ^250,000 in front -end, money that will be lost as a result of the sudden
cutoff of funds.

"One strange element in this matter is the sudden scrupulousness of
Washington HUD office, which sent couriers to every Area Office to check
decisions made by that office and, later, to override that office if some
underwriting material or procedure were missing in connection with Section
236 feasibility letters. This is a strange twist on the rhetoric about
Area Office autonomy and local decisions, closest to the people away from
the bureaucracy of Washington, being the best decision."

VJe are pleased to note from Senator Sparkman's statement that he intends to
pursue a course of action: "To work with the Administration for a short-run solu-
tion to clarify the January 8 impoundment order, to help provide relief for hardship
cases and possibly to win concessions for meritorious and productive cases. "

MC urges the Administration to provide relief for the specific program commi"^-
ment, hardship, and meritorious cases of the types illustrated by the foregoing list.
Such actions can and should be taken promptly. They do not require any further
legislation. Adequate contract authority is available, particularly for Rent
Supplements and Sections 235 and 236. To the extent more authorizations are
needed to grant relief in public housing or FmHA cases, we urge the enactment of
legislation providing such authority.

809

15. CONTINUANCE OF OEO PROGRAMS FOR ASSISTANCE TO SUBSIDIZED HOUSING

We oppose the discontinuance of the programs of the Office of Economic Opportu-
nity which have provided vital support and assistance for housing in urban and rural
areas. This has included grants to aid in the initiation and development of non-
profit housing. It also includes the social and medical services funded or provided
through OEO for housing designed to serve those of low and moderate incomes.

The continuance of such support for tenant services in public housing and other
subsidized projects is essential to improve the quality of life and achieve better
communities. Without such continued social and medical assistance to the residents,
great damage could result to existing public and other subsidized housing.

16, HUD-ASSISTED HOUSING PROGRAMS TOICH
HAVE GENERALLY BEEN EFFECTIVE

Studies show that the Section 235 and 236 programs have generally been effec-
tive in meeting their objectives and that their continuance is imperative to pro-
vide housing which is urgently needed by those of moderate incomes. Most of the
complaints and criticisms about these programs did not Involve new construction or
rehabilitation of housing under Sections 235 and 236. They primarily Involved ex-
isting housing -- much of it under unsubsidized programs -- where there were in-
stances of overcharging and failure to meet proper standards.

The adoption of the consumer amendments in the House Bill — H. R. 16T04 as
reported last year by the House Banking and Currency Committee -- will help assure
that past abuses and difficulties in these HUD programs will be avoided. We support
those amendments which provide that all housing receiving HUD assistance or mortgage
insurance must be of good quality and at reasonable prices and rents. We also sup-
port the other improvements in housing subsidy programs which were in the Housing
and Urban Development Bill of 1972 that passed the Senate last year, but did not
reach the House Floor for action last year.

The proper procedure for the re-evaluation of HUD-assisted housing programs
is through the legislative process. Including Conmittee hearings: and Congressional
debates, with Presidential action on the Bill as it passes the Congress. It is
hoped that the Administration will present its proposals to the Congressional Com-
mittees and that other v;ltnesses will have an opportunity to respond to them. The
HUD-assisted programs should be continued with modifying amendments which will im-
prove them. Pending such Congressional modifications, these programs should be
continued in force to avoid the disastrous results which would result from their
present suspensions or terminations by the President.

These NHC conclusions are supported by Senator Sparkman in the statement he
made in the Senate on January 3I, 1973- As indicated in a quotation below. Senator
Sparkman states that the Congress has been constantly alert to weaknesses that de-
velop in housing and urban development programs and that it has corrected thera as
they were brought to its attention. He points out that the 1972 Housing Bill that
passed the Senate had many outstanding improvements to make the subsidy programs
Fore efficient and effective in solving the housing problems of the Nation. Senator
Sparkman concludes that many of the problems are not due to the design of the basic
Isw, b\it the HUD maladministration of the law.

In a speech before the National Housing Conference, Senator Sparkman made the
following additional rebuttal concerning the charge that foreclosure rates have been
excessive in these programs:

810

"Adverse publicity would lead one to believe that the construction
of subsidized housing has been shoddy and defective and that the default
and foreclosure rate is excessive.

"Most of this publicity arises out of a fev; extremely bad local
situations. Particularly cited is Detroit^ where speculators had a hey-
day; also, where the courts intervened and put a few in jail. The facts
are that the Detroit cases were almost completely insured under the non-
subsidized 221(d)(2) program which, by the vjay, was not affected by the
cutoff,

"Foreclosures under the 235 and 236 programs are surprisingly low.
Under 235, the foreclosures and assignment rate for Fiscal Year 1972 was
about k percent. Under Section 236, the rate was 1.8 percent,"

IT. HOUSING ALLOWANCE PROGRAM IS NOT AM ACCEPTABLE SUBSTITUTE

HUD has activated a two-year experimental program under the 1970 Act to deter-
mine the feasibility of a Housing Allowance Program. We urge that this program in-
volve explorations to determine whether federal housing allowances will add to the
inadequate supply of standard housing and whether adequate housing can be provided
at a cost which does not exceed the cost under existing programs. We are also con-
cerned about federal housing allowances inflating housing charges by creating compe-
tition for a limited supply of housing. Until the results of the HUD experimental
program are available and determinations are made on these major questions, we
recommend that there be no further expansion of the Housing Allowance Program.

There have been proposals that a Housing Allowance Program be adopted to re-
place present housing subsidy programs. The Housing Allowance Program should not
be regarded as an acceptable substitute for present programs.

If housing allowance funds were recommended in amounts sufficient to take care
of all people of low and moderate incomes in need of decent ho\:ising, the immediate
impact on the Budget would be so large as to preclude the likelihood of its approval
by the Executive Branch and the Congress. Moreover, if such a program were adopted,,
it would greatly inflate the charges for the limited supply of available housing
which meets proper standards. If we tried to produce all of this housing at one
time to meet the needs of all who would qualify for housing allowances, there
would be an inflation in the cost of the land, materials and labor required to
produce the housing.

The only way to avoid such inflation would be through a program which would
make housing allowances available gradually on a small scale. However, when checks
are being mailed for housing allowances, all people who are eligible will want and
expect their checks when a distribution starts. This is different from the present
programs where the subsidies are properly tied to the additional housing production
which is required. People understand that they have to wait their turn until the
additional housing is produced at an annual rate which is geared to the productive
capacity of the building industry and which avoids inflating housing costs.

811

l8. PRESHEOT'S ACTIONS ARE UCTJARR'\M'ED AIH) TOJUSTIFIED

In a speech on the Senate Floor on January 31> 1973> Senator Sparkman brought
to the attention of the Senate the recent announcement by the President of an 18-
month moratorium on most of our Federal housing and urban development programs. He
stated:

"The first shock of the President's proposed moratorium came from a
rumor around the end of last year. In an attempt to forestall it, I sent
a telegram to the President on December 29 pointing out that a plan to
cut off subsidies for housing would be a clear violation of the intent
of Congress and the housing laws requiring Federal assistance for the
elimination of slums and blight and the provision for a decent home for
every American family. It would also represent a breach of faith on the
part of our Government to the poor and ill-housed of the Nation and could
seriously affect unemployment and the economy. "

The vniite House replied to Senator Sparlonan's telegram by a letter written by
Mr. Kenneth R. Cole, Jr. , Director of the Domestic Council, who stated that the
President had asked him to respond to the Senator's telegram. These communications
and Senator Sparlcman's remarks appear in the excerpt from the Congressional Record
of January 31^ 1973 attached hereto as Exhibit "A". We will summarize and respond
to each of the points made in Mr. Cole's letter.

In the announcement concerning the moratorium, Mr. Cole's letter states that
the moratorium is intended to provide an opportunity to reevaluate the current pro-
grams. We urge that this evaluation of present programs proceed with all possible
dispatch, while existing programs are continued in operation during a transition
period. Vfe offer the Administration the full resources of our organization to help
in the study and evaluation of existing programs. We hope that the Administration
will avail itself of this opportunity to obtain the benefit of the knowledge and
experience of NHC which have been involved in these programs for so many years.

(a) Mr. Cole's letter states that the moratorium Is intended to provide an
opportunity to re-evaluate the current programs and that the suspension
will stop further spending commitments until better programs can be
designed.

We believe that the proper procedure for the re-evaluation of HUD-assisted
programs is through the legislative process. The Administration should present its
proposals to Congressional Committees, so that other witnesses will have an opportu-
nity to respond to them. After Congressional hearings and debates, the Congress
should act and send the Bill it passes to the President for his action. This is
the procedure which Senator Sparkman intends to pursue on 1973 housing and consmunicy
development legislation as he stated on the Senate Floor. Pending such Congres-
sional modifications, these programs should be continued in force to avoid a disas-
trous effect on housing and community development programs and the serious impact on
the Nation's economy and human welfare.

(b) Mr. Cole's letter states that the suspension of housing programs will not
involve an abrupt cessation of subsidized housing production, which will
continue at an annual rate of about 250,000 for the next l8 months. He
further states that the proposed rate of housing production should prevent
start-up problems for alternative housing programs which may begin later.

812

We wish to point out that -- as shown in the President's budget -- the housing
starts for Fiscal 1973 will be 62,000 units less than in Fiscal 1972 and 102,000
less than in Fiscal 1971. For Fiscal 197^, the housing starts will be 98,000 less
than Fiscal 1972 and 1^+8,000 less than Fiscal 1971. This indicates the drastic
cuts in housing starts i-esulting from the impoundments and suspensions of HUD-assisted
housing programs. Mr. Cole's letter only discusses the rate of housing starts.
These are attributable to projects that are already in the pipeline and were pre-
viously initiated. To get a true measure of the effect of the President's impound-
ments and suspensions to housing programs, we must look at the reductions in the
program levels of housing for low and moderate income groups.

The program levels in Fiscal 1973 will be 232,000 units less than they were in
Fiscal 1972. The program levels in Fiscal ISJk will be 397,000 units less than
they were in Fiscal 1972. Thus, there will be a cut of 629,000 units in HUD-
assisted housing commitments made during the eighteen month period until June 30;
1974. The total economic impact of this cut will be a reduction of $27 billion in
expenditures and 3 million man years in employment. These figures do not include
the impact caused by the impoundments and budget cuts in the community development
programs.

The foregoing Presidential suspensions and impoundments will have an adverse
and serious impact on the economy in both Fiscal 1973 and 197^. However, the most
disastrous effect will occur in Fiscal 1975} starting the middle of next year. The
reductions of •'p27 billion in expenditures and 3 million man years in employment due
to the lower program levels of HUD-assisted housing --in addition to the further
impact of suspending or terminating comm\xnity development programs and suspending
other social, health, and welfare programs -- will contribute to the possibility of
a recession occurring before the middle of next year as forecast by some leading
economists.

There is a time lag in a typical project of as much as eighteen (l8) months
from the initiation of a project to the start of construction. The housing starts
for Fiscal 1973 and 197^1 will use up the pipeline of projects previously initiated
and committed. By Fiscal 1975, there will be no pipeline of previously committed
projects. Even with the present productive capacity to initiate and develop pro-
jects, it would then take about eighteen (iB) months to get projects to the start
of construction. However, if all HUD-assisted programs are suspended, there will
be a destruction of that productive capacity which is now initiating HUD-assisted
housing. Then we will be unable to achieve housing starts for an even longer period
following the lifting of a moratorium and the effective date of modified or alter-
native housing programs.

(c) Mr. Cole's letter states that the President intends to meet the commit-
ments to the elderly, the Indians, disaster victims, local governments,
and Federal programs, among others.

In his speech. Senator Sparlonan points out that without continuing Federal
assistance for housing, there will be a breach of faith on the part of our Govern-
ment to the poor and ill-housed of the Nation and the Nation's cities will be
frustrated in carrying out their public improvement programs. He also points out
that the sudden cut off of commitment authority will be financially disastrous to
the thousands of sponsors who have already invested heavily in preparing plans for
housing projects.

It is not enoxigh to merely honor legal contract commitments or specific program
commitments and the HUD-qualified feasibility letters issued by January 5, 1973-

813

Even though sponsors, public agencies, and private developers have not received
such conmitments or HUD-qualiiied feasibilities, they had a right to rely upon the
lav;s enacted by the Congress and signed by the President, which laws viere imple-
mented by Executive action- They acted in good faith. Often they received funding
and other assurances on their projects from the HUD officials administering the
programs. In some cases they received feasibility letters between December 15,
1972, and January 5, 19T3 which HUD later withdrew because it determined there had
not been quality processing.

These sponsors and developers made large expenditures in acquiring land, pre-
paring plans and filing applications. There have been changes of plans by the con-
sumers awaiting occupancy of the housing. The impoundment of appropriated funds
and contract authority and suspension or termination of programs should not be
retroactive with respect to pending plans, applications, and projects of intended
participants in the programs. Since no action was taken to repeal or modify the
laws authorizing these projects, commitments should be issued by HUD to complete
these projects and avoid disastrous losses to participants in the programs; also
to provide decent housing for the families living in sub-standard housing who can-
not afford such housing without the Federal assistance.

(d) Mr. Cole's letter states that "most critics hold the misguided view that
the poor are actually benefiting from all the programs now". He further
states that "the present system . . . C.oes not serve the intended benefi-
ciaries, the poor." He also states that "the programs have not improved
greatly either their housing or their living environment. "

All of the housing programs are not intended to serve the poor. The Section
235 and 236 programs serve those of moderate incomes. This is the income group
intended to be reached by the interest subsidy available under these programs.
Those subsidies are not large enough, and were never intended to be, to reach the
poorer income group. As to the poor, both the public housing and rent supplement
projects provide larger subsidies '..'hich do reach them as the intended beneficiaries.
On the Senate Floor, Senator Sparkman made the following statement concerning the
improvements achieved in the quality of housing for low- and middle-income families
over the past twenty (20) years:

"The othei- issue is, of course, the effect of the elimination of
these programs on our people and the damage to the progress that we be-
lieve is being made on the elimination of slums and blight in our cities
and on the attainment of a decent home for every American family.

"Contrary to criticisms (of) some of our housing and community
development programs, I believe they have been effective and have, for
the most part, served their purpose. The quality of housing for low-
and middle-income families in this Nation have steadily improved over
the past 20 years.

"Me have been able to eliminate many deplorable slums and I believe
have made reasonably good progress toward the national housing goal. "

(e) Mr. Cole's letter states that the President is committed to seeing that
the Federal Government meets its legitimate responsibilities in housing,
but that the solutions must be equitable. They must serve the taxpayer
and the needy. He further states that the present programs have created
false expectations and disappointments, so we need alternatives that meet
the real needs.

814

We do not agree that the present programs have created false expectations and
disappointments. Evidently the Administration believes that it isn't fair to the
taxpayer or intended recipients to have a program which serves onlj' some of those
who fall within the group intended to be benefited. At any point in time, the
housing program can serve only those who apply and qualify for the amount of hous-
ing provided with the funds then available. As to those v;ho cannot be taken care
of at that given point in time -- because an insxifficient number of housing units
have been produced by that time -- the programs evidently are regarded as having
created false expectations and disappointments.

If we accepted that position, we would be led to the conclusion that if you
can't build enoLigh housing to serve everyone at any one time, then we shouldn't
build any assisted housing and shoiadn't help anyone. In short, we should either
serve all of the poor at the same time or none of them.

It is not possible to build all of the necessary housing at one time, nor is
it desirable to do so, because this would over stimulate the economy and contribute
to inflation. The rate of housing construction should be geared to the productive
capacity of the construction Industry and the availability of manpower and materials.
The goals in the I968 housing law contemplate serving all in need of housing by
building at a certain rate over a ten-year period. It hardly serves the poor to
stop a program which will add each year a supply of housing at a monthly cost which
the poor can afford, particularly when the annual production over a ten-year plan
is geared to produce enough to meet all of the housing needs.

NHC supports those provisions in the existing law which provides housing pro-
grams which not only serve the poor, but also serve those of moderate incomes who
cannot afford to obtain decent housing without Federal assistance. We should not
discriminate against people who are trying to help themselves by working and earn-
ing as much as they can and staying off the welfare rolls. Often this involves
employment by both the husband and wife.

Yet many of these self-reliant families do not earn enough to afford decent
housing. The amount of the assistance is reduced as family incomes increase. With
the upward mobility of these families, many reach the point where they no longer
require interest assistance after a few years.

The present housing programs are fair and equitable because they do not dis-
criminate against the moderate income group by denying them decent housing which
they cannot afford, while at the same time providing decent housing for poorer
families who require substantially higher subsidies. As recommended in our main
legislative Report, we urge that future housing projects serve a cross section of
income groups, including those of both the low and moderate income groups. As a
matter of public policy, this is vitally important to help achieve more wholesome
and stable housing communities.

(f) Mr. Cole's letter states that the program structure we now have cannot

possibly yield effective resiilts, even with the most professional manage-
ment. Also, that the programs, for the most part, have proven ineffective
in meeting housing needs.

As Chairman of the Senate Committee which has held extensive hearings on hous-
ing and urban development programs. Senator Sparkman has closely followed the pro-
gress of these programs. We quote his conclusions concerning their operations which
are a full and complete answer to Mr. Cole's statement that present programs have
been ineffective:

815

"l know there have been weaknesses in some of our housing and urban
development programs. Seme of these are due to deficiencies in the law
but we are constantly alert to such matters and have corz'ected them as
they are brought to our attention.

"I do not deny that considerable more work needs to be done and,
in fact, the 1972 housing bill that passed the Senate but failed in the
House had many outstanding improvements to make the subsidy programs
more efficient and effective in solving the housing problems of the
Nation.

"The most serious blasts have been leveled at the FHA interest sub-
sidy programs which for the most part have been motivated by apologists
for maladministration in HUD and by those who are unduly concerned about
the long-range budget impact. The implications have been that they are
not effective and are not serving the family groups for whom they were
intended, and are wasteful of subsidy funds.

"Most of these charges are false. For example, everyone has read
about the serious FEA foreclosures in the run-down areas of Detroit.
Misinformation was spread that the fauJ.t was in the FHA section 235 in-
terest subsidy program, and no one from the administration took the
trouble to correct the record that it was not the section 235 program
but the nonsubsidized section 221(d)(2) program. This latter program
requires meticulous staff administration in inspecting older homes and
in counseling lower income families seeking homeownei'ship. This was not
done in the Detroit FHA office.

"The problem was not the design of the basic law but the adminis-
tration of the law. It was demonstrated time and again that, if the HUD
staff had functioned as required, the massive defaults would never have
occurred.

"One of the most effective programs for the people in small towns
cut off by the President's order is the water and sewer grant program.
I know of no scandal or substantive criticism ever made in this program
and it is one of the most desirable programs on the books to help so
many people get clean water. I can not understand why it would be cut
off. "

(g) Mr. Cole's letter states that the President is firm in his commitment to
unite the community development programs into an Urban Community Develop-
ment Revenue Sharing Program. Until the development activities are
folded into the revenue_ sharing proposal, he states that there will be
a suspension of new commitments for grants for water, sewer, and open
space and for public facilities loans.

In fact, the President's budget terminated all of the categorical grants for
community development programs as of either January 5, 1973 or June 30, 1973.
Moreover, the budget does not contemplate that any funds would be made available
under the proposed special revenue sharing for comnunity development until Fiscal
1975 J so there would be no funding for either the categorical grant or special
revenue sharing programs involving community development during Fiscal 1974.

Ml-. Cole's position this year represents a retreat from the program which the
Administration supported last year. . Last year, the Administration recommended that

816

the categorical grant programs be continued during a transitional period until the
cotranunity development special revenue- sharing system became effective.

There is an urgent need to maintain adequate and uninterrupted levels of commu-
nity development activities during any period of transition from the categorical
grant system to the block grant system of special revenue sharing. There should be
no reduction or disruption of the activities which are necessary to maintain and
continue adequate community development programs.

Last year, WHC supported the community development special revenue sharing
system as embodied in the Bill enacted by the Senate, but which did not reach the
House Floor for action. However, our support of thax legislation was and is con-
ditioned upon the continued availability, at an adequate level, of categorical
grants for community development programs until special revenue sharing becomes
effective. We recommend that any legislation providing for a community development
revenue sharing program include provisions for the release of the President's im-
poundments, suspensions, and terminations on HUD-assisted housing programs and com-
munity development programs.

19. MORATORIUM EXCEPTIONS FOR FmHA PROGRAMS

Viewed against the concepts spelled out in Mr. Cole's letter as forming the
basis of the President's housing decision, the Farmers Home Administration subsidy
program should be granted exceptions from the moratoriTJm.

There is no transitional period for the construction of subsidized rural hous-
ing since there is no pipeline in the FmHA process as there is in the HUD process.
As the Department of Agriculture itself noted in its news release of January S, all
construction activities in rural areas will come to a halt at the end of the coming
spring building season. Thus, there will be no opportunity in rural areas to ease
the impact and prevent start-up problems for alternative housing programs which may
begin later as there is in the urban programs.

The Farmers Home moratorium makes no reference to the HUD exceptions referred
to in Mr. Cole's letter for elderly or local government programs of which housing
may be an essential part.

No questions have been raised as to the ability of Farmers Home to administer
its programs. The Farmers Home programs have few fiscal failures. The homeowner-
ship foreclosure rate is less than two per thousand units and dollar losses are
less than a half percent of loaned funds.

In building viable rural communities, a healthy home-owning tax base is to be
encouraged. This has been accomplished by the 502 programs with and without inter-
est credit.

Mr. Cole's letter to Senator Sparkman appears to ignore the needs and condi-
tions of rural areas.

20. OPERATING SUBSIDIES TO MEET DEFICITS IN PUBLIC HOUSING PROJECTS

As previously stated, the suspension of HUD-assisted housing programs as of
January 5> 1973 did not apply to the payment of operating subsidies to meet deficits
in public housing projects. The President's budget contemplates the payment of

i

817

$?50 million of such operating subsidies for Fiscal 1973> tut it reduces this
amount to $280 million for Fiscal 197^. It is imperative that at least $500,000,000
be appropriated for each of Fiscal Years 19T3 and 197^ for operating subsidies in
public housing projects.

These operating subsidies are necessary to offset the loss of rental income
in public housing which has resulted from the Federal statutory limit -- the Brooke
Amendment -- placed on the percentage gross income to be paid by the tenants of pub-
lic housing units. The Federal Government is committed to make these payments
under contracts made by it pursuant to Federal lav;s. Sufficient operating subsidies
should be provided to every public housing agency to cover:

(a) adjustments for inflation;

(b) reimbvirseraent for losses on welfare families and others whose rentals
viere reduced by the limitations in the Brooke Amendment;

(c) establishment of adequate operating reserves which should be at a level
-- approved by HUD in the past -- which would equal 50^^ of the operating
budget for routine e:rpenses of the housing authority; such increase in
the operating reserves to be achieved over a period of five (5) years;

(d) payments in lieu of local taxes of 10^ of shelter rents including the
opei-ating subsidies vjhich offset reductions in such rents required by
the Brooke Amendment;

(e) deferred maintenance;

(f) modernization; and

(g) tenant services.

All funds authorized for operating subsidies should be promptly released.
There should be forward disbursements In a manner to assure that the operating
subsidies are received by every local public agency in time to meet its payroll
and bills and to fulfill Its obligations as they become due. Moreover, the re-
quired amounts of subsidies should be determined in a realistic manner, taking
into account present price and pay levels and operating costs.

KHC recommends the following amendments in Federal laws relating to the mat-
ters descrihed In the succeeding paragraphs under this heading which — together
with the full payment of operating subsidies as urged above — are necessary to
avoid the bankruptcy of local housing authorities and to restore their financial
stability:

(a) The total rents in all of the housing projects of a local housing
authority should represent 20^ of the total net Income of all its tenants.
Housing authorities should have local autonomy to establish graded rents
for different families to meet this requirement.

(b) Welfare programs should be required to pay rents of welfare tenants in
public housing In an amount v;hlch is not less than the operating costs
attributable to the dwelling based on the operating cost experience with
all of the public housing administered by a local housing authority. V7el-
fare programs shall be required to pay an additional amount to cover the
difference between the required rent under existing formulas and such
current operating expenses.

818

(c) To the maximum extent possible, each housing authority should be required
to have families in their projects v;hich will serve a cross-section of
income levels within the low income range. At least 20^3 of the units
should be occupied by very low income families. Over-Income families
shovild be permitted to continue in occupancy, provided that they pay

25^ of their net income as rent up to the market rent as a maximum.

(d) There should be a coordinated program between HEV7 and HUD to achieve the
foregoing objectives concerning the payment of rents of v;elfare tenants
who live in public housing, along with such necessary adjustments as may
be required by law.

(e) There should be an increase in the authorizations for the construction
of additional public housing and a perfection of the existing public
housing programs in light of our experience, as recommended in Chapter D

'' of the Appendix to the separate MHC report on legislative proposals.

21. 0MB PROPOSED CHANGE IN TAX-EXEMPT STATUS
OF BOMDS OF STATE HOUSING AGENCIES

We oppose the present proposal of the Office of Management and Budget con-
tained in its Circular A-70 which would appear to prohibit HUD from participating
in any activities of any state or public housing finance agency which derives any
of its funds from the Issuance of bonds hereafter that are exempt from Federal
taxation. The adoption of the OMB Circular A-70 would cause further reductions
in the construction of housing for those of low and moderate incomes.

22. WIDESPREAD PRESIDEM'IAL IMPOUNDMENTS, SUSPENSIONS
AND TERMINATIONS OF PROGRAMS ARE CONTRARY TO
CONSTITUTION AND LAWS OF UIOTED STATES

(a) The widespread actions taken by the President in impounding appropriated
funds and contract authority and suspending and terminating programs are
contrary to the Constitution and the laws of the United States. They in-
fringe upon the legislative powers vested In the Congress and upon the
Constitutional separation of powers. They violate the Constitutional
provision that the President "shall take care that the laws be faithfully
executed. " We agree with the following statement in the I969 memorandum
of William H. Rehnquist when he was an Assistant Attorney General:
"With respect to the suggestion that the President has a Constitutional
power to decline to spend appropriated funds, we must conclude that ex-
istence of such a broad power is supported by neither reason nor prece-
dent. " The new Deputy Attorney General appointed by the President has
reversed the opinion previously given by Mr. V?illiam Rehnquist who is
now a member of the Supreme Court of the United States. We disagree
with this reversal by the new Deputy Attorney General for the reasons
set forth below.

(b) The housing and commvinity development programs which the President has
suspended or terminated were enacted by laws which passed the Congress
after customary committee hearings and Congressional votes and were
either signed by the President or enacted into law by overriding a veto
of the President. After enactment of the substantive legislation, a

819

separate appropriation law v;as likewise enacted by the Congress and
signed by the President which included the appropriation of funds or
contract authority to implement the legislative authoi;izations.

(c) Following the passage of the legislative and appropriation acts, the
Executive Branch took action to implement the programs and promulgate
the necessary regulations, directives, and procedures. Those intended
to participate in the programs then acted in reliance upon the laws so
enacted and implemented by the Executive action. Often this entailed
large investments by public or private developers or changes of plans by
consumers vjho properly expected, and relied upon, the assistance being
made available as provided by law.

(d) Without any action being taken to repeal or modify the laws in a manner
prescribed by the Constitution, the President unilaterally took action tc
stop any further commitments or actions to carry out all of the HUD-
assisted housing and community development programs listed above, each

of v;hich was authorized by a Federal law and appropriation.

(e) This action did not involve merely a cut in the level of each of these
programs by some portion of the funds or contract authority available for
commitment. Instead, the President completely suspended or terminated
these programs from and after designated dates. The net effect of the
Presidential action was equivalent to the repeal of the Federal laws re-
lating to each of these programs. Clearly, the Pi-esident does not have
the power unilaterally to repeal all these laws, because the repeal of a
law requires that same type of action as its initial enactment. It is
equally clear that the President cannot, by indirection, accomplish the
same purpose through a unilateral suspension or termination of all further
commitments under the programs established by these Federal laws.

(f) The Administration has cited some historical precedents for impoundings
by Presidents. However, these generally related to delaying or curtail-
ing expenditvires. Instead of a partial reduction in the level of commit-
ments and expenditures, there is a complete stoppage of further activity
in a large number of programs through their suspension or termination.
There have been some isolated historical instances where an individual
authorization of funds was wholly impounded. However, we know of no his-
torical precedent for such a complete stoppage by Presidential action of
so many programs covered by so many laws enacted by the Congress. In a
speech on the Senate Floor, Senator Sparlonan talked about the basic issue
of the:

"authority of the Executive to suspend, terminate, or impound funds
or programs d^oly authorized by law. I am sure that Members of the
Senate are very much aware of this issue and recognize the necessity
of facing up to and developing a policy on how to cope with it.

"In the past. Presidents have impounded certain funds due to
contingencies that arose subsequent to their appropriation by the
Congress. Although individual Members often disagreed with the
judgment used by the President in such cases, the Congress has not
felt the need for specific action to clarify the authority. This
year, I believe it is different. The extent of the Presidential ac-
tion, not only in impounding funds, but in outright termination of

99-855 O - 73 - pt. 1 -- 53

820

statutorily authorized programs, raises a broader question. I am
pleased that Senator Ervin's Judiciary Subcommittee and Senator
Chiles' Government Operations Subcommittee are conducting hearings
on this matter which may lead to a resolution of it."

(g) These Presidential impoundings are part of a broad pattern covering the

stoppage of many of the social, health and welfare programs of the Federal
Government, with particular deprivations among the underprivileged who
most need help. In the case of housing and community development, the
President has suspended nine (9) programs and terroinated six (6) others.
These fifteen (15) programs cover virtually all of the subsidy programs
in HUD.

(h) It happens that these stoppages are occurring in programs involving hous-
ing intended to benefit people of lower income, along with other social,
health and welfare programs. Such actions represent major decisions of
national policy concerning the priorities which should be followed in
allocating Federal funds and resources for commitment and expenditures
within the budget. Surely this is a matter which has so great an impact
upon the Nation that it must be determined not by the Executive Branch
alone, but by action through legislation.

(i) To better enable Congress to exercise Its proper Constitutional powers
and responsibilities concerning legislation and appropriations, we sup-
port and urge the enactment of The Impoundment Control Bill, S. 373,
introduced by Senator Samuel J. Ervin, Jr. Senator Ervin explains the
need and purpose of his Bill in an article appearing in The Washington
Post, February 19, 19T3:

"The Impoundment Control Bill, S. 373, which is cosponsored by
more than half of the Senate, requires the President to notify the
Congress of impoundment actions, and requires him to cease such ac-
tion unless the Congress has affirmatively approved it within sixty
(60) days. To my mind, the President should welcome the passage of
this Bill, because it would give him an opportunity to convince the
Congress that it has over-funded specific programs and would give
the Congress an opportunity to reassess its priorities and to
rearrange them if such action seems desirable. . .

"impoundment amounts to government by decree, and if the prac-
tice is permitted, the collective voice of 535 memliers of Congress
could be overridden by one man. That vjould be government without
law. "

(0) We support the Impoundment Control Bill and other pending bills — includ-
ing the House Bill introduced by Congressman George H. Mahon, Chairman of
the House Appropriations Committee, which is co-sponsored by House Speaker
Carl Albert -- which have the same objective of requiring the President to
cease impoundings which are not approved by Congress. Legislation of this
type should make it possible to continue operations under existing Federal
laws relating to the HUD-assisted housing and commimity development pro-
grams unless and until the Congress concurs in program impoundings. The
legislation should make it clear that its provlsons apply to (i) appropri-
ated funds, (ii) contract authority in appropriation and other legislative
acts, and (iii) suspensions and terminations of programs authorized by law.
For all of the reasons set forth above, it is necessary that these HUD pro-
grams be continued in operation during the period until they are modified
or new HUD programs become effective pursuant to legislative enactments.

821

ADDENDUM
RELATPIG TO RESOLUTIOMS ON LEGISLATIVE POLICY

1. On Page 1 of the Resolutions on Legislative Policy, in Paragraph 1 under Chapter
1, make the following changes:

A. Delete the first three lines and substitute:

The President's budget contemplates the amount of $350 million for op-
erating subsidies to meet deficits in public housing projects for Fis-
cal 1973, but it reduces this amount to $280 million for Fiscal 197^.
It is imperative that at least $500 million be appropriated for each
of Fiscal 1973 and 1974 for operating subsidies in public housing of
projects. These amounts are necessary to meet deficits in public
housing projects, including:

B. Delete clause "c" and substitute:

(c) establishment of adequate operating reserves which should be at a
level -- approved by HUD in the past — which would equal 50?^ of
the operating budget for routine expenses of the housing author-
ity; such increase in the operating reserves to be achieved over
a period of five (5) years;

C. Change the period at the end of the first sentence to a semi-colon and add
the following:

(e) deferred maintenance;

(f) modernization; and

(g) tenant services.

2. On Page 2, in Paragraph k, substitute:

"programs" for "departments"

3. On Page 2 of the Resolutions on Legislative Policy, strike Paragraph h and sub-
stitute the following new Paragraph h :

k. Welfare programs shall be required to pay an amount on behalf of
any welfare tenant in public housing which is not less than the operat-
ing costs attributable to the dwelling based on the current operating
cost experience with all of the public housing administered by a local
housing authority. Welfare programs shall be required to pay an addi-
tional amount to cover the difference between the required rent \inder
existing formulas and such current operating expenses.

h. On Page 2, insert the following new paragraph and renumber paragraph 6:

6. There should be a coordinated program between HEW and HUD to achieve
the foregoing objectives concerning the payment of rents of welfare
tenants who live in public housing, along with such necessary adjust-
ments as may be required by law.

5. On Page 11, insert the following new paragraph at the beginning of Paragraph 39:

Last year, NHC supported the community development special revenue sharing sys-
tem as embodied in the Bill enacted by the Senate, but which did not reach the
House Floor for action. However, our support of that legislation was and is condi-
tioned upon the continued availability, at an adequate level, of categorical grants
for community development programs until special revenue sharing becomes effective.
We recommend that no legislation be enacted for a community development revenue
sharing program unless it contains provisiors for the release of the President's
impoundments, suspensions and termination.=5 on HUD-assisted housing programs and
commiinity development programs.

822

The Chairman. The next witness will be Mr. Arthur Abba Gold-
berg, representing the Section 23 Leased Housing Association.

STATEMENT OF ARTHUR ABBA GOLDBERG, PRESIDENT, SECTION
23, LEASED HOUSING ASSOCIATION; ACCOMPANIED BY CHARLES
L. EDSON, GENERAL COUNSEL

The Chairman. We will be glad to hear from you, sir.

Mr. Goldberg. Thank you. Senator Sparkman.

There has been a prepared statement which is, I believe, with the
staff of the committee. I will be departing in many places from that
prepared statement.

The Chairman. Yes; we will insert it in the record (see p. 829).

Mr. Goldberg. Mr. Chairman, and members of the committee, my
name is Arthur Abba Goldberg. I am here today in my capacity as
president of the Section 23 Leased Housing Association. In that today
is the 23d day of July, I must wonder about testifying on the section
23 program. We hope that the similarity of day and section number is
a good omen ; not a bad omen.

In my private capacity, I am vice president, Matthews & Wright,
Inc., a New York City investment banker specializing in tax exempt
financing of public purpose projects. I am accompanied by Charles L.
Edson, Esq., of Frosh, Lane & Edson, P.C, Washington, D.C., gen-
eral counsel to the Section 23 Leased Housing Association.

The association includes developers, financial institutions, and local
housing authorities who either develop, finance, manage, and/or lease
housing for low-income Americans under section 23 of the U.S. Hous-
ing Act. Officers represent financial institutions, LHA's and developers
in the States of New York, California, Maryland, Tennessee, and Kan-
sas. Twelve directors further represent an additional cross section of
geographical areas and professional capacities.

Our organization, formed in early 1972 with 5 members solely from
tlie private sector who believed in the viability of this little-known
])rogram, now has nearly 50 members covering a broad spectrum of
both private industry and local housing authorities. Many of the mem-
bers are institutional which means that they may have four or five
individuals actually participating in the organization.

In addition to representing the interests of the section 23 program
before Congress and HUD, the association publishes a monthly news-
letter, conducts seminars, and otherwise serves as an information serv-
ice about the program.

We attribute our remarkable growth — more than tenfold in the past
year, and in not the best of times — not so much to the merits of our
association but to the inherent strength of the section 23 program in
housing low-income Americans.

A few statistics chart the significant role that section 23 plays in
housing low-income Americans. As of December 31, 1972, a total of
151,000 section 23 units were under annual contributions contract —
ACC — out of the approximately 1.25 million total public housing
units under ACC. Of these, 66,000 are units that have been, or will be,
constructed by private owners specifically for the purpose of leasing
to an LHA. An additional 27,000 of these units have been rehabilitated
and then leased to local authorities and 59,000 are in existing struc-

823

tares. This impressive total — over 121/^ percent of all units under
ACC — has been reached in the 8 years that section 23 has been part
of the U.S. Housing Act, thus showing the popularity and effective-
ness of this vital tool of housing policy.

The section 23 program has been popular across the board. The
policymakers, Congress, demonstrated their support by their 1970 re-
quirement that at least 30 percent of all new housing units be under the
leasing program. The implementers, the administration, at least until
January of 1973, had emphasized the program, especially its construc-
tion for leasing aspects. The commentators, for example, the Urban
Institute, in its comprehensive study of the progi'am, gave the pro-
gram a most favorable report as published in tJie "Compendium of
Papers" submitted to the Joint Economic Committee, Congress of
the United States of October 9, 1972.

What are the factors which we identify as contributing to the
program's success ?

First, it involves an ideal joint venture between local government
and private enterprise, using the best exj^ertise of both sectors. The
units are owned privately, not by the LHA. The private owner gen-
erally manages the units itself or is responsible to insure that the man-
agement is done properly. In the cases where a unit is managed by the
local housing authority under contract with the private owner, the
local housing authority will receive extra compensation, thus en-
abling it to hire more persomiel and therefore manage the housing
more effectively. This "partnership" between the private owner and
the local housing authority serves as a check on each other to assure
proper maintenance of the units and that all other provisions of the
lease will be adhered to. This beneficial watchdog relationship is not
present in any other Federal program.

Another watchdog aspect of the marriage of private enterprise and
Government involves the method of financing section 23 projects,
whether it is done by banks or savings and loan institutions under a
conventional mortgage loan or through the issuance of tax-exempt
bonds of a nonprofit corporation fonned for the purpose of supplying
the housing to an LHA. The financing of Section 23 is done privately
and thus affords another check on quality of housing and the con-
tinuity and maintenance aspects. The lender has the obvious interest
of protecting his loan and therefore must be concerned with the
quality of both the initial construction and the long-term manage-
ment.

My firm, Matthews & Wright, Inc., does a great deal of this financ-
ing, and we require constant reports from both the nonprofit owner
and the local housing authority as to the quality of housing, as to
maintenance, as to rent roles, and as its general economic feasibility.
I am sure that we are representative of the industry in this regard.

Second, units leased to an authority under section 23 pay full ad-
valorem real estate taxes unless the community voluntarily abates it.
Conventional public housing requires a payment in lieu of taxes —
usually 10 percent. Accordingly, many communities welcome a sec-
tion 23 project when they would not accept other forms of jniblic
housing. Indeed, section 23 could be considered a precursor of special
revenue sharing, a concept whose applicability to housing is under
serious examination.

824

Community acceptance is also enhanced because of the frequency
with Avhich the scattered site concept is employed in this form of
housing. I am familiar, for example, with a project in Oklahoma
which involves more than 150 units scattered in 7 different coun-
ties on 17 different sites.

A third factor is the fact that the cost of section 23 housing is gen-
erally less per unit than on the Turnkey or conventional. The T'rban
Institute's study previously referred to found this to be the case ; to
be fair, however, we should note that this study dealt mainly with the
leasing of existing units.

Concerning leasing of new units, the U.S. Housing Act limits the
amount of HUD's contribution to the same amount that it could make
on a Turnkey or conventional project. Considering that section 28
projects generally have to pay local property taxes as opposed to the
paiyment of in lieu of taxes— Pilot — then obviously there is less money
available under section 23 for the other elements of housing cost. Also,
since the development costs must be amortized in 20 years rather than
40, less overall money is available for construction. Yet section 23 units
are being built, and, as previously indicated, have a good track rex?ord.

In speaking of development costs, there has been developed undei-
the section 23 program a variation that has significantly aided feasi-
bility of these projects and therefore the overall production of section
23 projects; that is, tax-exempt bond financing. This occurs because
the tax-exempt rate of financing is usually li^ to 3 percent
lower than conventional rates or stated another way, carries about a
25-percent lower interest rate; in addition, it does not involve the
same amount of "front-end points'" that conventional financing does,
thus further reducing the financing costs. Moreover, the stock of hous-
ing units which would be owned by a local housing authority will be
increased because of the requirements of revenue ruling 63-20, which
sets forth the rules for this form of financing. Under the typical varia-
tion of this plan, a nonprofit corporation is formed to construct a
project and lease the units therein to a local housing authority under
section 23. As the nonprofit corporation is performing a public pur-
pose on behalf of the governmental entity, it can issue bonds exempt
from Federal income taxation. The IRS requires that after the bonds
are amortized, which is after the 20-vear term of the lease, the non-
profit units give the units, free and clear, to the local housing author-
ity. As a result, the housing authority increases its housing stock at
no extra expense to either the local taxpayer or the Federal
Government.

In any event, in the leasing program, regardless of form of financ-
ing, the Federal Government has to make annual contributions or
payments for only 20 years instead of 40 as in the 236 or turnkey
programs. This results in a significant long-run savings to the Federal
Government. Further, there is much to be said for the shorter amortiza-
tion period, especially at this time, when long-range costs are of great
concern.

Fourth factor, section 23 provides housing faster than the other
public housing methods. Significantly, this is true for newly con-
structed units as well as in the case of existing units. At least this was
the case before some area offices of HTTD began imposing some of the
stringencies of the turnkey program on section 23 because of the

825

central office's attempt to draft its proposed construction for leasino-
handbook.

Fiftli factor is that section 23 is an extremely flexible program,
adaptable to any particular community need. It can be used for family
or elderly housing on either a project or scattered site basis. It can be
used to rent existing units or new ones constructed for that purpose
if there is otherwise a tight rental market. It can be combined with
the Farmer's Home section 515 program, or the HUD 236 program
or with State housing finance agency programs. It works equally well
in our center cities or rural areas. HUD has recommended its use for
congregate housing projects for the elderly whereby an LHA rents
units served by a central dining facility. It has also been utilized to
rent units in nursing homes, a concept which can be expanded to rent-
ing units especially designed for the handicapped, the retarded, or for
alcoholic rehabilitation.

Under turnkey IV, or section 23 (g) , leased housing can be combined
with home ownerehi}). The program has often been utilized on Indian
reservations.

Of extreme relevance, the section 23 concept allows for both local
decisionmaking and imagination, a conce^Dt that should be at the heart
of any new housing policy.

Sixth, section 23 is not subject to the referendum requirement im-
posed on other public housing programs in States such as California or
Mississippi. Thus, it is not surprising that as of June 1972, 25 percent
or, 26,000 units of the 100,000 section 23 units under management,
were located in California. Mississippi also has a disproportionately
high number of leased units.

Finally, section 23 embodies the beneficial aspects of the housing
allowance concept, yet is administered to obviate many of the objec-
tions to the housing allowance. Under the basic housing allowance, a
low-income person is given a specified sum of money and allowed to
choose his own dwelling unit. This program strongly resembles the
"finders-keepers program" that from the start has been part of the
section 23 program.

Under a "finders-keepers program," a low-income family finds its
own residence, and requests the local housing authority to rent it from
the private owner. Upon rental, the LHA leases it to the enterprising
tenant.

The advantage of this program over the housing allowance in its
pristine form is the presence of an agency, experienced in housing,
that can protect the tenant's family to assure that it is really receiving
good housing at a fair price. The LHA can also provide necessary
tenant counseling, as many LHA's now do for section 23 tenants.

Accordingly, if there is to be an emphasis on the housing allow-
ance concept, we believe that it should be done within the framework
of the section 23 program, thereby utilizing competent and skilled
housing agencies already in place.

We believe that these advantages of the section 23 program should
be accorded legislative recognition by the following changes in the
Ignited States Housing Act of 1937 :

1. Because of the success and popularity of the section 23 jn-ogram,
section 5(c) of the act as set forth in S. 2182 should be amended

826

to require that at least 50 pei'cent of all public housino- production
funds be used for the section 23 prooram.

2. That there be a reasonably even balance between the leasino^ of
existino; and those constructed for the purpose of being leased to an
LHA. Too often in the past, HUD has mandated new units at the
expense of a local desire to lease existing units or vise versa. HUD
makes these determinations not on the needs of the section 23 pro-
gram, or of the LHA. but to meet some other goals such as a new^
unit production target or an increase in the housing allowance
experiment.

Accordingly, we favor a provision, such as that contained in last
year's House bill, that would require that 40 percent of the units
under the program be newly constructed, 40 percent existing and that
HI"D have discretion as to whether the remaining 20 percent be new
or existing. Siich a provision would end the wholesale fluctuation from
one extreme to the other that we have seen in the program over the
past years and yet provide HI^D with needed administrative dis-
cretion.

3. A subsidiary problem of the new versus existing dichotomy is the
issue of how to deal with substantially rehabilitated units. Under pres-
ent interpretations, substantially rehabilitated units are classified as
existing housing. Therefore, they are limited to a 15-year amortiza-
tion period. On the other hand, it is clear that substantial rehabilita-
tion usually involves costs which require the 20-year amortization pe-
riod of new construction. Therefore, it is our recommendation that
substantial rehabilitation be taken specific note of and that substan-
tial rehabilitation be accorded the 20-year term as opposed to the 15-
year term.

4. Section 23(e) of the act now measures the section 23 annual
contributions by what HUD would pay on a hypothetical newly con-
sti'ucted unit by an LHA. This "flexible formula" does not take into
account that section 23 units pay full taxes and are usually financed
at market interest rates. For that reason, we favor the approach em-
bodied in section 8(d) of the act as set forth in S. 2182, allowing HLTD
to set the contribution in the amount realistically needed to make the
project feasible based on both the number of units to be leased and the
economic terms of the lease itself. This would give real meaning to the
concept of a "flexible formula."

5. We fully believe that any units leased under the section 23 pro-
gram should be in compliance with local codes. That being the case, we
see no justification for HUD's imposition of minimum property stand-
ards on top of such codes, assuming the locality follows a nationally
recognized building code. Section 8 of S. 2182 should be amended to
achieve this result.

6. Section 2(a) of the act allows HUD to guarantee bonds issued by
local housing authorities or on their behalf, but make such bonds tax-
able if so guaranteed.

I disagree with the taxable alternative based upon the following:
First, there is no assurance that the subsidy will continue during the
life of the outstanding bonds. Witness, for example, the present diffi-
culties of operating subsidies or the present impoundment problems.

Secondly, those issuers choosing the taxable alternative will be forced
to compete for money in the existing corporate credit markets and

827

thus drive interest rates up in tlie corporate sector, since there are
diiferent types of buyers for tax-exempts and taxables.

Thirdly, imposition of a taxable alternative would violate the con-
stitutional basis of tax exemption of State and local bonds.

Fourth, the cost of the added bureaucracy necessary to administer
this program will probably offset any alleged savings to the Federal
Government.

7. Another aspect of S. 2182 requires comment. I api:)rove of the re-
peal of Brooks amendment No. 8 by requiring a public housing cus-
tomer to pay a rent at least equal to 40 percent of the operating costs
and utilities. This concept is vital to the continued economic integrity
and the projects.

8. In closing, I must admit to the gravest reservation I have concern-
ing S. 2182, although I say this a Jbit facetiously. That is the section
number of the bill. World War II veterans may remember section 8
discharges. I can only hope that the drafters of S. 2182 did not intend
a similar discharge to the section 23 program.

In all seriousness, I think there is some value to keeping existing
section numbers. People are familiar with the concept of section 23.
To change the number to section 8 may create problems particularly
with many of the bureaucrats who need to interpret these sections
and may think they have a whole new program with which they must
deal.

We are most appreciative, Mr. Chairman, of this opportunity to
appear before you today, and hope our views will be helpful in your
deliberations. Thank you.

The Chairman. Thank you very much, Mr. Goldberg. That is a
very interesting and helpful report, I should say, on section 23 leased
housing. I am very glad to have your comments and your recommenda-
tions.

Let me ask you this question — you referred there toward the end
of your statement to that Brooke amendment No. 3, did you say ?

Mr, Goldberg. Yes. we advocate the repeal of Brooke amendment
No. 3.

The Chairman. Should be repealed ?

Mr. Goldberg. Correct.

The Chairman. I am sure you know what that is. You know of the
case in public housing, the series of Brooke amendments which have
caused considerable upset with many of the housing authorities. The
question has been just what should we do about it.

Now, one of the problems that conventional public housing has
faced has been the increase in operating costs. Is that similarly true
with leased housing ?

Mr. Goldberg. I think it is quite similar. To the extent that the
private owner has to absorb some of those increased costs, the prob-
lem is not as severe. However this is a very definite problem at pres-
ent because of the lack of the owner's ability to absorb cost increases
beyond a point.

One of the things we have done in the nonprofit tax-exempt financing
area, to try to compensate for tlie fact that there is not a builder or
developer actually owning the property, is to set up reserve funds
funded out of the proceeds of the bond issue, whether they be special

828

maintenance reserve, or contingency reserves of some sort. So, there
is a buffer that we have tried to create.

I believe our counsel may want to elaborate on this very real problem.

Mr. Edson. Mr. Chairman, if I mio;ht elaborate. The problem of op-
erating subsidies is very serious in section 23, because the Office of
Management and Budget will now allow the operating subsidy for sec-
tion 23, unlike any other housing program. Instead, they say, "You
have to take it out of your new units." In other words, if you were
going to get 100 units of section 23, now you can only get 50, because
we are taking the money that you had for new units and putting it into
operating subsidy.

It is a serious problem. We just got a plaintive letter from the city
of New Haven saying "we lost 125 units because of it." It is a real
problem for the 23 program.

The Chairman. In that context, I believe Senator Brooke has said
from time to time that one of the problems with the Brooke amend-
ment has been that the provision was not made for sufficient funds
to help do the job that was anticipated there.

Mr. Edson. That is correct.

The Chairman. Let me bring up just this point: You know that
in the housing bill which we passed here last March, we provided that
30 percent of the new units should be leased housing, did we not?

Mr. Goldberg. Yes, sir, I believe that is the case.

Mr. Edson. That is correct.

Mr. Goldberg. I think that such action was a very commendable
one. We of the Section 23 Leased Housing Association feel the leasing
program really has significant advantages for all sectors of the indus-
try and, most importantly, is one which will aid in solving the housing
problems of America's low-income families.

The interest of this committee in requesting testimony from a group
such as ourselves, and by the recognition which you gave in last year's
bill, and again in this year's S. 2182, are indicative of your concern
and awareness of the advantages of section 23.

The Chairman. By the way, lest I be misunderstood, I did not want
to leave the implication that all of the problems of operating costs —
they are not due to the Brooke amendment. That is just one of the
elements we mentioned.

Thank you, very much, gentlemen. We appreciate your statement.

Mr. Goldberg. Thank you, sir.

[The complete statement of the Section 23 Leased Housin,g Associa-
tion follows :]

829

C

"^^

SECTION k

"^ LEASED

HOJSING
J^SOCIMON

STATEMENT OF ARTHUR ABBA GOLDBERG, PRESIDENT, SECTION
23 LEASED HOUSING ASSOCIATION BEFORE THE HOUSING
SUBCOMMITTEE OF THE COMMITTEE ON BANKING,
HOUSING AND URBAN AFFAIRS OF THE UNITED
STATES SENATE

July 23, 1973

Mr. Chairman and Members of the Committee:

My name is Arthur Abba Goldberg. I am here today in my capacity as
President of the Section 23 Leased Housing Association. In my private
capacity I am Vice President, Matthews and Wright, Inc. , a New York
City investment banker active in tax exempt financing. I am accompanied
by Charles L, Edson, Esq. of Frosh, Lane and Eds on, P. C., Washington,
D, C, , General Counsel to the organization.

The Association includes developers, financing institutions and local
housing authorities involved in the development and management of leased
housing under Section 23 of the United States Housing Act. Our organiza-
tion, formed in early 1972 with five miembers from the private sector, now
has nearly 50 members covering a broad spectrum of both private and local
industry and local housing authorities. In addition to representing the
interests of the Section 23 Program before Congress and HUD, the Associa-
tion publishes a monthly newsletter, conducts seminars, and otherwise
serves as an information service about the program. We attribute our
remarkable growth -- in not the best of tinnes -- not so much to the merits
of our Association but to the strength of the Section 23 Progrann,

A few statistics chart the significant role that Section 23 plays in housing
low income Americans. As of December 31, 1972, a total of 151,000
Section 23 units were under Annual Contributions Contract out of the
approximately 1.25 million total public housing units under ACC. Of
these, 66, 000 are units that have been, or will be, constructed by private
owners specifically for the purpose of leasing to an LHA. An additional
27, 000 of these units have been rehabilitated and then leased to local
authorities and 59, 000 are in existing structures. This innpressive total --
over 12 1/2% of all units under ACC -- has been reached in the eight years
that Section 23 has been part of the United States Housing Act.

The Section 23 Program has been popular across the board. Congress
demonstrated its support in its 1970 requirement that at least 30% of •
all new housing units be under the leasing program. The Administration,
at least until January of 1973, has emphasized the program, especially
its construction for leasing aspects. The Urban Institute, in its connpre-

830

hensive study of the program, published in the Compendium of Papers
submitted to the Joint Econonaic Connmittee, Congress of the United
States of October 9, 1972, gave the program quite a favorable report.

Many factors contribute to the program's success:

• First, it involves an ideal joint venture between
local government and private enterprise. The
private owner generally manages the units itself
and is always responsible to see that the manage -
nnent is done properly. This private involvement
alone often makes for greater community acceptance.
In addition, the private owner and the LHA serve as
checks on each other to assure that the units are well
maintained and that the lease is adhered to. This
beneficial watchdog relationship is not present in any
other federal housing program.

• Second, units leased to an authority under Section 23
pay full local real estate taxes (unless the local
community voluntarily determines to abate same),
instead of the far lesser payment in lieu of taxes
made on the usual public housing project. Accordingly,
many connmunities welcome a Section 23 project

when they would not accept other forms of public
housing. Indeed, Section 23 can be deeded a pre-
cursor of special revenue sharing -- a concept
whose applicability to housing is under serious
examination.

• Third, the cost of Section 23 housing is generally
less per unit than that under Turnkey or conventional.
The Urban Institute's study found this to be the case,
although this study dealt mainly with the leasing

of existing units. Concerning the leasing of new
units, the United States Housing Act limits the
amount of HUD contributions to the same amount
that it could make on a Turnkey or conventional
project. Considering that a Section 23 project
generally has to pay local property taxes as opposed
to payment in lieu of taxes -- PILOT -- then ob-
viously there is less money available under Section
23 for the other elements of housing cost. Yet
Section 23 units are being built. In speaking of
housing costs, there has been developed under the
Section 23 Program a variation that results in great
long-run savings to the federal government -- bond
financing. This savings results from the fact that

831

the federal government only makes 20 instead of
40 annual contributions payments. Under this plan,
a non-profit corporation is formed to construct a
project and lease the units therein to a local housing
authority under Section 23. As the non-profit
corporation is forming a quasi public function, it
can issue bonds exempt from federal income tax.
IRS requires that after the twenty year term of the
lease, the non-profit deed the units to the local
housing authority or governing body. As a result,
the LHA owns the units free and clear after twenty
years. Viewed from another perspective, the
federal government has to make annual contributions
or payments for only twenty years instead of forty
under Section 236 or Turnkey, resulting in a signifi-
cant long run saving. There is much to be said for
the shorter amortization period, especially at this
time when long range costs are of great concern.

Fourth, Section 23 provides housing faster than the
other public housing methods. Significantly, this is
true for newly constructed units as well as in the case
of existing units. At least this was the case before HUD
began innposing some of the stringencies of the Turnkey
Program on Section 23 in various drafts of its proposed
Construction for Leasing Handbook.

Fifth, Section 23 is an extremely flexible program,
adaptable to any particular community need. It can be
used for family or elderly housing on either a project
or scattered site basis. It can be used to rent existing
units or new ones constructed for that purpose if there
is otherwise a tight rental market. It can be combined
with the Farmer's Home Section 515 Program, the
HUD 236 Program and with state housing finance agency
programs. It works equally well in our center cities
or rural areas. HUD has recomnnended its use for
congregate housing projects for the elderly whereby
an LHA rents units served by a central dining facility.
It has been utilized to rent units in nursing homes, a
concept which can be expanded to renting units especially
designed for the handicapped, the retarded, or for
alcoholic rehabilitation. Under Turnkey IV or Section
23(g), leased housing can be combined with homeowner-
ship. The program has often been utilized on Indian
reservations. Of extrenne relevance, the Section 23

832

concept allows for both local decision making and
imagination, a concept that should be at the heart
of any new housing policy.

• Sixth, Section 23 is not subject to the referendum

requirement imposed on other public housing pro-
grams in such states as California or Mississippi.
Thus, it is not surprising that as of June, 1972,
26,000 units of the 100, 000 Section 23 units under
management were in California.

Finally, Section 23 embodies the beneficial aspects of the housing allowance,
concept yet is administered to obviate nnany objections to the housing
allowance. Under the basic housing allowance a low income person is
given a specified sum of money and allowed to choose his own dwelling
unit. This program strongly resembles the "finders - keepers program"
that from the start has been part of the Section 23 Program. Under a
"finders - keepers" program, a low income family finds his own residence,
and requests the local housing authority to rent it from the private owner.
Upon rental, the LHA leases it to the enterprising tenant. The advantage
of this program over the housing allowance in its pristine form is the
presence of an agency, experienced in housing, that can protect the
tenants' family to assure that it is really receiving good housing at a
fair price. The LHA can also provide necessary tenant counselling, as
many LHAs now do for Section 23 tenants. Accordingly, if there is to
be an emphasis on the housing allowance concept, we believe that it
should be done within the framework of the Section 23 Program thereby
utilizing competent and skilled housing agencies already in place.

We believe that these advantages of the Section 23 Program should be
accorded legislative recognition by the following changes in the United
States Housing Act of 1937:

1. Because of the success and popularity of the Section 23
Program, Section 5(c) of the Act as set forth in S2182
should be amended to require that at least 50% of all
public housing production funds be used for the Section
23 Program.

2. That there be a reasonably even balance between the
leasing of existing and those constructed for the purpose
of being leased to an LHA. Too often in the past, HUD
has mandated new units at the expense of a local desire
to lease existing units or visa versa, HUD miakes these
determinations not on the needs of the Section 23 Program

833

or of the LHA but to meet some other goals such as a new
unit production target or an increase in the housing allowance
experimient. Accordingly, we favor a provision, such as
that contained in last year's House bill, that would require
that 40% of the units under the program be newly constructed,
40% existing (including substantially rehabilitated units) and
that HUD have discretion as to whether the remaining 20%
be new or existing. Such a provision would end the whole-
sale flucuation from one extreme to the other that we have
seen in the program over the past years and yet provide
HUD with needed administrative discretion,

3. Section 23(e) of the Act now measures the Section 23 Annual
Contributions by what HUD would pay on a hypothetical newly
constructed unit by an LHA, This "flexible formula" does not
take into account that Section 23 units pay full taxes and are
usually financed at market interest rates. For that reason,
we favor the approach embodied in Section 8(d) of the Act as
set forth in S2182 allowing HUD to set the contribution in

the amount realistically needed to make the project feasible
based on the number of units under lease and the lease terms,

4. We fully believe that any unit leased under Section 23 should
be in compliance with local codes. That being the case, we
see no justification for HUD's imposition of Minimum Property
Standards on top of such codes, assuming the locality follows

a nationally recognized building code. Section 8 of S2182
should be amended to achieve this result.

We are most appreciative, Mr. ■Chairman, of this opportunity to appear
before you today and hope our views will be helpful in your deliberations.

834

The Chairman. Our last witness is M. J. Weeks, president of the
National Association of Bviilding Manufacturers.

STATEMENT OF M. J. WEEKS, PRESIDENT, NATIONAL ASSOCIATION
OF BUILDING MANUFACTURERS; ACCOMPANIED BY JAMES J.
JUDGE, EXECUTIVE VICE PRESIDENT ; AND CHARLES L. EDSON,
GENERAL COUNSEL

Mr. Weeks. Thank you, sir.

The Chairman. We have your statement and we will put that in
the record and you proceed as you wish.

Mr. Weeks. I am M. J. Weeks, and I am appearing today in my ca-
pacity as president of the National Association of Building Manu-
facturers. I am also president of Lexington Homes, Inc., of Hills-
borough, N.C.

I am accompanied by James J. Judge, on my right, executive vice
president of N.A.B.M. and Charles L. Edson of Frosh, Lane, &
Edson, P.C., our general counsel on my left.

The National Association of Building Manufacturers, founded in
1942, is a trade association of over 300 companies which collectively
produce over 50 percent of the factory manufactured or industrial-
ized housing produced in this country.

In addition, we number among our members the principal suppliers
to the industrial housing industiy. Our organization has long been
concerned with the Nation's total housing picture with specific refer-
ence to those constraints that impede the use of innovative industrial-
ized techniques. This is a problem of increasing concern in light of the
rapidly growing role played by factory-produced housing in meet-
ing the Nation's housing needs.

There are many, many subjects involved in housing and our organi-
zation is interested in all of them. Mr. Chairman, we have and will
continue to cooperate with other groups seeking solutions to housing
problems. As a matter of record, our members belong to these dif-
ferent organizations that have appeared here today. But our purpose
here today is to present our thoughts on industrialized housing spe-
cifically, and where it fits in the total housing picture. I would like to
begin with a few general observations on the Federal programs re-
flecting the results of a recent survey of our membership.

Of greatest significance, although most of our members responding
stated that their federally subsidized housing work has been less prof-
itable to them than their other activities, still a vast majority indi-
cated a desire to continue participation in the Federal programs.
Furthermore, a significant majority of respondents believe that Fed-
eral assistance in housing low-income families should be increased
or at least remain at present levels.

Many reasons are given for the low level of profitability ; excessive
engineering requirements, too much redtape and poor cash flow lead
the list. Accordingly, if the present sections 235 and 236 programs
are to be retained, even on a transition basis, we strongly recommend
the following changes :

1. Simplification of the now endless, and often meaningless, proc-
essing procedures. In this regard, many of our members cite the Farm-

835

ers Home Administration as a model to be followed concerning
processing.

2. Realistic mortgage limits for the area involved.

3. Greater flexibility to income limits to avoid projects filled only
with low-income people.

Assuming that totally new programs will emerge from the admin-
istration's current study and the legislative process, N.A.B.M. would
like to see more emphasis on State and local administration. Section
2(a) of S. 2182, providing for Federal guarantee of the obligations of
State and local housing and development agencies, is a step in this
direction. Housing revenue sharing, as embodied in section 9 of S.
2182, might prove a desirable alternative in this regard.

I would like to further comment that we feel it is extremely im-
portant that States, cities and local agencies be required to have some
program. There is always a fear that they might see fit not to partic-
ipate in such a program and also there is great concern among some
of our members that they would have to be dealing with too many
types of programs since many of our manufacturers deliver into several
States. They would have to deal with many different agencies, each
with perhaps a different approach perhaps or a different type of
program.

I would like now to go to the necessary changes in Federal law ;
the first, and most important, would facilitate the utilization of ad-
vanced housing technology in conventionally financed as well as
HUD-assisted housing.

The most pressing problem facing the industrialized housing manu-
facturer is the requirement that he must comply with numerous and
often conflicting, local building codes. If the automobile manufac-
turer had to be concerned with a local car design ordinance in every
community in which he shipped cars, an auto would cost at least
two or three times as much as it does today.

HUD's "Operation Breakthrough" has provided a partial remedy
to this situation ; namely, statewide industrialized housing laws which
have been adopted in about 27 States. Under these laws, if an indus-
trialized house passes a State inspection, it no longer is subject to local
building codes. Some statutes contain reciprocity provisions whereby
the receiving State can accept the certification of the inspecting agency
in the State of origin.

We are, however, experiencing some very practical problems in
the administration of these laws. The most serious problem is that
few States with such laws have worked out reciprocal arrangements
with each other whereby housing units approved in the State of manu-
facture can be shipped to other States without having to repeat the
approval process in the State of final destination. ^lanufacturers
that market in several States, as most do, are finding that every new
model that they produce, and every change in the design or use of
materials of any existing model, has to be processed separately in every
State in which these units are to be sold. This is exceedingly costly in
time and effort and a deterrent to the introduction of newer tech-
nologies that would save construction costs.

We believe that some form of reciprocity in building regulations
among the States is essential to the future of the manufactured hous-
ing industry. Accordingly, we propose legislation which would pro-

99-855 O - 73 - pt. 1

836

vide under authority of the commerce clause tliat, as between States
where reciprocity arrangements do not exist, a housing unit which
is manufactured in a State with an industrialized housing law, or a
statewide building code for all housing, and which is approved by that
State, must be accepted by every other State in the United States,
notwithstanding State or local codes to the contrary. To guard against
too lenient standards, this preemption would exist only if the State
of manufacture followed any of the model codes for the structural,
mechanical, electrical, and plumbing elements of the housing unit, or
their substantial equivalents, which might be any code acceptable
to HUD for workable program purposes or by the National Institute
of Building Sciences we will discuss a little later.

This legislation would service as a prod to States with industrialized
housing laws to develop reciprocity arrangements, and would spur
States without such legislation to promptly enact same, since local
codes would be inefl'ective against out-of-State units in any event.

Now, concerning units insured or assisted under a HUD-FHA pro-
gram, we recommend the following specific changes :

First, HUD-FHA should be able to insure the cost of building com-
ponents even if they have not been delivered to the building site if they
have been assembled and specifically identified for incorporation into
the mortgaged property.

Such a provision supported by HUD was contained in both the
House and Senate versions of the aborted Housing and Urban Devel-
opment Act of 1972, and we are pleased at its inclusion in section 1(1)
of S. 2182, In our recent survey, many members participating in the
Federal programs complained about the poor cash flow in the Federal
programs which could be alleviated by such a provision.

Even though it is included in the proposed new Senate bill. I would
like to illustrate, Mr. Chairman, w^hat this means.

My company, at the present time, is involved in a 500-unit housing
project. It was to commence in January on a schedule that would have
it completed by the end of 1973, Many circumstances caused it to not
get started on time, however, our company, because we had the contract,
had to purchase an inventory that exceeded one-half million dollars.
Now, if we had been able to have insured advances we could have
kept a normal production schedule even though we would have had
to store it on our own grounds. We could have identified the materials
for the project and we could have kept a steady flow of cash, a steady
production schedule even with the delays that the contractor was
experiencing.

So this becomes a very, very important item to people who are con-
tracting for projects because of the large amount of cash involved. I
might also say that I think it should apply to single family as well as
multifamily.

Second, cost certification is a problem that plagues the industrialized
housing producer who also serves as his own developer. It is virtually
impossible for the factory producer to cost certify the items that go into
a particular job that is run with many others off the assembly line.
Cost certification requirements should be amended to provide that
when there is an identity of interest between an industrialized housing
producer and the developer, an amount representing the market value.

837

catalog value if it is available, of such factory-manufactured compo-
nents shall be satisfactory for the purpose of cost certification.

Again, such a provision would have been adopted in last year's bill
and we are gratified that it is again included in this year's bill. Adop-
tion of such a provision would decrease the redtape that has been a real
cause of our members' complaint with the Federal programs.

Again I would like to try to illustrate this particular point. I have
been involved in the kind of programs where we have had an identity
of interest. I have known of other members of our association who have
had this same problem. You are building a project along with all of
the other projects that you may have sold to other people simultane-
ously. It is very difficult to break down and cost certify each item that
goes into a factory-produced component job.

If it were isolated, all done at one time, it would not be so difficult.
But when it is produced on an assembly line with other projects it
is very difficult to cost certify. I think a good analogy would be that
of a land developer and a builder. The developer buys a tract of land,
improves it and sells the improved lots. He is expected to make a fair
profit on the market value of the lots.

A builder will buy the lots, build houses on them and he is expected
to make a fair profit on the market value of the house. There is no
problem at all if a person decides to be the builder and the developer.
He can make both profits, if he does both jobs. So we question why it
should be different with a manufacturer who has invested his money
in plant. Why should he be expected to manufacture the components
that go into a project on a cost basis?

We feel it should be on a market value basis.

Next, under title X of the National Housing Act, HI^D-FHA can
insure loans for related structure improvements, such as water lines,
roads, streets, curbs, and the like, for large land developments.

However, under present law HUD cannot insure funds utilized to
construct foundation slabs on which is placed a factory produced
house, or any house for that matter, but we are referring to a factory-
produced house in this case.

Title X, or section 505 of S. 2182, should be amended to permit such
insurance so that a developer, using industrialized products, can effec-
tively utilize title X financing. This change would also help meet
the cash flow problems of many of our members who also act as
their own developers.

In addition, we support the adoption of a National Institute of
Building Sciences. Both the House and Senate versions of the Housing
and Urban Development Act of 1972, would have created a National
Institute of Building Sciences as a nongovernmental corporation
which would develop and publish Standards affecting building mate-
rials and local building codes, test new building products and tech-
niques, and coordinate, to the extent practicable, all present activities
in this area.

We support NIBS because the aforementioned activities are essen-
tial if a technologically based industry such as ours is to have mean-
ingful growth. As originally proposed by Senator Javits and Eepre-
sentative Moorhead, the NIBS standards would be apjilicable to
all federally assisted housing and Federal buildings. N.A.B.M. favored
this provision provided that it would be the only Federal standard

838

that would apply to federally aissisted housing, thereby replacing
other such standards now in existence as the HUD-FHA minimum
property standards, "Operation Breakthrough" standard and the like.

Our members, in answering oui- survey, stressed the need for reason-
able and workable construction standards. We do not see the need
for more Federal standards; however, there is a crying need for one
Federal standard.

Mr. Chairman, I realize I have only touched briefly on some very
complex subjects. We will gladly prepare a detailed analysis for
review by the committee, if you so choose.

On behalf of the National Association of Building Manufacturers,
I wish to thank you for this opportunity to share our thoughts with
you, and thank you particularly for the interests that you, Mr. Chair-
man, have shown in the industrialized housing community in the past
year. Thank you very much.

The Chairman. Thank you.

Can you give us an idea of how many units your association has
started in 1973 or will start ?

Mr. Weeks. Our association or the industry as a whole? The indus-
trialized housing industry ?

The Chairman. Well, whichever you have.

Mr. Weeks. I think it is generally conceded from the records that
we have available, Mr. Chairman, that some form of industrialization
will be involved in over 75 percent of all housing in 1973. We say that
our industry — our membership represents about 50 percent of the
industrialized housing production.

The Chairman. You made reference to title X section 1(1). You
realize, I am sure, that S. 2182 leaves out some of the language that
was in the bill last year. I think perliaps it may take care of the situ-
ation that you referred to. It omits certain words. Well, I will read
them.

Where title to such components was passed to the purchaser as of last year's
bill.

That is omitted this year.

Mr. Weeks. We favor the bill as worded this year.

The Chairman. I thought you woukl.

Mr. Weeks. Yes, sir.

The Chairman. Now, I believe that is all the questions T want to
ask you. I want to say that I certainly appreciate your giving us this
informative statement that you did. It certainly will give us some
thoughts when we get to mark up the bill.

Mr. Weeks. Thank you very much. Mi-. Chairman.

The Chairman. Thank you, gentlemen.

The committee will now stand in recess until 10 tomorrow.

[Whereupon the hearing was adjourned at 12 :10 p.m., to reconvene
at 10 a.m., Tuesday, July 24, 1973.]

1973 HOUSING AND URBAN DEVELOPMENT

LEGISLATION

TUESDAY, JULY 24, 1973

U.S. Senate,
Subcommittee on Housing and Urban Affairs,
Committee on Banking, Housing and Urban Affairs,

Washington^ B.C.

The subcommittee met at 10 :08 a.m., pursuant to call, in room 5302,
Dirksen Senate Office Building, Senator John Sparkman, chairman
of the subcommittee, presiding.

Present: Senators Sparkman, Proxmire, Brock, and Taft.

The Chairman. Let the committee come to order, please.

Our first ^vitness this morning is the Honorable Louis Frey, U.S.
Congressman from Florida. Glad to have you. Congressman. We shall
be very glad to hear from you.

STATEMENT OF LOUIS FREY, JR., REPRESENTATIVE IN CONGRESS

FROM THE STATE OF FLORIDA

Mr. Frey. Thank you very much.

Mr. Chairman, I'd like to ask permission to insert my remarks in
the record and then speak extemporaneously and answer any ques-
tions (see p. 848).

The Chairman. That will be done. We always print the prepared
statement in the record in full and then leave it up to the witness to
handle it as he sees fit, so you may proceed.

Mr. Frey. Mr. Chairman, several years ago we had a case from the
district — I represent the middle district of Florida — ^and a case came
up involving mobile homes and I asked my legislative assistant to look
into the problem and to brief me on it.

Much to my surprise, I found that there was. frankly, no Federal
legislation regarding the safety of mobile homes. Florida itself had
adopted a code, as a number of other States had. and. of course,
Florida to a certain extent even enforced the code, which is different,
I might say, than some other States. However, in my State there are
over 700,00b people living in mobile homes. Across the Nation there are
7 million people living in mobile homes.

After further investigation I concluded that we needed a National
Mobile Home Safety Act, an act that would give us uniform standards
with State enforcement and an act at the same time that would pro-
tect the legitimate manufacturer. We need mobile homes. There should
be no question whatsoever on that. Ninety-five percent of the homes,
single-family units under $15,000 in this country last year were mobile
homes.

(839)

840

They have an important place in oiir society. They are suitable for
the yoimg and for the senior citizen. So the purpose of this bill is not
to hurt or impair mobile home manufacturers but to try and produce
a mobile home that is safer, a mobile liome that people throiijuhout
the Nation can have confidence in.

Now, mobile home production this year will be about 600,000 units
as compared to 200,000 in the mid-sixties. Mobile homes were 20 per-
cent of the new housing starts in 1970 and 25 percent in 1971 and 1972.
In other words, they are becoming more and more an important part of
housing- as the years go by and I see this trend continuing into the
future.

As you know, many of the laws in the States regarding mobile homes
are in a state of disarray. I just finished a "Law Review" article
which will be published in the "Washington" and Illinois "Law Re-
view," I guess in September or October comparing the laws regarding
mobile homes in the States. Just to sununarize for the committee, I
could say there are probably as many laws regarding mobile homes as
there are States.

One of the basic problems that we have in State enforcement is the
lack of uniformity. For instance, Pennsylvania, if my memory serves
me right, just recently passed a law saying their law on mobile homes
will not apply to any unit that is exported from Pennsylvania to any
other State. In the State of Florida, for our inspections we had three
inspectors until recently and now we have six inspectors for 700,000
people.

Statistics on mobile homes and the hazards of mobile homes really
aren't as good as they should be. We have tried to get all the informa-
tion we can, but I am not satisfied with it and I think that we cer-
tainly need to obtain more statistics, but what we have shows the mor-
tality rate is greater.

For those of us who live in the South or Southeast, when the hur-
ricanes come through there is no question what happens as far as the
mobile home and mobile home parks. We need a national regulation re-
quiring tiedowns for mobile homes.

First, however, is the greatest hazard. I went down to a park in
Miami to look through a mobile home park. One park had to build a
special entrance for a fire truck to get in quickly enough and answer
the fire and even then it wasn't enough. I had a fireman, from Florida,
tell me that when a fire occurs in a mobile home, they don't bother to
take the fire truck out. In about 7 minutes it is gone. They simply
can't get there in time.

In essence, I guess I am speaking basically for the 7 million peoj^le
who do live in mobile homes and feel very strongly there should be
legislation. I drafted the initial bill on this, which Senator Brock put
in the Senate. My bill has been expanded in the last year and is in
front of the House Interstate and Foreign Commerce Committee. I
have expanded the original bill to also include recreational vehicles.

Among those who have endorsed the bill are the Rural Electric Co-
operative Association. National Civil Defense Association, National
Council of Better Business Bureaus, National Association of Inde-
pendent Insurance Associations, and Mobile Home Owners Associa-
tions throughout Florida.

The basic controversy, I think, regarding the bill is, whether or not
there should be Federal safety regulations? I think this is a legitimate

841

question. Many people in the industry feel that the ANSI code, sec-
tion A119, is the ansAver to the problem.

To begin with it isn't adopted everywhere. Secondly, even where
adopted, it isn't enforced, and thirdly, there is a question of reci-
procity in law, I think if we had uniform standards it would be better
for everyone.

Secondly, there has been a question of Federal enforcement raised,
I think this is a spurious argument as the bill relies primarily on
State enforcement. You wouldn't have to create a vast bureaucracy to
enforce this but use the enforcement agencies that exist and in essence,
encourage the States to enforce it.

There has always been a question raised about the cost. Well, in our
State it costs the same to insure a $6,000 mobile home as about a $40,000
house, and I think this is true in many places throughout the country,
I think the small additional cost you might have in manufacturing
would be offset by the savings in insurance costs and certainly by the
savings, I think, in terms of human life and injuries that might result,

I think it is a good investment, I think it is a commonsense invest-
ment, I think it is one that is badly needed and as I said when I started,
I am rather surprised something hasn't been done in the past, and
with that I'd be glad to answer any questions of the committee.

The Chairman, Well, thank yoii. Congressman. Do I understand
that you look with favor upon the standard for mobile homes that has
been published ?

Mr. Frey. Wlien you say, "Look with favor on it," let's just say
it's a good start. l' think it is at least a start. It is an industiy
publication

The Chairman. This is purely voluntai-y, though ?

Mr. Frey. That is correct, but I think they have done a good job
in it and improved it along the way. The point I tried to make, there
are further improvements that are needed ; that there are States that
have not adopted it and ; third, even where adopted there are States
that basically don't adopt it for shipping out of State or don't enforce
it within the State.

The Chairman. By the way, you refer to the Brock bill. Senator
Brock is here. I want to call your attention to the fact that four of us
introduced that bill, four membei"s of this committee, by the way, so—
and I think, I believe the committee as a whole would look with favor
upon something being done.

I share your feelings that we need to do something. I think we must
do something if we are to continue to use mobile homes and I agree
with vou also that as I understand what you say, that mobile homes
are virtually a necessity in this countr\'. How many people did you
sav live in mobile homes ?

Mr. Frey. Over 7 million in the United States and 700,000 in
Florida, Mr. Chairman.

The Chairman. Is that in addition to the United States?

Mr. Frey. Sometimes we think so.

The Chairman. Seven million people. You know, in the first piece
of legislation we wrote in recognition of mobile homes, we didn't call
them mobile homes, we called them trailers.

Mr. Frey. Some of the confusion within the States. ^Mr. Chairman,
in terms of taxation and many things is based on the very fact that

842

they are still referred to as trailers and, of course, to call the double-
wide mobile homes is fairly hilarious. They are tough enough to move
one way but to return them, for instance, to fix them would be another
story.

The Chairman. The first legislation was to authorize FHA to insure
trailer parks. That's all we needed, and it wasn't until 4 or 5 years ago
that we authorized FHA

Senator Brock. 1968, 1 think.

The Chairman. In 1968, we authorized FHA to insure trailer
homes but provided that they should set standards.

Now, I have read of many instances of tragedy in the mobile homes
that I think could have been avoided by having proper standards. I
remember going clown to Fort, Rucker [sic] a year or 2 ago. A tornado
had come through there and there was a great colony of mobile homes.
The most utter destruction I have ever seen, and I was impressed then
with the idea that we needed to do something about it. Just to see one
of these mobile homes sitting on a stone or a cement block or something
like that with no anchor whatsoever seems to me is virtually an invita-
tion to destruction, and I was very glad to join with Senator Brock
and others of this committee in introducing this legislation.

Senator Brock, since it is your bill T will turn it over to you first.

Senator Brock. If I may in advance make my apologies, I have got
to leave for a very short time at 10 :30 for hearings before the Appro-
priations Committee.

The Chairman. Well, you may be interested to know I have four 10
o'clock committee meetings.

Senator Brock. That is the problem these days.

I'd like to make a very short statement and express my gratitude
to the Senator from Alabama for his foresight in calling for these
hearings.

Mobile homes have risen to a position of dominance — and I don't
mean importance, I mean dominance — in the low-cost housing field.
In fact, they are virtually the only source of housing now available to
those who cannot afford a typical new site-built home.

Today's mobile home, far from the trailer which you were just
referring to. Congressman, of long ago. provides comforts and luxuries
similar to those afforded by costlier site-built housing and in recent
years have seen marked improvement, too, in the surrounding of most
mobile homes.

The mobile homes appeal particularly to young married couples just
setting up housekeephig, as well as to older couples whose children
have grown up and no longer live with them. They are popular also
with middle-aged couples where the wife goes to work.

Unfortunately, mobile home dwellers are particularly subject to the
ravages of nature. Mobile home overturns due to high winds account
for needless death and injuries each year. The National "Weather
Services Storms Center in Kansas City said that about 60 persons have
died in windstorms so far this year with about 24 of them in mobile
homes.

It has been estimated that 90 percent of all mobile home wind dam-
age is preventable with proper anchoring, but fewer than 1 percent
of the mobile homes have been properly tied down. Most States do not
require that mobile homes be tied down or anchored to their sites.

843

After reviewing current State laws governing mobile home con-
struction, it became clear to me that Federal legislation was neces-
sary to protect mobile home ownere. Accordingly, in the last session
of Congress, I introduced the National Mobile Homes Safety Stand-
ards Act to provide for the establishment of safety standards for
mobile homes in interstate commerce. When I reintroduced the bill
this year, as the Senator from Alabama pointed out, it was cospon-
sored by Senators Sparkman, Hathaway, Bennett, Tower, Muskie,
Beall, Hollings, Taft, Goldwater, Gurney, Moss, and Humphrey.
This is a pretty good ideological as well as political spread.

]May I add, Mr. Chairman, that as much as any other member of
either body, the Congressman now testifying. Congressman Frey, has
led the effort to do something about this problem. He and I originally
discussed a draft in the subject area he had prepared with his staff.

Congressman Frey is enormously concerned. Coming from Florida
he has reason to be concerned with 10 percent of the Nation's people
who live in mobile homes situated in that particular State. I don't
feel anybody can fail to be concerned about these individuals. And I
think the legislation we propose is of benefit to all parties because we
deal with titling, we deal with State standards, we deal with the need
for adequate safety precautions in the construction of these homes, we
deal with the adequate ingress and egress in the instance of fire, we
deal with the need for adequate electrical wiring and it's not adequate
in the case of some mobile home manufacturers.

What we are trying to say is most of these manufacturers do a
fine job. They are really good and they are trying to do the .right
thing, but there are a few who do not and in that case we have a
problem that must be dealt with for the protection of the consumer.
I would say that if we can afford that protection we not only benefit
the homeowner but the good manufacturer, and the good State pro-
gram as well. We can benefit the homeowner not only in the terms
of safety but insurance costs. Insurance costs here are almost 10 times
what they are with the private homes of normal construction, so I
want to express my very deep appreciation to the Congressman from
Florida, Mr. Frey, and to the chairman of this committee for the
leadership that both have provided in resolving a problem that is of
considerable magnitude to a great many people in this country and
I compliment you for your testimony and for your efforts in this
field, Mr. Frey.^

Mr. Frey. Thank you.

The Chairman. Thank you. Senator Brock. Senator Proxmire?

Senator Proxmire. Congressman, how does your bill and the Brock
bill differ from the standards that are proposed by the industry
itself?

Mr. Frey. The standards that are proposed by the industry are,
of course, set forth in that publication but what we would provide
for, in our bill, is to set up a council which would in itself set the
standards. The council would be set up of people from the mobile
home industry, from the insurance industry, from the consumers, from
people concerned with mobile homes itself who would develop and
promulgate standards.

We don't set forth specific standards in the bill. Senator. We author-
ize the establishment of particular standards that we believe are
needed.

844

Senator Proxmire. Most crucial, I would think, to your bill would
be the makeup of the group that would confer with the Housing and
Urban Development Agency ; is that right ?

Mr. Frey. Yes.

Senator Proxmire. Does that indicate the people who would be
needed on it ? I see in your statement, you say :

A majority of each council shall be representatives of the general public, includ-
ing representatives of State and local governments, and the remainder shall
include representatives of mobile home or recreational vehicle manufacturers,
dealers, insurers, and nationally recognized standards-producing organizations.

I don't see anywhere in that the mobile-home owners group.
Mr. Frey. Maybe that is an omission. I feel very strongly about that
and that's why we put :

A majority of each council shall be representatives of the general public

Senator Proxmire. But then you modify the "general public" by
saying, including, No. 1 :

representatives of State and local governments, and the remainder shall
include

Mr. Frey. "Shall be included" but not — yes, sir. It should be better
stated "including but not limited to."

Senator Proxmire. The reason I raise that point is that I have here —
the Nader group are often right. Sometimes, like all of us, they make
mistakes. They say this in a recent release :

Mobile home standards are weak and there is little hope for self -correction by
the industry. . . . The group recommended that the Commission begin test burn-
ings of mobile homes to develop design. . . . They call for basic changes in the
structure and material of the mobile homes.

Now, you have a council that would advise on this matter that is
dominated by vehicle manufacturers, the dealers, and others and I just
wonder if you would get the kind of, No. 1, vigorous concern that you
should get for the safety of the people who own the mobile home, and
No. 2, whether you would get any concern for the quality of the home
besides simply safety.

Mr. Frey. Well, two things, Senator. To begin with, the bill was
drafted so that hopefully that problem would be taken care of by
requiring a majority to be from the public and I would be all for
strengthening it if there is any question about the intent of it.

Second, in the bill we authorize research, testing, development, and
training to develop new technology.

For instance, I am very familiar with some of the spinoffs of the
space program in terms of fire resistant items. This is the type of thing
that, in my mind, I hope that the research and development and tech-
nology would be able to come up with and include in their standards.

However, one problem : Today we don't have really anything clone
in this or significant amount of information either, in statistics, either
in research and technology, and we are really starting from a pretty
low plane and that is why we set up an advisory council and also
called for the separate research and testing to give impetus to it.

Senator Proxmire. One final question : You said that 10 percent of
all the mobile homes are in Florida.

Mr. Frey. Yes, 10 percent.

845

Senator Proxmire. "Why doesn't Florida — Florida as a State —
provide protection for mobile home owners

Mr. Frey. Well, they have moved toward tiedowns to a certain
extent. That has been rather recent. As a matter of fact, since we put
the bill in there has been amazing motion in Florida about getting
some things done.

Senator Proxmire. You say that they have got three inspectors
for

Mr. Frey. They have increased it to six.

Senator Proxmire. That is pretty pitiful. Out of 700,000 mobile
homes, and there are 6 guys out inspecting 700,000 mobile homes.
You can't even get a sample.

Senator Brock. He said 700,000 people, not mobile homes.

Mr. Frey. I am on your side.

Senator Proxmire. 700,000 people.

Mr. Frey. I think it is a tremendous problem.

Senator Proxmire. I want to commend you and Senator Brock
on your initiative on this and it is great that you gentlemen have taken
an interest in this.

By and large mobile home owners, I think, are forgotten partly be-
cause they are just — unfortunately, there is a prejudice against them.
They tend to be transients. I think maybe they lose a lot because we
think of them too often as people who don't have roots, and therefore,
don't vote and don't have the political power they would have, but I
think this is all changing a lot.

Mobile homes become a permanent residence for many people and
a perfectly, perhaps desirable, environment in many cases.

Mr. Frey. Senator, that recent

Senator Proxmire. But I am glad that both you gentlemen have
taken this interest and I think it is a great contribution you are making
to safety and I would hope that we can enact something that will be
helpful.

Senator Brock. I would like to respond, too, but let me point out
these people are no longer by any definition transients. The average
tenure on a mobile home space in a mobile home park is close to 5 years
now and going up.

Senator Proxmire. I said they are viewed as transients. You are
absolutel}^ right that they are not ; they are not. It is a permanent way
of life for many people.

Senator Brock. These are very stable communities and in many
cases they are a hell of a lot better than so-called residentials.

Senator Proxmire. Then we agree it is a wrong idea.

Senator Brock. A'^ery much so.

Mr. Frey. In many cases, the occupants are the very, very young,
or in our State 77 percent are over 65. And the average income of a
mobile-home owner in Florida is about $5,200 a year and they don't
have anyone speaking for them.

Senator Proxmire. One other question. The 1972 bill used a differ-
ent definition of a mobile home and the 1973 is different. I wondered
about the change.

In the first case, "without a permanent foundation" was considered
a mobile home and now "with or without a permanent foundation."
It is an indication of the transients

846

Mr. Frey. The definition we changed between 1972 and 1973 in the
bill was basically based on a review of the State laws and trying to
tie it into the definition of mobile homes under the majority of States.
We talk about how we got into doing that and the research in the
Law Review article and that is why the change was made.

Senator Proxmire. Thank you, Mr. Chairman.

The Chairman. Any further questions ?

Senator Brock. No ; one other, if I may.

Can you go back to one point that was touched on briefly but I don't
think you really got into it. Do you really think the problems of State
law can be remedied by national legislation, I have my own view and
I would like yours on the subject.

Mr. Frey. You know, I basically start with State and not with
Federal legislation. I only end up personally going for Federal legis-
lation if I can find no other way to do it or no other way that makes
sense to do it. Senator.

In this case, after reviewing all the State laws and problems of the
different codes that are adopted; second, States that don't adopt a
code ; third. States that don't apply a code to any mobile home manu-
factured within their State to be shipped out; and fourth, to the
overall problem as the Senator was discussing, of enforcement, where
it is pretty ludicrous in many cases, I see no other solution to the
problem. And because of that I am driven, I guess, to the need for
national standards and uniform standards.

Senator Brock. I think one of the reasons that led me to believe
that there was only one answer, and that was at this level was the
fact that whereas a home is built by a contractor and sold by a sales-
man or real estate office, funded by a finance company in a particular
locale, mobile homes are manufactured on a national basis in contrast
to any other housing in this country. I think, frankly, if we had
adequate national standards it would insure to the benefit of the custom-
ers and the builders because I think you would get more quality.
The standardization will result in more efficiency in the production
process for when you buy a mobile home in Chattanooga and then
move to Orlando, you are moving from one entirely political juris-
diction to another and you simply have got to have confidence that
you are protected both before and after that move. There is no such
assurance at the present time and that is why I think that we have
almost no alternative other than to go the route of national Federal
minimum standards.

Senator Proxmire. Will the Senator yield for one very significant
qualification ?

As far as I am concerned, I agree wholeheartedly except for pre-
emption on the part of the Federal Government moving into a stronger,
more comprehensive State law. To knock out the stronger, more com-
prehensive protections in the State law seems to me a mistake. In other
words, I think that the Federal standards should be the minimum
and if a State wants to provide stronger provisions, as I understand
Wisconsin has passed a law in its State senate which might go further
than the bill you two gentlemen are proposing, I don't think that the
law should be superseded ; preempted ; knocked out ; if they think we
need more comprehensive protection.

847

The Chairman. May I say I was planning to ask the Congressman
that very question. If, for instance, a State has a stronger law than
a Federal law, do you not belie\'e that the State law should be allowed
to prevail ?

Mr. Frey. I have done a lot of thinking about that, Mr. Chairman,
and the problem, of course, to begin with is a practical matter. "Wiscon-
sin may be in the process of doing it but if it does it will be the one
State that right now would have a stronger law than the one we
would adopt.

Second, however, I think one of the things we are trying for is
obviously good, tough State standards but we are also trying for
uniformity. It seems to m.e in this type of legislation there has got
to be a little bit of give and a little bit of take.

I feel we can have strong uniform standards. I think in all fairness
we should have a uniform type of standard that the manufacturer can
manufacture to. If he has to manufacture to 50 different standards,
I think this legislation is going to fall apart and you are going to end
up right back in the mess you now have.

I would hope that no State would have tougher standards than we
end up with, and as I said, as a practical matter, I think there is only
about one State where we face that problem.

Senator Proxmire. It is easy for you to say. Florida has the balmy,
wonderful climate.

Mr. Frey. Is this on tape ?

Senator Proxmire. Unless you like the northern climate like I do,
which means Wisconsin is best, but my point is what may be perfectly
proper and adequate in Florida may not be for Wisconsin, Minnesota,
Maine, the other Northern States.

You should recognize regional difTerences. We often have this prob-
lem here with other legislation, and I think the standard approach
has been that the Federal law preempts where you haA^e a weaker State
law, but leaves it free to the State to provide more stringent provisions
if they think in their judgment it is necessary for their particular
State.

Mr. Frey. If that was the case, I vv'ould even fall back to an area
approach certainly where you might group the States which have a
certain type of climatic problem and that into the Southeast, North-
east, Midwest, something like that. Maybe that is a compromise solu-
tion to the problem.

Senator Proxmire. Like the regional housing codes we have.

Mr. Frey. Yes, sir, something like that.

Senator Brock. That is one possibility, or. frankly, one that appeals
to me just about as much is to toughen the Federal laws so it would be
very ctifficult to write any State law that would be any safer or more
protective to the individual and the family than what we write because
ultimately that is what we are trying to do, is achieve basic protection
for the homeowner and his children.

Mr. Frey. One of the problems, too, is what if you export from
Wisconsin to Florida ?

Senator Proxmire, If you what ?

Mr. Frey. Export from Wisconsin to Florida. That problem is not a
practical one, I guess, because most aren't sold more than 500 miles
from the source where they are manufactured.

848

The Chairman. Well, thank you very much, Congressman. We
appreciate your presentation. You gave us a lot to think about.

Mr. Frey. I certainly thank you. I commend the committee and the
chairman for working on this problem and taking the leadership, and,
of course, the distinguished Senator from Tennessee, Senator Brock,

He has been tremendous in this area and done so much for the people
of the Nation.

[The complete statement of Congressman Frey follows:]

Statement by Louis Frey, Jr.. Representative in Congress From the State of

Florida

mobile homes : a housing phenomenon that must be made safer

Mr. Chairman, I appreciate having the opportunity to appear before you today
to discuss the need for national safety standards for mobile homes. Several years
ago I received a number of complaints from my district concerning injury and
property damage incurred by occupants of mobile homes. Florida, as you may
know, has the largest mobile home population in the nation. Upon investigation
of these complaints, I was shocked to find a complete lack of safety construction
standards for mobile homes.

After considerable research I then drafted the first bi'l on this matter in the
Congres.s — the National Mobi'e Home Safety Act — which was introduced in the
92nd and 93rd Congresses with more than .50 cosponsors. The original bill was
virtually identical to that introduced by my colleague and good friend. Senator
Brock. Although my current bill, H.R. 5224. is substantially different from Sen-
ator Brock's bill, we both agree that there is an imperative need for federal
mobile home standards. I commend the Senator from Tennessee for his deep
interest in this problem and the leadership he has demonstrated in resolving it.

During the past five years the huge increase in mobile home production has
plugged an important gap in ccmventional housfng production. As a result, the
mobile home has emerged as an important, albeit unique segment of American
housing.

Mobile home production this year will be about fiOO.OOO units as compared to
200.000 in the mid-sixties. More than 7 million people how live in mobile homes !
And, most important, half of the one-family houses built in the United States
today are mobile homes and 95% of the houses sold under $15,000 are mobile
homes.

And the demand continues to grow. Mobiles were 20% of the new housing starts
( including mobile homes ) in 1970 and 25% in 1971 and 1972.

The phenomenal increase in production and the rapid changes in the configura-
tion of mobile homes — the emergence in the 14 wides and double-wides — have
created serious safety hazards. The huge demand has made the market so com-
petitive that insufficient resources and technology have been devoted to sound
construction and safety features.

mobile HOME SAFETY HAZARDS

The major safety problem is the hazard of fire. The State of Oregon, one of
tlie few states to keep mobile homes statistics, estimates that the average loss
to a mobile home as compared to its value is .3.8 times greater as for a conven-
tional home and the mortality rate in mobile homes fire is 3.29 times greater.
An analysis made by Foremo.st Insurance Company of 5.."43 mobile home fires
in 1971 estimated that the damage due to such fires amounted to ,$6,780,972.34.

Foremost Insurance Company found 19% or all mobile home fires last year
were due to faulty electrical wiring. The primary cause was the extensive use
made of aluminum wiring and heat tape. Heat tape has a life expiectancy of about
3 years and eventual faihire takes the form of an electrical short. When tape is
placed around the water pipe adjacent to the inflammable insulation in the floor-
ing of a mobile home, the short can ignite a fire very early. Thirteen percent of
such fires are due to faulty furnaces and flues. The area surrounding furnaces, gas
water heaters, stoves and so forth, should be — but is not — protected with fire
retardant material. Insulntion u'ed in mobi'e homes should also be fire re^'a'-dnnt.

Aside from the many sources of ignition, the second basic hazard related to fire
in mobile homes is the lack of adequate escape provisions.

849

Since mobile homes are inherently faster burning than ordinary homes, the
doors and windows should be more accessible. They have been chosen on the basis
of cost and installation convenience in most mobile homes, however, and are much
less accessible than those in ordinary homes. The furnace compartment opens into
this hallway so the hallway would serve as the first fire chamber as a furnace fire
spreads. There is no way out of the bedrooms except through this hallway. The
windows, which should serve as an alternate exit, are generally too small, too
high, or do not open properly to serve as an exit.

The furnace location and kitchen location, as well, should be chosen for maxi-
mum exit freedom, because of the large proportion of fires that start in both. Both
kitchen and furnace should be at the ends of the trailer. The exit doors should
then be located so that they will provide easy exit from the kitchen or furnace
area, yet not require going through either area to exit from other parts of the
house. The furnace compartment should be structurally sealed off from the rest
of the house with fireproof materials. The furnace, itself, should be equipped with
automatic shutoffs not only to sense the pilot going off but also to sense
overheating.

The second major safety problem in wind damage. Most states and local gov-
ernments do not require that a mobile home be tied down at the site. Without
foundations, mobile homes are particularly vulnerable to being blown over by
windstorms.

A recent Civil Defense publication estimates that high winds damage or destroy
nearly 5000 mobile homes every year. Just last year, Hurricane Agnes in Florida
alone resulted in the death of 8 occupants of mobile homes, the destruction of 186
units, and major damage to 4.56 others. And, the recent tornadoes in the Southeast
on Palm Sunday destroyed 138 mobile homes, did major damage to 140 others, and
more than 40 persons were killed.

Wind damage can occur anywhere in the "United States. All but seven states
have been characterized as high-wind-loss areas. Sustained winds of over 80 miles
per hour have been recorded in most of them.

But, even in Florida where no part of the state is safe from hurricane force
winds, only five counties out of sixty-seven have tie-down ordinances.

Most local ordinances do not require either over the coach ties or an adequate
number of ties. Dade County, Florida (Miami), in the center of the hurricane
belt requires only frame ties, and Corpus Christi, Texas, where the mobile home
, parks were hard-hit by Hurricane Celia calls for only two over the top ties for
each mobile home, whereas the Defense Civil Preparedness Agency model ordi-
nance specifies up to six when winds of 100 miles per hour are to be resisted.

There are other serious "over the road" hazards associated with the trans-
portation of mobile homes such as load stability, structural integrity in a crash
and hitch safety. However, no state or federal studies have been made or data
collected.

Since the vast majority of mobile home owners are either retired or young
persons just getting stai'ted who have put their life savings and personal pos-
.sessions in the mobile home, any fire or loss imposes quite a hardship. Seventy-
seven percent of mobile homeowners in Florida, for instance, are retired and the
average income for a Florida mobile homeowner including social Security is
$5,702.

Most losses, moreover, are not covered by warranties. The warranties are often
times of very short duration and hard to comply with. Some companies for in-
stance require the mobile home be returned to the point of purchase.

In addition, insurance companies have become more and more reluctant to in-
sure certain models of mobile homes due to the high risk of loss involved. Con-
sequently, insurance rates for mobile homes are considerably higher than those
for standard homes. Insurance on the average $6,000 mobile home is equivalent
to the insurance on a $40,000 conventional home.

INADEQUATE REGULATION

Despite the enormous increase in the production and sale of moltile homes in
recent years and the known existence of the al)ove safety hazai'ds. all levels of
government have failed to resp<jnd with effective safety regulation. The resultant
confusing patchwork of local, state and Fedei'al regulation has made it more
costly to manufacture mobile homes while failing to provide protection to their
occupants.

Mobile homes are not subject, for the most part, to local building codes, nor
should they be. The structural characteristics of mobile homes are so different

850

from conventional housing built on foundations that the local ordinances, unless
they contain special provisions for mobile homes have no relevance and were not
intended to cover them.

Local regulation, whether specially-tailored to mobile homes or not. has not
and cannot operate effectively. Since the mobile home is usually constructed
outside the local jurisdiction and arrives completed, it cannot be inspected for
conformity with local plumbing, heating, electrical and structural codes. More-
over, the problem created by special local regulations which are not based on
general standards is that it becomes necessary to make changes in units con-
structed for use within the jurisdiction, which increases costs.

Thirty -six states have adopted varying versions of the mobile home code drafted
by the American National Standards Institute (ANSI).

Because of the expense involved in conducting research and developing stand-
ards, the states have had to rely exclusively on the standards developed by ANSI.
The code, however, has been criticized by many as not requiring usage of the
latest technology and, thereby, providing inadequate protection to the consumer.

The American National Standards Institute lacks the resources for its own
research and must rely on that of the industry. It is unable to conduct its own
independent research to develop standards. Secondly, the Institute uses the
"con.sensus" criterion in adopting a new standard. Rather than requiring ade-
quate safety and quality levels, "consensus" puts its emphasis on acceptability.

Although the ANSI code is used by many states, those states that use it have
referenced it in various fashions, and deleted or added standards. It certainly
has not been adopted or used in a uniform manner.

Some states authorize the promulgation of the most recent edition of ANSI
A119.1 and the subsequent amendments made by the American National Stand-
ards Institute. Other states adopted a specific edition of the ANSI A119.1
standards and do not authorize subsequent promulgation of amendments made
to it.

LACK OF ENFORCEMENT

Even more important than the lack of adequate, uniform state standards, is
the lack of enforcement by states which have codes and the great variance in
their enforcement procedures. The variance in the quality and manner in which
the standards are enforced, more than the standards themselves, make reciproc-
ity between the states impossible. In a number of states, no state enforcement
agency has been designated.

The enforcement agency exists only on paper in other states because no funds
have been appropriated to implement enforcement or no procedures were given
to the state agency for enforcement.

Many states have not implemented mobile home enforcement or inspection
procedures yet. Even in those states where funds have been appropriated for
enforcement of the state law adopting ANSI A119.1, inspection staffs are often
too small to inspect all mobile homes sold in the state. For example, only
one inspector is employed, on a quarter time basis, to enforce construction re-
quirements for 3,700 mobile homes sold in Nebraska in 1971. Florida, where more
mobile homes and recreational vehicles are sold than any other state in the na-
tion, had only three inspectors from the time the ANSI A119.1 constructions
standard were authorized. Minnesota, by comparison, employs 11 inspectors for
7,000 mobile homes sold in 1971.

A few states which have small inspection staffs allow the manufacturer to
.self-certify. Some States (e.g.. Florida) allow the manufacturer himself to certify
that the mobile home complies with the standards, while others (e.g., Maryland)
may select an employee of the company who is a "state certified inspector" to
inspect and certify mobile homes.

Even when sufficient funds have been appropriated for a reasonable number
of inspectors, the inspection procedures used still may allow a steady flow of
substandard mobile homes.

Some states use "third party" certification companies to improve the quality
of enforcement. In some states, such as North Carolina, this has been an effective
enforcement tool as it is financed by fees paid by the manufacturer and makes
reciprocity easier.

However, in many states "third party" certification is not effective. Some state
agencies fail to monitor the "third party" certifier. Also, since such companies
are paid by the manufacturers, there tends to be competition between the third
party certifiers for the business, resulting in cheaper rates and less stringent
inspection.

851

BECIPKOCITY

The primary weakness in the state regulatory pattern is the lack of reciprocity
between the states which have adopted a state mobile home code. The effort to
achieve reciprocity has been slow although a large proportion of mobile homes
are manufactured in one state and sold in another.

Some States specifically exclude from construction requirements mobile home
units manufactured for export to another state. Pennsylvania, for instance, re-
cently enacted a mobile home construction code which provides that "the pro-
visions of this section shall not apply to the manufacture or sale of mobile
homes designated for sale or use outside of the Commonwealth."

Moreover, on the importing side, some states only regulate mobile homes
which are manufactured in the state and not mobile homes sold in the state.
Thus, units manufactured outside one of these states and sold in the state
are not i-egulated.

Furthermore, even if the receiving state regulated both the manufacture and
sale of mobile homes, mobile homes manufactured in another state without a
code, a code that exempts them for export, or which does not enforce the code
are effectively excluded from regulation. Inspections must be made during the
manufacturing process itself, and not afterwards.

Even where states have adopted mobile home codes which are substantively
comparable, there is still a reluctance to grant reciprocity. North Carolina for
instance, for good reason does not trust enforcement programs of other states
and believes they must personally inspect out of state mobile home manufacturers.
For North Carolina, this means the monitoring of 125 manufacturers' plants
located in 23 other states.

The Mobile Home Manufacturers Association and the Trailer Coach Associa-
tion require members to manufacture only mol)ile liomes which meet tlie ANSI
st<indards. But, self- regulation is not the answer. Moreover. 35% of total industiT
production (250 firms) do not belong to MHMA or TCA and they feel no obligation
to conform to any building standard not required by state law.

There is no formal regulation at the federal level either, although both the
FHA and VA require that before mortgage money is lent on a mobile home, it
must meet the ANSI standard. The FHA employs a "self certification" process
which in .reality means no regulation at all. The VA, on the other hand, has
Recently inaugurated a quarterly inspection of manufactui-ing plants by a per.son
from each of their state oflSces. Experts in the industry tell me that a great deal
of expertise is required to adequately inspect a mobile liome and they are skei>
tical of the VA's capabilities in this regard. So am I.

The Federal Home Loan Bank Board has authorized Federal .savings and loan
associations to make loans for the i)urchase of mobile homes. But they do not
require that the mobile home financed meet aTiy safety standards whatsoever.

Since the FHA and VA are insuring the financing of mobile homes and the
Federal Home Loan Bank issues deposit insurance for Federal savings and loan
associations, fiscal responsilnlity alone would seem to require adherence to uni-
form federal standards.

THE ONLY ALTERNATIVE : NATIONAL SAFETY STANDARDS

The present patchwork of state, local and federal regulation of mobile homes
has resulted not only in minimal protection for seven million mobile home
occupants but also increased manufacturing costs, and therefore, in increased
purchase prices. The present scheme of regulation is seriously deficient because
1) the uniqueness of size and construction of mobile homes does not lend itself
to adherence to local building codes; and 2) the mass production of these homes
demands standardized controls of construction so that economies of scale can
be maximized and optimal efficient distribution between states can be effectuated.

Congress undoubtedly has the power to regulate the construction specifications
of mobile homes under the Commerce Clause since the great majority of mobile
homes are manufactured in one state and sold in another. In fact, the situation
is classically .similar to other areas where the Congress and the courts have
acted to promote and prevent interference with interstate commerce.

Moreover, the federal government alone has the resources (government and
lirivate) availal)le to it on a national scale to develop and enforce mobile home
construction standards.

The legislation which I introduced in the previous Congress was identical to
that introduced in the last and current sessions by Senator Brock : The estab-

852

lishment of a National Mobile Home Safety Bureau in HUD to develop and
enforce mobile home safety standards.

H.R. 5224 which I have introduced in this Congress with 50 eosponsors departs
in several major ways with my earlier legislation. These changes were a result
of new information being brought to my attention as well as the opposition of
HUD to actually enforcing construction standards, as opposed to setting stand-
ards. Also, as you are aware, our present bill has been assigned to the Committee
on Interstate and Foreign Commerce, which will shortly hold expansi\ e hearings
on this legislation.

The major difference between the two bills is my inclusion of Ijoth mobile
homes and recreational vehicles. My bill, H.R. 5224, would add a separate title
for "Mobile Home and Recreational Vehicle Safety Standards' to the National
Traffic and Motor Vehicle Safety Act.

The legislation recognizes the differences in the usage and construction of
mobile homes and recreational vehicles by providing for the separate establish-
ment and enforcement of standards for each. But, the legislative scheme includes
both because many are manufactured by the same companies, involve similar
construction techniques and hazards, and both are inadequately regulated.
Moreover, states which have the largest population of both mobile homes and
recreational vehicles — Florida, California, and Arizona — regulate both together.

Even more importantly, however, is the fact that travel trailers and motor
homes, although more of a vehicle than a mobile home, are used as housing.
Travel trailers are, after all, ancestors of the mobile home and are still iised
by a small percentage for housing. To provide federal regulation only for mobile
homes would leave a serious gap which would have to be filled sooner or later.

The development of such standards would be divided between the Departments
of Transportation (DOT) anl Housing and Urban Development (HUD). DOT
would develop "operational" over the road safety standards and HUD would
develop nonoperational — housing — safety standards.

The National Highway Traffic Safety Administration (NHTSA) in DOT will
develop the over the road standards and actually promulgate all the safety
standards. NHTSA's jurisdiction over the over the road characteristics of both
mobile homes and recreational vehicles will be express, whereas, heretofore,
it has been tenously implied under the National Trafiic and Motor Vehicle Safety
Act, resulting in few standards being promulgated, and standards which for the
most part, do not directly apply to recreational vehicles.

The development of housing standards will be accomplished in HUD through
a National Institute for Mobile Home and Recreational Vehicle Safety. The
institute would have comparable status to NHTSA in DOT.

The bill does not disturb current regulation by NHTSA as existing standards
and regulations promulgated under title I of the National Traffic and Motor
Vehicle Safety Act shall remain in effect until replaced by either initial standards
or revised standards are issued pui'suant to the act. The Secretary can detei'mine
which title will best achieve the objective of safety.

Separate advisory councils — a National Mobile Home Safety Advisory Coun-
cil and a National Recreational Vehicle Safety Advisory Council — are established
to advise the Secretary on proposed standards. A majority of each council shall
be representatives of the general public, including representatives of state and
local governments, and the remainder shall include representatives of mobile
home or recreational vehicle manufncturers, dealers, insurers, and nationally
recognized standards-producing organizations.

Research, testing, development, and training are authorized to produce the
necessary factual base and technology on which the development of federal safety
standards will be based. Presently, there are no national statistics on which
to base standards. Moreover, there are many resources, public and private, which
can be tapped for the first time to develop adequate safety standards for mobile
homes and recreational vehicles.

The criteria to be employed by DOT and HUD in developing the Standards
follow :

(1) Consider relevant available mobile home and recreational vehicle safety
data, including results of research, development, testing, and evaluation activ-
ities conducted pursuant to this title, and those activities conducted by nationally
recognized standards-producing organizations to determine how to best protect
the pTiblic ;

(2) Consult with such federal, state or interstate agencies (including legisla-
tive committees as they deem appropriate ;

853

(3) Consider whether any such proposed standard is reasonable, practicable,
and appropriate for the particular type of mobile home or recreational vehicle
for which it is prescribed ;

(4) Consider whether any such standard will result in a substantial increase
in the retail price of mobile homes or recreational vehicles and

(5) Consider the extent to which any such standard will contribute to carry
out the purpose of this title.

Once standards have been promulgated, every manufacturer of a mobile home
or recreational vehicle is required to submit detailed plans and specifications
of each model to the Secretary for approval. This is a major change from my
earlier bill because most substandard conditions which occur in mobile homes
and recreational vehicles appear in the plans themselves. Thus, preapproval will
catch many of the safety hazards. If the manufacturer follows the plan as ap-
proved, he cannot be held to be in violation of the federal standards.

The federal standards may be enforced by the states if they submit a plan
for enforcement which is approved.

Since a number of states do have effective enforcement programs, every effort
should be made to utilize that experience and also to encourage the other states
to enforce the federal standards.

If the states have no desire to enforce the federal .standards, enforcement will
be by the National Highway Traffic Safety Administration (NHTSA) in the
Department of Transportation. XHTSA has had much experience in enforcing
the National Traffic and Motor Vehicle Safety Act, including the enforcement of
a number of regulations affecting mobile homes and recreational vehicles.

Section 409 of the bill authorizes either third-party inspectors or qualified em-
ployees of NHTSA to enter without notice any warehouse or factory to inspect
and investigate mobile homes and recreational vehicles to insure they conform
to federal standards. Each manufacturer must maintain and submit such records
and technical data as may be required.

If the mobile home or recreational vehicle conforms to the federal safety stand-
ards, a certification label will be affixed to each such home or vehicle. Recertifica-
tion is required for every mobile home or recreational vehicle which is modified
after original certification but before sale to the first purchaser.

If NHTSA or a manufacturer determines that there is a defect in any mobile
home or recreational vehicle manufactured, the manufacturer is required to notify
each purchases witliin a reasonable time after discovery of the defect and in a
manner prescribed in section 410. Tlie manufacturer is further required to remedy
any defect which is found at a hearing to violate the federal standards when
sold to the purchaser. This is also a major change from my earlier bill which
I felt was mandated by a similar amendment to the National Motor Vehicle
Safety Act.

In addition, the manufacturer of any mobile home or recreational vehicle shall
either repurchase a nonconforming mobile home or recreational vehicle from the
distributor or dealer or furnish complying parts and expenses for installation.

If the manufacturer refuses to repurchase or furnish conforming parts, then
section 407(b) authorizes the bringing of suit for damages by the distributor or
dealer against such manufacturer.

In summary, I commend the Committee and, particularly. Senator Brock for
your interest in mobile home safety. Although we are pursuing different legisla-
tive routes, I hope that you conclude that only national legislation can overcome
the enforcement and reciprocity problems with mobile home regulation.

Thank you.

The Chairman. Thank you, and the same goes for you, Congress-
man Frey.

Our next witness is Eonald Williams, Wilquest, Inc., Charlotte,
N.C. Will you come around, Mr. Williams?

"Wlien was the film supposed to be run ?

Mr. Williams. I believe it is scheduled now.

The Chairman. Well, suppose we run the film at this time.

[Film.]

Senator Proxmire. We have a statement for the record from Sena-
tor Rollings, of South Carolina, at this point.

854

[The statement follows :]

Statement of Ernest F. Hollings, U.S. Senator From the State of South

Carolina

I appreciate this opportunity to provide testimony on legislation I have intro-
duced, S. 898 and S. 899, dealing with financing and improving mobile homes.

One of the most serious domestic problems facing our Nation is the inade-
quate supply of housing. Production of low and moderately priced homes con-
tinues to fall far below national goals. The cost of building, owning or renting
adequate housing has risen sharply, so that what is now medium-pric: d housing
is without financial access to nearly one-half of the families in this country.

Mr. Chairman, for many moderate income families, the mobile home is the
only type of house they can reasonably afford to own, and the legislation I
sponsored would assist these families in obtaining adequate dwellings of this
type. In the 91st Congress, I introduced a bill which permitted the Federal
Housing Administration to insure loans financing the purchase of mobile homes
to be vised by the purchaser as his principal residence. This bill, a part of Public
Law 91-152, has provided a low-cost avenue for thousands of citizens in obtain-
ing adequate housing. Also, during that Congress, Public Law 91-506 was enacted,
permitting eligible veterans to receive guaranteed loans for mobile homes as
well as individual mobile home lots. The two bills I sponsored will round out
the availability of Federal programs for mo'iile homes under all types of Gov-
ernment housing programs, as well as assuring the mobile home dweller that
his home and property meet the requests of liveable property standards set by
the Secretary of Housing and Urban Development.

First, under the existing Federal Housing Administration program, mobile
home parks and the individual mobile homes are provided for, but the pro-
gram does not include the combination of a mobile home and an individual
lot. My legislation would permit a purchaser to receive FHA assistance for
both his mobile home and his lot.

Further, my legislation would amend Title V of the Housing Act to permit
the Farmers Home Administration to participate in the mobile home loan pro-
gram. The constituency of the Farmers Home Administration includes the
economic income bracket which would most benefit from low-cost housing.
Seventy-five percent of the moljile homes delivered in 1971 were in states that
contained seventy-two percent of the national rural population, and eighty-four
percent of our farm population. Further, thirty-four percent of existing housing
units in that same group of states are deteriorated, dilapidated, or lacking in
adequate plumbing facilities. It would seem clear that this source of housing
would be most beneficial in the rural areas where the lack of housing is most
severe.

These bills were included as parts of the Omnibus Housing Bill of 1972, which
passed the Senate, but unfortunately, this bill died in the House. Due to the im-
pact of infiation, high interest rates and tight money, American families with
middle and low incomes are effectively barred from seeking new and improved
housing. These families include returning veterans, young married and retirees.
A survey done by the U.S. Department of Housing and Urban Development in-
dicates that three-fourths of these households have children under six years of
age ; the husband is under thirty-five and has completed at least three years of
high school education ; and the family income, primarily from wages, is about
.$6,700 per annum. It is clear that the mobile home offers these families a source
of hoxising not otherwise available. The availability of mobile homes contribute
significantly to the housing supply outside the central city and small community.
According to the 21st Annual Mobile Home Financing Survey, the mobile home in
America today, provides permanent housing for over seven million Americans.
In addition, in 1971, the mobile home industry produced 43% of single family
dwellings in the United States. By the assistance of this legislation, we can ex«-
tend the advantage to many more people.

Mr. Chairman, I sincerely feel that, although mobile homes are not the whole
answer to fulfilling our housing commitments, they do provide an adequate meas-
ure in easing the housing crisis in our Nation.

The Chairman. Our next witness is Mr. Eonald Williams, Wilqiiest,
Inc., Charlotte, N.C.

Mr. Williams, as you know we have a number of witnesses this
morning. The hour is getting late and we would appreciate it if you

855

would abbreviate your testimony any way you can. Your entire
statement will be pVinted in full in the record so go right ahead.

STATEMENT OF RONALD WILLIAMS, PRESIDENT, WILQUEST, INC.,

CHARLOTTE, N.C.

]Mr. WiLLiA3is. Thank you. The company of which I am president,
Mr. Proxmire, is one of only four or five in the country and one of
only three in the southeast that finances mobile homes under the FHA
title I mobile home program.

Our company purchased its first FHA loan November 1, 1972, and
has since that time purchased approximately $8 million of such loans.
We have seen a tremendous demand among mobile dealers and pur-
chasers for the FHA title I mobile home financing. Except for the
FHA title I mobile home loan a mobile home pui'chaser must pay an
astronomically high interest rate of 13 or 14 percent interest.

Typically, the mobile home purchaser is the least affluent class of
homeowner, least able to pay the astronomical rates demanded and
obtained by the sector of our economy which controls the money
sources. The more affluent class of homeowners purchasing a "site
built'' home has for decades enjoyed low interest rates made possible
by FHA insurance.

' Last year 46 percent of the sales of new single-family dwellings
were mobile homes. The mobile home, despite the fact that it has had
its obituary read once or twice every year by a national figure, has
proven its worth and proven that it is here permanently to fill an
otherwise unfilled housing demand, without Government subsidy, for
persons of moderate income. The only alternative to mobile home
ownership is subsidized housing because of the high construction cost
of site built homes.

The per square foot cost of a furnished mobile home built under
standards set by the American National Standards Institute and
inspected by underwriters Laboratories is approximately one-half
that of "site built" homes. This advantage of low cost brought to the
mobile home purchaser is. for the most part, "gobbled up'' by the
high interest rates the mobile home buj'ers are required to pay,

FHA MOBILE HOME INTEREST RATES

However, at present, the FHA mobile home interest rates offer too
much of a good thing. That is, the 7.97 percent interest rate on single-
wides and 7.63 percent interest on doublewides is so low that we are
required to pay very high discounts in order to sell the GNMA securi-
ties for which the mobile home loans are placed as collateral. At
present

Senator Proxmire. The discounts, what do the interest rates amount
to?

Mr. Williams. Discount rates on the interest?

Senator Proxmire. The true interest for the discount rate figure.

Mr. Williams. It is about 9iA to 9% percent.

Senator Proxmire. Thank you.

Mr. Williams. It's as you can see, the stated rate plus the discount
rate of 8 or 9 percent. The face amount of the securities, the GNMA
securities, is approximately 133 percent of the manufacturer's invoice.

856

This means that the manufacturer must demand and the dealer must
pay approximately 15 percent more for the product under the FHA
proo;ram, thus, raisino; the price of the mobile home so high it becomes
hard to market even at the higlier price, even though there is a larger
savings through the lower interest rate.

It is our calculation, based on our figures, that the average mobile
homebuyer saves $2,000 even after paying the discount points on FHA
loans as opposed to a conventional loan.

This problem can be reflected by j)assage of S. 898 giving the Sec-
retary of HUD authority to adjust the rates in accordance with pre-
vailing money market conditions.

This, of course, is already being done in the title II site-built FHA
home program. We have two sugirestions to make now

Senator Proxmire. What is the status of S. 898 ?

Mr. Williams. I beg your pardon ?

Senator Proxmire. Where is S. 898 pending?

INIr. Williams. It is pending before this subcommittee. It is a
bill

Senator Proxmire. The Housing Subcommittee ?

]Mr. Williams. That is correct.

Senator Proxmire. That is not the Brock bill.

Mr. Wtllia:\is. No, sir, it isn't. This was introduced by Senators
Cranston and Hollings.

Senator Proxmire. Thank you.

Mr. WTLLiA:\rs. The gist of the bill, I might just briefly state the
brief outline of the bill is to provide not onlv for financing of the mo-
bile home but for financing of a lot on which to place it and for the
financing of the improvement if. in the event that the borrower already
owns the lot and has clear title to it.

The bill contains a limitation of $10,000 on a smgle wide and
$15,000 on a double wide. We suggest that these limitations be re-
moved from the statute and that the limitations be placed in the dis-
cretion of the HUD Secretarv for two reasons :

One. is inflation in the labor and cost of materials and two, is dis-
count points which must be contained in the final cost of the mobile
home going to the purchaser.

A^Hien the economy gets in an inflation period, as now. combined
with the high discount points as we have now, the cost of the home is
forced upward and rather dramatically. Today a double wide mobile
home costing the dealer $11,000 nets the manufacturer $9,850 after
points. This, of course, doesn't provide for a very large or have a very
equipped double-wide home. It would provide for a very high quality
single wide. Based on our records, we will finance the maximum
$15,000 on the home and pay $1,425 in discount points.

Xow, of the $15,000 that we finance, that includes insurance pre-
miums, taxes, title fees, delivery and setup, installation, freight, et
cetera.

The point we are makin.Q: is this. That in 2 or ?> vears the limitation
will have to remove — will hnve to be removed upward and we think it
would be better that the PH^D Secretary be qriven the routine respon-
si])ilitv of monitoring these costs and makinc: these changes as the
money market, as the conditions warrant.

857

Our second suggestion in relation to S. 898 is that where the double
wide mobile home and the lot are financed as a package that the term
be extended from 15 years as present to 20 years. The bill provides
where a single wide mobile home is financed along with a lot that
term is extended from 12 years to 15 years, but it does not provide for
an extension of the term from the present 15 years on the double wide
loan to a longer term where the lot is financed.

Of course, the bill provides that the lot, an unimproved lot can be
financed, the purchase of it up to $5,000 and the price of an improved
lot up to $7,500, so we are financing more money and we need longer
terms.

Inflation in costs and discounts mean, as time passes, more dollars
must be financed and therefore longer terms are needecl if persons of
moderate income are to enjoy the benefits of homeownership without
Government subsidy.

That is what the whole title I is about, providing low-cost housing
for people of moderate income without Government subsidy.

At present less than 1 percent of the more than 600,000 mobile homes
purchased by persons on moderate income is being financed under the
FHA program. On an average, $2,000 more interest is paid on a con-
ventional loan than on an FHA loan. That is net of discount points.
These facts mean that approximately 595.000 families of moderate
income are obligating themselves for approximatelv $1,190 million in
excessive interest charges every 12 months, ^^^ly? The money con-
trollers are for the most part refusing to participate in the FHA
program because they have a growing ])ortfolio of mobile home loans
yielding as much as 13 and 14 per-cent interest. This is why the banks
and the large finance companies do not enter the FHAprogram. Thej^
haA'e money with which to provide inventorv financing to the mobile
h.ome dealers. They are telling their dealers in clear terms that they
will not finance mobile home inventory intended to be financed at
retail bv an FHA-insured loan. They are using the inventory financ-
ing to tie in and control the loan which finances the retail sale.

This tactic which is bein<r employed by more and more large finance
companies and banks is cutting into and aifecting the growth of the
FHA mobile home program.

Manufactui-ers with whom we have agreements have been visited
by the large finance companies and banks and advised to drop partici-
pation in the FHA pi'ogram, or their products will no longer be fi-
nanced in dealers' inventory, thereby making it impossible for the
manufacturers to market their products. At least one manufacturer
has agreed to withdraw for this reason alone. Thus, failure to pro-
vide inventory financing is crippling the program. It is not antici-
pated that the enactment of S. 898 alone will cause the large finance
companies and banks, with inventory financinq-, to leave their 13- or 14-
percent interest yields and come into the FHxA. program with much
lower yields. Rut there are a large number of small- and medium-size
mortgage companies which probably would enter the title I program
if tliev had a means of obtaining the funds for inventorA' financing.

Therefore we propose that Congress authorize the Secretary of
HUD to insure a.qainst dealer default loans to finance mobile home
inventory, the retail sale of which is anticipated to be financed with an
FHA-insured loan.

858

A^liat I am sayino:. Senator, is that today the banks and ]ar^e finance
companies control tlie inventory financino-. By controllino; inventory
financing, they are controlling the retail financing. By controlling the
retail financing, they are demanding 18- or l-l-percent interest rates,
rather than the lower interest rates which every mobile home buyer
would love to have.

The loans could be secured by a valid first lien on the dealers' mo-
bile home inventory.

It is further proposed that the Secretary of HUD be authorized to
issue guaranteed securities backed by the insured loans in order to gen-
erate the funds for the inventory financed program. The securities
might mature in one lump sum rather than monthly, as most of the
GNMA securities that are issued, are. A matured security would be
replaced by a new one and so on to piovide a continuous, uninterrupted
flow of funds for inventory financing. FHA for yeai's has insured
construction loans, construction loans of course are merely inventory
loans, with the funds advanced as the building progresses, and paid
off when the building is sold. It is merely an inventory loan, and we are
suggesting that the same program be offered to the mobile home fi-
nance mortgage company.

Such a program would thus break the grip held by the banks and
lar.o'e finance companies.

With inventory financing to offer the dealer, the small- to medium-
sized mortgage companies could enter the program. As more and more
of the market went to the FHA program, the larger companies then
would be required to enter into it, and thus the benefits would come
to the mobile home buyer.

In summary, we urge enactment of S. 898 in a form giving HUD
Secretary the authority to set the maximum loan amounts. No. 1, and
No. 2, to provide 20-year term for double-wide financing where the
lot is included in the loan amount.

No. 3, providing insurance on loans to finance inventory without
which the program is destined to operate at low levels, and without
which most persons of moderate income will continue to be deprived
of savings of FHA insured mobile home loans.
Senator Proxmire. Thank you very much.

Your following that film clip makes your testimony especially in-
teresting and significant.

As I watched that film, it confirmed some of my suspicions about
the mobile home situation, one of them being that the mobile homes
are not as durable of course as permanent. As conentional homes, and
unlike the situation with conventional homes, where lately they have
increased, appreciated in value in almost every area of the country,
and at a rather continuous rate, the mobile home tends to obviously
deteriorate as well as depreciate rather rapidly.

One of the principal arguments you made was the argimient that
the 13- to 14-percent charge to mobile home buyers when they buy
their home is not justified and you argued it is not justified because
there is this insurance program available.

On the other hand, absent that insurance program, is there any
data to show that that 13 to 14 percent is unreasonable? It seems to
me that if there are any large number of mobile home buyers who
default, repossession of one of these things would be pretty sad for

859

anybody who has been a lender and that, therefore, the risk would be
high and therefore 13 to 14 percent might not be unreasonable.

Mr. Williams. Well, the answer to that question, I think, probably
lies in the liistory hack a tew decades ago. wlien home loans, brick
homes, which are financed on the same basis. You might recall they
were financed on a 12-month renewable note, with a balloon note, at
the end. It might be renewed, it might not be renewed, and the in-
terest lates were 10. 11. l'.!. IH ])ercent, whatever the traffic would bear.

But the reason that the Federal Housing Administration was put
into business was to rectify the situation. And the same situation exists
today.

Now, I believe if you will check with title I of the Federal Housing
Administration, this program has been in operation 3y2 years. I be-
lieve, December 22, 1969, President Nixon signed the title I bill. Since
that time thousands of mobile homes have been insured under the FHA
program, without one single default. Not one single claim has been filed
under that program.

Senator Proxmire. I think the fact there hasn't been any is interest-
ing. But at the same time I presume since the program started 81/2
years ago, you have only 3i/4-year-old mobile homes to test.

The question is when they get to be 7, 8, 10, 12 years old, whether
there is anything to repossess there.

Mr. Williams. Yes, the history in mobile home financing shows
that once a house gets 31/2 or -1 years old, the likelihood of its being
repossessed is very slow. In other words, the longer the customer
lives in the house, "the less likely it is he will allow it to be repossessed.

Senator Proxmire. A large proportion of the mobile home owners,
.as was testified earlier, are old people who die. As they die, they
obviously move out of their homes, you have to try to sell them. To
sell a used mobile home 5, 6, 7, or 8 years old I would think would be
rather difficult to do. In some cases the heirs would simply permit it
to lapse.

Mr. Williams. Senator. I must make a point of information there:
59 percent of the mobile home buyers are below 30 years of age. The
largest single segment is the young married couple, just starting out.
The retired people

Senator Proxmire. Aren't many of those people who live in the
mobile homes for 5 or 6 years and then move into a large home?

Mr. Williams. In many cases, this is exactly the case. The people
are starting out, they are at the low end of the earning scale, they are
not bad citizens, delinquents, transients, they are good solid citizens.
They can't afford a $2,000 downpavment on a house; they can't afford
$250 a month pavment. So they have to move into a mobile home
where they can get in for $500 or $600 or $700. And that includes
their furniture.

Senator Proxmire. Will the suspension of the GNMA tandem plan
include suspension for mobile homes?

Mr. Williams. I beg your pardon?

Senator Proxmire. Will the suspension of the GNMA tandem plan
for unsubsidized programs include a suspension for mobile homes?

Mr. Williams. I don't have an answer to that question.

860

Senator Proxmire. What about the holder in due course doctrine?
Do you think it is fair for a mobile homeowner to continue paying
a bank for a defective mobile home I

Mr. Williams. I do not. I am a lender and I would support legisla-
tion to do away with the holder in due course doctrine, and in that
fashion we would do away with many of the shady dealers. In that
case we would do business only with the good dealers, and we would
have them bonded, bonded for performance to service the warranties.

Senator Proxmire. Thank you. I appreciate that very much.

[Full statement of Mr. Williams folloAvs:]

Statement of Ronald Williams, President, Wilquest, Inc., Charlotte,

North Carolina

Mr. Chairman, members of the Senate Committee on Banking. Housing and
Urban Affairs.

The company (Wilquest, Inc., 4822 Albermarle Road, Charlotte, N.C. 28205) of
which I am president is one of 4 or 5 lenders in the country and one of only
three in the Southeast purchasing (from the mobile home dealers) a substantial
volume of loans under the FHA Title I Mobile Home Program.

Our company purchased its first such loan November 1, 1972 and has since
that time purchased approximately .f8.()0(),(»00 of such loans. We have seen a
tremendous demand among Moble Home dealers and purchasers for the FHA
Title I financing. Except for the FHA Title I Mobile Home Loan a mobile home
purchaser must pay an astronomically high interest rate of 13% to 14%.
Typically the mobile home purchaser is the least affluent class of home owners,
least able to pay the astronomical rates demanded and obtained by the sector
of our economy which controls the mone.v. The more affluent class of home owners
purchasing a "site built" home has for decades en.ioyed low interest rates made
possible by FHA insurance.

During 1972 46% of sales of new single family dwellings were mobile homes.
The mobile home, despite the fact it has had its obituary read every 2 to 3 years
by a Secretary of HUD or other national figure, has proven its worth and that it
is here permanently to fill an otherwise unfilled demand for housing, without
subsidy, for persons of moderate income. The onl.v alternative to mobile home
ownership is subsidized housing, because of the high construction costs for site
built homes.

The "per square foot" cost of a furnished mobile home built under standards set
by the American National Standards Institute and inspected by Underwriters
Laboratories is approximately one-half that of "site built" homes. This ad-
vantage of low cost brought to the mobile home purchaser is, for the most part,
"gobbled up" by the money lenders through the astronomically high interest
i-ates.

mobile home FHA INTEREST RATES

Presently the FHA Title I :\Iobile Home Program has too much of a good
thing. The interest rates are set at 7.98% on singlewides and 7.63% on double-
wides. The FHA-GXMA insurance premium must be paid out of these rates
rather than added to them as with Title II "site built" home loans. After tlie in-
surance premium and the servicing fee are paid there is a 6% rate left for the
GNMA securities purchaser. Today's high money market demands 8% to 9%
discount from the face amount of the securities. The face amount of the securities
equals the fact amount of the mobile home loans pledged as collateral for
them. The face amount of the mol)iie home loan is approximately 133% (in-
cludes mobile home physical damange insurance premium, sales tax. title and
recording fee, etc.) of the manufacturer's invoice which means that the manu-
facturer must demand from the dealer ni)pr(>ximately 1.5% more for liis product
imder the FHA Program, thus raising tlie price of the mobile liomes so high
it becomes hard to market even though, at the higher price, with the lower
interest rates the purchaser realizes a net savings.

The problem can be rectified by passage of S. 898 giving the Secretary of
HUD authority to ad.iust the rates in accordance with prevailing money market
conditions.

861

SUGGESTIONS IX RELATION TO S. 898

(1) It is suggested that all of (I) contained in lines 3-5, page 3 providing a
limitation of $10,000 loan amount on a singlewide and $15,000 on a doublewide
be replaced by language allowing the Secretary of HUD to set the maximum
limitations by regulation, the reason being that, based on our past history, costs
of mobile homes \A'ill continue to be forced upward and eventually above these
limitations by two factors :

(A) Inflation in lal)or and materials costs.

(B) Discount points which must be contained in the final cost of the mobile
home to the purchaser.

When the economy gets in an inflation period, as now, combined with high
discounts, as now, the cost of the mobile home is forced upward. Today a double-
wide mobile home costing the dealer $11,000 nets the manufacturer $9,350 after
points. ($9,350 does not buy a very large doublewide mobile home.) Based on
our records we will flnance the maximum $15,000 on the home and pay $1,425 in
points on the security.

The point is thi.s — it is likely that Avithin 24 to 36 months these limitations will
need to be adjusted upward. The question is — would it not be better to authorize
the Secretary of HUD to routinely monitor costs and make adjustments in these
limitations than for 500 odd members of Congress to try to do so?

(2) It is suggested that the term of the loans financing the purchase of a
doublewide mobile home and lot be extended to twenty years. S. 898 extends the
term of the loan financing the purchase of a singlewide mobile home from 12
years to 15 years when the lot is included.

(A) For the same reason the term of the loan on a singlewide plus lot is
extended, the term of the loan on a doublewide plus lot should be extended, i.e..
the loan is $5,000 to $7,500 larger because of the purchase price of the lot.

(B) Inflation in costs and discounts mean, as time passes, more dollars mu.st
be financed and therefore longer terms are needed if persons of moderate income
are to enjoy the benefits of home ownership without government subsidy.

At present less than 1% of the more than 600.000 mobile homes purchased by
I)ersons on moderate income is financed by an FHA Insured Mobile Home Loan.
On an average, approximately $2,000 more interest (net of di.scount points) per
mobile home loan is paid by the mobile home purchaser under a conventional
loan than under an FHA Insured Mobile Home Loan. These facts mean that
approximately 595.000 families of moderate income are obligating themselves for
approximately $1,190,000,000 in excessive interest charges every year.

PROPOSED AMENDMENT

The money controllers (Large Finance Companies and Banks) are, for the
most part, refusing to participate in the FHA Program because they have a
growing portfolio of mobile home loans yielding a much higher 13% to 14%
interest. They have money with which to provide inventory financing to the
mobile home dealers. They are telling their dealers in clear terms that they
will not finance mobile home inventory intended to be financed at retail by an
FHA Insured Loan. They are using the inventory financing to tie-in and control
the loan which finances the retail sale. This tactic which is being employed by
more and more large finance companies and banks has cut our volume from a
peak $1,200,000 per month in the winter months to approximately $600,000 per
month presently, (normally summer months are higher volume months). Manu-
facturers with whom we have agreements have been visited by the large finance
companies and banks and advised to drop participation in the FHA Program, or
their products will no lonsrer be financed in dealers' inventory, thereby making it
impossible for the manufacturers to market their products. At least one manu-
facturer has agreed to withdraw for this reason. Thus, failure to provide inven-
tory financing is crippling the program. It is not anticipated that the enactment
of S. 898 alone will cause the large finance companies and banks to enter the
FHA Program.

There are a number of small to medium size mortgage companies which might
enter the Title I Mobile Home Program if they had a means of financing inventory.

It is proposed that Congress authorize the Secretary of HUD to insure, against
dealer default, loans to finance mobile home inventory the retail sale of which is
anticipated to be financed with an FHA Insured Loan. The loans would be secured
by a valid first lien on the dealer's mobile home inventory.

862

It is further proposed that the Secretary of HUD be authorized to issue guar-
anteed securities backed by the insured loans in order to generate the funds. The
securities would mature in one lump sum rather than monthly. A matured
security would be replaced by a new one and so on to provide a continuous, un-
interrupted flow of funds for inventory financing. FHA for years has insured
construction loans which, of course, are inventory loans.

Such a program would thus break the grip held by the banks and large finance
companies.

With inventory financing to offer the dealer, the small to medium size mortgage
companies could enter the program. As more and more of the market went FHA
the large finance companies and banks would be brought into the program because
of competition.

The Chairman, Thank you very much, Mr. Williams.

Now we will have a panel.

Mr. John R. Ingram, commissioner of insurance. State of North
Carolina; Mr. Kern E. Church, chief engineer. Engineering and
Building Codes Division, North Carolina DcjDartment of Insurance ;
and Mr. Jack Bono, assistant chief engineer, Underwriters Laboratory.

STATEMENTS OF JOHN RANDOLPH INGRAM, COMMISSIONER OF
INSURANCE, STATE OF NORTH CAROLINA; KERN E. CHURCH,
CHIEF ENGINEER, ENGINEERING AND BUILDING CODES DIVI-
SION, NORTH CAROLINA DEPARTMENT OF INSURANCE ; JACK A.
BONO, ASSISTANT CHIEF ENGINEER, UNDERWRITERS LABORA-
TORY

Mr. Ingram. Thank you, Mr. Chairman. Senator Proxmire.

We are trying to apportion our time approximately 5 minutes each.
I believe there was 10 minutes allotted.

The Chairman. Very well.

Mr. Ingram. ^Vliile the intent of Senate bill 1348, the National
Mobile Home Safety Act of 1973, is good, I believe that intent must be
considered in the light of consequence. If Senate bill 1348 is enacted
as it is presently written, it Avould render useless the effective pro-
gram we now have in North Carolina which definitely protects the
public from the manufacture of unsafe mobile homes.

Because Senate bill 1348 takes away rather than adding to the pub-
lic's protection. I am opposed to its enactment unless it is amended so
that the public would be guaranteed even greater protection than is
now given in North Carolina.

Eecognizing that mobile homes received little or no regulation, the
North Carolina General Assembly in 1969 enacted a law to require
all mobile homes manufactured

Senator Proxmire. Are you referring to S. 1348 ?

Mr. Ingram. No, sir. This is legislation in North Carolina we are
referring to.

Senator Proxmire. "\"\nien you say you object to the Federal legisla-
tion, it is S. 1348, the bill before us ?

Mr. Ingram. Yes. sir.

Senator Proxmire. Thank you.

Mr. Ingram. Recognizing that mobile homes received little or no
regulation, the North Carolina General Assembly in 1969 enacted a
law to require all mobile homes manufactured, sold or offered for
sale in North Carolina to be manufactured in accordance with na-
tional standards.

863

The 1969 act also preempted local inspection of mobile homes pro-
A'ided they were evaluated, tested and inspected by an independent
ag-ency approved by the Xoi'th Carolina Building Code Council. These
inspections are in turn monitored by the North Carolina Department
of Insurance which approves plans and makes plant inspections to
see that the mobile home manufacturers are in fact meeting North
Carolina standards.

The 1971 General Assembly rewrote the 1969 act and made it manda-
tory that all mobile homes manufactured to be sold in North Carolina
after September 1, 1971 must have the "label of compliance" of an
independent agency approved and licensed by the State Building Code
Comicil.

Since this law was enacted in 1969, 15 other States have adopted
similar laws and procedures, utilizing the services of an independent
third party, or a combination of third-party services and in-State
evaluation and inspection.

I might insert here that the presentation prepared by the IMobile
Home ]Manufacturei's Association recognize North Carolina as one of
the strong State inspection systems.

Senate bill 1348, if enacted, would circumvent North Carolina's
inspection program which has led the way in fairness and in protecting
the public.

In its place. Senate bill 1348 would allow mobile home manufac-
turers to self-certify that their mobile homes meet Federal standards.
The act has a number of deficiencies that are definitely not in the pub-
lic interest :

(1) It does not provide for the approval of plans by a regulatory
agency ;
,• (2) There is no requirement for factory inspections to see that con-
struction standards are being met ;

(3) There is no requirement that a State must have competent per-
sonnel to approve plans or make factory inspections in order for a
Federal agency to approve any State plan.

Since North Carolina is the third largest State in the use of mobile
homes, it is extremely important that these mobile home buyers be
protected from faulty, inadequate, and unsafe construction.

A Congressman from the Southeast introduced a bill in the last ses-
sion of Congress which was similar to Senate bill 1338. However, this
same Congressman reversed himself this year and has introduced leg-
islation which provides for plan approval and inspections as well as
authorizing independent third party inspections.

To cite one difference in how various State inspections systems now
work, one State in our section of the country has three State em-
ployees who inspect 17 plants. As a comparison. North Carolina uses
2 man-years for 43 plants.

However, these 2 man-years are spent by North Carolina's nine
engineers and five inspectors monitoring direct inspections by I'nder-
writers Laboratories, Pittsburgh Testing Laboratories and the United
States Testing Co.

Within North Carolina, these three independent testing agencies
provide us with an additional 17 man-years which include the services
of six engineers. In addition to that, every trailer sold in North Car-
olina must bear the label of one of these independent testing agencies

8:64

^Yhich means that Xortli Carolina is getting the additional benefit of
50 engineers and 138 inspectors in as many as 28 other States which
may ship mobile homes to Xorth Carolina from some 271 plants.

As Deputy Commissioner Kern Church will point out, the first pro-
posal in North Carolina was for self-certification. However, to quote
Bismarck, legislation, like sausage, should not be observed in the mak-
ing. There is many a slip between the cup and the lip, and the self-
certification bill in Xorth Carolina was abandoned for the third party
independent agency inspection approach. This slip was in favor of the
public.

The North Carolina approach seems the most reasonable because it
creates neither a Federal nor State bureaucracy. Under the self-certifi-
cation approach, the only alternative to provide protection to the public
would be a State staff of 6 engineers and 11 inspectors in our State.
This would give no assurance that mobile homes from out-of-State
would be constructed according to these identical standards. The only
alternative to the uniformity of inspections North Carolina is receiv-
ing through the benefit of 50 engineers and 138 inspectors would be a
Federal bureaucracy. As I see it, this is the cnix of the matter.

To sum up, 3 inspectors in a State with 17 plants cannot iirotect
the public as well as the North Carolina system which utilizes the
services of the three independent inspection agencies and their mas-
sive manpower.

I have here a drop cord with the UL label. INIy parents relied on this
UL label before I ever came into this world. I am still relying on this
system of protection, and I am sure my children will. This is the same
type system North Carolina relies on for protection in mobile homes.

When I campaigned for the office of commissioner of insurance, I
pledged to the people of North Carolina that I would work for a "new
spoon of fairness" in all areas within the commissioner's jurisdiction.
We have made great strides in bringing about significant reforms in
insurance. These reforms will greatly benefit the people while fulfill-
ing my vision of fairness.

To cite just one instance, the eyes of the Nation are on North Caro-
lina's reinsurance program for automol)ilo liability insurance, the
first reinsurance program for automobile liability insurance, the first
reinsurance program ever enacted in the United States. We are paving
the way for a complete overhaul in automobile insurance that will end
blatant discrimination against the public.

At the same time. North Carolina has led the way in protecting
mobile home buyers from shoddy, inadequate, and misafe construction.
To offer any less protection would be a step backward. In North Caro-
lina, we believe the public not only demands but deserves that we go
forward with true consumer reforms.

Before deferring to Deputy Counnissioner Church, I would like to
point out that we certainly agree with the strong warranty standards
in your State, Senator Proxmire. and I think the thrust of our argu-
ment here is tliat if a State has stronger standards, as you cleaned from
the first witness, that certainly those standards should be applicable.

Mr. Church.

Mr. Church. Before I start, INIr. Chaii-man, I Avould like to request
that my comments in support of Commissioner Ingram's comments

865

on the State of Xortli Carolina program be inserted in the record at
this time.

I would also request that my comments pertaining to the National
Conference of States on Building Codes and Standards be inserted
in the record, and I will not read those comments.

The National Conference of States on Building Codes and Stand-
ards is an organization of State delegates appointed by the Governors
of the 50 States who have responsibility for building codes and
standards.

The conference is only 6 years old, but it has made great strides
in establishing the State's role in regulations to protect the public
health and safety in all types of buildings.

I served as chairman of tlie conference during the year 1071-72, and
liave served as chairman of the reciprocity committee since that time,
and served on the executive committee since NCSBCS was organized.

You will note in my presentation I have a letter where the execu-
tive l)oard passed a resolution authorizing me to appear to state the
national conference's position on this bill.

The conference is not against the intent of S. 1348. In fact, it is
highly commendable and it ties right in with the programs of the
national conference.

In fact, the conference is for uniform standards insofar as possible
in order to make it easier for mobile home manufacturers to manu-
facture to the standard, and probably it would make it a little cheaper
in the long run for the consumer to buy.

However, where the conference differs on S. 1348 is on the method
of enforcement provided for.

As we understand it. and this is in accordance with the policies and
the resolutions passed by this national conference on several occasions,
this bill requires the manufacturer to self-certify and authorizes the
Federal agency to make inspections, but there is no requirement for
any plan approval, and no requirement for any inspections to be made.

This same type of authorization for you might say regulation has
been passed in a numbei- of States, and I think you can see, it is very
evident that the adequate inspection to protect the public has not
been done, because it was not specified in the statute to do it.

The same kind of legislation was proposed in North Carolina in
1969. In fact, the chairman of tlie senate committee, the vice chairman,
and over a majority of the senate committee members signed a bill as
introducers, and they thought this bill would protect the public. How-
ever, before the legislature was over, all the members of that com-
mittee endorsed and supported wholeheartedly the committee sub-
stitute, which did provide for plan approvals and also plant inspection,
in order to provide protection to the public.

You will also note in my statement on North Carolina, to digress
a mimite, a statement from the North Carolina League of INIunicipal-
ities supporting the North Carolina method of enforcement of the
standards.

You have a statement in there also from the council of code of-
ficials, which represents all of the building, plumbing, heating, and
electrical insi:)ectors in the State. sup]x)rting this program, and how it
has increased the safety of mobile homes throughout the State.

866

There is also a letter in there endorsing the North Carolina method
of enforcement of the standards from the Xorth Carolina ]Maniifac-
turers Housing Institute, which has supported the program.

xVnd also you will note that in 15 States they have approved at least
one of these same third-party inspection programs, and this means
that these 15 States will accept units manufactured in 28 different
States under the same kind of inspection system. And we do have, I
believe, two States which have reciprocal agreements, where the States
are doing the inspection. I believe those are the States of Florida and
Georgia who accept each other's State labels.

Under Senate bill S. 1348, in order for the Federal agency to ap-
prove a State plan, the State plan lias to be equivalent to the Federal
plan. We interpret this to mean if the State authorizes inspections
and provides for self-certification, then the State plan would be ap-
proved. We do not think, for instance, that the North Carolina system
of inspection using the third-party, or the California system of in-
spection using the State inspectors, which both do protect the public,
we do not think that it would be equivalent if these two systems were
accepted and also you accepted States with lesser inspection systems.

In other words, if you only authorize inspections and don't in fact
provide personnel to do the inspections and approve the plans, this
doesn't do the same job.

So we think you would create inequities in S. 1348. It is very evident
that the systems adopted by the States which only authorize inspec-
tion do not require adequate inspections and that the public is not
being protected. So it is apparently a difference as to the method of
enforcement with our friends in the industry.

I think, in fact, if you will notice in my statement, our industry
friends have endorsed practically all of the statements in regard to
how best to enforce the standards to protect the public that this Na-
tional Conference has adopted in the "model act" and the "general
principles." But S. 1348 does not even comply with their recommen-
dations on how to enforce the standards. They recommend that the
State have competent adequate personnel to enforce the standard or
to approve third parties to do it and monitor them. This bill does not
require this.

Now why choose the self -certification method of enforcement for
mobile homes, when all localities, cities and counties throughout the
United States require local plan approvals and local inspection of
stick-built homes and other kinds of buildings?

It would be analagous to requiring that all of the building contrac-
tors and home builders throughout the United States self -certify to
a Federal agency and do away with all local inspections. I don't be-
lieve this would be adequate nor protect the public.

I do have in my testimony for the National Conference of States
on Building Codes and Standards the general principles that our
Conference recommends which should be incorporated in Federal legis-
lation. And we think you should incorporate within this Federal leg-
islation the same requirements for enforcement eouivalent to what we
have in what we call our "Model State ^Mobile Home Act.''

This Conference has written, together with representatives of the
manufacturers, representatives of HUD, renresentatives of Commerce,
and representatives of the local building officials organizations at the

867

national level, a Model Mobile Home Act, and this has been presented
to the Conncil of State Governments, it has been approved by them,
and will be a part of the package recommended by the Council of
State Governments this fall.

Senator Proxmire. Can yon provide a copy of that for the record?

]N[r. Ctiurcii. Yes, sir. I have a copy of that (see page 1020).

xVll of the legislation that has been passed by the States in the past
lias been that which has been recommended by the industry organiza-
tions and has not been prepared or had any input in it from the
National Conference.

The general principles we have outlined — I will have to sum them
up with a comment or two. But we have about seven principles we
think should be incorporated into the legislation to protect the public.

"We think the Federal agency should only assume responsibility
when a State does not and be directed to perform or require the States
to perform these functions: Review and confirm that all plans com-
ply with the standards. Second, to perform plant inspections suf-
ficient to assure compliance. And then we think the Federal agency
should be directed to specify the independence and qualifications of
any agency the State approves to do some of the work for them,
and to specify the qualifications of the State engineers and inspectors
also, and provide for acceptance and monitoring of all independent
airencies the States have approved and also monitoring of all of the
State agency plans that have been approved by the States, because
the State people are really the ones who assume the final responsi-
bility, unless the Federal agency has assumed it, to do the job them-
selves.

With that, I think I have taken my 5 minutes. I would urge you
to read the='e general principles we have outlined in the testimony
and I would close with this comment: As chairman of the legislative
committee, I would like to work with this committee or their staff,
any wav you see fit, and work with you to try to amend the bill so
it would provide for the protection of the public as intended in accord-
ance with the Xational Conference recommendations.

Wiile we agree with the intent of the bill, we do not think the
bill does this, and we would like the opportunity to present written
amendments.

I haA^e written amendments from my own State that we have pre-
pared in the past, during the last session of Congress, which are
applicable. Rut these have not been cleared through the National
Conference. I would be glad to clear these written amendments and
then submit to the committee written amendments by the National
Conference of States on Building Codes and Standards, which we
think would improve the bill and provide protection to the public
which we think is the intent of the bill.

Thank you.

[The complete statements of Mr. Church follow:]

Presentation of the National Conference of States on Building Codes and

Standards

Mr. Chairman and members of the subcommittee, thank you for the opportu-
nity to appear on behalf of XCSBCS. My presentation \YiU be confinecl to policies
and recommendations endorsed by several committees including the Executive
Committee and the delegates of the National Conference of States on Building
Codes and Standards.

99-855 O - 73 - pt. 1

868

XCSBCS is an organization of state delegates appointed by the GoTernors of
the fifty states and in the instances where the state has assnmed responsibility
for codes and standards, tlie official so appointed is usnully the person who has
the si'eater responsibility in this area. I am Kern E. ("hnrch. Chairman, XC8BCS
Legislative Committee. XCSBCS Execntive Committee adopted a resolntion (copy
attached) authorizing me to appear on behalf of XCSBCS in accordance with
the XCSBCS policies. I served as Chairman of the Conference during the year
1971-1972 and have served as Chairman of the "Reciprocity" (Interstate Ac-
ceptance) Committee since that time and served on the Executive Committee
since XCSBCS was organized.

Although the Conference is only .six years old, considerable headway has been
made towards establisliing the states as having a major role in the building
regulatory proce.ss. Up until a few years ago. only a few states had a technical
state staff enforcing building codes or providing assistance to local building
officials responsible for building regulations and consequently, when manufac-
tured building and mobile home standards enforcement and similar building
regulations were adopted by state legislatures, many states have been hard put
to quickly implement such regulations. Providing for uniform implementation of
uniform standards for manufactured buildings and components and mobile homes
crossing state lines is a challenge XCSBCS has accepted and this has emphasized
the urgent need for the XCSBCS organization and its programs and meeting this
challenge is XCSBCS's highest priority.

The goals of the Conference are to provide a fonun for the di.scussions of
mutual problems of .state officials and to work on mutually acceptable solutions.
XCSBCS constitutional policy is to coopei'ate with national organizations of local
building officials, agencies of the federal government such as Commerce and HUD
and national professional, trade and industry organizations who are concerned
with building codes. Utilizing this cooperative process, representatives of these
organizations drafted a "Model State Building Code Act," "Model Manufactured
Building Act," and "Model Mol)ile Home Act" which have been approved l)y the
Council of State Governments and will be included in their recommended state
legislation this fall. "^Nlodel Rules and Re.gulations" to implement the "Manu-
factured Building Act" has been developed under tliis cooperative procedure and
"Model Rules and Regulations" to implement the "Model Mobile Home Act" will
be developed under the same procedure.

NCSBCS has three main broad-based Standing Committees which are the
"Standards and Evaluation Committee", "Education and Qualifications Com-
mittee" and the "Management and Regulatory Committee" which have member-
ship including representatives from the state and local government and trades
and professions and the industries affected. These Committees are working witli
the Xational Bureau of Standards and the Department of Housing and Urban
Development on various researcli projects which should assist the implementa-
tion of codes throughout the Imikling community.

Since molnle homes are shipped across state lines very easily, the delegates
and membership of XCSBCS has recognized that mobile homes and other factory
built structures need to l)e evaluated and inspected for pi'otection of the public
health and safety and thei'e also needs to be provisions for interstate acceptance.
Research is now being performed on behalf of XCSBCS liy the Xational Bureau
of Standards to provide for procedures for unifonn qualifications of persons
performing evaluations and inspections of all types of manufactured building's
throughout the United States and also uniform procedures for making evalua-
tions and inspection. This research work has not been completed for XCSBCS
so tliat XCSBCS can process these procedures through its policies of cooperating
with the various organizations and industry involved.

You can readily see that XCSBCS is diligently working towards solving the
problem of uniform implementation of standards among the states.

Although these uniform procedures and methods are not now available.
XCSBCS has organized the state officials which have direct responsibility for
implementation of the codes to work through XCSBCS in accordance with its
policies in order to accomplish the goals of XCSBCS. The "Reciprocity" (Inter-
state Acceptance) Committee is composed of state officials which have direct
re.s])onsibility for one or more of "State bui'ding code regulations". Manufactured
building regulations" or "mobi'e home regulations." XCSBCS had endorsed for
the use of the Reciprocity C(mimittee "Rules for Committee Activities", Proce-
dures for Developing Recommendations on Uniform Effective Dates of State
Adopted Standards" and "Procedures for Developing Recommendations on Dis-
puted Interpretations."

869

All the states are at various stages of implementation of state adopted stand-
ards lint cooperative processes have been set np to jirovide for nnifonn standards
and uniform application (»f standards hy utilizinjj the "^lodel Moliile Home Act",
■■^lodel Rules and Recrulations" and Reciprocity Committee Procedures in accord-
ance with the policies of NCSBC'S. All states should he encouraged to adopt and
implement this "Model Mobile Home Act" or equivalent provisions so the "Reci-
procity ("ommittee" will be alile to cooperate on a more uniform basis to provide
for more immediate uniform effective enforcement among the states.

NCSBCS SEEKS SUPPORT OF MOBILE HOME INDUSTRY FOR NCSBCS PROGRAMS

The following are recommendations which mobile home manufacturers and
their associations should support to protect the public safety and to assist in the
reciprocitv process as ado])ted bv the Recipi-ocity Committee and endorsed by
NCSBCS :

"(1) Make a clearly worded public policy statement (which will also be
defended in private) supporting effective enforcement of the nationally recog-
nized model codes and standards in the following manner:

(a) Implementation by competent unbiased third party agencies which are
commonly approved and jointly monitored by the participating states or

(&) Implementation by competent state agencies which are jointly monitored
by the reciprocating states.

(c) Insist that the states technical criteria for acceptance of reciprocal inter-
state agreements and approval of independent third parties be the same includ-
ing joint state monitoring and that such criteria be uniform from state to state.

(2) Support processes for the education of the many sincere manufacturers
on how to comply and processes for persuading the few remaining manufa<*-
turers to make the decision to comply instead of trying to find ways and means
to get by without complying.

(3) Publicly and privately support and request the authority having juris-
diction to require unbiased and competent evaluations and inspections which
will require compliance before laliels are issued.

(4) Support efforts to provide for more uniform state laws which would
encompass the main provisions and intent of the "^lodel Mobile Home Act"
and to provide a system of code enforcement to require all manufacturers to
comply whether they wish to or not.

(r>) Publicly and privately support the premise that all states adopt nation-
ally recognized codes and standards applical)le to mobile himies and that such
codes be clearly worded and complete to the end that manufacturers which wish
to use either the specification, design or test approach to comply will clearly
understand what is required and that state agencies and third party agencies
can interpret uniformly and implement fairly to all.

(6) Publicly and privately support the premise that all state and third party
agencies which perform evaluations and inspections must have a sufficient
number of engineers who are competent to cA'aluate the structural, phunbing.
heating and electrical sy.stems in accordance with the codes and standards
and a sufficient number of inspectors who are competent to inspect the struc-
tural, plumbing, heating and electrical systems in accordance with their engi-
neers' certification report approving the plans and specifications to assure
compliance on all units produced.

(7) Publicly and privately insist that third party agencies which are approvefl
as an agent of the state to evaluate or inspect and label moliile homes to iireempt
local insjiection of "closed construction" systems be free of conflict of interest
so that no manufacturers will be favored over any other manufacturei's. This
would include insisting that such third party agencies must not in any way
be connected with manufacturers or producers of products or materials where
it could appear that any mobile home manufacturer might be favored.

(5) Publicly and privately insist that the evaluation and inspection by all
third party agencies approved by the state (including state approved reciprocat-
ing state agencies) he monitored by each state (with joint state monitorins where
possible) to the end that all will implement the requirements of the codes and
standards uniformly and will require all manufacturers to comply whether they
wish to or not.

(0) Provide support for each state to have a sufficient state staff of competent
engineers and inspectors to perform the work they are responsible for. If the
state agency is performing all the evaluations and inspections, continuing support
must be given for the large staff that would be needed to protect the public. If

870

the state is to monitor third party evaluations and inspections, support for the
smaller staff should be given.

(10) Contact the state department heads and support the responsible state
code administrators in attending state code administrators meetings tlirough the
Reciprocity Committee of tlie National Conference of States on Building Codes
and Standards and support their joining joint inspection teams with other states
to monitor commonly approved inspection agencies in order to build their con-
fidence in the evaluations and inspections not performed by them."

An acceptable evaluation and inspection system must convince responsible, com-
petent state and local officials, the general pulilic and sincere and knowledgeable
manufacturers that all manufacturers are required to comply with nationally
recognized codes and standards, whether they want to or not, if they are to display
an acceptable identifying label and enjoy the privilege of interstate reciprocity
and acceptance among the states.

POSITION OF NCSBCS ON FEDERAL MOBILE HOME LEGISLATION

The following statement of position of the Reciprocity Committee was endorsed
by the Executive Committee and the delegates as the official NCSBCS position
on federal legislation :

"The National Conference of States on Building Codes and Standards fully
recognizes the need for uniform nationwide application and enforcement of safety
standards for mobile homes and recreational vehicles to properly safeguard the
consumer public."

"During the past years, federal bills have been introduced to treat with the
problem of non-uniformity of mobile home and recreation vehicle regulatory
standards and enforcement. New legislation is imminent. While the intent of these
bills may be well meaning, careful study indicates they may not accomplish their
goal, but may be contra-productive and detrimental to existing state programs
which have made significant progress. Numerous reasons can be enumerated to
.support this conclusion.''

"States have, througli participation in NCSBCS recognized the need for devel-
opment of uniform codes and standards in all areas of construction, including
those for mobile homes, and have constructively been developing model state acts.
One of these acts is a "model state mobile home act" which has received endorse-
ment bv the National Conference of States on Building Codes and Standards
(NCSBCS)."

"NCSBCS also supports the concept of uniform national construction and safety
standards for mobile homes and recreational vehicles such as ANSI 119.1 and
119.2 and urges all states adopt such standards."

"Through its action and the action of many individual states significant prog-
ress has been shown in the implementation of full regulatory programs as evi-
denced by programs now in existence in several states. Over thirty states now
have mobile home and recreational vehicle regulatory programs in various stages
of implementation, and given the necessary incentive, will develop uniform,
acceptable regulatory programs in their states with coordination through NCSBS
programs. A majority of states having mobile home production facilities within
their borders have already or are now in process of adopting the same nationally
recognized standards."

"Inasmuch as great effort has been expended by members of NCSBCS and
many other cooperating groups and organizations in their work to promote
and develop practical means for accomplishing the goal of uniformity of codes
and standards and reciprocity between states, and a great effort has been made
by many states that are in process and have already developed eifective regula-
tory systems, we sincerely believe a practical approach to the solution of this
complex problem lies not in abandonment of present programs, but in the con-
tinued utilization and further development of present state regulatory systems
until all states have satisfactory mobile home and recreational vehicle regulatory
systems."

"Individual states failing development and implementation of acceptable
regulatory systems for mobile homes and recreation vehicles should be put on
notice that federal regulations shall apply in their state if they have not im-
plemented a program and come into full compliance by a specified time."

Consideration should be given towards any federal legislation to assist the
states in assuming their responsibilities as outlined by the goals and policies of
NCSBCS. Most of the present state legislation on mobile homes was sponsored by
MHMA, TCA and SEMHI and state mobile home associations and NCSBCS

871

had no input into their recommended legislation and had no recommended model
state legislation until this year. If federal legislation is passed, consideration
should be given towards incorporating the features of the NCSBCS "Model
Mobile Home Act" which was drafted by representatives of NCSBCS, CABO
(National Associations of Local Building Officials), mobile home manufacturei-s,
Department of Commerce and the Department of Housing and Urban Develop-
ment. The Council of State Governments has approved this act for inclusion in its
recommended state legislation this fall. Any federal legislation should encourage
state adoption of this act or similar provisions.

Although the mobile home industry does not have a national organization
representing mobile home manufacturers, NCSBCS did put its best effort towards
coordinating this act with the mobile home industry. A knowledgeable person
representing the largest manufacturer of mobile homes in the United States
served on the Committee and several draft copies were sent with request for
input and comment to the three ma.lor trade organizations of manufacturers
which are MHMA. TCA and SEMHI. Staff representatives of MHMA also attend-
ed the drafting meeting from time to time and made oral and written suggestions.
There were written suggestions made from TCA also.

POLICIES AND RECOMMENDATIONS OF PRINCIPLES FOR INCORPORATION IN FEDERAL

MOBILE HOME LEGISLATION

If the Congress determines that federal legislation is needed and S-1348 is
to be utilized, the following NCSBCS policies and recommendations of general
principles adopted by the NCSBCS Reciprocity Committee for incorporation in
federal legislation should be given consideration :

"(1) Recognize the validity of existing effective state mobile home and recrea-
tional vehicle regulatory programs, which accept units crossing state lines
wliich have been evaluated, inspected and labeled in conformance to criteria
uniformily acceptable to all states.

(2) Establish a reasonable time period for states not now having effective
moliile home and recreation vehicle regulatory programs to develop and imple-
ment such programs.

(3) States failing implementation of an effective program within the stipulated
time period would then be subject to an effective federal program including
evaluation, inspection and labeling in accordance with the .same ci'iteria accepted
by the states, with fees to be levied commensurate with the cost of services
provided.

(4) Before mobile homes are required to be accepted by any .state or other
political subdivisions, under any federal or state enforcement system, the laliels
or the certificates indicating compliance must assure that representative samples
of such mobile homes have been evaluated and inspected in the plant by federal
or state personnel (or their approved and monitored independent agent person-
nel) who are competent to evaluate and inspect the structural, mechanical and
electrical features for compliance with the mobile home safety standard and
that sufficient in-plant inspections are made l)y such unbiased personnel to assure
that all units produced are in compliance.

(5) The responsibility for the developing and amending of the mobile home
standard must l)e under the jurisdiction of a duly appointed balanced Board
consisting of persons who are competent to evaluate and insi">ect mobile homes
for compliance with mobile home standards, which should consist of representa-
tives of the state and local code enforcement officials, the design profes.sions,
con.sumers. independent te.sting organizations, independent inspection organiza-
tions, insurers and mobile home manufacturers.

(6) In states without an inspection program, the federal agency should be
encouraged, to the extent practicable, to contract with competent independent
private inspection agencies which specialize in such work for their inspection
in lieu of hiring an army of federal inspectors and federal engineers which
would lie required if the federal government assumed the responsibility to make
sufficient Inspections to protect the public.

(7) The inspection of u.sed mobile homes should be under the jurisdiction
of the State and their legal sululivisions.

The "SE:\[HI Position Statement on Standards" published in the Southern
Buildin<i: Code Congress magazine, .Tanuary 1073 (copy attached) closely paral-
lels the NCSBCS position on "competent and effective enforcement" of mobile
home standards I)y the states and we under.stand that SEMHI is vigorously

872

supporting S-1348 which XCSBCS does not think incorporates the "XCSBCS
position" nor tlie "SEMHI Statement on Standards."

Although there is apparently full agreement on the intent of S-1348, there is
an apparent honest difference of opinion on the "methods of implementation
of the standard" provided for in the Bill itself.

S-1348 is almost identical to S-3<)04 introduced by Senator Brock on May 15,
1972 and H.R. 14716 introduced by Congressman Frey on May 2, 1972.

On behalf of XCSBCS. based on XCSBCS policy statement and specific action,
I recommend that a unfavorable report be given to S-1348 as it is presently
written.

If S-1348 is to be utilized, I would be glad to submit specific amendments on
behalf of XCSBCS and since there seems to be an honest difference of opinion as
to the methods to provide protection to the public as intended by this legislation,
I would be glad to work through XCSBCS and assist this Committee in drafting
amendments to clarify this bill so that state enforcement personnel can inter-
pret the bill to provide the protection to the public as intended.

If you wish, I would also be glad to meet with your staff and representatives of
national association of molnle home manufacturers, national organizations of
local building officials, concerned federal agencies, consumer groups and other
interested organizations to explore the possibilities of mutually acceptable amend-
ments.

In my opinion, your constituency, the mobile home manufacturers clients, and
the persons protected by code enforcement officials are all the same people and
we all have concern for their safety.

Thank you for your consideration.

An Outline. — of the programs of the Xational Conference of States on Build-
ing Codes and Standards for achieving reasonable national luiiformity in the
regulations of buildings and the acceptance of industrialized buildings crossing
State lines.

I. CODES, STANDARDS, TESTING AND EVALUATION

( Standards and Evaluation Committee Donald F. Pinkerton, Chairman.)

A. Obtain prompt national agreement through MCSC and AXSI of a standard
building code framework consisting of : (1) Standard definitions ; (2) Standard
classification of occupancies; (3) Standard classification of construction types;
(4) Standard format.

B. Obtain early completion through the standards-generating organizations,
the model code groups, and AXSI of a full range of building regulatory standards
for "plug-in" or reference use with the standard code framework. Standards
to meet the following criteria: (1) To be performance oriented; (2) To be
kept continually up-to-date; (3) To represent best available national consensus
of technically competent representatives of al' groaips affected.

C. Encourage local and State adoption cf building codes using the standard
framework and standard requirements as soon as they become available.

D. Support completion of a long-range program for broadly based accredita-
tion program for test laboratories and for evaluation, inspection and labeling
organizations.

E. Identify or obtain development of evaluation mechanisms of interstate ac-
ceptability for the appi-oval of safe building innovations.

F. Cooperate with and assist XCSBCS Reciprocity Committee in all matters
of common interest.

G. Represent XCSBCS in standard and evaluation matters on broad policy
groups such as AXSI, MCSC, NIBS, etc.

II. EDUCATIONAL AND QUALIFICATION OF ENFORCEMENT PERSONNEL

(Education and Qualification Committee — Glen Swenson, Chairman)

A. Gather information on existing education and training opportunites for
in.spectors consisting of formal education, correspondence school and in-service
training.

B. Suggest educational program for all types of inspectors in which the in-
spector could, with experience, achieve certain levels of proficiency.

C. Suggest minimum qualifications for each of the various types and levels of
inspectors.

873

D. Suggest model State certification program for inspectors.

E. Suggest a program to provide reciprocity of State certification of various
types and levels of inspectors.

III. MANAGEMENT AND REGULATORY PROCEDURES

(IManagement and Regulatory Procedures Committee — William Dripps, Chair-
man)

A. Prepare documents for the Conference along with appropriate statistical,
budgetary and legal supporting data, which will provide the States with ap-
propriate organization and operation models for Code Administration.

(1) Organization —

(n) Provide sample organization models and staffiing patterns for use by the
States for State, county and municipal code enforcement bodies.

(b) Provide suggested uniform forms for use at the State, county and munic-
ipal level for permit applications, inspection reports (by class or type of struc-
ture), enforcement actions and record and statistical uses.

(2) Administrative Operations —

{a) Provide suggested remuneration and fee schedules, general budgetary in-
formation and suggested fiscal procedures. Provide sample records and data
storage and retrieval systems, both manual and using ADP.

(ft) Explore the use of computers in order to achieve administrative effec-
tiveness and efficiency. Provide suggested programs for computer use for the
following pui-poses : Building failures — structural, fire damage, electrical, me-
chanical ; Technical library — product approvals, systems approvals, fire ratings.

(c) Promote the use of a single uniform system for computer management for
computer management and operation to promote nationwide exchange of statis-
tical information related to building problems, with the objective of eventual
modification of codes to more perfectly provide for public safety and health.

(3) Technical Operations — •

(a) Provide suggested procedures and sample checklist for plan review.

(ft) Provide suggested procedures and sample inspection forms.

(c) Provide and maintain a library of pertinent legal opinion, case history and
law on code enforcement — provide suggested outlines and procedures for prose-
cution of violators.

IV. INTERSTATE RECIPROCITY FOR INDUSTRIALIZED BUILDING

(Reciprocity Committee — Kern E. Church, Interim Chairman)

A. In cooperation with the S&E Committee, identify and encourage uniformity
of recognized model codes and standards which can serve as a basis for inter-
state reciprocity for industrialized building and components.

B. development and maintenance of operational rules and criteria for listing
fif "independent" organizations which are qualified to perform one or more of the
following functions :

(1) evaluation prototypes —

(2) performance of the necessary tests required by the standard

(3) inspection and quality assurance service at the point of manufacture to
provide certification with identifying labels of units that comply with the codes
and standards used by the participating States.

C. Accreditation of such organizations on the behalf of XCSBCS.

D. Development and operation of a cooperative "Watch Dog" .service to assure
that these accredited organizations are performing properly.

E. Development and Apprntion for XCSBCS. of n central registry of industi'ial-
ized building units which have been certified and labeled under the above program.

F. In cooperation with other affected committees of NCSBCS, de^ elop suppoi't
among the States and throughout the building industry for these programs.

G. Recommends State legislation which will promote intrastate and interstate
uniformity.

H. Provide for administrative appeals to States from disi)uted local interpreta-
tions of the uniform regulations, and for variances based on peculiar local
conditions.

I. Pro'ide technicpl and ed^cn^ion'^l ass'st-Mice to local ins])ecliou deiiartments.

J. Make recimnnendations to other Committees for their consideration of items
to promote intrastate and interstate uniformity.

874

K. Recommend revisions to tlie Constitution to accommodate tlie intrastate
and interstate needs of States having a statewide building regiilatory system.

L. Recommend special awards to States on special achievements for intrastate
uniformity.

VI. INTERSTATE EXCHANGE OF INFORMATION

(Conference OflScers and Executive Committee — Harry A. Stone, Chairman).

A. Conduct annual meetings of the Conference to provide :

(1) Opportunity for personal acquaintance and exchange of views with key
code people from other States.

(2) Opportunity for personal acquaintance and exchange of views with key
building industry people.

(3) Opportunity to contribute to development of interstate programs to assist
individual States to reach goals of reasonable national uniformity.

(4) Reports and recommendations of the working committees and the Execu-
tive Committee.

B. Organize publications program to include the following: (1) Approvals and
evaluations of interstate interest ; (2) General newsletters.

VII. STAFF ASSISTANCE AND SECRETARIAT

(National Bureau of Standards — Conference Executive Secretary, Gene A.
Rowland).

A. Organization and oner-Ttion of adm'nistrntive details of meetings.

B. Research and secretarial assistance for standing committees and other au-
thorized NCSBCS activities.

C. Operation of Conference reference and publications system for the benefit
of the States.

National Conference of States
ON Building Codes and Standards,

July 16, 1973.
Mr. Kern E. Church,
Chief Engineer,

North Carolina State Building Code,
Raleigh, N.C.

Dear Mb. Church : At its meeting in Washington, D.C., on June 29th, the
Executive Committee of NCSBCS took certain actions that will affect your duties
as Chairman of the Conference's Legislative Committee in regard to Mobile Home
legislation now being considered by the United States Congress.
The Executive Committee adopted the following resolutions :
"Mr. Kern E. Church. State Delegate from North Carolina, and Chairman of
the Legislative Committee of NCSBCS, is requested to represent the Conference
before appropriate bodies of the United States Congress which may be consider-
ing regulation of mobile homes and the mobile home industry. Mr. Church is
specifically authorized to offer suggestions relating to proposed legislation such
as the bills introduced by Senator Brock and Representative Frey in this Con-
gress, providing that such proposals are consistent with the policy statements
previously adopted by NCSBCS. and further provided that where time i>ermits
such proposals should be reviewed by the Executive Committee of the Con-
ference."

I understand that you have been invited to appear before a subcommittee
hearing on Senator Brock's bill on July 24th. I urge you to accept this invitation
and to carry out vigorously, the intent of the above re.solution.
Sincerely,

Bernard E. Cabelus.

National Chairman.

"SEMHI Position Statement on Standards"

1. SEMHI reaffirms its position for .strict compliance with ANSI A119.1 "Stand-
ards for Mol>ile Homes", by all segments of the mobile home industi'y.

2. SEMHI supports rigid State Regulatory Agency enforcement of ANSI
A119.1, either by the State Regulatory Agency or by State approved independent
third party methods of certification and/or inspection service programs, as long

875

as the programs are monitored by the State Agency, and as determined by the
individual states.

3. SEMHI supports State Regulatory Agency Methods which will allow com-
pliance and provide certification in the structural area through either analytical
calculations or by performance test evaluations witnessed or otherwise evaluated
by the State Regulatory Agency or by State approved independent third party
methods of certification and/or inspection ser\-ice programs.

4. SEMHI strives for the adoption of uniform Rules, Regulations, and Proce-
dures for the certification and inspection programs conducted by an arm of the
State Regulatory Agency or by State approved independent third parties author-
ized by the Agency for that purpose in order to develop necessary uniformity lead-
ing to reciprocity beticeen all Southeastern member States.

5. SEMHI recommends the following design certification programs :

(a) Qualified engineers from the State Regulatory Agency or independent
parties authorized by the Agency for that purpose shall review and confirm that
all plans, specifications and other information from the manufacturer meet all
the requirements of ANSI A119.1, "Standard for Mobile Homes".

(b) Structural analysis by either Design Calculation or Performance Test
Evaluation will be provided by the manufacturer and will be reviewed and/or
witnessed by a qualified engineer on the staff of the State Regulatory Agency,
or on the staff of independent parties authorized by the Agency, for proper engi-
neering design of frames, floors, walls, roofs, and connections, for conformance
to the structural design requirements of ANSI A119.1.

6. SEMHI recommends the following program for the insi)ection arms of
the State Regulatory Agency or an independent third party authorized by the
Agency for that purpose in order to establish uniformity leading to reciprocity
between states :

(a) Normal inspection requirements shall provide that an inspector should
inspect each mobile home in some phase of its production. Each unit need
not be inspected in its entirety, but a complete inspection of one area of con-
struction (structure, plumbing, heating or electricity) is required to be made
on a rotating basis.

(b) An evaluation of the manufacturer's quality control and production
methods will be continually made by a review of deviation reports prepared
by the inspector and reviewed by his qualified supervising engineer.

(c) If the quality control systems of the manufacturer demonstrate the need
for reduced or increased inspection, the qualified supervising engineer shall
have the authority to vary the frequency of inspections to the extent that his
best professional judgment allows.

(d) All inspectors must be qualified and knowledgeable of all aspects of com-
pliance with ANSI A119.1 as revised from time to time and inspection pro-
cedures shall be standardized.

7. SEMHI will strive to establish proper representation of all Southeastern
State Regulatorv Agencies on the Reciprocity Committee of the National Con-
ference of States on Building Codes and Standards (NCSBCS). SEMHI shall
further strive to promote the regional concept for proper division of the Rec-
iprocity Committee of NCSBCS, so that faster action can be taken by the
committee to solve regional area conflicts of interest concerning total uni-
formity of State Acts, and Rules. Regulations, and Procedures directed at uni-
form State enforcement policies for the manufactured housing industries under
their jurisdiction.

S. SEMHI will strive for proper delegate appointments by the Governor of
each Southeastern State as representatives to the National Conference of States
on Building Codes and Standards (NCSBCS). SEMHI will further strive for
proper selection of a member to the Reciprocity Committee of NCSBCS. which
.should be the State Regulatorv Official having the responsibility for the imple-
mentation and enforcement of the Mobile Home or Manufactured Housing Act.
SEMHI shall also strive to establish an Advisory Member to the NCSBCS as
spokesman to the conference representing the manufactured housing industry in
all Southeastern States.

9. SEMHI recommends that the latest revised ANSI A119.1, "Standard for
Mobile Homes", be implemented by all nine Southeastern State Regulatory
Agencies at the same time, and recommends, further, that the time not ex-
tend beyond 120 days after concen.sus approval of the members of the Reciprocity

876

Committee of the National Conference of States on Building Codes and
Standards.

Respectfully submitted.

Wallace J. Kaun,
Standards Committee Chairman,
Southeastern 3Ianufacttired Housing Institute.

The following individuals are those persons responsible for the implementa-
tion of the A119.1 Standard to the SBMHI member States :

Alabama — Commissioner Insurance, John Bookout. Montgomery, Ala.

Florida — Dept. of Highway Safety, John D. Calvin, Director of Motor Vehicles,
Tallahassee, Fla.

Georgia — Commissioner Insurance, John Caldwell, Atlanta. Ga.

Kentucky — Dept. of Transportation, Com. Hogge, Frankfort, Ky.

Mississippi — Commissioner Insurance, Miss Evelyn Grandy. .Jackson, Miss.

N, Carolina — Commissioner Insurance, Edward Lanier. Raleigh. N.C.

S. Carolina — State Fire Marshal, Jesse Johnson,' Columbia, S.C. reports di-
rectly to Legislature

Tennessee — Commissioner Insurance & Banking. Halbert Carter, Nashville,
Tenn.

"Virginia — ^State Corporation Comm., re.sponsibility lies with 3 appointed judges,
Junie L. Bradshaw, Ralph Catterall, Preston C. Shannon, Richmond, Va.

Supplementary Presentation of the North Carolina Department of Insur-
ance By Kern E. Church, Deputy Commissioner of Insurance, Engineer-
ing AND Building Codes Division

Thank you for the opportunity to appear here to comment on proposed legis-
lation relating to the safety of mobile homes. My presentation will describe the
experiences of the State of North Carolina officials on the implementation of
mobile home safety standards to protect the public which is the stated goal of
this proposed federal act and also to relate our experiences and what we have
learned.

I am Kern E. Church. Chief Engineer, Engineering and Building Codes Divi-
sion, North Carolina Department of Insurance and I have been employed by this
agency responsible for the administration of the state building codes for twenty-
four years. I am a registered professional engineer. The Division staff's struc-
tural engineer has a masters degree in structural engineering and is also a reg-
istered professional engineer and has fifteen years experience. The staff mechani-
ical engineer is a registered professional engineer and has over fifteen years
experience and the staff electrical engineer is a registered professional engineer
and has over twenty-five years experience. Other personnel on the staff have
engineering degrees and/or qualifications as a state licensed general contractor,
electrical contractor or plumbing and heating contractor.

North Carolina has had a statewide building code since 1936 and it is the duty
of the Engineering Division to administer the state building, plumbing, heating
and electrical codes in cooperation ^vith local officials throughout the State. These
duties include the review of plans and specifications and inspections of a wide
variety of buildings for code compliance and serve as official code interpretations
body for local officials and the design and construction professions throughout
North Carolina.

north CAROLINA IMPLEMENTATION OF SAFETY STANDARDS FOR MOBILE HOMES

I cite these experiences in North Carolina not because these experiences depict
what .should be done but to indicate the many faceted sides of the problems which
a number of other states have faced and many are still facing. These experiences
might also assist you as members of this Committee in your better understand-
ing of these problems because you, as members of Congress, now are facing some
of the.se .same problems which state legislators faced and federal agencies would
face some of these problems when and if they begin to implement or require the
states to implement the standards to protect the public health and safety.

These comments are not intended to cast any refiection on the intent of the
Mobile Home Manufncturers' Association Trai'er Coach Association or South-
eastern Manufactured Housing Institute or any of their members but it has been
very apparent that an honest difference of opinion has existed between the staffs

877

of these organizations and the North Carolina officials on the best methods of
pi-oviding protection to the public health and safety. It also must be stated that
many individual members of each of these organizations have supported effective
enforcement of the standard in a vigorous manner once all the requirements have
been spelled out for them and it may be that many members have feared and
many others still fear the unknown.

Prior to the 1969 Xorth Carolina State Law, mobile homes were either banned
from local communities because they did not meet the state building code require-
ments or they were ignored with no inspections required except in two or three
counties. These counties inspected only the electrical systems and considerable
re-wiring was required on every unit which was expensive to the manufacturer.
Some time prior to the 1969 General Assembly, the Southeastern Manufactured
Housing Institute representing manufacturers in the nine southeastern states and
the Xorth Carolina Manufactured Housing Institute requested the Commissioner
of Insurance and his Engineering and Building Codes Division to endorse a pro-
posed bill which they said they sponsored had already been passed in Georgia and
Florida which would require the Commissioner to issue state labels for all mobile
homes sold in the state after July 1, 1970 without any additional staff. Since
this would mean that the state staff would have to evaluate the plans and
specifications and make plant inspections in over 125 plants in 20 states, if the
state label meant that the public health and safety would be protected, the Com-
missioner, who is a statewide elected official, took the position that he saw the
need for mobile homes to be regulated but would not endorse any bill which
would not provide for the units which would be properly evaluated and inspected
before the state would authorize labels to be attached. The bill was introduced
anyway and the Chairman, Vice-Chairman and over half of the members of the
Senate Committee the bill was referred to signed the bill as co-sponsors. In my
opinion, these state senators who signed the bill honestly believed the provisions
of the bill would protect the public. However, it was explained to them that if
the bill was passed, that we would have to resort to the same enforcement
methods as the other states which had passed tlie bill by asking the manufac-
turers to self certify that they complied and only hope that we could at some
future time actually make inspections. It is also my opinion that these senators
assumed the manufacturers were sincere in their desire to be regulated and
actually wanted to comply with the standard they wished the state to adopt be-
cause they supported the Committee's substitute which w^e recommended. The
Committee's substitute proposed that the state would approve and monitor
private, independent organizations such as Under\^Titers' Laboratories to evalu-
ate the plans and specifications, make factory inspections and issue labels on
units which did comply and the small state staff would monitor the work of those
state approved organizations instead of trying to monitor the work of all the
manufacturers.

Underwriters' Laboratories was the only organization which we had contact
with who expressed an interest in performing this service and we know that the
state and local building officials in Xorth Carolina had depended on the UL label
on electrical equipment, heating equipment and building materials to comply with
safety requirements without dismantling such equipment for inspection for over
fifty years. We also know that state and local officials responsible for public
health and safety throughout the United States have accepted this label of com-
pliance on these same items. It was also felt that if the need was shown for this
kind of service, other competent independent organizations would also satisfy this
need and there are now other similar organizations in this business.

This label of compliance preempted local inspection of units throughout North
Carolina but many manufacturers took their chances that there would be no
local inspections in mo.st of their market area. The 1971 Legislature provided that
all units manufactured after September 1, 1971 and sold in X'orth Carolina would
have to liear the lal)el of compliance of an independent, competent and trustworthy
organization approved by the Building Code Council and monitored by the state
staff.

The assumptions made by the state senators that the N^orth Carolina manu-
facturers were sincere in wanting to comply with the adopted standards was
verified when the X'orth Carolina ^lanufactured Housing Institute co-sponsored
the 1971 leeislation to require all units to be so labeled.

The Building Code Council has adopted procedures for "apijroval of com-
petent, independent agencies" and "methods and procedures" required of ap-
proved agencies for the investigation of mobile homes pursuant to the state act.

S78

It has been onr experience that a number of mannfactnrers do not have
knowledge of the code requirements and some try to avoid compliance even when
they do know the requirements in the same manner the general population is
composed of persons who violate laws through ignorance and some do on pur-
pose. However, once all the manufacturers are made knowledgeable of the re-
quirements and realize that all their competitors will be required to comply,
then their resistance turns to support of effective enforcement as evidenced by
support of the manufacturers in North Carolina of the North Carolina inspec-
tion programs.

The key to providing for effective uniform enforcement by a state agency or
state approved agencies is having clearly defined procedures for the independence
and qualifications of the personnel who do the work and clearly defined proce-
dures for the personnel to perform this work with a qualified state staff to moni-
tor the work of state approved agencies.

The North Carolina approved agencies are required to comply with the fol-
lowing procedures and each step of these procedures are monitored on a random
basis by the state staff to be ,assured they are followed by the agency with a
frequency directly related to the results of the monitoring. A manufacturer
applies to one of the North Carolina approved agencies and the agency is re-
quired to follow these steps :

(1) Engineers competent to evahiate the structural, plumbing, heating and
electrical features of the Mobile Home Standard evaluate the plans and specifi-
cations of the manufacturer and approve such plans and specifications when
they are in compliance with the Code.

(2) Competent engineers of the approved agency make inspections of the
plant production prototypes to determine if the prototypes are actually in com-
pliance with the approved plans and a report is written on what changes are
needed in the production prototypes in order for the produced units to bear the
label of compliance.

(3) After all the deviations are resolved and all the alternate plans, methods
of construction and other variations the manufacturer wishes to be included in
various models of labeled units, agency engineers who are qualified in the
structural, plumbing, heating and electrical requirements of the Standard then
prepare and sign a "certification report" which includes the plans, specifications
and details of how the manufacturer is complying with the Code.

(4) The agency inspector then takes the certification report and makes either
a structural, plumbing, heating or electrical inspection on each unit produced
thereafter and authorizes the label to be affixed to the units which comply.

(5) The agency keeps the State informed on the status of each manufactur-
ing plant and the state staff monitors each of the above processes on the above
agencies at random after the State is confident that the agency is performing
satisfactorily.

Although this process does not produce perfect units, the system is accepted
by the state and local officials having responsibility for public health and safety
of their citizens and is also acceptable to the manufacturers because they all
have to comply with the same rules. ( See letters from the Council of Code Of-
ficials, North Carolina League of Municipalities and the N.C. Manufactured
Housing Institute attached.)

There has been considerable pressure by the staff of the Southeastern Manu-
factured Housing Institute for the state to accept labels of one or more of the
southeastern states even though such states do not have state staffs meeting the
North Carolina requirements for "approved agencies" and are not following
steps required by North Carolina. Although any state may apply for formal
acceptance, no other state has made a submission in accordance with the Pro-
cedural Rules to qualify and follow the methods required of approved agencies.

Since the North Carolina approved agencies are required to file reports with
the State, we do have copies of reports on deviations of manufacturing plants in
a number of states where the state has authorized its label to be affixed thereon
and our State staff in monitoring our apiiroved agencies have verified that units
are manufactured in those states where MHMA-TCA se'f certification labels and
as many as five state self certification labe's are affixed with the size of the
structural members of the floor. waHs and roofs were about one-half of what
the Standard required and the spacing of structural members was twice as far
as allowed with sub-standard wiring, plumbing and heating sy.stems. It is my
understanding that thp manufacturer charges $1.50-$250 less for these units
than they do for the North Carolina approved labeled units even though they
are certified and labeled to comply with the same standard.

879

SELF CERTIFICATION BY THE MANUFACTURER DOES NOT PROVIDE ASSURANCE THAT

UNITS COMPLY WITH THE STANDARD

Senate Bill 1348 would either assume the federal administrator would see
the need for and convince Consress to appropriate sufficient funds to hire a
larsre army of federal engineers and inspectors to enforce the standard (or
sufficient funds to assure that the states actually uniformily enforce the stand-
ard) to protect the public health and safety or he would depend on self certifica-
tion by the manufacturer to the federal agency (or a state agency under a state
approved plan) as the method of enforcement with no criteria other than self
certification for approval of state plans.

"Why single out the mobile home industry for this method of enforcement?
Govei-nmental jurisdictions have seen the need for evaluation of plans and speci-
fications and inspections during construction to assure code compliance from
the early beginnings of the nation and such systems are now in existence in
most cities of any size throughout the United States to protect their citizens.
If all manufacturers and contractors were fully knowledgeable and even under
highly competitive conditions could maintain the highest integrity, S-1348 could
be expanded to include all buildings built by home builders and contractors. I
believe that cities throughout the United States would vigorously resist this
method of enforcement for builders and contractors and I also do not believe that
all the cities in the United States can be wrong in requiring local inspection
programs for local builders and contractors. The states exi^erienced in inspection
programs for mobile homes and locally built buildings do not believe in "self
certification" for mobile home manufacturers, home builders or any other type
of building contractor.

Mobile home manufacturers have for the most part depended on their market
in areas where there was no inspection system until the last few years. The
members of the Mobile Home Manufacturers' Association and the Trailer Coach
Association have had a self certification program of their units as being in com-
pliance with the national standard for over eight years and, in my opinion, their
record does not indicate that code compliance and protection of the public health
and safety can be assured in this manner.

Senate Bill 1348 is apparently patterned after the Federal Motor Vehicles Act
which is app'icable to a small number of manufacturers all of which have sophis-
ticated design engineers. There are an extremely large number of mobile home
manufacturers located throughout the United States and it is very rare indeed
for a mobile home manufacturer to avail him.self of professional engineering serv-
ices for the design or supervision of in-plant construction of mobile home units.
It is my opinion it would be uneconomical for small manufacturers to employ
such personnel fi;ll time and according to our experiences, those full time per-
sonnel working for large manufacturers in this capacity may be biased in their
evaluations. MHMA had a staff of two inspectors in 1969 to inspect all MHMA
members' plants. We understand they now have twelve inspectors and according
to our experience, they are either not knowledgeable of code requirements or
they and the manufacturers pay very little attention to them. It is my own per-
sonal opinion that all manufacturers should have access to engineers to do their
design but that the approval of plans and specifications and factory inspections
to assure compliance to protect the public health and safety must be done by
competent personnel who are completely independent of the manufacturers which
is the same method used by local governments in the enforcement of building
codes generally.

We have found that many plants outside the State manufacture units with
the Xorth Carolina approved label one or two days a week or month and the
remainder of the time, units are manufactured with the MHMA and TCA self
certification label and one or more self certification state labels attached with
sub-standard construction to have considerable influence over the construction
of units which are labeled under the North CaroUna approved label. In other
words, most of the problems we have with our approved agencies are in such
plants where the mnaufacturer's personnel are u.sed to lower .standards and we
think our approved agencies' inspection frequency will have to be increased in
those states where inadequate inspection programs allow manufacturers to self
certify with the above referenced deficiencies.

We made a section by section comment on H.R. 14176 which is identical to
S. 3604 introduced in the last session of Congress by Senator Brock. Copy of
these comments have been sent to each member of the Committee and all the
comments applying to H.R. 14716 except the ones applicable to motor homes
and travel trailers still apply to S. 1348. For those who do not have a copy of
these comments, I submit extra copies to you at this time.

880

NONUNIFORMITY OF STATE INSPECTION PROGRAMS

These comments are intended to be helpful in understanding the complexity
of problems faced by state officials when they are suddenly given the responsibil-
ity to carry out a mandate by their legislature when they do not have the per-
sonnel to implement same, and is not intended as any criticism of any state
official because we know that all are doing their best to protect the public health
and safety.

It is recognized by the leadership of the National Conference of States on
Building Codes and Standards that the various state programs on mobile homes
are in various stages of development and many statistics have been cited as to the
fact that the various state programs are not uniform and there is difficulty
in obtainng reciprocal agreements on such programs.

Having served as Chairman of the Conference and Chairman of the Reciproc-
ity Committee, it has been my observation that the following items have con-
tributed significantly towards non-uniformity of state programs :

(1) The A119.1 Standard is co-sponsored by the Mobile Home Manufacturers'
Association, Trailer Coach Association and the National Fire Protection Asso-
ciation where the National Fire Protection Association assumes respon.sibility
only for those parts of the Standard which pertain to fire and that excludes the
structural and plumbing parts of the Standard. The sponsors of the Standard
have been reluctant to provide a balanced representation of state and local
officials and design professions independent of the mobile home industry who
are competent in the structural part of the Standard. In fact. I was taken to
task on a nationwide basis by MHMA and TCA when I questioned this point
several years ago.

(2) Since most of the state staffs which have been set up to enforce the Mobile
Home Standard A119.1 are not staffed with qualified structural engineers, in
my opinion, it is impossible for them to enforce this part of the Standard which
if enforced, increases the cost of units anywhere from $50 per unit up to $600
per unit depending on how far the manufacturer is from complying with the
Standard. At the Annual Meeting in Boise in May. 1972. NCSRCS passed a
resolution condemning the structural part of the A119.1 Standard for the
typical state inspectors to enforce, since it would take a structural engineer to
determine compliance the way the standard is now written.

(3) MHMA, TCA and SEMHI have been the prime sponsors of state legisla-
tion for the adoption of state standards for mobile homes but apjiarentlv have
not been concerned with the states having competent and adequate staffs to
enforce the standard. In my opinion, the states would have more uniformity if
MHMA, TCA and SEMHI had supported competent and adequate state staffs to
enforce the standards with the same vigor they supported adoption of the stand-
ards. Several states have not adopted the structural part of the standard and a
relatively small number of states have structural engineers on their staffs to
interpret the structural part of the standard. A number of states are not now
equipped to implement any part of the standard and a number of states, (because
of lack of adequate personnel and doing the best they can) have had to resort
to self certification by the manufacturer with an inspector, who is not equipped
with approved plans and engineered check lists and not knowledgeable without
them, inspecting plants once every three months or so and in a number of states,
a lot less. MHMA, TCA and SEMHI have on many occasions resisted le.gislative
and administrative procedures on the part of state officials who wished to utilize
competent, independent, third party inspection systems so the state officials could
be more effective by monitoring the third parties in lieu of monitoring all the
plants with their small staff.

(4) There is no criteria which has been used for reciprocal aereements on state
inspection programs except that the states asree their programs are equal with-
out any requirements for qualifications and adequacy of staff or uniform and
adequate methods of evaluations of plans and plant inspections. Either legis-
lation or administrative rulings in approximately fifteen .states have provided
only for state inspection for monitoring of all manufacturing plants without
using independent third parties monitored by the state and under "state in.spec-
tion system", there is one reciprocal agreement between the State of Florida
and the State of Georgia which has been in effect for about three vears. Accord-
ing to Congressman Frey's statement, the State of Florida had three motor
vehicle inspectors to answer complaints for all automobiles, motor homes, travel
trailers and 38.000 mobile homes until July, 1972 and now have six motor vehicle
inspectors to provide protection to the citizens of Florida who purchased vehicles

881

and mobile homes. Some of these states have not been able to provide any per-
sonnel to inspect and some states only inspect for the electrical and plumbing.
However, California, by far exceeds tlie number of state inspectoi's with approxi-
mately 36 inspectors to inspect mobile home plants in California.

(5) All of the states which have appro ed third parties do not have procedures
for qualifying approved agencies nor procedures for approved agencies to follow
and some of these states do not have an adequate staff to monitor adequately
all state approved independent third party inspection agencies and con.sequently,
all of them approved in one state are not necessarily approved in other states.
However, approximately 15 states have commonly approved at least one or more
independent third party inspection agencies and under this system, units manu-
factured in 28 states which are labeled by one or more of these commonly
approved agencies are acceptal)le in all lo of these states.

We understand that the Executive Board of MHMA and SEMHI have during
the past year passed resolutions supporting effective enforcement of the Mobile
Home Standard b.v either competent and adequate state staffs or by competent,"
independent approved state agencies monitored by the states. How^ever, there
has not been enough time to see the effects of vigorous support given to this policy
by the staffs which was given by their staffs on adoption of the standards by
the states.

In my opinion, these problems would not be immediately rectified by any type of
federal legislation and if the federal legislation depended on self certification
as the main element determining compliance, the progress wliich has been made
to protect the public in a large number of states would be set back immeasurably.

Since these organizations have endorsed the policy of effective enforcement as
stated above, it appears there is an honest difference of opinion as to methods
of enforcement incorporated in S-134S because we do not believe that S-1.34S
actually incorporates the methods of enforcement endorsed bv the Executive
Boards of MHMA and SEMHI.

I would urge an unfavorable report on S-1348 as is now written because I do
not believe it accomplishes the stated intent. If S-134S is to be utilized as a
federal bill. I would be glad to work with your committee and NCSBCS and
other organizations on specific amendments which would clarify S-1348 to carry
out its intent.

North Carolina Manufactured Housing Institute,

Raleigh, N.C., July 18, 1973.
Mr. Kern Church,

Chief Engineer, Department of Insurance,
Raleigh, N.C.

Dear Kern : At the June 28 meeting of our Board, S-1348 -was discussed.
It was their unanimous decision to neither oppose nor support this bill at this
time.

I was instructed to inform you of their decision and also to relate the Board's
complete satisfaction with the present method of enforcement of ANSI A119.1
in North Carolina. It has been of tremendous benefit to our industry.
Sincerely yours,

Becky L. Griffin,
Executive Director.

North Carolina League of Municipalities,

Raleigh, N.C, July 16. 1978.
Senator John Sparkman,

Chairman, Snbcommittce on Rousing, Committee on Housing, Banking, and
Urban Affairs. Xen- f^onite Office Building. Washington, D.C.

Dear Senator Sparkman: It is my understanding that your Subcommittee
on Housing of the Senate Committee on Housing, Banking, and Urban Affairs
will consider S. 1348 during the week of July 23.

S. 1348 would authorize mobile home manufacturers throughout the Countrv
to perform an in-house inspection and certification of their products that would
be required to be accepted for use in all fifty States or permit each State to
authorize a self-inspection program. This proposal is contrarv to the best
interests of the public health and safety and contrary to the established practice
in North Carolina.

882

It is the opinion of this organization representing 395 North Carolina cities and
towns that the inspection of mobile home units for compliance with accepted con-
struction and other standards should be left to the individual states and the
local governments therein that have adopted mobile home standards in sub-
stantial compliance with national standards. The States and their local govern-
ments have the ultimate responsibility for the protection of health and safety of
their citizens and only through an adequate state and local inspection program
can the health and safety of its citizens be protected against substandard mobile
home construction.

The State of North Carolina and its cities and towns have developed an ex-
cellent mobile home inspection and certification program which has been accepted
by the mobile home industry. If enacted, S. 1348 would reverse the progress that
has been made in North Carolina to protect its citizens from the substandard con-
struction of mobile homes.

This organization, therefore, respectfully requests that you and your committee
consider giving this bill an unfavorable report or amending this legislation to
permit the State of North Carolina to continue its present practices for the certi-
fication and inspection of mobile home units.
Very truly yours,

S. Leigh Wilson,
Executive Director.

North Carolina Council of Code Officials,

July 17, 1973.
Mr. Kern Church, P. E.,

Fire Marshal and Chief Engineer, State Insurance Department,
Raleigh, N.C.

Dear Mr. Church : This is to confirm the position of the North Carolina
Council of Code Oflicials on the subject of third party inspection of mobile homes
and manufactured housing. As you know, the Council represents all facets (Build-
ing, Electrical, Plumbing, and Mechanical) of inspection organizations in North
Carolina comprising some 400 inspectors.

It is our understanding that a Federal bill is now pending in Congress and if
enacted would nullify third party certification of mobile homes and manu-
factured housing as required by the State of North Carolina as well as some
other states.

As you know, the Council of Code OflScials has endorsed third party certifica-
tion to pre-empt local inspections of mobile homes and manufactured housing
since the inception of the program several years ago. The State's approach to
legislation of mobile homes and manufactured housing, through the use of in-
dependent testing agencies making inspections at the factory, has been a break-
through in preserving the public interest in health and safety while permitting
the application of mass production techniques to housing. The program has been
a great success, and it seems that everyone has benefited by it — especially the
buyer.

Prior to our third party certification program here in North Carolina, field
investigations by our people revealed a large percentage of mobile homes to be
far below minimum safety standards. Defective wiring, heating systems, plumb-
ing and bracing of the units are among some of the conditions found. (These
units had been certified by the manufacturer and placed on the dealer's retail
lot to be sold to the general public.)

Any effort to bring about Federal legislation to pre-empt our third party
certification program should be vigorously resisted, especially where the al-
ternative would amount to self-certification by the manufacturer — a system that
experience has proven to be meaningless.
Sincerely,

W. H. Jamison,
President of Code Officials.

The Chairman. We are glad to receive them from you.

Mr. Bono.

Mr. Bono. Thank you, sir. As the assistant chief engineer of Under-
writers Laboratories, one of my principal duties at the present time is
to coordinate the work of three engineering departments that have
responsibility for the investigation of mobile homes.

883

Undenv^riters Laboratories' association with mobile homes is as an
independent third party, accredited by various States, as you have
heard Mr. Church describe, to provide engineering; and inspection
services for mobile homes intended for installation in those States.

In mv written testimony and through discussion from Mr. Church,
I believe you ha\e an idea of the function of a third party. I think,
suffice it to say, that we believe that the function of a third party is
fii-st to provide comprehensive initial evaluation of mobile homes, sec-
ond, frequent inspection of mobile homes to see that what comes off
the production line continues to meet the standard.

In this process, which is a fairly new process with Underwriters
Laboratories, we listed our first mobile home in the summer of 1970.
Since that time the laboratories has evaluated and inspected, pro-
vided inspection service for 102 manufacturers of mobile homes.

We have inspectors frequently visiting 226 mobile home plants in
28 States. To give you an idea of the activity that is involved, in 1972
our local inspectors made over 7,000 visits to mobile home plants.
They spent in excess of 30,000 hours of inspection in witnessing the
production and inspecting the equipment, appliances, and the con-
struction of the mobile homes.

So our recommendations come from the experiences which we have
had during the last approximately 3 years in the evaluation and in-
spection of mobile homes.

Like other forms of building construction, mobile homes need to
be regulated. Where a State program employing qualified engineers
and inspectors has been initiated, we have observed a substantial up-
grading in mobile homes. This is not an intuitive or a casual observa-
tion, we have seen it time after time.

- Our written testimony details some of the more common deviations
that we found in our engineering investigations. Suffice it to say that
even though some of the homes carried a label which we understand
was intended as a manufacturer's representation of compliance, what
we found was that the manufacturers were either not knowledgeable,
did not understand or they were confused about the significance of a
certification process.

Section 114 of the act does not include any pro^dsions for third
party audit for certification of conformity of mobile homes with the
applicable standards.

In a sense this is like abandoning the traditional duties of electrical
inspectors, plumbing inspectors, and building inspectors in site-built
housing.

The initial evaluation which I mentioned in my written testimony
is such a valuable part of any investigation of the mobile horne that
it is unfortunate in our opinion that the act does not take this into
account.

The only thing, as we understand it, that the act provides is after-
the-fact recourse in the form of civil penalties or injunctions in the
placement of obligations on manufacturers and distributors. But this
is not a suitable substitute for determining that the product complies
with the requirements before it leaves the factory.

Unless independent audits are incorporated in the program there
is a likelihood that the act will mean a reduction in the control and

99-855 O - 73 - pt. 1 -- 57

884

regulation being attained in those States that have a viable working
program.

So we strongly recommend that the act require, as an initial de-
termination of compliance, at least a plant review, an examination of
production or prototype units in the factory, and the conduct of all
applicable tests that are described in the standard.

Section 112 of the act authorizes the Secretary or his representa-
tive to inspect the manufacturing facilities and production. The
States have recognized the need for specific rules and regulations for
implementing the requirements for this type of inspection.

We strongly urge that the act be amended to empower the Secretary
to use practical rules and regulations developed by consensus groups
and regulatory -oriented people relating to evaluation and inspection
of mobile homes.

Our written testimony references several documents which will be
helpful in this respect.

Section 120 of the act allows for a State plan of enforcement, but
does not have specific criteria for qualifying that plan. Approximately
35 States have some form of legislation dealing with mobile homes,
but the implementation, as you have heard previously, differs widely.

We recommend that the criteria for qualifying a State plan be
specifically and clearly delineated.

Reference to criteria developed by the National Conference of States
on Building Codes and Standards, and which have been effectively
applied in States, in existing programs, should be helpful.

Statistics have been published in the Federal Register and other
places which indicate the hazards of mobile homes. The record was
established on mobile homes which did not comply with the standard.
The present standards for mobile homes, ANSI A 119.1. cannot be uni-
versally condemned as inadequate by reason of past statistics, although
certainly improvement in that standard is possible.

The chief need, and the one to which we believe Federal legislation
should be addressed, is not so much a different standard, but rather a
more effective mechanism for assuring compliance.

Let me summarize. First, we agree that regulation of mobile homes
is needed. Underwriters Laboratories, as an independent agency whose
sole objective is public safety, supports the intent of the act.

Second, a number of States have good strong programs. The act
should recognize and support those programs and should not replace
them with procedures that are less comprehensive and less effective.

Third, the act can hasten the more uniform regulatory trends by
encouraging a State to adopt legislation regulating mobile homes.
There is model legislation available, model rules for implementing
that legislation, even model documentation that has been worked out
by representatives of the Federal Government, State agencies, building
code groups and others.

There is a nationally recognized standard, ANSI A 119.1, which was
produced by a consensus group. It is being improved on every year.

The important objective of this act should not be a new standard,
but rather a mechanism for assuring compliance.

We have seen what effective State programs can do. If the lan-
guage of this act is revised, similar accomplishments can be made
nationwide.

885

We would be pleased to have the opportunity to work with the com-
mittee in drafting language which we believe would accomplish the
intent of the act.

Thank you.

[The prepared statement of Mr. Bono follows :]

Statement of Jack Bono, Chief Engineer, Fire Protection,
Underwriters' Laboratories, Inc.

Mr. Chairman and Members of the Subcommittee : I am Jack Bono, Assistant
Chief Engineer, Fire Protection, and I have been employed by Underwriters' La-
boratories. Inc. for 26 years. I am a professional engineer with registration in six
States. One of my duties is to coordinate the work of tliree engineering depart-
ments at Underwriters' Laboratories which are responsible for specific phases of
the engineering investigations conducted on mobile homes.

AVe at Underwriters' Laboratories, Inc. are pleased at the opportunity to com-
ment on this proposed legislation relating to the safety of mobile homes. The goal
of this presentation is to describe the association and experience which Under-
writers' Laboratories has had with these products and to relate what we have
learned to various provisions of the proposed National Mobile Home Safety
Standards Act of 1973.

the underwriters' laboratories, inc. organization

The evaluation of mobile homes is in keeping with the Laboratories' role in
the product safety field as an independent not-for-profit corporation organized
under the laws of the State of Delaware. The Laboratories is a membership cor-
poration without stock and its membership is drawn from persons in the follow-
ing categories : Governmental body or agency, public safety body or agency, con-
sumer interest, safety expert, standardization expert, education, insurance indus-
try, public utility and officer of the corporation. The present membership com-
prises 138 person from these categories, all having significant interest in safety,
but none of whom is a manufacturer or vendor of products that could be sub-
mitted to the Laboratories for recognition. The Laboratories is managed by a
.Board of Trustees of 15 public spirited persons drawn from the same categories
as the membership.

Today, Underwriters' Laboratories operates testing laboratories in Melville,
New York ; Santa Clara, California ; Tampa, Florida ; and Chicago and North-
brook, Illinois. Plant and equipment are valued at approximately $17,000,000
dollars. Of the approximately 2100 persons on the staff, 765 are involved in the
engineering work associated with evaluation of new and modified products. Of
these, 426 are degree-holding engineers. Approximately 675 persons are involved
in our factory follow-up services to see that products reaching the public con-
form to U.L.'s requirements for safety, including over 500 inspectors strategically
located throughout the United States and in 32 foreign countries.

Today, the products which industry has voluntarily submitted and which we
found to meet our requirements for safety comprise ten published lists covering
approximately 5000 different products produced by over 13,000 different manu-
facturers. As evidence of compliance with the Laboratories' requirements, manu-
facturers last year attached almost two billion U.L. labels to products produced
under our label service form of follow-up inspection service. In addition, the U.L.
Listing Mark, applied under a companion form of factory follow-up service ap-
peared on millions of household appliances. The background of experience in con-
ducting investigating of products and in establishing factory follow-up inspection
service has been applied in our program for mobile homes.

third party evaluation and inspection of mobile homes

Until recently, regulatory authorities were not requiring independent evalua-
tion and inspection of mobile homes. What inspection was conducted was frag-
mented and local and took place after the home had been completed, when many
items were not open to inspection.

In recognition of the fact that mobile homes received little or no regulation,
the General Assembly of the State of North Carolina in 1969 enacted a law to re-
quire all mobile homes manufactured, sold or offered for sale in that State to be
manufactured in accordance with the American National Standard For Mobile

886

Homes, ANSI A119.1. The 1969 Act also preempted local inspection of mobile
homes provided they were evaluated, tested and inspected by Underwriters'
Laboratories or other qualified agency approved by the North Carolina State
Building Code Council. Some manufacturers chose to submit their mobile homes
to Underwriters' Laboratories or other approved agencies ; others chose to take
their chances on local inspection.

The 1971 North Carolina General Assembly rewrote the 1969 Act and made
It mandatory that all mobile homes manufactured to be sold in North Carolina
after September 1, 1971, must have the "label of compliance'" of an independent,
competent, solvent and trustworthy organization approved and licensed by the
State Building Code Council.^

Since enactment of the North Carolina law in 1969. other States have adopted
similar laws and procedures, utilizing the services of independent third parties
or a combination of independent third party services and in-State evaluation and
inspection, including the following : Alaska, Arizona, Connecticut, Indiana, Iowa,
Kansas, Maryland, Minnesota, Nevada, New .Jersey, Pennsylvania, South Caro-
lina, North Dakota, Tennessee, and Virginia.

Other States have established programs requiring evaluation and/or inspection
by a State agency. Included are : Alabama, California, Colorado, Florida, Georgia,
Idaho, Michigan, Mississippi, Montana, Nebraska, New Mexico, Oregon, Texas,
Utah, and Washington.

Because of the strong trend in the direction of State laws to regulate mobile
homes, there is a good likelihood that most, if not all States will soon have im-
plemented programs utilizing the services of independent third parties or State
agencies to evaluate and inspect mobile homes.

underwriters' laboratories, inc. process for investigation and inspection of

mobile homes

Since our comments on the National Mobile Home Safety Standards Act of
1973 reflect, in part, our experience in investigating this product and maintain-
ing follow-up inspection at mobile home factories, it may be helpful to review the
procedures used to carry out our responsibility as an independent third party.

The capabilities of Underwriters' Laboratories" engineering and inspection
staff were particularly adaptable to the requirements of a mobile home pro-
gram. One of the important elements in the safety of mobile homes is the use of
proper equipment and materials and their installation in accordance with ap-
propriate codes and standards. Electrical wiring, switches, lighting fixtures, cir-
cuit breakers and other electrical products have been investigated and listed by
U.L. for many years. Day in and day out work with the.se products and active
participation in the development and use of Standards for these products, as well
as the National Electrical Code governing their installation, enables U.L. engi-
neers to bring to bear a wealth of experience in judging the electrical features
in mobile homes.

Similarly, the testing of heating appliances and vents, air conditioners,
clothes dryers and other factory installed equipment provided a familiarity
with their intended use which permitted ready assessment of whether the ap-
pliances were correctly installed in mobile homes, with required clearances,
circuitry, combustion air availability, etc.

The Standard For Mobile Homes limits the flame spread of interior flnishes
such as ceiling tile and wall paneling. The Laboratories' test equipment for
flame spread determinations is being used by the Fire Protection Department at
a rate of 2500 tests annually.

In addition to the approximately 35 electrical, mechanical, civil and struc-
tural engineers specifically involved in the investigations of mobile homes and
other manufactured buildings and assemblies, ready access to others on the
staff provides a source of expertise on unique engineering problems and inter-
pretations.

The primary objective of an investigation is to determine whether the mobile
home complies with the edition of the ANSI Standard For Mobile Homes adopted
by the State. Achieving this objective requires the utilization of planned pro-
cedures implemented by qualified engineers.

The first step in the process is to obtain from the manufacturer construc-
tion drawings, wiring diagrams, plumbing layouts, and specifications describ-

1 Foreword — State of North Carolina Regulations for Mobile Homes, 1971 Edition.

887

ing the product. These are analyzed by engineers with academic qualification
and professional experience relating to the discipline (s) involved. For example,
the electrical features of the mobile home are examined by graduate electrical
engineers familiar with the requirements of the National Electrical Code and
the applicable Standards. Similarly, qualified engineers conduct the analysis for
structural, heating, air conditioning and plumbing features.

Subsequently, a team of two or three engineers representing different dis-
ciplines visits the factor of the manufacturer for the purpose of (1) determining
that the actual construction is in accordance with submitted drawings and
specifications. (2) determining that the many details of construction which are
not shown on illustrations or listed in specifications are in compliance with the
Standard, and (3) conducting required tests. These tests include: Air duct
leakage and sizing tests ; Leakage test of potable water pipe ; Leakage test of fuel
supply system ; Structural test of roof trusses ; Spot loading tests of fioors ;
Leakage and retarded flow determinations of plumbing fixtures ; Dielectric
strength tests on the electrical system of the home : Operational check of
electrical devices : Electrical continuity tests of system ground ; and Polarity
check of electrical system.

The factory visit normally requires two days. During that time, the engineers
examine approximately 1500 items of construction, equipment and workmanship,
using a check list in excess of 90 pages, covering structural, heating, electrical
and plumbing items. A complete check list accompanies this presentation and will
be handed to the Committee.

Following the examination and tests, our engineers meet with the manu-
facturer's representative to provide him with a list of items found not to comply
with the Standard. This list, together with other supportive data and informa-
tion, is conveyed to the manufacturer by a subsequent written progress report.

The evaluation process continues with consideration and repeat testing, where
required, of changes made to correct previously recorded deficiencies, until
all features are in conformance with the Standard. At that time, a formal com-
prehensive report of the investigation is issued.

This completes the investigation and an inspection manual is then prepared.
The manual details the acceptable construction and equipment specifications, the
required production tests and includes instructions for guidance of the manufac-
turer and the U.L. inspector local to the factory. A copy is provided to the manu-
facturer and the U.L. inspector. Unannounced and frequent visits are conducted
by the local inspector to ascertain that the production is in accordance AA-ith the
detailed inspection manual. Labels under the control of the U.L. inspector are
issued to the manufacturer as needed. Each label is serially numbered so that the
inspector can correlate the number of inspection visits with label usage.

The first mobile home listed by U.L. under this program was in 1970. As of
June, 1973. U.L. had evaluated and Listed mobile homes for 102 manufacturers
and had instituted inspection service in 226 plants in 29 States. In 1972, the
number of mobile homes labeled by U.L. was 108,105. Our local inspectors made
7,247 visits to plants and spent 30,398 hours in follow-up inspections. In excess
100 U.L. inspectors were involved in this activity.

Even though U.L. is the most active independent agency in the mobile home
area, there are other independent agencies providing various forms of these
services.

SUPPLEMENTAKY ACTIVITIES

Participation in this activity has required that U.L. engineers meet periodically
with State agencies to report on the progress of the program. Some States,
through inspectors in the employ of the agency responsible for administering the
law, conduct monitoring programs on the third party agency. This monitoring
consists of visits to factories where the third party inspection program is in effect.
In this way, the effectiveness of the program can be assessed by the States.

In addition, various States have required monthly or quarterly reports of the
inspections made, U.L. labels and/or State insignia released, variations recorded
and other information.

RECOMMENDATIONS AND COMMENTS ON THE NATIONAL MOBILE HOME SAFETY

STANDARDS ACT OF 1973

From this background of experience in examining mobile homes in over 250
different factories, and inspection experience in over 200 of these factories, from
our assessment of the elements required to provide regulation of these products

888

and from our analysis of the provisions of the Act, we offer the following observa-
tions and recommendations :

Like other forms of building construction, mobile homes need to be regulated,
and ichere a State program employing qualified engineers and inspectors has been
initiated, a substantial and observable upgrading in safety has been achieved.

In a review of the first twenty engineering investigations of mobile homes
conducted by Underwriters' Laboratories in conjunction with assigned duties
under a State mobile home program, it was found that :

1. 90% of all roof trusses tested failed to withstand the specified test load in
the ANSI A119.1 Standard For Mobile Homes. Many of the trusses failed under
the design load, even though the Standard requires that roof trusses support 1.75
times the design load.

2. Fifteen mobile homes did not have the heating appliances installed in accord-
ance with the recommendations for these devices.

3. The gas piping was not properly secured or supported in twelve mobile
homes.

4. In only three of the twenty mobile homes were all required production tests
being conducted.

5. The duct ssytem for heating did not pass the sizing or leakage test in fifteen
of the mobile homes.

6. The drain piping was not properly sloped or supported in fourteen mobile
homes.

7. Improper clearances from adjacent combustible surfaces were observed
around cooking -equipment in twelve of the mobile homes.

8. In eleven mobile homes, the washer standpipe was not terminated properly
above the machine flood level or it was not accessible.

9. In ten mobile homes, the floor around the water closet was not made im-
pervious to moisture.

10. An average of twenty-two electrial violations were recorded in each home.
In a sampling of another twenty-three mobile homes, for manufacturing plants

in geographical areas being subjected to independent third party evaluation for
the first time, the following deviations from electrical requirements were noted
at least 50% of the time :

1. Improper electrical bonding of the duct and gas piping.

2. Improper installation of air-conditioning system.

3. Improper support of non-metallic cable.

4. Wrong outdoor fixture.

5. Improper load, branch circuit and overcurrent protection calculations.

6. Unprotected cable through studs.

7. Improper bonding of aluminum skin.

8. Improper size of conduit stub for permanent wiring.

For a manufacturer who is making his first submittal to U.L., it has been
almost certain that structural deficiencies will be observed in review of drawings
or during the factory visit. Either the design of floor, wall, roof or window fram-
ing will be inadequate. It was not unusual to conclude the first phases of our
engineering investigation with a report of criticisms, one or two dozen pages in
length.

Some of these mobile homes, despite gross violations of fundamental require-
roents, carried a label which we understand was intended as the manufacturer's
representation of compliance with the ANSI A119.1 Standard For Mobile Homes.
What we found was that the manufacturer was unknowledgeable or confused
about what he was certifying to, or if he knew, did not attach due significance to
the certification.

For proper perspective, it should be recognized that a mobile home is a large
assemblage of structural, mechanical and electrical components. As previously
indicated, the requirements of the A119.1 Standard when detailed on data sheets
for use by engineers checking a mobile home for compliance, exceed 1500 in
number. Furthermore the assembly process involves considerable handwork —
nailing, connecting, stapling, drilling, gluing, etc. This combination of factors
tends to introduce some variations in the production line mobile home.

In those State programs in which we have participated as an independent third
party, we have observed a substantial upgrading manifested first by observable
changes in the design of the mobile home. Two by four lumber studs or studs of
higher strength species of lumber are used in walls. Improved roof trusses and

889

window framing are employed. Correct wiring, lower flame spread interior finish
and appropriately rated electrical apparatus are installed.

In addition, workmanship items such as support and protection for electrical
wiring, slope of drain piping, installation of heating appliances, etc. have im-
proved as a result of surveillance by third party or State inspectors.

A definite objective of the engineering evaluation and follow-up inspection
which was accomplished was to assure that the various required production tests
previously outlined were conducted on each mobile home.

Documentation is available to establish the conclusion that substantial improve-
ment in mobile home compliance with adopted Standards was attained in State
programs with which U.L. has been involved. In our opinion, State authorities
familiar with the "before" and "after" circumstances will support this conclusion.

When a program of evaluation and inspection was initiated under the auspices
of individual States, by and large, mobile home manufacturers were willing and
able to correct deficiencies and modify their units to bring them in compliance
with the Standard. The acceptance of the program was demonstrated by a volun-
tary choice by some manufacturers to obtain independent third party certifica-
tion of mobile homes produced and sold in States which had not enacted require-
ments for third party evaluation and inspection.

Section 11^ of the Act does not include any provision for independent third
party audit for certification of conformity of mobile homes with applicable
Standard. In a sense, this is akin to abandoning the traditional roles of the build-
ing inspector, electrical inspector and plumbing inspector in site built housing.

The initial engineering evaluation by independent agencies or State staff has
been a valuable phase of compliance determination but the Act appears to place
this entirely in the hands of the manufacturer. The procedures for implementa-
tion of a compliance assurance program should be uniform and should seek to
assist the manufacturers by acquainting them with all requirements so that
they can do whatever is necessary to achieve compliance. The independent audit
has achieved this objective.

Only "after the fact" recourse is provided in the Act by civil penalties and
injunctions and in the placement of obligations on manufacturers and distribu-
tors, but this is not a suitable substitute for determination of compliance in the
factory. Unless these audits are incorporated in the program, there is a likeli-
hood that the Act will mean a reduction in the control and regulation being
attained in those States that have a viable working program which requires
determination of compliance by the State or its designated representative before
the product leaves the factory. We strongly recommend that the Act require, as
an initial determination of compliance, a plan revieic, an examination of pro-
duction or prototype units and the conduct of all applicable tests specified in the
Standards and that these activities be conducted by independent qualified
agenxjies.

This providing of an independent audit and inspection would be in keeping with
traditional and accepted practice for housing in which a determination of com-
pliance with applicable building codes, electrical codes and plumbing codes is
made prior to occupancy. The difference from site built construction is that this
determination is accomplished in a factory rather than on the site.

Section 112 of the Act authorizes the Secretary or his representatives to in-
spect the manufacturing facilities and production. The States have recognized the
need for specific rules and regulations for implementing the requirements for
inspection of mobile homes. Criteria for personnel, facilities and methodology
have been developed and applied by States for approving agencies wishing to pro-
vide services as called for in the laws of that State. A Committee of the American
Society for Testing and Materials has been formed at the request of the National
Conference of States on Building Codes and Standards, to develop uniform criteria
for accrediting agencies, using input from the National Bureau of Standards
Project LEAP (Laboratory Evaluation and Accreditation Procedure) . We strongly
urge that the Act be amended to empower the Secretary to use practical rules
and regulations developed by consensus groups and regulatory oriented organiza-
tions, relating to evaluation and inspection of mobile homes.

Reference documents include: Model Rules and Regulations For The Manu-
factured Building Act — developed by a special working group including State
officials, model building code representatives. National Association of Building

890

Manufacturers, National Bureau of Standards and Department of Housing and
Urban Development.

Model Documents For The Evaluation, Approval and Inspection Of Manu-
factured Buildings — developed in the OflSce of Building Standards and Codes
Services of the National Bureau of Standards.

Section 120 of the Act allows for a State plan of enforcement without spe-
cific criteria for qualifying that plan. Approximately 35 States have some form
of legislation dealing with mobile homes but the implementation differs widely.
We understand that in some States, six inspectors handle all complaints against
the manufacturers of mobile homes and recreational vehicles and also the con-
struction of all vehicles, where as many as 58,000 mobile homes and recreational
vehicles are manufactured annually. Other States have compliance evaluation
and inspection programs employing qualified engineers for the evaluation, and
inspection staffs capable of providing daily inspections in a plant if the pro-
duction warrants.

We recommend that the criteria for qualifying a State program be specifi-
cally and clearly delineated. Reference to criteria developed by the National Con-
ference of States on Building Codes and Standards entitled, "Model Rules for
the Listing of Organizations to Label Industrialized Buildings" and which have
been effectively applied in existing programs should be helpful in qualifying
State programs.

One of the responsibilities of the Secretary under this Act is to i.ssue Federal
standards for mobile homes (Section 103(a) ). There exists, at present, a Stand-
ard of the American National Standards Institute, ANSI A119.1 on mobile homes
which is being referenced in State legislation. This Standard has been criti-
cized as being inadequate in some respects. However, many improvements have
been made in recent editions, and there is no doubt that still further improve-
ments in the Standard For Mobile Homes will be forthcoming.

A requirement for egress windows in sleeping quarters has been recently
adopted in the Standard.

A proposal for revision of the A119.1 Standard to require combustion product
fire detectors in each mobile home has been favorable voted on at the annual
meeting of the National Fire Protection Association in May, 1973. This adoption
is normally followed by inclusion in the ANSI A119.1 Standard.

Statistics have been published in the Federal Register and other places which
indicate the hazards of mobile homes. The record was established on mobile
homes which did not comply with the Standard. The present Standard For
Mobile Homes cannot be condemned as inadequate by reason of past statistics.

The Standard is under the jurisdiction of a body of experts with a balance
of manufacturers — suppliers and consumer — general interest representatives,
who have demonstrated in recent years a willingness to improve the Standard.

The chief need and the one to which we believe Federal legislation should be
addressed is not a different standard but rather a more effective mechanism to
assure compliance.

SUMMABY

Achieving a greater degree of public safety has been for U.L., for the past 79
years, not only a noble objective but also its exclusive day to day activity. Our
study and analysis of this Act has considered how it will contribute to public
safety, whether the implementation procedures will accomplish the intent and
whether a Federal effort will blend and utilize the progressive and effective
programs now being applied. Our comments in this testimony may be summarized
as follows :

1. Regulation of mobile homes is needed to provide safety to users. It has
been demonstrated that where compliance with a Standard is enforced, mobile
homes of improved construction and worlimanship relative to safety have been
produced.

2. Many States have existing regulatory programs requiring comprehensive
engineering evaluation and frequent inspections by unbiased, independent agen-
cies or State employees and the Act should recognize and supiwrt such programs.
The Act should not replace State programs with procedures that are less com-
prehensive and less effective. This would be a reduction rather than an improve-
ment in public safety.

891

3. The Act can hasten a more uniform regulatory trend by requiring that all
States adopt legislation requiring mobile homes to comply with nationally rec-
ognized Standards. Through the efforts of representatives of the National
Bureau of Standards, Department of Housing and Urban Development, Model
Building Code Organizations, National Conference of States on Building Codes
and Standards, manufactured housing producers and others, model legislation,
rules and regulations for implementation of the legislation and even guide docu-
mentation for use in programs for evaluation and inspection of all manufactured
buildings including mobile homes have been developed and are available.

4. Nationally recognized Standard For Mobile Homes exists and has been
undergoing revision to include more safety requirements. Experience has re-
vealed that improvement in mobile homes is achieved when a system is initiated
for assuring compliance of mobile homes with safety requirements of this Stand-
ard, and this should be a primary objective of the Act.

5. Although not previously mentioned in this testimony, we would recom-
mend that if a National Mobile Home Safety Advisory Council is formed, as
contemplatetl in the Act, it should include one or more representatives of inde-
pendent third parties presently involved in the evaluation and inspection of
mobile homes.

There is great opportunity, in our judgment, through this Act for the Federal
Government to establish a workable, cooperative relationship with States, to
speed up the possibility of reciprocal recognition by the States of mobile homes
and to establish a level of safety for occupants of mobile homes which will be
insured by utilization of procedures which are experience-proven. To grasp this
opportunity, however, the Act will need to be revised. We would be pleased to
work with the Committee Staff in developing language to achieve what the
sponsors of the legislation. State regulatory authorities. Underwriters" Labora-
tories and others concerned with public safety hope to accomplish.

892

DATA SHEETS
FOR
MOBILE HOMES
A119.1 - 1969

^acAC.^rr^ ff

HEATING, PLUMBING, FUEL SYSTEMS AND APPLIANCES

1. File No.

2. Assignment

001-004

3. M2Uiufacturer's Name zmd Address

4. Client's Representative

5. Engineers Making Visit

6. Dates of Visit

7. Widths of Homes

Single

8. Lengths of Homes Between

(Minimum)

And

(Maximum)

9. Designed for the
10. Number of Baths

Double
_ Feet

Zcne(s)

11. Heating System Electric

12. Air Conditioning Electric

Gas
Gas

Oil _
None

Split System

13. Water Heater Electric

Capacity

14. Coo)ting Range Electric

Self-contained Window

Gas Oil

10 8

Gas

893

INFORMATION TO BE OBTAINED FROM MANUFACTURER;

1. Drawings showing drain waste and vent system for several

typical homes Including:

A. Single Bath Model

B. 1-1/2 Bath Model

C. 1-3/4 or 2 Bath Model

D. Most Complex System (Maximum Number of Fixtures)

2. Drawings showing potable water supply system for the homes

mentioned above.

3. Drawing of typical gas supply piping systems (LP zmd Combo.).

4. Drawing of installation of the following:

A. Dishwasher

B. Disposal

C. Gas Water Heater

D. Furnace and Heat Duct

5. List of all gas- fired appliances which are not UL Listed.

6. List of all suppliers of plastic drain, waste and vent piping.

7. List of all nonferrous plumbing fixtures and evidence that

they are Listed by an agency such as N.S.F.

8. Drawings of all field-installed constructions including waste

lines for conversion from multiple to single drain and
interconnection of two halves of double-wide homes. 800

894

PLUMBING AND
PLOMBIMG FIXTURES

ITEMS TO CHECK IN PLUMBING SHOP AND PARTS STORAGE »
Materials -

1. All materials, fixtures, and devices are free from defects
and in conformance with applicable Standards. Yes No

2. The following items pertain to drain system materials.
Drain-Waste-Vent -

A. Material

B. Manufacturer

C. Marking

3. All plastic drain, waste and vent piping is marked "NSP."

Yes No _

4. Fittings for screw pipe shall be cast iron, brass, or plastic
with standard pipe threads. Yes No

5. Fittings for copper tubing shall be cast brass or drawn copper
sweat solder. Yes No

6. Brass adaptor fittings shall be used to joint copper tubing to
threaded pipe. Yes No

895

1. Drainage fittings are recessed drainage pattern with '^ooth
interior waterways of the same diameter as the piping. Yes No

2. Drainage fittings are designed to provide a 1/4 in. per ft
grade in horizontal piping. ='*■

3. All traps are 1-1/2 in. diameter, minimum. Yes No

4 If answer to above is No, determine that 1-1/4 in. diameter
t;iniiLrJr:p it used only o,; single fixtures having a drain opening
not more than 2 in. diameter. ^o» "°

5. Are all traps cast iron; cast brass of drawn brass tubing not
less than No. 20 gauge or plastic? ^e» ""^

6. Are union joints beaded? *•« *'°

7. Does each trap have manufacturer's name on trap mj each tubing
show tubing gauge?

8. Are any used piping materials employed?

Yes No

896

1. The following Items pertain to water supply piping materials,

Water Piping System -

A. Material

Sites

2. No galvanized screw piping shall be less than 1/2 in., Z.P.S.

Yes No _

3. Are any used piping materials employed? Yes No

4. Are pipe dope, solder flux, oils, solvents, chemicals or other
substances that are toxic, corrosive, or otherwise detrimental to
the water system used? Yes No

897

1. Plastic plp« is not to affect the potability of the water
supply. If plastic water pipe is used, determine the manufacturer's
name and type designation and details regarding its Listing by
a plumbing agency.

2. All water pipe is stemdard weight brass, galvanized wrought
iron, galvanized steel. Type K or L copper tubing or suittible
plastic. Yes No

3. Metal unions have mstal-to-metal ground seats. Yes

No

4. Flare joints of soft copper water tubing are made with proper
fittings . Yes No

898

1. The following items pertain to plumbing fixtures.
Type of Fixture Material

2. Shower stalls shall conform with the following:

A. Each shower stall receptor shall be provided with an
approved type watertight receptor with sides and back extending
1 in. above the finished dam or threshold. In no case shall the
depth of a shower receptor be less than 2 in. or more than 9 in.
measured from the top of the finished threshold to the top of
the drain. The wall area in shower compartments shall be con-
structed of smooth, noncorrosive , and nonabsorbent waterproof
materials to a height not less than 6 ft above the floor level.
Such walls shall form a watertight joint with each other and with
the receptor or shower floor. The floor shall slope uniformly

to the drain at not less than 1/4 nor more than 1/2 in. per ft.

Yes No

B. Prefediricated shower stalls shall be approved or Listed and
shall comply with all the requirements relating to plumbing
fixtures and shower stalls. Yes No

3. Determine manufacturer's name, model designation and name of
Listing agency for any nonmetallic fixtures.

302

899

Workmanihip (Water Supply, DWV and Gas Piping Systems) -

1. All piping equipment, appurtenances, and devices are installed
in workmanlike manner. *«■ No

2." Is galvanized pipe (when used) bent or welded? Yes No

3. Are pipe joints wrapped with string, paper, putty or other
fillers? *«• No

4. Pipe joint cement or thread lubricant is applied to male threads
only. Yes No 705 (R)

5. Are leak sealing or repair agents used to seal holes, cracks,
etc. , in pipe? Yes No

6. All pipe threads are fully engaged with threads of fitting.

Yes No

7. Plastic pipe and fittings are joined per manufacturer's
recommendations. *«« No

99-855 O - 73 - pt. 1 -- 58

900

1. Plastic pipe and copper fittings are Inserted to full

depth. Yes No

2. All burrs are removed from pipe. Yes No 708(A)

3. All pipe ends are reansd out and clean. Yes No 708(A)

4. Flaring tool is used to shape the ends of flared tubing to match
the flare of fittings. Yes No

5. Solder joints for tubing are made with sweat solder type fittings.

Yes No

6. Surfaces to be soldered are deemed bright. Yes No

7. Joints are fluxed with noncorroslve paste type flux and made
with 50-50 solder or solder having a high melting temperature.

Yes No

901

ITEMS TO CHECK IW FLOOR DEPARTMENT BEFORE PLOORIHG IS APPLIED t

1. The following Items pertain to the drain ayatem conatructlon.

Note - Advise P.P. Dept of any cutting or notching of atructural

inBtsbers .

Note - Use MTST 400 and 401 for reporting all variations.

A. Horizontal drainage piping Is run In practical alignment
and has uniform slope of not less than 1/4 In. per ft toward the

mobile horns drain outlet. Yes No 407

712(A)

B. Where Impractical, due to the structural features or arrange-
ment of mobile home, to obtain a slope of 1/4 In. per ft, pipe or
piping has slope of not less than 1/8 In. per ft and a full size

cleanout Is Installed at the upper end. Yes No 407

712(A)

C. Drain piping Is secured by strapping and blocking at
sufficiently close Intervals (4 to 6 ft) to maintain the slope
specified above and to carry the weight of the pipe and Its contents.

Yes No

D. Cleaning tools are required to pass through more than
360 deg of fittings to reach any part of the drainage system.

Yes No

DRAIN SYSTEM FITTINGS »

1. All drainage piping Is free from drilled and tapped holes for
connections. Yes No

2. Does any fitting, connecting device or Installation method
obstruct or retard flow? Yes No

3. All fittings are Installed for correct flow. Yea No

902

1. Appropriate fittings are used for all changes in direction

or pipe size and at all pipe joints. Yes No _

2. The material and design of fittings conform to the type of
piping used. Yes No _

3. Horizontal drainage lines, oonnaoting with a vertical pipe
or horizontal drainage lines enter through 45 deg "Y' branches,

60 deg 'Y* branches, longtum "TY' branches, sanitary 'T" branches,
or other fittings or combination of fittings having equivalent
sweep. Yes No _

4. Are fittings having more than one brandi at the same level
used? Yes No _

WATER CLOSET VENTING:

Note - Venting of the water closet should be double checked
on homes which are nearly completed.

1. The drain piping for each water closet is vented (main vent)
by a 1-1/2 in. minimum diameter or equivalent vent connected to
the main drain by one of the following methods.

A. A 1-1/2 in. diameter (minimum) individual vent pipe or
equivalent directly connected to the water closet drain
and extended undiminished in size through the roof.

414

I % yew TO "oof

■QHfi'f^' ill^t

o<e

//j*/,d/»'r ji> tetf

\A/C.

///>//*//<^ ffjCi/M

OUTLCI

Provided

Not Provided

903

B A 1-1/2 in. diameter (minimum) °pn*^n"°'^»^^^2l«-**''
th« waiite of not more than one fixture.

{'It VWT J D gOCF

i"-

\(^

0/2

]Vut^r 10 /?«/

Provided

Hot Provided

-a i:rLK:\r::;j.Sir^.cS.""L.r»i: sr.;;!""^

''' „.-"' ..'

^"

IVl* If cc'^^s /0"<'*

i:^

VIM

r^

ooiLi r

o(L

COTLi''' >

Sm three fixture, unlea. it is greater than 2 in.
diameter.

Provided

Not Provided

904

1. Hh«re by necessity, wet-vented drain piping is offset
other vented fixture drains or relief vents are connected to the
drain piping below the vertical offsets. Yes No

2. Wet-vented drain pipe is 2 in. minimum diameter and at least
one pipe sixe larger than the largest connected trap or fixture

drain. Yes No 417

3. Are more th«m three fixtures connected to a 2 in. diameter

wet- vented drain system? Yes No

4. The water closet is located with 6 ft 0 in. of the vent or
connection of the wet vent to the main drain. ■ Yes No

5. Vents for horisontal drains connect above the centerline of

the drain piping ahead (downstream) of the trap. Yes No 412

The Following Items Pertain to the Water Supply Piping Construction -

1. Piping in plumbing system is installed without undue strain
and stress and provisions made for expansion, contaction, and
structural settlement. Yes No

2. Piping is secured at sufficient close intervals to keep
piping in alignnsnt and oarry the weight of pipe and contents.

Yes No 300

3. Hangers and anchors are of sufficient strength to support
their proportional share of the pipe alignments and prevent
rattling. Ves No

905

1. Is any part of the water system connected to any drainage
piping? Yes No

2. Appropriate fittings are used for all changes in direction
or size and at pipe joints. Yes No

3. The material and design of fittings conform to the type of
piping used. Yes No

4. Fittings for screw piping are standard wei^t galvanized
iron for galvanized iron and steel pipe, and of brass for brass
piping. Yes No

5. Fittings for copper tubing are oast brass or drawn copper
sweat solder pattern or flare type. Yes No

6. Fittings for cold water, plastic water piping are of brass
or plastic materials. Yes No

906

1. The slza of water supply piping and branch llnea shall not
be leas than slxea shown in the table below.

TABLE 1

piiWinun oj

Tubi

nc)

Pipe

Nunihci ot
1- 1 X 1 11 r e s

Inner Oia.
( Inches)

1/4*

3/8

1/2

1/2

3/4

)uter Dia.
( Inches)

1/8
1/2
5/8
'j/8
7/8

Iron piDe Size
(Inches)

1
2

4

s oi more

1/2

. 1/2
1/2
1/2
3/4

*6 feet maximum length for 1/4 inch ID tubing.

Exception to the Above Table - 3/8 in. ID nominal or 1/2 in.
OD minimum size for clothes washing or dishwashing machlm,
unless larger sixe is reoonnended by the fixture manufacturer.

2. Hot and cold water piping systems are computed by the following
methods Yes No

Start at the most remote outlet on any branch of the hot or
cold water piping and progressively count towards the water
service connection, computing the total number of fixtures
supplied along each section of piping. Where branches are
joined together, the number of fixtures on each branch shall
be totalled so that no fixture is counted twice. Use Table Z
to determine required pipe or tubing else. (Water heater or
food waste disposal is not counted as a water using fixture.)

308

3. The smallest orifice or opening in the water supply distribution
system (except those immediately controlling one fixture supply)
when fully opened, shall have a cross -sectional area at least equal
to the cross-sectional area of the nominal sise of the pipe in which
the valve is Installed. Yes No

907

ITEMS TO CHECK ON COMPLETED FLOOR BEFORE WALLS ARE INSTALLED:

Th< Following Items Pertain to thm Water Heater Installation -

1. The water heater is installed with a fully-automatic valve
or valves designed to provide temperature and pressure relief.

Yes No

2. The ten^erature relief valve or the combined pressure and
temperature relief valve of a water heater is installed with the
temperature sensing element immersed in the hottest water within
the upper 6 in. of the tank. Yes No

3. Valve is set to start relieving at a pressure not exceeding
the rated working pressure of the tank and at or below a water
temperature of 210 F. Yes No

4. All relief valves have a drain pipe not smaller than the
relief valve drain connection pipe size. Yes No

5. Is any part of the drain line trapped?

Yes

No

6. Outlet of drain line is not threaded.

Yes

No

7. If the relief valve is located within the mobile home, the
drain line extend outside, with the end directed downward in a
location where the outlet end will be protected from dirt, mud,
and freezing. Yes No

301

l^}iL>lAtlo^->

.^

'^C*'^^^

908

The Pollowinq Itaw Pertain to the Water Closet Inatallation -

1. Water cloaeta are rigidly bolted to closet flange.

2. The drain connection for each water closet is fitted wi «i an
iron, brass, or plastic floor flange adaptor ring, adaptor ring
perainently attached to the drain piping, and securely fastened^^

to the floor. ®*

3. A gasket or setting compound used to form a watertight seal
between fixture and drain connection . *«* "°

4. The exposed joint between the water closet «<» the floor is
watertight and the floor under the water closet (and at least
rJl! aSSnrit) is made iH^erviou. to moisture. (Stool should

be caulked to tile on floor.) ^«« »'° ^°^^'''

909

ITEMS TO CHECK OW PRODUCTION LINEt

Th« rollowinq If m Pertain to th« Drain System -

1. A "P" trap ia uaed in each plumbing fixture. Ves No

No 405
711(A)

2. Are any fixtures double trapped?

Yes No

3. Are any fixtures equipped with full "S" traps, bell traps,
drxun traps or crown vent traps? ifes No

405
711(A)

5 T/iAf

Z3

Q

wm

Vt^O/^i 7/!.<ifi

3£i~i~ ritAP

OfitlifJ

If THIS Oli^f-MSiOAj \s Less thai^ rivvs

"^

?- r^^p

4. Is each trap self-cleaning?

Yes No

5. Each trap has a water seal not less than 2 in. nor more than
4 in. and set true. Yes No

910

1. Are any traps larger than waste pipe to which it is
connected? Yes No

2. Each trap is as close to vent and fixture outlet as structure
permits. Yes No

3. Distance between trap and vent or vented waste line conforms
to the following table.

DISTANCE OF FIXTURE TRAP FROM VENT

Size of Trap Arm
(Inches)

1-1/4
1-1/2
2
3

Distance Trap
to Vent

4 feet 6 inches

4 feet 6 inches

5 feet 0 inches

6 feet 0 inches

4. Does the vertical distance from a trap to a fixture outlet
exceed 24 in.? (Except washing machine standpipe.) Yes No

5. Is drain pipe sloped at least 1/4 in. per ft towards vent?

Yes No

406

6. Is drain pipe sloped greater than pipe diameter? Yes
Note

No

406

The above requirement indicates that the bottom of a
vent opening must always be above the weir of the trap.

,nyt/*

VEI^^

OfEW/fJ''

- N(r.

D^

911

1. Does fixture drain piping between trap and vent change
direction or offset more them 180 deg? Yes

No

2. Inaccessible fixture connections are constructed according
to requirements for drain pipe. Yes No

Note - Because slip joints are suitable only for locations

upstream of a trap seal they do not meet the require-
ments for drain pipe. Consequently, slip joints
are only suitable where they are accessible for
Inspection and repair.

3. Drainage system can be cleaned through fixtures, drains or
vents . Yes No

4. Each vent extend vertically from its fixture "T" or point of
connection with the waste piping to a point not less than 6 in.
above the extreme floor level of the fixture before offsetting
horisontally or being connected with any other vent pipe.

Yes No

411

^^

tt-.

1=^

&

^^

^

Qt^

^

Note - Cleanout fitting <*) may be necessary if cleaning

tool is required to pass through 360 deg of fittings
In drain line if it is not included.

5. All vents grade or drain back to the drainage system by
gravity. Yes No

912

1. Fixture traps located within the distance given in the
following tablet Yes No

Distance of Fixture Trap From Vent

Size of trap arm Distance trap

inches to Vent

U 4 ft. G in.

li 4 ft. 6 in.

2 5 ft. 0 in.

3 6 ft. 0 in.

2. Does more than one trap -oonnect to a trap branch (trap am)?

Yes No 416

3. All drain pipe sises shall conform to the followi ngt

A. A 1-1/2 in. minimum diameter piping for one and not more
than three individually vented fixtures. Yes No

B. A 2 in. minimum diameter piping for four or more

fixtures individually vented. Yes No

C. A3 in. minimum diameter piping for water closets.

Yes No

D. 3 in. diameter drain outlet. Yes No

4. Each plumbing fixture trap is protected against siphonage
and back pressure, and air circulation is ensured throughout all
parts of the drainage system by means of vent pipes. Yes No

913

1. An Individual vent pipe equivalent in area to 1-1/4 in.
tubing ia provided for all individually vented fixtures with a
1-1/2 in. or amaller trap. Yes No

2. The main vent, water closet vent and relief vent, and the
continuous vent of wet-vented systems have an area equivalent

to 1-1/2 in. tubing. Yes No _

3. If an individual vent pipe serves as a common vent without
any increase in size only two traps are located within the distance
allowed from their vent, and their trap arms are connected
separately at the same level into a double fitting. Yes No

4. Vent pipe extends full size through the roof and has a minimum
area equivalent to a 1-1/2 in. I.P.S. Yes No

5. Is any part of the water system connected to any drainage

or vent piping? Yes No

914

ITEMS TO CHECK ON A COMPLETED HOME I

The Pollowlng Itema Pertain to the Drain System -

1. All piping is located so as not to interfere with windows,
doors, etc. Ves No

2. Are pipe, supports, drains, etc., protruding in a manner to

be subjected to road hazards in transit? Ves No 403

3. Exterior openings around pipe are closed to prevent entrance

of rodents. Xes No 404

703(A)

4. Traps with slip joint connections are readily accessible

for repair and inspection. Ves No 415

710 (A)

5. Traps are protected from freexing. Yes No

6. Are cleanouts provided? Ves No

7. A full size opening is installed at upper end of any section

of drain pipe where 1/4 in. per ft slope not provided. Ves No 419

8. Cleanouts are accessible through 12 in. clearance directly

in front of opening. Ves No 419

9. Cleanout fitting opens in direction opposite of flow or

at right angle to pipe. Ves No

915

1. Concealed oleemoute without access covers extend above
floor or outside hone with pipe and. fittings installed as required
for drainage piping. Yes No

2. Cleanout caps and plugs are brass or plastic with screw

pipe threads. Yes No

3. All cleanout plugs have raised heads except plugs at floor
level have countersunk slots. Yes No

4. Unobstructed strainers are used in each plumbing fixture
except water closets. Yes No

5. Exposed or accessible fixture tailpieces are No. 20 gauge

or equivalent. Yes No

6. Each fixture tailpiece, continuous waste, or waste and overflow
is not less than 1-1/2 in. diameter for sinks of two or more
oonpartments , dishwashers, clothes washing machines, laundry tubs,
bath tubs, and not less than 1-1/4 in. diameter for lavatories and
single compartment sinks having a 2 in. maximum drain opening.

Yes No

7. Concealed slip joint connections are provided with unobstructed
access panels. Yes No 415

710(A)

99-855 O - 73 - pt. 1 -- 59

916

1. Each Boblle hone has only one drain outlat. Ya« Mo 409

2. Outlet terminate in the rear third section of the left

(road) side. »•• No 409

3. Outlet is tagged or marked "Drain Outlet" or "Sewer

Outlet." *•• No 306

418

4. How is tag applied?

5. Specify material of tag.

917

1. 0o«8 the drain outlet terminate horizontally or vertically?

Horixontally Vertically

2. If "Horizontal" specify type of fitting(8) provided.

3. A cap or plug on the drain outlet is permanently attached to

the structure by a chain or cable. Yes No 408

4. Drainage outlet and couplers of the mobile home provided with
a minimum clearance of 3 in. in any direction from all parts of the
structure or appurtenances and with not less than 18 in. unrestricted
clearance directly in front of the drainage outlet. Yes No 413

The Following Items Pertain to the Water Supply Piping -

1. All metallic piping, pipe threads, and hzmgers exposed to
weather or road hazards are painted, coated, wrapped or protected.

Yes No

2. All piping and fixtures subject to freezing teiqperatures are
insulated. Yes No

3. Each mobile home equipped with a kitchen sink, and bath tub
and/or shower is provided with a hot water supply system including

a water heater. Yes No

4. The water distribution system is equipped with a 3/4 in. inlet
coupling located within the rear third of the length of the mobile
home . Yes No

918

1. This connactlon is tagged or marked "Fresh Water Connection"
or "Fresh Water Fill." Yes No

306

2. A matching cap or plug Is provided to seal the water Inlet
when It Is not In use and attached with a substantial chain.

Yes No

305

3. A master cold water shutoff gate valve Is Installed on the main
feeder line in an accessible area. Yes No 704(A)

The Following Items Pertain to Plumbing Fixtures -

1. All piping, fixtures or equipment are so located so as not to
interfere with windows, doors, etc. Yes No

lA//)re/0 Cco:,^ r

,_l_/viA^*^

0OUJL

Vtpe.

piPc

919

Note - The following Items pertain to fluah tank type toilets.
If other types are Incurred, refer to the Standard.

1. Water closet flushing devices are designed to replace water
seal in bowl after each operation. Yes No

2. Flush temlcs are fitted with overflow pipe large enough to
prevent flooding at maximum flow rate of ball cock. Yes No

3. Water closet flush tanks are equipped with an antlsiphon ball
cock Installed and maintained with its outlet or critical level
mark not less than 1 in. eUsove the full opening of the overflow

pipe. (Refer to (+) dimension on illustration.) Yes No 309

715(A)

4. If screw holes are provided, bowl is securely fastened to
floor. Yes No

5. Bolts or screws are brass or other corrosion resistant
material. Yes No

6. Are flush tanks secured in place? Yes No

Details - __^^^_^_^__

7. Can contents of toilet be siphoned back into water system?

Yes No

920

TUBS AMD SHOWERS t

1. Fixed shower doors and tub <md shower enclosures shall be
constructed of materials such as wired-glass, laminated safety
glass, reinforced fiberglass, reinforced plastics, or other Listed
materials. Yes No 304

2. Hinged shower doors open outward. Yes No

OTHER FIXTURES t

1. Plumbing fixtures are located and installed to provide easy
access for cleaning and repair. Yes No

2. Fixtures are level and in true alignment with adjacent walls.

Yes No

3. Wall-hung fixtures are securely attached to walls. Yes No

Details -

4. Is any strain transmitted to piping connections? Yes No

5. The rim outlets of faucets, spouts, and similar devices are
spaced at least 1 in. above the flood level of the fixture.

Yes No

6. Clothes washing machine provided. Yes No

7. Dishwashing machine provided. Yes No

8. If "Yes" to either of eibove, is fixture manufacturer's
installation instructions provided? Yes No

9. An approved or Listed "Y" or other directional-type branch
fitting shall be installed in every tailpiece or continuous waste
that receives the discharge from food waste disposal units, dish-
washing, or other force-discharge fixture or appliance. Dishwasher
drains shall not be connected to a sink tailpiece, continuous
waste, or trap on the discharge side of a food waste disposal unit.

Yes No 303

921

DISHWASHER
PUMP,

1. A dishwashing Miohln*, if provldad^ discharges its waste
through a fixed air gap installed above the machine. Yes No

303

2. The drain connection from an air gap connects to an individual
trap, a directional fitting installed in a sink tailpiece, or to the
opening provided on the inlet side of a food waste disposal.

Yes No

303

3. Is dishwasher connected to discharge side of food disposal?

Yes No

303

4. Standplpe for clothes washing machine (a) is 1-1/2 in. diameter
(minimum) , (b) is connected to a vented trap, (c) extends not less
than 18 in. or more than 30 in. above its trap, (d) terminates in
accessible location at least 6 in. above water level, and (e) stand-
pipe is capped when washing machine is not provided. Yes No 410

706(A)

922

GAS PIPING
SYSTEMS AND APPLIANCES

The Following Itans Pertain to Gas Piping Materiala -

Note 1 - Questions relative to LP-Gas containers, control
valves and regulating equipment and mounting
on chassis of mobile home not included in this
outline due to infrequent use in mobile home
construction. If applicable, refer to Standard.

Note 2 - The following questions relate only to fuel gas

piping attached to the mobile home. They do not
apply to piping in the appliance.

1. Gas piping system is designed fort

A. LP-Gas Only

B. Natural Gas, Also Suitable For

LP-Gas

C. Either of Above

2. All materials for gas piping is new. Yes No

3. All gas piping is free from defects and internal obstructions.

Yes No

4. Gas piping material consists of iron or steel or is threaded
copper or brass pipe in iron pipe sizes. Yes No

5. Copper tubing is type. Grade K or L (marked on tubing or

box) . Ves No

6. Copper tubing used in natural gas systems is internally

tinned. Yes No ^70 7 (A)

7. Steel tubing is externally corrosion protected (painted) and
has a minimum wall thickness of 0.049 in. Yes No

923

1. Are pip* Joint* welded or brazed? Yes No

2. Is pipe of screw joint type? Yes No

3. Are coBtoinations of right and left nipples and couplings

used in supply piping system? Yes No

4. If unions are used, ground joint type? Yes No

5. All shutoff valves and appurtenances in gas piping are

suitable for LP-Ga*. ^e» ^° 200

6. To determine if valves are suitable, get the manufacturer's
nana, model designation and the name of the listing agency.
Request evidence of Listing such as an AG^ Certificate.

Page 35

The Following Items Pertain to Gas Piping System -

1. Is tubing run inside walls, floors, or partitions?

Yes No

2. Are tubing or piping joints located in wall, floor,
partitions or similar concealed space? Yes No

3. Is gas piping used as electrical grounding? Yes No

924

The Following Items Pertain to the Heat Duct -

MATERIALS -

Air Duct Construction -

(Specify Gauge or Thickness)

1. Galvanized Steel

2. Tin Plated Steel

3. Aluminum

4. Nonmetallic

(Describe)

table?

5. Does metallic duct material conform to the following

Yes No

Minimum Metal Thic)cn«s8 For Ducts

Diameter

or Width

14 Inches
Or Less

Over
Ik Inches

0.013 in.

0.016 in.

0.013 in.

0.016 in.

0.016 in.

0.019 in.

Duct Type

Round

Qicloeed
Rectangular

Exposed

Rectangular

6. If nonnetallic, is duct Labeled Class 1 air duct
material? ^«8 No _

7. Is duct installed in accordance with manufacturer's
instructions? ^^^ ^° —

8. If duct system is integral with structure, get complete
details for review by engineers, explain. Yes No —

925

CONSTRUCTION i

1. Duct* are Becurely supported (describe)

Yes

No

700(A)

Note - Should be secured every 4 to 6 ft.

2. Joints and seanus of ducts are fastened and substantially air-
tight. See below for typical lock seams. Yes No

TYPES OF AOOEFTABLE LOCK-SEAMS

J^ ^ p

rOLD lOCKEO
STANDING SEAM

noueu LOCK

OFF SET
DOUBLE SEAM

^^

ACME LOCK

GORDON SEAM

LOCK SEAM

3. Is tape or caulking used on mechanical joints.

4. If "Yes," describe material

Yes

No

5. Heat duct is provided with clearance required for furnaces
being used. Yes No

6. Record dimensions of main duct

by

in.

Note - Minimum dimensions must be 2-1/2 in. or more.
7. Record dimensions of branch duct by

Note - Minimum dimensions must be 1-1/2 in. or more.

8. Record minimum and maximum lengths used. Minimum,

Maximum,

in.

ft.
ft.

9. Record minimum and maximum number of registers. Minimum

Maximum

10. Record size of register opening.

sg in.

926

ITEMS TO CHECK ON ROOF OF MOBILE HOME:

1. Each vent pipe through a roof extend through its flashing
and terminate vertically, not less than 2 in. above the roof.

Yes No

2. The opening around each vent pipe is made watertight by an
adequate flashing or flashing material. Yes No

3. Are vent openings less than 3 ft, 0 in. away from any motor-
driven air intake that opens into habitable areas? Yes No

Note - Some furnace models are equipped with a fresh air
intake knockout in their blower compartment. If
this provision is used and a duct is brought to the
roof, this is a motor-driven air intake and must
conform to this requirement.

4. Notify F.P. Dept. of any instances where roof trusses are
out or placed at greater than their designed spacing to allow
the passage of flue or vent pipes.

5. Roof jacks for gas or oil-fired appliemces are installed
in accordance with their Listing. If installed on pitched roof,
such as commonly incurred on double-wide homes, roof jack is
suitable for pitched roof installation. Yes No

927

The Following Itema Pertain to Heat Producing i^plianoes -

1. All parts required for Installation as marked on the appliance
name plate are used and are in no way modified. Yes No

2. Appliances are installed at Listed clearances. Yes No 709(A)

3. Furnace sub-base is installed in accordance with manufacturer's
instructions . Yes No

928

ITEMS TO CHECK ON COMPLETED HOMES;

The Following Items Pertain to the Installation of Appliances -

1. Oil and gas appliances are Listed as mobile home appliances.

Yes No

2. AGA Listed gas appliances are used. Yes No 104

3. Appliance manufacturer's instructions are with appliance.

Yes No

4. ^pliances are secured in place. Yes No ^702 (A)

5. If mobile home for natural and LP-6as, appliance can be
readily converted to either fuel. Yes No

6. Gas or oil heating appliances are vented to outside.

Yes No

7. Does vent terminate under mobile home? Yes No

8. Is all appliance marking easily readeUsle after installation?

Yes No

9. Unit is accessible for inspection, service, and repair or
replacement without removing permanent construction. Yes No

10. Furnace flue pipe is accessible for inspection, service and
repair or replacement without removing permanent construction.

Yes No

11. Provisions are made to prevent using the area above the furance

as a storage space. Yes No 105

12. Roof Jacks are installed so that ceiling line is even with

or below ceiling. Yes No

13. Are homes equipped with fuel burning fireplaces? Yes No 109

929

1. ' Sufficient room is available to observe burner, control and
igntion means while starting gas or oil appliance. Yes No

2. Heat producing appliances so located that combustible materials
(doors, drapes, etc.) will not swing closer than required front
clearance. Yes No

3. Heat producing appliances are installed with their required
clearances. Yes No 102

111

4. Gas-fired water heaters, if provided, are installed in
accordance with instructions provided by the manufacturer.

Yes No 101

106

5. Refrigerators, if installed in an alcove, are provided with
clearances specified on thier name plate. Yes No 110

6. A 12 in. horizontal clearance is provided from edge of nearest
window to edge of nearest burner (range). Yes No ^714 (A)

7. If range is not supplied, a 30 in. wide (minimum) space is
provided. Yes No

8. If range not provided, horizontal distance measured from edge

of window to edge of range space, is 12 in. (minimum). Yes No

9. Distance to combustible material or metal cabinets above
range is not less than 30 in., or not less than 24 in. when
protected as follows t

A. The underside of the combustible material or metal ctUsinet
above the ooo)(ing top is protected with asbestos millboard at
least 1/4 in. thick covered with sheet metal not lighter than
No. 28 manufacturer's standard gauge, or

B. A mstal ventilating hood of not lighter than No. 28
manufacturer's standard gauge sheet metal is installed above
the hood and top with a clearance of not less than 1/4 in.
between and hood and the underside of the combustible material
or metal cabinet and the hood is at least as wide as the range
is and is centered over the remge.

Yes No 107

10. If range is not supplied, combustible material or cabinets over
range are spaced at least 66 in. above the floor. Yes No

930

The Following Pertains to the Return Air Provisions -

1. Provisions are made for return of circulating air from all
rooms and living spaces (except bathroom) to furnace inlet air.

Yes No

2. Return air ducts, if provided, have a total cross-sectional
area at the furnace inlet not less than 2 sq in. per 1000 Btu per
hr furnace input. (See Table I.) Yes No

Btu/hr

40,000

60,000

80,000

100,000

120,000

140,000

TABLE I

Btu/Hr Input Expressed in kw, cc/min, gph

Kilowatts cc/mln

11.7 18

17.6 28

23.^ 36

29.2 45

35.

41.

54
63

Gal/hr
0.285
0.43

0.71
0.86
0.71
1.0

3. Are dampers in return air system for fresh air intake arranged
such that required cross-sectional area is obtained in all
positions. Yes No

4. Return air openings provided by undercut doors are a minimum
size of 2 sq in. for each S sq ft of living space closed off by
the door. Yes No

100

5. Return air openings provided by grilled or louvered openings

in doors or partitions have a minimum free area not less than

1 sq in. for each 5 sq ft of living space. Yes No

100

6. The undercut is a minimum of 2 in. emd a maximum of 2-1/2 in.

Yes No

100

103

931

The Following PTtains to the Gaa Supply Piping System -

1. Homes with gaa systems are available for review. Yes No

2. For LP-Gas system, supply connection is located:

A. At hitch,

B. Container recess, or

C. In rear 1/3 of total length of mobile home and within

18 in. of left (road) side wall. (Indicate which.)

3. If LP-Gas and natural gas system t

A. Supply connection located under rear 1/3 of mobile home

and within 18 in. of left (road) side wall. ,,,..v

Yes No 713 (A)

B. Is additional connection located at hitch? Yes No

4. A 3 by 1-3/4 in. etched, stamped or embossed metal tag of
0.020 in. thick brass, stainless steel, anodized aluminum, or
alclad aluminum is attached to the outside of metal wall at each
gas supply connection or to the end of pipe, and includes

information described below. *•• ^^ ^°^

KP-Gu Sytttm

Thi« gas piping syiuin ii deiigned for me of liquefied
petroleum gai only.

DO NOT CONNECT NATURAL GAS TO THIS SYSTEM

CONTAINER SHUTOFF VALVES SHALL BE CLOSED
DURING TRANSIT.

Before turning on gas, make certain all ga5 connections have

been made tight, all appliance valves are turned off, and any

unconnected outleU are capped.

After turning on gas, te«t gai piping and appliance for leakage
with mapy water, and light all pilot*

Combination I.P-<iai and Nalunl (ia> Syttcm

I hii giu piping syiti'iii i% designed for lur nl either liqurhed
petroleum gas nr natural g^t

N()TIC:E: HEFORE riiRNIN(; on gas be CERTAIN
AI'PI.IANCKS ARK IJK.SUJNEI) FOR THE GAS CON-
NECTEn AND ARE EQUIPPED WITH CORRECT ORI-
FICES SECURELY CAP THIS INLET WHEN NOT
CONNEc;TEn FOR USE.

Before turning on gas, make certain all gas connectiont have

been made tight, all appliance valves are turned off, anO iny

unconnected outlets are capped.

After turning on gas, test gas piping and appliances for leakatr'
with loapy water, and light all pilots.

99-855 O - 73 - pt. 1 -- 60

932

1. If gas system has more than one connection, a suitable
cap Is provided at each Inlet and Is securely attached to mobile
home. Yes No ^717 (A)

2. Where tubing passes through walls, floors and partitions
and frame members. It Is protected by a grommet which snugly

fits tubing and hole through which It passes. Yes No ^716 (A)

f

3. Are appliances connected by use of flexible or semirigid

tubing? Yes No .

~ ~ I

4. Oo appliance connectors run throu^ walls, floors or

partitions? Yes No «

5. Are aluminum appliance connectors used externally?

Yes No

A. All gas piping Is adequately supported by straps

(corrosion protected) at Intervals of not more

than 4 ft, or Yes No 203

B. Support Is provided by structural members. Yes No

6. Solid gas supply connections If used, are rigidly anchored
to structural member within 6 In. of supply connection.

Yes No

7. Natural gas supply connection Is 3/4 In. nominal pipe size
minimum. Yes No

933

1. Gas piping system is sized in accordance with following
table. Yes

No

202

Sioaf Ga« Piping Syilenu

ConUMdoa LP-NatunI Gn Syttcn

(Bawd on > Total Preoun Drop of

'/, in. H,0)

Main Cat Manifold

fUtAnUmmm

Upit

n»m» PlaM nattmt

No More Than:

7,000 B(u/hr

27,000 Btu/hr

' J6,000 Btu/hr

IIJ.OOO Btu/hr

220,000 Btu/hr

?»»•

•A
H
'A
M

Btaitck Take-dffi

- af

Maaa VlaU BaUac

No More Than:
25.000 Btu/hr
)I,000 Btu/hr
49,000 Biu/hr
64,000 Btu/hr
9J,000 Biu/hr
120,000 Bm/hr
2M,000 Btu/hr

UaM* Maalaal Taka

H

H

•A
%

LP-Cat-Only Syncio
( Bajrd on a Prewure Drop of '/,
HX))

Main Gai Manifold

T«tal AypUsaaa
N«a* Plata BatUi

N'> Morr Than:

11,000 Btu/hr

42,000 Btu/hr

88,000 Biu/hr

183,000 Biu/hr

340,000 Btu/hr

Ifaiaiaal T«k«

'A

H

H

•/.

•A

H

Y*

¥>

1

Branch Takemffi

la<l*t4Bal AyaUai
lapaf

Vaiiiaal

Naaw Plata aatlai Slaa

No More Than:
2,500 Btu/hr
39.000 Biu/hr
49,000 Btu/hr '/t

77.000 Biu/hr
100,000 Biu/hr H

150,000 Bcu/hr
190,000 Btu/hr /,

390,000 Btu/hr M

2. If answer to above is "No" pressure drop through gas system
to any appliance does not exceed 0.5 in. WC when all gas appliances
operating at maximum input. Yes No _

(Record test results.)

OIL PIPING SYSTEM - OPTIONALt

1. If an oil piping system is furnished (other than oil piping
furnished by appliance manufacturers), record the following details:

A. Material

B. Size

C. Fittings

D. Method of Securing

E. Details of Assembly

934

1. List specific appliances below (manufacturer's name,
designation, ratings).

A. Water Heater -

B. Furnace -

C. Gas Range -

935

TESTS TO BK WITNESSED;

Pressure Test of Potable Water Supply System - 500,

501,
502

1. All water piping in the water distribution system is subjected
to a pressure test of 100 psi for 15 min before any portion is
covered or concealed. Yes No

Note - This test is normally conducted twice. Once on piping
before it is concealed in floor and again when home
is completed. Test may be conducted using air or
water pressure. If air pressure is used, water heater
MUST be bypassed. Refuse to witness emy test where a
water heater is subjected to air pressure. An adequate
gage must be used with a range of approx 0-150 psi.

Tests of Drain, Waste and Vent System -

1. The waste and vent system shall be tested by one of the following
alternate methods for evidence or indication of leakage.

A. Before plumbing fixtures are connected, all of the openings
into the piping shall be plugged and the entire piping system
subjected to a static water test for 15 min by filling it with
water to the top of the highest vent opening. The system shall
be watertight at all points.

B. After all fixtures have been installed, the traps filled
with water, and the remaining openings securely plugged, the
entire system shall be subjected to a 2 in. (manonster) water
column air pressure test. If the system loses pressure, leaks
may be located with smoke pumped into the system, or with soap
suds spread on the exterior of the piping (bubble test) .

C. The mobile home shall be in a level position; all fixtures
shall be connected, zmd the entire system shall be filled with
water to the rim of the water closet bowl. (Tub and shower
drains should be plugged.) After all trapped air has been
released, the test shall be sustained for not less than 15 min.
The waste piping above the level of the water closet shall be
tested and show no indication of leakage when the high fixtures
are filled with water and emptied simultaneoxisly to obtain the
maximum possible flow in the drain piping.

Yes No

2. In addition to the above, the following test must be conducted
on all homes i

The plumbing fixtures and connections shall be subjected to
a flow test by filling them with water and checking for leaks
and retarded flow while they are being emptied. Yes No

Note - If manufacturer expresses concern over freezing traps
after test, this condition can be avoided by placing
ethylene glycol (automotive) emtifreeze in each trap
after test. Alcohol types will react with piping.

936

Duct Sizing and Leakage Tests - 500, 501,

502

Note - These tests should be conducted on a home having the
smallest, most restrictive duct system and repeated
on a home having the most complex system. Also, the
test should be run on a complete double-wide home.
Only the furnace blower need be operating. If air
cooling equipment is to be provided, evaporator coil
shall be in place.

Sizing -

1. With the furnace properly installed and blower running at
highest heating speed, does static pressure measured in plenum
exceed pressure marked on furnace.

Trial Duct Number of Duct Size of Furnace Duct Conform
No. Length Registers Size Branches S.P. ,In. S.P. ,In. Yes No

1
2
3
4
5

LeeOcage -

1. Remove furnace from base. With its outlet blocked and blower
operating at highest possible speed, measure static pressure in
furnace casing.

2. Replace furnace on base and seal all registers. With blower
operating at highest possible speed, measure static pressure in the
plenum.

(A) (B) B/A ^ . 80

S.P. of S.P. In
Trial No. (■») Furnace Duct Yes No

1

2

3

4 ^

5

(■•■) - Seune system as described above.

I

937

Pre««ure Teat of Gas Piping System -

1. Before appliemces are connected, piping systems shall stand
a pressure of at least 6 in. mercury or 3 lbs gage for a period
of not less than 10 min without showing euiy drop in pressure.
Pressure shall be measured with a mercury manometer or slope gage,
or an equivalent device calibrated so as to be read in increments
of not greater than 1/10 lb. The source of pressure shall be
isolated before the pressure tests are made.

Note - Before a test is begun, the temperature of the air and
of the piping should be the same, and constzmt air
temperature should be maintained throughout the test.

2. When appliances are connected to the piping system the entire
system shall be pressurized to not less than 10 in. nor more them
14 in. water column and the applieuice connections tested for
leakage with soapy water.

3. The above tests are conducted on every home equipped with a
gas piping system. Yes No

938

10-12-70
Revised: 4-20-71

GENERAL INSTRUCTIONS FOR CONSTRUCTION
DATA SHEETS

1) Provide all information requested

2) Where a "yes" or "no" answer is indicated circle
appropriate answer.

3) If the answer is not the one underlined the items are
either not in conformance or require additional
information be provided.

939

UNDERWRITERS' LABORATORIES, INC.
DATA SHEET

Manufacturer
Factory

Engineer

CONSTRUCTION DATA

Client Representative

MH

Project No.
Date

BASIC INFORMATION FOR FINISHED MOBILE HOME:

1) Width - 10 ft

12 ft

_, Other (Specify)

2) Length - Mln

3) Wall Height - 7 ft
Other (specify)

Max

7-1/2 ft

8 ft

4) Construction features which vary with width, length, and height.
(Describe In general terms here and Include specific details under
the Item In the following data

5) Design Zone - North
Hurricane

., Middle

5a) If for more than one zone, does the construction vary for
each zone? (Yes) (No)
5b) If "y«8" describe below the variations

940

3c) Obtain copy of zone map and zone designation markings to be
applied to mobile home.

3d) Are these markings permanently attached to the mobile home?

(Yes) (No)

5e) Where are they located?

6) Support Piers

6a) What Is the recommended location ?_

6b) What Is the recommended max, spacing?

6c) Obtain copy of the recommended pier location and spacing in-
formation to be marked on the mobile home.

6d) Are these markings permanently attached to the mobile home?

-^ (Yes) (No)

6e) Where are they located?

7) Exit Doors

7a) Are at least two doors provided?

7b) Are they remote from each other?

7c) Are they at least 24 In. wide?

7d) Does the door knob mechanism require only a
single simple motion to open a locked and unlocked
door from the Inside?

7e) Are sliding glass doors provided?

7f) Can they be opened by a single simple motion
from the Inside when locked and unlocked?

8) Light and Ventilation - Bathroom

8a) Is an openable window provided?

8b) Is the glass area of the window at least
10 per cent of the floor area?

(Yes) (No)

(Yes) (No)

(Yes) (No)

(Yes) (No)

(Yes) (No)

(Yes) (No)

(Yes) (No)

(Yes) (No)

I

941

8o) Is the free ventilation area of the opened window at
least 1-1/2 sq ft and also at least 5 per cent of the floor
area (include tub, shower, toilet, vanity, etc. In area
determinations)? . ...

(Yes) (No)

8d) If free area Is not 1-1/2 sq ft. Is a 25 cfm (Mln)

exhaust fan provided? (Yes) (No)

9) Light and Ventilation - Kitchen

9a) Is an openable window provided In the kitchen proper? (Yes) (No)

9b) Is the glass area of the window at least ten per cent

of the floor area? (Yee) (No)

9c) Is the free ventilation area of the opened window at

least 5 per cent of the floor ai^ea (include cabinets,

appliances, built-in, etc. In area determinations)? (Yes) (No)

9d) Is the free ventilation area of the opened window at

least 3 sq ft? (Yes) (No)

9e) If 9d Is "no" Is a 100 cfm (mln) exhaust fan provided? (Yes) (No)

10) Light and Ventilation - All Other Rooms

10a) Is an openable window provided? (Yes) (No)

10b) Is the glass area of windows and doors at least

10 per cent of the floor area of each room? (Yes) (No)

10c) Is the free ventilation area of opened windows

(including those In doors) at least 5 per cent of the

floor area of each room? (Yes) (No)

(Count rooms which freely communicate with other rooms
other than through a doorway, archway, or similar types
and size opening as one room for 10a, 10b, and 10c. For
area determinations exclude closets. Use back of page for
comments. )

11) Celling Height

11a) Is the celling height In the main structui* at least

Qh In.? (Yes) (No)

lib) Is the celling height In secondary structures

(tlp-outs, swlng-outs, sllde-outs, etc.) at least 76 In.

when the floor area of the structure Is greater than

50 sq ft? (Yes) (No)

12) Condensation Resistance - Walls

12a) Are the exterior walls ventilated? (Yes) (No)

12b) If ventilated, obtain drawing of ventilation system

and manufacturers calculations for area of Inlets and outlets

versus wall area.

942

12c) If 12a 18 "No," l8 a vapor barrier provided on the

warm side of the wall (room side)? (Yee) (No)

12d) What Is vapor barrier material and how is It
secured?

13) Condensation Resistance - Celling

13a) Is the roof-celling cavity ventilated? (Yes) (No)

13b) If ventilated, obtain drawing of ventilation system
and manufacturer's calculations for area of Inlets and
outlets versus area of celling.

13c) If 13a Is "No," Is a vapor barrier provided on the

warm side of the celling? (Yes) (No)

13d) What la the vapor barrier material?

14) Interior Finish Materials

l4a) Are all celling, walls, and partition covering materials
UL labeled and have a 200 (max) flame spread? (Exclude bathtub
and shower enclosure walls, cupboards, cabinets, bullt-lns and
minor use of plastic trim, but Include walls behind cupboards and
bullt-lns and closet coverings). (Yes) (No)

l4b) If l4a Is "No," select, cut, mark with client name and
product Identification, and Initial enough of each material
to provide sample 20 In. wide and at least 32 ft long.
Indicate below the specific make and product designation of
each material as marked on the product or shipping document.

Manufacturer

Product Designation

Manufacturer

Product Designation

943

HEAT LOSS
15) Insulation

13a) Describe below the type, thickness, density, and
R value of the Insulation for

Floor

Wall

Celling

Duct_
16) Heat Duct

16a) What is size and length of duct?

l6t)) Is there Insulation between the duct and the
outside of the hoae? (YES) (NO)

Ibc) If 2b Is'Yes'ls the adr space between the air
duct and Insulation under It

1/2 In. or less?

over 1/2 In.?

Ij) What Is manufacturer design outdoor temperature a)wlth
storm sash ? b) without storm sash ?

xd) Obtain copy of manufacturer heat loss calculations.

IN-TRANSIT FEATURES

19) Chassis Assembly

la) Obtained detailed drawings of each different
chassis construction relative stlffeners and re-
inforcements verses size of main structural members.

944

20) Hitch Assembly

20a) Obtained detailed drawings of each design of
hitch assembly including the coupling mechanism
and the specific details on its attachment to the
main structure (chassis).

21) Coupling Mechanism

21a) Is coupler equipped with a manually operated
mechanism to prevent disengagement while in
operation? (YES) (ifO)

21b) Can the coupler be disconnected from the towing
vehicle regardless of the angle of the mobile home
to the towing vehicle? (YES) (KG)

21o) Is the center of the socket of the coupler not
less than 20 in. nor more than 26 in. from ground
level? (Measure on level ground with home level)
(YES) (NO)

22) Weight Distribution

22a) Obtain total weight and hitch weight information
for each length home.

22b) Is the hitch weight 12 to 25^ of the weight of
the home? (YES) (NO)

22c) Is the running gear located approximately 2/3
of the total chassis length to the rear of the front
end? (YES) (NO)

23) Spring and Spring Hangers

23a) Obtain specific details on the spring assemblies
aivl hangers, shackles, bushings, and moxmting bolts
including load ratings established by the supplier.

24) Axles

24a) Obtain specific details on the axles including
the quantity used on each length of home and the
suppliers recommended load rating.

25) Hubs and Bearings

23a) Obtain specific details on the hubs and bearings
Including the suppliers recommended load rating.

i

945

26) Wheels, Rims and Tires

26a) Obtain specific details on the wheels,
rims, and tires (Including size variation with
home length) Including the suppliers recommended
load rating.

27) Brakes

27a) Obtain Information on the size and type of
brakes, the quantity used on ea«h home, and the
suppliers recommended load rating.

27b) Can the towing vehicle and the home stop within
4o ft from an Initial speed of 20 mph? (Test shortest
and largest home for each brake system). (YES) (NO)

TEST RESULTS

Quantity of Stopping
Home Length (ft) Axles With Brakes Distance (ft)

1.
2.

I:
I:

7.

Road Surf CMC

Weather Condition

28) Lew Voltage Brake and Light Wiring

28a) Obtain speclflcationB for, (und sample of wiring.

29) FlexureO. Rigidity

29a) Conduct test on shortest and longest home for
each design of chassis (frame) (Consider reinforcements
axle locations, etc.)

946

Fastening Schedule - The following schedule Is applicable to
all sizes of mobile homes:

Location of Type of

Fastener Fastener Size (In.) Quantity

Frame of floor structure

Floor material to floor
system

Splash shield to floor Joist

Bottom and top plate to studs

Headers and sills to studs

Interior paneling to studs

Interior Partitions to wall,
floor and celling systems

Side walls to end walls

End rails to truss

End rails to top plate

Celling to truss

Truss system to walls

Walls to floor system

Exterior siding to studs

Roof materials to side walls

Vapor barrier to studs -
room (warm) side

MOTE; Please add to above list If any Jointing areas of structural
members are not Indicated.

947

STRUCTURAL

l) Structural Lumber

la) Copy below all the markings on all wood being used, indicate
actual crossectlon size, and indicate where it is used.

2) Frame

2a) Is steel frame painted or otherwise corrosion protected on

all exposed surfaces? (Yes) (No)

2b) Pill in the details on drawing No. A. Use extra drawings
for different or alternate designs.

3) Floor System

3a) Pill in details on drawing No. B. Use extra drawings for
different or alternate designs.

3b) Describe how the floor system Is attached to the frame.

3c) Does the floor system overhang the frame at sides or ends?

(Yes) (No)

3d) If 3c Is "Yes," describe In detail

3e) Are the floor Joists notched? (Yes) (No)
3f) If 3« is "Yes," describe notching

99-855 O - 73 - pt. 1 -- 61

948

4) Wall System - Sides and Ends

4a) Pill In details on drawing No. C. Use extra drawings for
different or alternate designs. Be sure to cover all sizes of
openings In the walls.

4b) Describe how the end walls are attached to the side walla.

4c) Describe how the side and end walla are attached to the
floor system.

4d) Describe how paneling Is attached to walls.

4e) What Is outer skin material and how thick Is It'

4f) Describe how outer skin Is attached to walla.

5) Roof System

5a) If truss Is UL labeled record below markings on the label.

5b) Is truss used In accordance with label marking? (Yes) (No)
5c) If "No," describe variation.

5d) If truss Is not labeled obtain detailed dimensioned drawing
(including fastener details) and check It against truss tested.

949

5e) What 1b the center to center spacing of the trusees? In.

3f) Are the trusses located over the studs? (Yes) (No)
5g) Describe how the trusses are secured to the walls,

5h) If a pitched roof or step roof Is used, describe construction
below and In particular. Include details of side members, how ends
of trusses are supported and attached, and how load Is transferred
to the walls.

51) What Is roofing material and thickness?

5J) Describe how roofing Is secured to side wallo,

5k) Describe any truss stiff eners or reinforcements.

6) Partitions

6a) Pill In details on drawing No. D.

6b) Describe how partition Is attached to floor, walls, and
celling.

950

7) Obtain following detailed dimensional drawings.

a) Frame or Frames.

b) Floor system.

c) Typical side and end walls showing openings.

d) Typical partition walls.

e) Truss or rafter (if not UL labeled).

f) Hurricane ties (hurricane zone only). Type of material,
thickness, width, attachment to home, location, spacing,
end design, etc.

(Indicate kind of materials, size, grade, species, fasteners,
spacing, attachment, etc.)

8) Obtain following.

a) Table of window and door sizes and combinations.

b) Sample of staples used and information as to where used.

951

9) Teat at Factory

9a) Spot Load Test on Floor - Floor ahall be able to support a 200 lb
concentrated load on a 2 In. diameter dlac at the most critical loca-
tion with a maximum deflection not to exceed 1/8 in. relative to
the top of the floor Joists.

TEST METHOD

Determine the maximum Joist spacing to be used. Construct a
section of floor consisting of two Joists and the structural flooring
material. The flooring is to be attached to the Joists as in actual
production and the Joist spacing is to be the maximum spacing pre-
viously determined. The sample is to be square and of a size at least
A in. greater than the dimension of the Joist spacing.

(Note: Should the manufacturer desire, the test may be
conducted on a full size sample of the floor construction.
In this case the section of floor adjacent to a butt Joint
will usually be the most critical. If the butt Joint is
reinforced so that the span between supports is essentially
reduced other areas may be more critical.)

Support the test sample on rigid members. Place a dial indicator
under the flooring at the center of the flooring and record the dial
reading (Dj^).

Place a 2 in. diameter steel disc on the top side of the flooring
and directly centered over the dial Indicator. Apply a 200 lb load
to the disc such that all the load is carried by the disc.

Maintain the load for at least 5 min and record the dial reading (Dg),
Calculate the actual deflection - D = Dg - Dj^. (See Fig. 1)

952

Fig. 1

200 lbs.

2 In. dla. disc.

TV~T~7 / / /- /

Flooring

Floor Joists

ial Indicator

^ / /

Flooring

Joists - Size and Spacing

Test Data (Dial Indicator Reading)

Di = In.

Dg = In.

Actual Deflection D <= D3 - D^

In,

953

9b) Load Test of TrusB or Rafter - Truss and rafter shall (l) be
capable of resisting the design load (30 Ib/sq ft for the North
and Hurricane Zones, 20 Ib/sq ft for the Middle Zone - see Pig. 2)
without deflecting more than the clear span (L2) divided by 180,
(2) not fall or be structurally damaged, under a 75 per cent over-
load applied for not less than 12 hr and (3) not have a residual
deflection more than the clear span (L2) divided by I80 within
12 hr after removal of the total live load.

TEST METHOD

Rafters and trusses may be tested in pairs, sheathed and mounted
across supports, or singly in a suitable test facility. When tested
in pairs, trusses shall be spaced at the design spacing. Trusses
will be mounted on supports having a width consistant with that of
the members which they are supported by accurately positioned to the
span distance as provided in the design of the mobile home. The top
chord may be sheathed with the actual roofing material or with 4 ft
long 1/4 in. plywood. Buttln plywood sheets must be separated at
least 1/8 in, on at not more than 4 ft spacings. Design roofing
shall be attached with actual fasteners. Plywood sheathing shall be
nailed with 4d nails not closer than 8 in. on center along each top
chord. The bottom chord shall be cross tied with 1 by 2 in. stripping
not closer than 24 in. on center running perpendicular between trusses.

Rafter and truss deflections shall be measured at the two quarter
points and at midspan by means of a dial indicator. Loading shall
be applied to the top chord through a suitable hydraulic system,
masonry units or weights to simulate a uniformly distributed load.
Load units shall be separated so that arch action does not occur.
(See Fig. 3)

Determine the area and the total design load. In calculating
the area use the horizontal length dimension of the truss and two
times the truss spacing for the width.

Apply the actual dead load to the top of the truss (subtracting
for the weight of the 1/4 in. plywood sheathing, if used).

Lock the dial Indicator adjustment and record the zero point
readings for the quarter and midpoint relative to a stable base for
either one or both trusses. Place the dial indicator at the mid-
point of a truss.

Apply approximately one-third of the design live load in a uniform

manner, wait approximately 10 min and repeat the above until all the

design live load is applied. The final deflection reading is to be

taken 60 min, after the last load is applied.

Apply a 75 per cent overload following the above procedure but
do not take any deflection measurements. The total live load is to
be removed 12 hr after the application of the total load.

954

Measure the residual deflection after removal of the live load.
If the deflection exceeds the clear span divided by l80, continue
measurements until either the residual deflection is within require-
ments or 12 hr have elapsed since removal of the live load.

It is Important that for the test the end supports for the trusses
be rigid members. In order to compensate for any vertical movement
in the end support members which would cause an increase In the
indicated deflection values being recorded, it is suggested that approxi-
mately 100 lb of the live load be applied directly over the bearing
surface at each end of the truss assembly before the initial dial
readings are taken. As the loading process continues, this load
should be evenly distributed.

Pig. 2

TESTS

955

gig- "^

Side Rail-

Actual Blze

bearing

surface

1 X £ Lateral
Bracing

Bricke or other uniform
loading unite, spaced
apart to prevent arching

Sheathing

t vr

y~^

A and C - Quarter deflection measuring points ( *1 )

B - Mid deflection measviring point ( _1 )

In.

In.

Li ■ Length, In. - ___________

W - Width of wall bearing surface, In.

Lg - Clear Span, In. - Li
S " Truss Spacing, In. ■•

2W

In.

In.

Dl - Dead load, lb. - Total weight of all ceiling and roof assembly
materials except trusses used in span length Li and width 2S

^Ibs.

Jg - Design live load, lbs. 20 (or po) x Li x 2S _

lbs.

)^ - Overload, lb. - 1.75 Dg

lbs.

956

TRUSS LOAD DEFLECTION DATA

TIME LOAD DIAL INDICATOR READING (IN.)

(Design Load Phase) A B C

Dead Load

(Overload Phase)

(Recovery Phase)

(Sketch location of actual loads and Indicate type of loads used.)

957

TRUSS LOAD DATA SHEET
TRUSS SPACING 16 in. O.C. ( 8 TrueBee)

Li in.

I-l/S in.

^l/A in.

Design Live Load
20 pef 30 psf

Overload
1.75x20 1.75x30

135.00

67.50

33.75

600.00

900.00

1050.00

1575.00

135.50

67.75

33.88

602.22

903.33

1053.89

1580.83

136.00

68.00

34.00

604.44

906.67

1057.78

1586.67

136.50

66.25

34.13

606.67

910.00

1061.67

1592.50

137.00

68.50

34.25

608.89

913.33

1065.56

1598.33

137.50

68.75

34.37

611.11

916.67

1069.44

1604.17

138.00

69.00

34.50

613.33

920.00

1073.33

1610.00

138.50

69.25

34.63

615.56

923.33

1077.22

1615.83

139.00

69.50

34.75

617.78

926.67

1081.11

1621.67

139.50

69.75

34.88

620.00

930.00

1085.00

1627.50

140.00

70.00

35.00

622.22

933.33

1088.89

1633.33

140.50

70.25

35.13

624.44

936.67

1092.78

1639.17

141.00

70.50

35.25

626.67

940.00

1096.67

1645.00

141.50

70.75

35.38

626.89
631.11

943.33

1100.56

1650.83

142.00

71.00

35.50

946.67

■".104.44

1656.67

142.50

71.25

35.63

633.33

950.00

1108.33

1662.50

143.00

71.50

35.75

635.56

953.33

1112.22

1668.33

143.50

71.75

35.88

637.78

956.67

1116.11

1674.17

144.00

72.00

36.00

640.00

960.00

1120.00

1680.00

144.50

72.25

36.13

642.22

963.33

1123.89

1685.83

I

Allowable Deflection - ^^^gg°P"^ - ^a^

137
For Example: For Lr of 137 in. - Allowable Deflection «■ -" - .761 in.

18^

958

A119.1

MOBILE HOMES
ENGINEERING VISIT TO FACTORY

The following information has been prepared to aBsiet mobile
home manufacturers in preparing for the visit to the factory by
our Engineers. This information should be studied by you, your
plant foreman, pliimbing supervisor, electrical supervisor, and others
who may be involved, so that this phase of the investigation can be
completed in a smooth and orderly manner. Thus, we will be able to
complete our work within a minimum amoiint of time and with a rainimvun
disruption of your production flow.

Prior to the time of our visit, we urge you to review the
requirements contained in ANSI A119.1 and determine conformance
with these requirements for the zone for which the mobile home is
designed. We will make a detailed study of the design following
our visit to the factory.

At the time of our visit, we will need to witness all tests
described in ANSI A119.1, and the proper test equipment should be
provided by you. The following tests will be required to be con-
ducted on each mobile home as a condition of Labeling.

Dielectric Strength Test - See Par. 24.1, Page 104
Part IV of ANSI A119.1

Gas Piping - See Pars. 5.1.19.1 and 5.1.19.2, Page 75,
Part III of ANSI A119.1

Oil Piping - See Par. 5.2.10, Page 76, Part III of
ANSI A119.1

Hot and Cold Water Piping - See Par. 14.1, Page 61,
Part II of ANSI A119.1

Waste and Vent System - See Par. 14.2, Page 61, Part II
of ANSI A119.1

Should you have any questions relative to how these tests
are to be conducted, please contact us prior to our visit because
if the tests cannot be conducted at the time of our visit, it will
be necessary to schedule a second visit to witness these tests.
This will result in additional cost to you and could delay the Listing.

Usually the factory visit phase of the investigation follows
the following sequence:

1. Our Engineer assigned to lead the project will contact
your representative to schedule the factory visit.

959

S. On arrival at your factory, we will briefly review
with your personnel the plan we expect to follow.

3* This is followed by a short tour of the factory to
obtain a familiarity with your particular mobile
homes.

4. Our Engineer will then work with your man (or men)
most experienced in the structural, heating,
plumbing, and electrical details.

5. At this time, we will also provide you with an in-
formation gathering questioxuiire covering the physical
construction details of the mobile home (frame, floor
system, walls, roof, etc.) This questionalre should
be filled in and returned to us the same day so that
we may check euid verify the data the following day.
Thus, another of your people should be assigned this
project,

6. Shortly after our orientation tour of the factory,
we will wish to witness the various tests of the
mobile homes as described in ANSI A119*l*

7. As we proceed with our Engineering examination, we
will comment to your people on those items not in
conformance with the Eequirements, and answer any
questions they may have on the partic\ilar requirements.

d. At the completion of our examination, we will discuss
with you any features which we found not in conformance
with requirements. These features will be summarized
in handwritten notes which you may copy.

At the time of our visit, we will also discuss with
you such things as the design of the UL label, the design of
the data plate and other required markings, the Follow-Up
Service, plus any questions you may have.

A Letter Report will subsequently be sent to you again
covering these same features, plus any others which result
from a detailed study by others of our Staff of the data
developed at the time of oiir visit to the factory.

Our letter Report will also reconfirm Guid itemize what
information, drawings, samples, etc. (if any) we need to
complete the investigation.

Prior to our visit, we should be provided with the
following materials that will be needed in order to complete
the investigation.

Detailed drawing of:

A. The ?rame assembly (or assemblies)

B. The floor system assembly

960

C. Typical side wall and end wall assembliee showing

maximum size openings used.

D. Toof-ceiling assembly

E. Truss or rafter asserably

P. Typical plumbing arrangements
G. Typical wiring arrangements
H, Electrical load calculations

I. Electric layout drawings (circuits, outlets, etc.)
J. Proposed UL label design
K. Proposed data plate

L. List of all proposed appliances (including electrical
rating)

It is highly desirable that this material be provided
us two weeks prior to our factory visit, so that we may study
it beforehand.

961

Instructions For Following Drawings

I. Please fill In all requested Information on the
following sheets.

II. WALL FRAMING - WINDOWS AND DOORS

A. If the basic wall framing construction Is Identical
for all doors emd windows, only fill out one typical
drawing for the single and double wide windows ajid
door openings. Then simply flll-ln the remainder

of the opening sizes on the sheets provided.

B. Pill -In all wood freunlng sheets If any of the following
variations occur.

1. Change In the size of stud framing

the opening.

2. Change In normal stud spacing around

opening.

III. FRAME

A. Complete all drawings depending on the appropriate
design. Also Indicate any variations which may be
used at some later date.

IV. Fastening Schedule

A. Complete the schedule for all the Indicated
Jointing areas.

B. Schedule may be expanded or changed If referenced
Jointing areas are not appropriate.

962

TABLE OP TYPICAL OPENINGS

Single

Window Openings -
Including Bay Window
(Rough Openings)

WIDTH X HEIGHT INS.
1.

Double
Window Openings
(Rough Openings)

WIDTH X HEIGHT INS.
1.

Door Openings -
Including Sliding

Glass Doors
(Rough Openings)

WIDTH X HEIGHT INS.
1.

2.

2.

2.

3.

3.

3.

4.

4.

4.

5.

5.

5.

6.

6.

6.

7.

8.

9.

10.

11.

12.

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970

DWG. No. D-1 OUTRIGGERS

ITEM

DIMENSION

Al

In.

A2

In.

A3

In.

A4

In.

A5

In.

A6

In.

A7

In.

A8

In.

EXPLANATION

LENGTH OP OUTRIGGER

DEPTH 0? OUTRIGGER AT EDGE OP MOBILE HOME

DEPTH OP OUTRIGGER AT LONGITUDINAL I-BEAM
In. or gage THICKNESS OP WEB OP OUTRIGGER

WIDTH OP TOP FLANGE
In. or gage THICKNESS OP TOP PLANGE

WIDTH OP BOTTOM PLANGE
In. or gage THICKNESS OP BOTTOM PLANGE

TYPE OP CONNECTION BETWEEN OUTRIGGER AND I-BEAM

i

971

DWG. NO. E-1

Outriggers

43

f !'l

ITEM
Al
X2
A3
A4
A5
A6
A7
A16
A17
A18

DIMENSION

In.

In.

In.

In.

In.

In.

In.

In.

In.

In.

SIZE CHORD OF TOP ANGLE

A8
AlO
A12
A15

SIZE

.In.

.In.

.In.

In.

^

EXPLANATION

LENGTH OP OUTRIGGERS

DEPTH OP OUTRIGGER AT EDGE OP MOBILE HOME

DEPTH OP OUTRIGGER AT LONGITUDINAL I-BEAM

DIAMETER OP WEB ROD

LOCATIONS OP WEB ROD

LOCATION OP WEB ROD

LOCATION OP WEB ROD

LOCATION OP WEB ROD

LOCATION OP WEB ROD

LOCATION OP WEB ROD

TOP CHORD WIDTH
VERTICAL TOP CHORD WIDTH
TOP CHORD THICKNESS
VERTICAL TOP CHORD THICKNESS

A9
All
A13
A14

CHORD OP BOTTON ANGLE

In. BOTTOM CHORD WIDTH

In.

In.

In.

VERTICAL BOTTOM CHORD WIDTH
BOTTOM CHORD THICKNESS
VERTICAL BOTTOM CHORD THICKNESS

TYPE OP CONNECTION BETWEEN OUTRIGGER AND I-BEAM

Note; If the above figure needs to be altered to match present

design simply change figure by drawing in any alterations.

972

DWG. NO. ^-1 OUTRIGGERS

Al

ITEM DIMENSION

Al
A2
A3
A4
A5
A6
A7
A8

_IN.

_IN.

_IN.

_IN. or gage

_IN.

_IN. or gage

_IN.

_IN. or gage

EXPLANATION

LENGTH OP OUTRIGGER

DEPTH OF OUTRIGGER AT EDGE OK MOBILE HOME

DEPTH OP OUTRIGGER AT LONOITUDINAL I-BEAM

THICKNESS OP WEB OP OUTRIGGER

WIDTH OP TOP PLANGE

THICKNESS OP TOP FLANGE

WIDTH OP BOTTOM ?LANGE

THICKNESS OP BOTTOM FLANGE

TYPE OP CONNECTION BETWEEN OUTRIGGER AND I-BEAM

973

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977

DWG. MO.

I-l

TYPICAL EXTERIOR DOOR OPENINGS

ITEM
H
K

• L
U
Al

STUD BESIDE OPENING

DIMENSION EXPLANATION

IN. HEIGHT OF OPENING C/C MEASUREMENT

IN. WIDTH OF OPENING C/C MEASUREMENT

IN. TOTAL WIDTH OP STUD (OR STUDS) BESIDE OPENING"

IN. THICKNESS OF STUD (OR STUDS) BESIDE OPENING

/A2 IN. SPACING OP STUD NEXT TO DOOR C/C MEASUREMENT

(INDICATE GREATEST STUD SPACING ON EITHER SIDE OF WINDOW)

IN. HEIGHT OF WALL

HEADER OVER OPENING

P

Q

R
S

_IN.
IN.

TOP PLATE

IN.

IN.

TOTAL WIDTH OP HEADER
THICKNESS OP HEADER

I

TOTAL WIDTH OF PLATE
TOTAL THICKNESS OF PLATE

Enter indicated circled areas on fastening echedule

978

Dwa. NO.

T.a

TYPICAL EXTERIOR DOOR OPENINGS

ITEM
H
K
L
M
Al

STUD BESIDE OPENING

DIMENSION EXPLANATION

IN. HEIGHT OP OPENING C/C MEASUREMENT

IN. WIDTH OP OPENING C/C MEASUREMENT

IN. TOTAL WIDTH OF STUD (OR STUDS) BESIDE OPENING"

IN. THICKNESS OP STUD (OR STUDS) BESIDE OPENING

/A2 IN. SPACING OP STUD NEXT TO DOOR C/C MEASUREI>IENT

(INDICATE GREATEST STUD SPACING ON EITHER SIDE OP WINDOW)

^IN. HEIGHT OP WALL

P
Q

R
S

HEADER OVER OPENING

_IN.
IN.

TOP PLATE

IN.

IN.

TOTAL WIDTH OP HEADER
THICKNESS OP HEADER

I

TOTAL WIDTH OF PLATE
TOTAL THICKNESS OF PLATE

Enter indicated circled areas on fastening 8ched\ile

979

DWG. NO.

-Lsi.

TYPICAL EXTERIOR DOOR OPENINGS

ITEM
H
K
--L
H
Al

STUD BESIDE OPENING

DIMENSION EXPLANATION

/A2

P
Q

_IN. HEIGHT OF OPENING C/C MEASUREMENT

_IN. WIDTH OP OPENING C/C MEASUREMENT

_IN. TOTAL WIDTH OF STUD (OR STUDS) BESIDE OPENING-

IN. THICKNESS OF STUD (OR STUDS) BESIDE OPENING

IN. SPACING OP STUD NEXT TO DOOR C/C MEASUREMENT

(INDICATE GREATEST STUD SPACING ON EITHER SIDE OP WINDOW)

IN. HEIGHT OP WALL

HEADER OVER OPENING

.IN.
IN.

TOTAL WIDTH OF HEADER
THICKNESS OP HEADER

TOP PLATE

_IN. TOTAL WIDTH OP PLATE
IN. TOTAL THICKNESS OP PLATE

Enter indicated circled areas on fasteninie: schedule

99-855 O - 73 - pt. 1 -- 63

980

DWG. iiO.

.jL=1.

SINGLE WINDOW OPENINGS

STUD BESIDE OPENING

ITEM
P
G
H
J

Al
A2
B
C
D

DIMENSION

In.

In.

In.

In.

In.

In.

In.

In.

In.

PRAT^KR OVER OPENING

N In.

P In.

Q In.

EXPLANATION

WIDTH 0? OPENING O/C MEASUREMENT

HEIGHT OF OPENING C/C MEASUREMENT

TOTAL WIDTH OF STUD (OR STUDS) BESIDE OPENING

THICKNESS OF STUD ( OR STUDS) BESIDE OPENING

NORMAL STUD SPACING C/C MEASUREMENT

STUD SPACING IF NOT THE SAME AS Al C/C MEASUREMENT

WIDTH OF TYPICAL STUD

THICKNESS OF TYPICAL STUD

HEIGHT OF TYPICAL STUD

HEIGHT OF SILL ABOVE FLOOR
WIDTH OF HEADER
THICKNESS OF HEADER

981

DWG. NO. J -2

SIMGL£ WINDOW OPENINGS

STUD BESIDE OPENING

ITEM

DIMENSION

J?

In.

G

In.

H

In.

J

In.

Al

In.

A2

In.

B

In.

C

In.

D

In.

PEABF.T? OVER OPENING

N

In.

P

In.

Q

In.

EXPLANATION

WIDTH OP OPENING C/C MEASUREMENT

HEIGHT OP OPENING C/C MEASUREMENT

TOTAL WIDTH OP STUD (OR STUDS) BESIDE OPENING

THICKNESS OP STUD ( OR STUDS) BESIDE OPENING

NORMAL STUD SPACING C/C MEASUREMENT

STUD SPACING IP NOT THE SAME AS Al C/C MEASUREMENT

WIDTH OP TYPICAL STUD

THICKNESS OP TYPICAL STUD

HEIGHT OP TYPICAL STUD

HEIGHT OP SILL ABOVE PLOOR
WIDTH OP HEADER
THICKNESS 0? HEADER

982

DWG. NO. .T-:t

iilNGLE WINDOW OPENINGS

STUD BESIDE

OPENING

ITEM DIMENSION

F

In.

G

In.

H

In.

J

In.

Al

In.

A2

In.

B

In.

C

In.

D

In.

HRAW.R nVRR OPENING

N

In.

P

In,

Q

In.

EXPLANATION

WIDTH OP OPENING O/C MEASUREMENT

HEIGHT OP OPENING C/C MEASUREMENT

TOTAL WIDTH OP STUD (OR STUDS) BESIDE OPENING

THICKNESS OP STUD ( OR STUDS) BESIDE OPENING

NORMAL STUD SPACING C/C MEASUREMENT

STUD SPACING IF NOT THE SAME AS Al C/C MEASUREMENT

WIDTH OF TYPICAL STUD

THICKNESS OP TYPICAL STUD

HEIGHT OF TYPICAL STUD

HEIGHT OF SILL ABOVE FLOOR
WIDTH OF HEADER
THICKNESS OF HEADER

983

DWG. NO. J-4

SINGLE WINDOW OPENINGS

STUD BESIDE OPENING

ITEM

DIMENSION

P

In.

G

In.

H

In.

J

In.

Al

In.

kZ

In.

B

In.

C

In.

D

In.

HEADKR OVER OPENING

N

In.

P

In.

Q

In.

EXPLANATION

WIDTH OP OPENING C/C MEASUREMENT

HEIGHT OP OPENING C/C MEASUREMENT

TOTAL WIDTH OP STUD (OR STUDS) BESIDE OPENING

THICKNESS OP STUD ( OR STUDS) BESIDE OPENING

NORMAL STUD SPACING C/C MEASUREMENT

STUD SPACING IP NOT THE SAME AS Al C/C MEASUREMENT

WIDTH OP TYPICAL STUD

THICKNESS OP TYPICAL STUD

HEIGHT OP TYPICAL STUD

HEIGHT OP SILL ABOVE PLOOR
WIDTH OP HEADER
THICKNESS OP HEADER

984

DWG. NO. J-S

SINGLE WINDOW OPENINGS

STUD BESIDE OPENING

ITEM

DIMENSION

P

In.

G

In.

H

In.

J

In.

Al

In.

A2

In.

B

In.

C

In.

D

In.

■READER OVER

OPENING

N

In.

P

In.

Q '

In.

EXPLANATION

WIDTH OP OPENING C/C MEASUREMENT

HEIGHT OP OPENING C/C MEASUREMENT

TOTAL WIDTH OP STUD (OR STUDS) BESIDE OPENING

THICKNESS OP STUD ( OR STUDS) BESIDE OPENING

NORMAL STUD SPACING C/C MEASUREMENT

STUD SPACING IF NOT THE SAME AS Al C/C MBASUREMEN!!

WIDTH OP TYPICAL STUD

THICKNESS OP TYPICAL STUD

HEIGHT OP TYPICAL STUD

HEIGHT OP SILL ABOVE FLOOR
WIDTH OF HEADER
THICKNESS OF HEADER

985

DWG. NO. J-6

SINGLE WINDOW OPENINGS

STUD BESIDE

OPENING

ITEM

DIMENSION

?

In.

G

In.

H

In.

J

In.

Al

In.

A8

In.

B

In.

C

In.

D

In.

•HEADF.R

OVER

OPENING

N

In.

P

In.

Q

, In.

EXPLANATION

WIDTH OP OPENING C/C MEASUREMENT

HEIGHT OP OPENING C/C MEASUREMENT

TOTAL WIDTH OP STUD (OR STUDS) BESIDE OPENING

THICKNESS OP STUD ( OR STUDS) BESIDE OPENING

NORMAL STUD SPACING C/C MEASUREMENT

STUD SPACING IP NOT THE SAME AS Al C/C MEASUREMENT

WIDTH OP TYPICAL STUD

THICKNESS OP TYPICAL STUD

HEIGHT OP TYPICAL STUD

HEIGHT OP SILL ABOVE FLOOR
WIDTH OP HEADER
THICKNESS OP HEADER

986

Drawing No, K-1

2

'^

y^

UJ/A/OOOJ

-F-

UJ/A/'OOLU o

ITBI
P
G
H
J

A

B
C
D
E
P

DIMKWSIOl
IN,

_IK.

_IH.

IN.

IN.
"IN.

In.

IN.

KXPLAKATION

WIDTH OP OPENING, C/C MEASUREMENT

HEIGHT OP OPENING, C/C MEASUREMENT

TOTAL WIDTH OP STUD (OR STUDS) BETWEEN OPENINGS

THICKNESS OP STUD (OR STUDS) BETWEEN OPENINGS

SPACING OP STUD NEXT TO WINDOW C/C MEASUREMENTS

HEIGHT OP WALL

THICKNESS OP SILL

WIDTH OP SILL

THICKNESS OP STUD BESIDE OPENING

WIDTH OF STUD BESIDE OPENING

R
S

TOP PLATE

IN.
"IN.

TOTAL WIDTH OF PLATE
TOTAL THICKNESS OP PLATE

987

ITEM

P

G

H-.

J

A
B
C
D
E
P

DIMENSION EXPLANATION

^IN. WIDTH OP OPENING, C/C MEASUREMENT

^IN. HEIGHT OP OPENING, C/C MEASUREMENT

^IN. TOTAL WIDTH OP STUD (OR STUDS) BETWEEN OPENINGS

^IN. THICKNESS OP STUD (OR STUDS) BETWEEN OPENINGS

IN. SPACING OP STUD NEXT TO WINDOW C/C MEASUREMENTS

"IN. HEIGHT OP WALL

"IN. THICKNESS OP SILL

"IN. WIDTH OP SILL

"IN. THICKNESS OP STUD BESIDE OPENING

"IN. WIDTH OP STUD BESIDE OPENING

R
S

TOP PLATE

IN.
"IN.

TOTAL WIDTH OP PLATE
TOTAL THICKNESS OP PLATE

988

Drawing No. K-3

ITEM

P

G

H

J

A
B
C
D
E
P

DIMENSION EXPLANATION " '

^IN, WIDTH OP OPENING, C/C MEASUREMENT

^IN. HEIGHT OP OPENING, C/C MEASUREMENT

^IN. TOTAL WIDTH OF STUD (OR STUDS) BETWEEN OPENINGS

^IN, THICKNESS OP STUD (OR STUDS) BETWEEN OPENINGS

^IN, SPACING OP STUD NEXT TO WINDOW C/C MEASUREMENTS

. ^IN. HEIGHT OP WALL

^IN. THICKNESS OP SILL

IN. WIDTH OP SILL

IN. THICKNESS OP STUD BESIDE OPENING

^IN. WIDTH OP STUD BESIDE OPENING

R
S

TOP PLATE

_IN. TOTAL WIDTH OF PLATE
_IN. TOTAL THICKNESS OP PLATE

DRAWING NO. L-1

^

989

TYPICAL INTERIOR WALL SECTION

LXJAi-L.

■^ M

ITEM

DIMENSION

A

In.

B

In.

C

In.

D

In.

E

In.

EXPLANATION

SPACING OP STUDS C/C MEASUREMENT

WIDTH OP STUD

THICKNESS OP STUD

HEIGHT OP STUD (MAX. HEIGHT OP STUD USED)

THICKNESS OP INTERIOR LINING MATERIAL

TYPE OP LINING MATERIAL

990

DRAWING NO. L-2

TYPICAL INTERIOR WALL SECTION

UUALL.

i^- I-

ITEM

DIMENSION

A

In.

B

In.

C

In.

D

In.

£

In.

EXPLANATION

SPACING OP STUDS C/C MEASUREMENT

WIDTH OP STUD

THICKNESS OP STUD

HEIGHT OP STUD (MAX. HEIGHT OP STUD USED)

THICKNESS OF INTERIOR LINING MATERIAL

TYPE OF LINING MATERIAL

991

DRAWING NO.

I-l

TYPICAL EXTERIOR WALL SECTION

ITEM

DIMENSION

A

In.

B

In.

C

In.

D

In.

E

In.

EXPLANATION

SPACING OP STUDS C/C MEASUREMENT

WIDTH OP STUD

THICKNESS OP STUD

HEIGHT OP STUD (MAX. HEIGHT OP STUD USED)

THICKNESS OP INTERIOR LINING BiATERIAL

TYPE OP LIMING MATERIAL

992

DRAWING NO.

M-2

TYPICAL EXTERIOR WALL SECTION

^

ITEM

DIMENSION

A

In.

B

In.

C

In.

D

In.

E

In.

EXPLANATION

SPACING OP STUDS C/C MEASUREMENT

WIDTH OF STUD

THICKNESS OP STUD

HEIGHT OP STUD (MAX. HEIGHT OP STUD USED)

THICKNESS OP INTERIOR LINING MATERIAL

TYPE OP LIMING MATERIAL

993

FASTENING SCHEDULE - The following schedule is applicable to
all sizes of mobile homes:

Type of Spacing and

Location of Fastener Fastener Size. In. Quantity

Frame of floor structure

Floor material to floor system

Splash shield to floor .joist

Bottom and top plate to studs

Headers and sills to studs

Interior paneling to studs

Interior partitions to wall,

floor and ceiling systems

Side walls to end wedls

End rails to truss

End rails to top plate

Ceiling to truss ,

Truss system to walls

Walls to floor system

Exterior siding to studs

Roof materials to side walls

Vapor barrier to studs,

room (warm) side

NOTE: Please add to above list fastening of any structural members
not indicated.

994

Mobile Home Check-OI f Sheeto Electrical Systems
January 15, 1971

GENERAL :

Are all appliances, fittiags, connectors, etc. UL Listed? (Yes) (No) (3)
The following could not be Identified as UL Listed, labeled, or Recognized:

Are Listed appliances employed within their ratings or intended usage? (Yes) (No) (3)

Are vent (onl/) fans used behind cooking appliances? (Yes) (No)

Are integral switches on lights or medicine cabinets removed for wall switching?

(Yes) (No)

Are distribution panels modified for two cords? (Yes) (No)

995

BRANCH CIRCUIT CONDUCTORS:

Are aluminum conductors employed? (Yes) (No) (4)

Circuits:

Range (Yes) (No)

Furnace (Yes) (No)

Dryer (Yes) (No)

All circuits (Yes) (No)

Is cable labeled (Yes) (No)

Are distribution panel lugs (including grounding lug) marked AL-CU? (Yes) (No)

Are breakers, if used, marked AL-CU? (Yes) (No)

Are appliance terminals (dryer, range, etc.) marked AL-CU? (Yes) (No)

If no: Are these appliances cord connected to receptacles marked AL-CU?

(Yes) (No)

If No. 10 Awg conductors are used, are fixture terminal screws large enough to
accommodate the conductor? (Yes) (No)

Are terminal screws tight after Installing and removing device? (Yes) (No)

If No. 10 Awg conductors are used in an outlet box, is the wire bent at two
right angles to reduce torque on ihe terminal screws? (Yes) (No)

Is at least 3/4 wire loop made around each terminal screw? (Yes) (No)

Are push-in terminals (no screws) used? (Yes) (No)

Are wire connectors (wire nuts, etc.) marked AL-CU, AL-AL (check box)? (Yes) (No)

Do aluminum conductors supply outside outlet boxes (lights, receptacle, dual wide
interconnection, etc.)? (Yes) (No)

99-855 O - 73 - pt. 1 -- 64

996

LOAD CALCULATIONS:

Are load calculations (calculated load, branch circuits required, and branch
circuit protection) made for each different mobile home? (Yes) (No) (5)

Where two or three supply cords are employed, are load calculations made for each
source? (Yes) (No) (23)

Are calculated currents balanced as evenly as possible between the two legs?

(Yes) (No) (5)

Are distribution panels wired in accordance with load calculations? (Yes) (No) (5)

Does calculated load of either leg exceed rating of main disconnect? (Yes) (No) (6)

997

DISTRIBUTION PANEL - GENERAL:

Does each distribution panel contain either a single two pole main breaker or a
single fused disconnect (pull-out) switch for each supply? (Yes) (No) (11)

Are all branch circuits in each panel de-energized when main breaker is "off" or
fused main disconnect is removed? (Yes) (No) (11)

Is distribution panel located near point of entrance of supply cord or raceway?

(Yes) (No) (8)

Is distribution panel located in rear third of mobile home? (Yes) (No) (8)
(If dual wide, specify location )

Does panel contain a solderless grounding bar or connector? (Yes) (No) (10)

Are sufficient terminals provided for all grounding conductors? (Yes) (No) (10)

Is neutral bar insulated from distribution panel enclosure? (Yes) (No) (10)

Are neutral bonding screws removed and discarded? (Yes) (No) (32)

Is distribution panel located in a closet? (Yes) (No) (12)

If yes: Is it located at least 1 ft above a shelf or floor? (Yes) (No) (12)
Is a clear working space of at least 18 in. provided in front of panel? (Yes) (No) (13)
Is data plate permanently attached to or near panel? (Yes) (No)

If no: Is Location of data plate referenced oa distribution panel? (Yes) (No)
Is each main disconnect plainly marked "MAIN"? (Yes) (No) (113)

Are branch circuits detailed on card inside panel? (Yes) (No)

998

DISTRIBUTION PANEL - CORD SUPPLIED:

Is circuit breakei type panel rated at least 50 amp? (Yes) (No) (11)

Is fuse type panel rated 60 amp? (Yes) (No) (11)

If fuse type, is panel marked in 1/4 in. lettering to indicate main fuse rating
such as "Max Main Fuses 40 Amp" or "Max Main Fuses 50 Amp."? (Yes) (No) (114)

Is 50 amp supply cord used? (Yes) (No)

Is 40 amp supply cord used? (Yes) (No)

If yes: Is it used only on mobile homes factory equipped with gas or oil
firing heating and cooking appliances? (Yes) (No) (19)

Is it used in conjunction with a second or third supply cord?

(Yes) (No) (22)

Is main breaker or fuse rated 40 amp? (Yes) (No) (11)

Is supply cord irfarked "For Mobile Home Use - 50 Amp" or "For Mobile Home Use -
40 Amp."? (Yes) (No) (18)

Is the length of the cord (plug to bared leads) between 21 and 36-1/2 ft?

(Yes) (No) (20)

Is the cord secured to the distribution panel such that it cannot be displaced in
either direction? (Yes) (No) (21)

Are extension cords, adaptors, or similar items shipped with the mobile homes?

(Yes) (No) (17)

Are supply cords shipped with mobile homes intended for permanent service?

(Yes) (No) (17)

Is a metal nameplate provided on the outside of the mobile home near the supply
cord entrance which reads "This mobile home is wired for 115/230 v, 3 wire, 60 cy
supply. Supply Cord 50 Amp."? (Yes) (No) (115)

Notes: 115/230 v may read 120/240 v.

50 amp shall read 40 amp 11 applicable.

Supply cord shall read supply cords, if applicable.

No outside marking required for permanent service.

999

DISTRIBUTION PANEL - MULTIPLE CORDS:

What is maximum number of cords that will be provided?
(0, 1, 2. or 3) (22)

Are multiple supply cords interconnected other than through grounding circuit?

(Yes) (No) (24)

Are separate panels used for each supply cord? (Yes) (No)

If yes: Are panels located near one another in same compartment of mobile
home? (Yes) (No)

Do two or three cords enter a single distribution panel? (Yes) (No)

If yes: Does each bay or section contain its own main disconnect and own
Insulated neutral bar? (Yes) (No)

Are the neutral bars installed by panel manufacturer? (Yes) (No)

Does the marking insert illustrate connections for two or three
supplies? (Yes) (No)

Is each individual panel or section of a two or three bay panel marked in 1/4 in.
lettering such as "1," "2," "3," or "Main," "Range," "Dryer"? (Yes) (No) (116)

Are cord entrances outside mobile home marked as above on metal nameplates?

(Yes) (No) (116)

Do additional supply cords exit through separate openings within 12 in. of the
main supply cord? (Yes) (No) (27)

1000

DISTRIBUTION PANEL - PERMANENT SERVICE:

Will permanent service be used on some homes? (Yes) (No)

Will masc weatherhead assembly be used? (Yes) (No)

If yes: Does ueatherhead clear roof by at least 18 in.? (Yes) (No)

Are four insulated conductors provided? (Yes) (No) (15)

Color code

Are all fittings Listed? (Yes) (No)

Does wire size correspond to Table I? (Yes) (No)

If ueatherhead mast assembly is shipped loose for field assembly, are
Installation instructions provided? (Yes) (No) (Obtain copy)

Will .1 f hrough-f loor raceway be used (Yes) (No)

If yes: Is rigid conduit, if used, threaded for field Installed junction
box? (Yes) (No) (15)

Is EMT, if used, reamed? (Yes) (No) (15)

Does mast or raceway size conform to following table? (Yes) (No) (15)

Does data plate specify use of high temperature conductors (RH, THW, etc.)?

(Yes) (No) (15)

1001

DISTRIBUTION PANEL GROUNDING:

If separate panels are used. Is a grounding conductor connected between panels
with a single grounding conductor to chassis? (Yes) (No) (28) or.

Are separate grounding conductors run from each panel to chassis? (Yes) (No) (28)

If a single or combined panel is used, is a single grounding conductor run to
chassis? (Yes) (No) (29)

Is grounding conductor securely fastened to grounding bar in panel? (Yes) (No) (31)

Is grounding conductor copper? (Yes) (No) (31)

Wire size Awg.

Is a Listed grounding terminal used at the chassis? (Yes) (No) (31)

Is star washer used to break paint? (Yes) (No) (31)

If no: What method is used to break point?

Is grounding conductor routed so as not to be exposed to damage? (Yes) (No) (31)

1002

CONNECTION TO ELECTRIC RANGE AND DRYER:

Is one of the following mechods used to connect the electric range and dryer?

(Yes) (No) (33)

C.

Cord to Receptacle Outlet

Length ft.

Rating amp.

Rated in excess of appliance (Yes) (No)

Listed (Yes) (No)

Grounding type plug (Yes) (No)

Four conductors Including ground (Yes)

Armored Cable

Length

Size conductors
Conductor rating

ft.

(No)

_Awg.

amp.

Rated in excess of appliances (Yes) (No)

Listed (Yes) (No)

Four conductors including ground (Yes) (No)

Service Entrance Cable

Length ft.

Size conductors

Conductor rating

_Awg.

_amp.

Rated in excess of appliance

Labeled (Yes) (No)

Four conductors including ground

Flexible Steel Conduit

Length ft.

Trade size in.

Size conductors
Conductor rating

(Yes) (No)

(Yes) (No)

Awg.

_amp.

Range

Dryer

(Yes) (No) (Yes) (No)

(Yes) (No) (Yes) (No)

(Yes) (No) (Yes) (No)

(Yes) (No) (Yes) (No)

Rated in excess of appliance (Yes) (No)
Four conductors including ground (Yes) (No)

Are appliance bonding screws, straps, or buses (in range, dryer, or washer-dryer
combo) removed and discarded? (Yes) (No) (32)

1003

BONDING (GROUNDING) - ELECTRICAL SYSTEM:

Are all exposed metal parts bonded by one or more of the following methods:

(Yes) (No) (35)

Method

(A)

(B) (C)

(A)

Metal Part

Bonded

1.

Receptacles

(Yes) (No)

2.

Fixtures (lights)

(Yes) (No)

3.

Appliance Enclosures

(Yes) (No)

A.

Other:

(Yes) (No)

Methods

A. Connection of the grounding conductor ia Type NM cable to the

green hex head screw in receptacles and in appliance splice boxes.

B. Connection of the grounding conductor in Type NM cable to the

grounding plate in fixture boxes.

C. Connection of the grounding conductor in Type NM cable directly to

the fixture pan.

D. Connection by rigid conduit or EMT to metallic outlet boxes.

E. Mounting by metallic fasteners to structural metal which is grounded.

F. Other: Describe in full.

Aro I or J connected appliances (washer, refrigerator, etc.) grounded by a
grounding type plug /ind cord? (Yes) (No) (36)

1004

GROUNDING CONDUCTOR SPLICES:

Are solder less connectors employed? (Yes) (No) (37)

Crimp type (Yes) (No)
Wire nut type (Yes) (No)
Listed (Yes) (No)

Are grounding conductors arranged and spliced such that continuity of the
grounding conductors is not disturbed when a fixture, switch, or receptacle
is removed? (Generally this required splicing of the ground conductors with
a pigtail connected to the receptacle or fixture) (Yes) (No) (38)

Are grounding conductors splices insulated or stowed to the back of the outlet
box? (Yes) (No) (81)

POLARIZATION AND COLOR CODE:

Is the white supply co ductor connected to white terminals or white leads on
receptacle, fixtures, appliances? (Yes) (No) (40)

Is Che white conductor the unswitched wire in one pole switched circuits?

(Yes) (No) (40)

Are the green colored or bare conductors used only for grounding (do not normally
carry current)? (Yes) (No) (41)

III J or 4 way switch loops, is the return conductor from switch the nonwhite
conductor? (Yes) (No) (42)

Is the white conductor of a cable, where used in 240 v circuits, taped or painted
a nonwhite color at both ends? (Yes) (No) (42)

EQUIPMENT GROUNDING CONDUCTORS:

In flex steel or conduit systems, are the green colored grounding conductors
sized according to the following? (Yes) (No) (39)

Fuse or Circuit Breaker Rating Copper Wire Size. Awg

15 14

20 12

60 10

100 8

200 6

1005

GROUNDING - NONELECTRICAL:

Is the metallic roof and exterior covering bonded such that the metal panels
overlap and are secured with metal fasteners? (Yes) (No) (45)

Is the lower metallic panel bonded by screws, or screws and plated steel straps
to chassis? (Yes) (No) (45)

Are gas, water, and metallic waste pipes bonded to the chassis by solderless
connectors and conductor, or straps? (Yes) (No) (46)

Wire size Awg

Copper (Yes) (No)

Are warm air ducts boided to chassis? (Yes) (No) (47)

Wire size Awg

Copper (Yes) (No)

Aluminum (Yes) (No) Connectors listed for AL-CU (Yes) (No)

Bonding accomplished with floor structure (Yes) (No)

1006

NUMBER OF BRANCH CIRCUITS REQUIRED:

Are the following branch circuits provided? (Yes) (No) (48)

A. Lighting - 3 x length x width • No. of 15 (or 20) (Yes) (No)

115 X 15 (or 20) amp lighting

circuits

B. Kitchen appliance - Two 20 amp circuits serving (Yes) (No)

kitchen, dining and patio receptacles only

C. Laundry - One separate 20 amp circuit if a laundry (Yes) (No)-

area is provided.

D. General appliances - One or more circuits for (Yes) (No)

furnace, water heater, range, etc., in accordance
with the following:

1. May be on lighting circuit if fixed appliance (Yes) (No)
rating not over 50 per cent of circuit rating.

2. Fixed appliances on nonlighting circuit does (Yes) (No)
not exceed branch circuit rating, or 80

per cent of rating if motor loads.

3. Single portable appliance on its own circuit (Yes) (No)
does not exceed 80 per cent of circuit rating.

4. Electric range circuit based on the following (Yes) (No)
table:

Derive amperes for free standing range (as distinguished
from separate ovens and cooking units) by dividing
values below by 230 v.

Name Plate Rating Use

10.000 w or less 80 per cent of rating

10.001 - 12,500 w 8,000 w
12,501 - 13,500 w 8,400 w
13,501 - 14,500 w 8,800 w
14,501 - 15,500 w 9,200 w
15,501 - 16,500 w 9,600 w
16,501 - 17,500 w 10,000 w

E. Electric Heat - Based on 125 per cent of heater rating. (Yes) (No)

(Example: A 40 amp load requires a minimum 50 amp branch circuit).

1007

BRANCH CIRCUIT PROTECTIVE EQUIPMENT:

Are circuit breakers rated 240 v of the companion trip type? (Yea) (No) (50)

Are fuses Type S? (Yes) (No) (51)

Are fuses and circuit breakers rated as follows? (Yes) (No) (52)

A. Not more than rating of circuit conductors.

B. NoL more than 150 per cent of a single appliance rating.
Exceptions:

\. Not more than fuse size marked on motor operated appliance.
2. Receptacles rated 15 amp may be protected with a 20 amp fuse
or breaker.

GROUP MOTOR INSTALLATIONS:

Are central air conditioners or other two motor installations protected by fuses?

(Yes) (No) (53)

Are conductors sized to 125 per cent of largest motor rating plus 100 per cent of
other motor? (Yes) (No)

Exceptions :

A. Room air conditioner may use circuit breakers under the following
conditions :

1. Cord connected.

2. 40 amp, 250 v, or less.

3. Single full load current on name plate.

4. Breaker does not exceed smaller of receptacle or conductor rating.

B. Specific combination of circuit breaker and motor load may be tested
for acceptability.

1008

PROTECTION AND SUPPORT OF RACEWAY AND CABLES:

Is sheath, armor, or conduit continuous between outlet boxes? (Yes) (No) (54)

Where cable passed through a stud or frame with less than 1-1/2 in. from inside

or outside surface, are 16 MSG plates, tubes, or protectors provided? (Yes) (No) (55)

Exception: Cables may be run without protectors through notches in wall studs
when notch is on Inside wall and wall material is applied before wiring.

Is Type NM cable supported within 8 in. of a nonmetallic box without clamps?

(Yes) (No) (57)

Are cables supported every 4-1/2 ft including runs in roof, wall and floor?

(Yes) (No) (57)

If cable is fished, as in a pre-assembled wall panel, is cable secured at the
outlet box and stapled where it exits the panel? (Yes) (No)

Are bends in cables radiused at least 5 times their thickness? (Yes) (No) (57)

Is protection of cable supplying a range or dryer provided by the appliance?

(Yes) (No) (58)

Is exposed Type NM cable protected from damage? (Yes) (No) (61)

Where necessary to run Type NM cable in a furnace or water heater alcove is cable
routed and clamped away from the appliance? (Yes) (No) (62)

1009

WIRING METHODS:

Do cables and raceway terminate at boxes with listed fittings? (Yes) (No) (63)

Exception: No fittings are required at nonmetallic boxes if cable is
supported within 8 in. of the box.

Are fixtures and appliances Installed so that connections are accessible upon
removing of the cover, without removing the fixture (except outlet box
mounted types) or appliance? (Yes) (No) (64)

Are outlet, junction, and pull boxes installed so covers are accessible?

(Yes) (No) (65)

Is rigid conduit provided with lock nut inside and outside the box? (Yes) (No) (66)

Are conduit bushing used on the Inside? (Yes) (No) (66)

Are inside ends of the conduit reamed? (Yes) (No) (66)

Are nonmetallic outlet boxes used only with nonmetallic sheathed cable?

(Yes) (No) (67)

Do outlet boxes fit closely to openings In combustible walls and ceiling?

(Yes) (No) (68)

Are they flush with such surfaces or project therefrom? (Yes) (No) (68)

Are boxes, fittings, and cabinets securely fastened in place? (Yes) (No) (69)

Are wall and ceiling outlets mounted by two screws threading into framing lumber,
or plywood secured to framing lumber? (Yes) (No) (70)

1010

CONDUCTORS IN OUTLET BOXES:

Dues maximum number of conductors in outlet boxes exceed values In the following
table? (Yes) (No) (73)

Deep Boxes

-

Box Dimensions, Inches

Cap.
10.9

Maximum Number

of Conductors

Trade Size

No. 14

5

No. 12
4

No. 10
4

Nc

). 8

3-1/4 X 1-1/2 octagonal

3

3-1/2 X 1-1/2 octagonal

11.9

5

5

4

3

A X 1-1/2 ociagonal

17.1

8

7

6

5

4 X 2-1/8 octagonal

23.6

11

10

9

7

4 X 1-1/2 square

22.6

11

10

9

7

4 X 2-1/8 square

31.9

15

14

12

10

4-11/16 X 1-1/2 square

32.2

16

14

12

10

4-11/16 X 2-1/8 square

46.4

23

20

18

15

3 X 2 X 1-1/2 device

7.9

3

3

3

2

3x2x2 device

10.7

5

4

4

3

3 X 2 X 2-1/4 device

11.3

5

5

4

3

3 X 2 X 2-1/2 device

13.0

6

5

5

4

3 X 2 X 2-3/4 device

14.6

7

6

5

4

3 X 2 X 3-1/2 device

18.3

9

8

7

6

4 X 2-1/8 X 1-1/2 device

11.1

5

4

4

3

4 X 2-1/8 X 1-7/8 device

13.9

6

6

5

4

4 X 2-1/8 X 2-1/8 device

15.6

7

6

6

5

Shallow Boxes

Box Dimensions, Inches

Maximum

Number of

Conductors

Trade Size

No. 14
4

No. 12
4

No

10
3

3-1/4

4

6

6

4

1-1/4 X 4 square

9

7

6

4-11/16

8

6

6

A y box less than 1-1/2 In. deep Is considered to be a shallow box.

Fixtiiro Koxes

A. Volume,
n. Volume,

ln3

in3

C . Vo 1 ume ,

Switch or

K ■■ epoacle Boxes

inJ

A. Volume,
iS. Voiume,
C. Vuiume,

in3

in3
in3

No. and Size Grounding No. of
of Conductors Conductors Fittings

No. and Size Grounding Switches or
of Conductors Conductors Receptacles

No. of
Fittings

1011

SWITCH AND RECEPTACLE PLATES:

Nonferrous, 0.040 in. minimum thickness (Yes) (No) (71)
Ferrous, 0.030 in. minimum thickness (Yes) (No) (71)
Nonmetallic, listed (Yes) (No) (71)
Are metal plates grounded (Yes) (No) (72)

99-855 O - 73 - pt. 1 — 65

1012

Special Notes:

1. Fixture leads are not counted.

2. All grounding conductors count as one conductor.

3. Each switch or receptacle counts as one conductor.

4. All fittings, clamps, hickeys, etc., count as one conductor.
3. For combinations of wire sizes, also use the following table.

Volume Required per Conductor

Size of Free Space Within Box

Conductor for Each Conductor

No. 14 2. cubic in.

No. 12 2.25 cubic in.

No. 10 2.5 cubic In.

No. 8 3. cubic In.

No. 6 5. cubic in.

Exception:

If there is not sufficient space for a deeper box, four No. 14 Aug
conductors may enter a box provided with cable clamps and containing
one or more devices on a single mounting strap.

Is at least 4 in. of free conductor left at each outlet box? (Yes) (No) (76)

Dues decorative painting obliterate color coding of individual conductors?

(Yes) (No) (77)

Is there a matching receptacle within 6 ft of each cord connected fixed
appliance? (Yes) (No) (82)

Are receptacle outlets located such that each point along the floor line is
no less than 6 ft from an outlet box? (Yes) (No) (83)

Are additional receptacles installed in the following area? (Yes) (No) (85)

1. Ovor counter tops in Lhe kitchen (at least one on each side of
Che sink if countertops are on each side, and 12 in. or over In
width) (Yes) (No)

2. Adjacent to lhe refrigerator and free-standing gas-range space (Yes) (No)

3. Ai countertop spaces for built-in vanities (Yes) (No)

A. At cou.itertop spaces under wall-inounted cabinets (Yes) (No)

5. In Che laundry area, if provided (Yes) (No)

Note: Sketch the configuration of the receptacle. Is It the only
receptacle on the branch circuit?

1013

6. Adjacent to bathroom lavoratories (Yes) (No)

Note: Receptacle may be part of medicine cabinet or light
fixture.

Are receptacles installed within or adjacent to shower or tub space? (Yes) (No) (86)

Are receptacles at least 6 in. above baseboard heaters (Yes) (No) (87)

SWING OUT UNITS:

Are swing out units wired with three conductor cord with a IS amp grounding

type plug which terminates in a 15 amp grounding type receptacle? (Yes) (No) (88)

Obtain print or full details.

DUAL UNIT HOMES:

Are dual unit homes interconnected by permanent wiring methods (conduit, etc.)?

(Yes) (No) (89)

Obtain print or provide full details.

Are dual unit homes built with cord supplied panels in each section? (Yes) (No) (90)

If yes: Are the panels located near one another after the units are joined?

(Yes) (No) (90)

Do the supply cords exit the units within 12 in. of each other after
the units are joined? (Yes) (No) (90)

Obtain print or provide full details.

Are dual unit homes interconnected with cord and power supply connectors?

(Yes) (No) (91)

If yes: lb cord length kept to a minimum? (Yes) (No) (91)

Is the connection in a protected area? (Yes) (No) (91)
Are cords suitable for extra hard usage? (Yes) (No) (91)

Obtain print or provide full details.

1014

SWITCHES:

Are switches rated as follows:

For lighting circuits, rated at least 10 amp, 125 v and in no case less
than load (Yes) (No) (92)

For motor and other loads, do switches have ampere or horsepower rating
in excess of load? (Yes) (No)

Record complete marking of any switch that controls a motor (such as
furnace switch) :

RECEPTACLES :

Are lighting and small appliance receptacles parallel blade, 15 amp, 125 v?

(Yea) (No) (93)

LIGHTING FIXTURES:

Where pan or canopy of a lighti^i^ fixture overlaps outlet box, is one of the

following materials used to protect overlapped wall or ceiling material (Yes) (No) (94)

Aluminum, 0.020 in. thick (Yes) (No)

lirass, 0.020 in. thick (Yes) (No)

Steel, 0.016 i... Lliick (Yes) (No)

Nonconduc t ive , ni)ncoiiil)u.stible building insulation, 1/2 in. compressed
thicknesb (Yes) (No)

Are wall fixtures (identified by integral receptacle or switch) used on ceiling
or under a cabinet? (Yes) (No) (95)

Are pendant type fixtures tied in place to prevent damage to fixture and adjacent
materials? (Yes) (No) (96)

Are decorative lamps UL labeled? (Yes) (No)

Are factory assembled beam ceiling fixtures used? (Yes) (No)

1015

FLOURESCENT FIXTURES:

Do ceiling mounted flourescent fixtures conform Co one of the following?

(Yes) (No) (101

A. Marked for direct nusunting to low density ceiling material (Yes) (No).

B. Surface material flame spread rating is 25 or less (Yes) (No)

C. Surface material density 20 lb per cubic ft or more (Yes) (No).

D. Fixture rigidly suspended at least 1-1/2 in. from surface (Yes) (No).

Is supply wiring within J in. of a bollasi rated at least 90 C? (Yes) (No) (97)

Are end to end fixtures, used to form a continuous raceway. Listed for such use?

(Yes) (No) (98)

HIGH TEMPERATURE FIXTURES:

Where fixtures are marked to require greater than 60 C wire, are the following
wiring methods used? (Yes) (No) (99)

A. The fixture leads are spliced to the appropriate high temperature
conductors and run in metal raceway at least 4 ft along (6 ft
maximum for wires ending in F) to a junction box at least 1 ft
from the fixture. There the high temperature conductors are
spliced to the 60 C supply conductors (Yes) (No).

U. Type AF wire is used only where 90 C or greater wire is needed (Yes) (No).

C. Recessed portions of the enclosure are spaced at least 1/2 in.

from combustible material or insulation, other than at points of
support (Yes) (No) .

EQUIPMENT IN BATHROOM:

Are fixtures over a tub or shower stall of the enclosed, gasketed^type? ^^^^ ^^^^^

Are switches for the above fixtures located outside the tube or shower space? ^^^^^

1016

OUTDOOR OUTLETS AND FIXTURES:

Are OLiLdoor receptacles of the metal, gasketed cover type, and located under the mobile
home? (Yes) (No) (104)

Are outdoor lighting fixtures marked "Suitable For Wet Locations"? (Yes) (No)

If fixtures are factory installed, is caulking used to prevent water from
entering the outlet box? (Yes) (No)

If fixtures arc field installed are all materials (hardware, caulking, etc.)
and instructions shipped? (Yes) (No)

Arc lead onds in outlet box insulated and is box sealed for transit? (Yes) (No)
How is this done:

OUTDOOR OR UNDERCHASSIS WIRING:

Except for dual-wide interconnections, is all outdoor or underchassis wiring run
in rigid conduit or liquid tight flex conduit, or EMT "where protected by frame or
chassis? (Yes) (No) (105)

Are the conductors Type NMC, RHW, TW, etc.? (Yes) (No) (105)

LOW ENERGY CIRCUITS:

Are electric doorbells supplied by a Listed low voltage Class 2 transformer?

(Yes) (No)

Are low energy conductors routed through line voltage outlet or splice boxes?

(Yes) (No) (107)

Is a metal raceway or the chassis used for one conductor of a low energy circuit?

(Yes) (No) (109)

Are Lelevisioii antenna and telephone circuits completely segregated from other
electrical circuits? (Yes) (No) (110)

ELECTRICAL TESTING:

Is each mobile home subjected to dielectric strength test of at least 1080 v for

1 sec between live parts, including neutral, and the mobile home ground? (Yes) (No) (112)

Is a voltmeter used, either separate or part of the tester, to measure the test
voltage as it is applied to the mobile home? (Yes) (No)

Note: Listed appliances may be disconnected while the test is being run.

Record dielectric tester marking:

1017

The Chairman. Thank you very much.

Senator Proxmire, do you have questions ?

Senator Proxmire. Yes, I do.

I think you gentlemen have made a devastating case for sharply
amending this bill.

In fact, as I follow your testimony, you argue that this bill is worse
than nothing. Maybe I misunderstand you. But let's be blunt about it
and clear. Are you saying that?

Mr. Ingram. It would be for North Carolina; yes.

Mr. Church. Yes, sir.

Senator Proxmire. Mr. Ingram, you oppose S. 1348 for that reason ;
that it would invalidate a stronger North Carolina system that pro-
vides for inspection ?

Mr. Ingram. Yes, sir.

Senator Proxmire. And does so effectively.

Mr. Ingram. Yes, sir.

Senator Proxmire. And Mr. Church, you complain about the method
of enforcement. You argue that the real differences, the differences you
have with this bill, as 1 understand it, are No. 1, there is no require-
ment for a State plan. And you think there ought to be a plan ; right ?

Mr. Church. No; there is a requirement for a State plan, but no
criteria for approval of the State plan, other than it be equivalent to
the Federal plan, which only provides for the manufacturers to self-
certify.

Senator Proxmire. I should say for the approval of a plan that
would meet the criteria.

Mr. Church. That is correct.

Senator Proxmire. Then you say there is no requirement for in-
spection.

Mr. Church. That is correct. Authorization for inspection, but no
requirement.

Senator Proxmire. Then you point out that there is no requirement
of competent personnel to do the inspections.

Mr. Church. Or to approve the plans; that is correct.

Senator Proxmire. Or to approve the plan.

You feel that is essential ?

Mr. Church. Yes, sir.

Senator Proxmire. Then how about the requirement in the bill that
specifies that there shall be a written notice in advance before inspec-
tion ? What kind of inspection is that ?

Mr. Ingram. It is terrible.

Mr. Church. Mr. Proxmire, I have 8 pages of criticisms of the
bill, section by section, here. I couldn't go into all of those, but that
is one of my criticisms, among others.

[The following information was received for the record :]

1018

^iifl^Wffliy^

ORGANIZED
1967

V

COOPERATING

CHAIRMAN. HARRY A STONE. IDAHO

IMMEDIATE PAST CHAIRMAN. KERN E CHURCH. NORTH CAROLINA

EXECUTIVE SECRETARY. GENE A ROWLAND. National Bureau of Standards

REGIONAL CHAIRMEN. C SUTTON M ULLEN , VI RGI N I A , Soutti^m BERNARD CABELUS. CONNECTICUT. NorthtatUm

DELMONT C THURBER, MONTANA, Weatem WILLIAM R HALE. KANSAS. Midwtat^m

EXECUTIVE COMMITTEE-MEMBERS-AT-LARGE. DONALD F PINKERTON. CALIFORNIA CHARLES J BETTS. INDIANA

DAVID MCNEILL. NEW MEXICO CALVIN P HAMILTON. DELAWARE

July 27, 1973

The Honorable John J. Sparkman, Chairman
Sub-Committee on Banking, Housing and Urban Affa:
3203 New Senate Office Building
Washington, D. C. 20510

RE: S-I348 Mobile Home Safety Legislation

Dear Senator Sparkman:

vtmm

WtellWHON.D.t- 20MII

Thank you for the courtesies extended by you and your Committee in allowing me to
present the views of the National Conference of States on Building Codes and Standards
on the above bill.

As per your request at the hearing, you will find attached copy of the "Mobile Home
Act" which was drafted by representatives of NCSBCS, International Conference of
Building Officials, Building Officials and Code Administrators, International, and
Southern Building Code Congress, with assistance by the United States Department of
Commerce and the United States Department of Housing and Urban Development, The
Covmcil of State Governments will include this "Mobile Home Act", "Manufactured
Building Act" and "State Building Code Act" in their recommended legislation this fall.
You will recall that we recommended that the "methods of enforcement" included in this
act be incorporated in the Federal Act.

In our testimony, we recommend that the general policies and recommendations of
NCSBCS including generjil principles for incorporation in federal mobile home legis-
lation be given utmost consideration by your Committee. Copy of these general
policies and recommendations is also attached.

You will recall that you asked me to send suggested amendments which would incorporate
the general principles of NCSBCS for the use of the Committee. In order to be of
immediate assistance, enclosed you will find copy of such suggested amendments as
authorized by the Executive Committee.

Please be assured that we will be happy to work with your Committee through NCSBCS

in improving these suggested eunendments and drafting other amendments to the above bill

NCSBCS WAS FORMED TO STRENGTHEN AND SUPPORT STATE BUILDfNG REGULATORY SERVICES AND TO MAINTAIN THE STATE ROLE IN THE
AMERICAN FEDERAL SYSTEM. NCSBCS ASSISTS THE STATES IN IMPROVING THEIR LEGISLATIVE, ADMINISTRATIVE AND JUDICIAL PRACTICES
REGARDING BUILDING REGULATIONS; PROMOTES STATE-LOCAL AND INTERSTATE COOPERATION: INVOLVES ALL SEGMENTS OF THE BUILDING
COMMUNITY; AND FACILITATES FEDERAL-STATE RELATIONS.

SECRETARIAT— STATE CODES AND STANDARDS SECTION. BUILDING RESEARCH DIVISION, NATIONAL BUREAU OF STANDARDS. WASHINGTON. D. C 20234

1019

The Honorable John J. Sparkman
July 27, 1973
Page 2

so that it will protect the public as intended.
Yours very truly.

Kern E. Church, P. E.

Chairman

Legislative Committee

KECtmc
Enclosures

1020

(These suggested amendments have been prepared by Kern E. Church, Chairman of
NCSBCS Legislative Committee as a draft for consideration by the NCSBCS Executive
Committee, They have been reviewed and approved by Mr. C. Sutton Mullen, Jr.,
Member of the Executive Committee and Member of NCSBCS Legislative Committee.)

SUGGESTED AMEtmMENTS APPLICABLE TO THE MOBILE HOME SAFETY DILL S-I348

Page 5, Line I4, Sec. IO3 (f) (1) - After the word "shall" add the words: "adopt
the standards for mobile homes and amendments thereto only with the approval
of the Mobile Home Safety Advisory Council established by Section 104 and
these standards shall initially be in substantial compliance with the
Mobile Home Standard ANSI - AII9.I. The secretary and the Safety Advisory
Council shall ■■ ■ ■"

Page 5, Line 18. Sec. IO3 (f) (1) - Delete the phrase "The American National

Standards Institute Committee on Mobile Homes and Recreational Vehicles" and
substitute the following in lieu thereof: "organizations of state and local
officials having responsibility to protect the public from unsafe buildings.
American Society of Testing Materials, American National Standards Institute.
National Fire Protection Association, Unden>rriters' Laboratories, American
Insurance Association and similar nationally recognized organizations
conducting research, testing and inspection for the safety of mobile homes
and other dwellings."

Page 5> Line 23, Sec. I03 (f) (2) - Delete the words "as he deems appropriate" and
add the following in lieu thereof: "which are independent and show an interest
in and can demonstrate they are competent and have experience in research,
engineering evaluations, testing or inspection of mobile homes."

-Page 6, Line 23, Sec. I04 (a) - Delete the following phrase in the middle of the
sentence: "and the remainder shall include members of the American National
Standards Institute Committee on Mobile Homes and Recreational Vehicles" and
substitute the following in lieu thereof: "the design professions, independent
testing and independent inspection organizations, consimiers" and add the
following at the end of the sentence: "The Advisory Council shall establish
a structural, mechanical and electrical sub-committee each of which has the
above balanced membership with each sub-committee member being specifically
qualified to evaluate, confirm tests and inspect mobile homes in accordance
with the structural, mechanical and electrical features consistant with
his sub-committee membership."

«

1021

•"Page 7, Line 18, Sec. 104 (d) - Add the following Section (d) to Section
104: "(d) - The Mobile Home Safety Advisory Council shall ho]d a public
hearing with ample notice to all interested parties before adopting or
amending the Mobile Home Standard."

Page 10, Line 17, Sec. 106 (b) - Add the word "indepe)ident" bet\veen the word
"and" and the word "non-profit" towards the end of the Section.

Page 11, Line 7, Sec. 107 - Add the word "independent" between the word "and"
and the word "private" in the middle of the first paragraph.

-"-"Page 11, Line 8, Sec. 107 - Delete tlie following words at the end of this
paragraph: "The American National Standards Institute Committee on Mobile
Homes and Recreational Vehicles" and add the following in lieu thereof:
"organizations of state and local officials having responsibility to protect
the public from unsafe buildings. American Society of Testing Materials,
American National Standards Institute, National Fire Protection Association,
Underwriters' Laboratories, American Insurance Association and siiailar
nationally recognized independent organizations conducting research, testing
and inspection for the safety of mobile homes and other dtfellings."

-"-Page 11, Line 13, Sec. 107 (2) - Add the word "evaluating'j bet\7cen the word
"for" and the word "inspecting".

-;:-::-::-pagc 11, Line 14, Sec. 107 - Remunber the first sentence as (a) and add the
following section (b):

"(b) - The Secretary is authorized to contract v/ith state agencies,
professional architectural and engineering firms and independent
private inspection organizations to conduct inspections authorized
by Section 112 in accordance with cvaluatingj inspecting and testing
procedures developed under Section 107."

'-::-x-::page 11, Line 14, Sec. 107 - Add the following new Section (c) -

"(c) - The secretary is authorized to establish fees to be paid by tlie
manufacturer to cover the costs of such inspections, such costs to be
reasonable and consistaut with other professional engineering and
inspection services."

-"Page 11, Line 14, Sec. 107 - Add the following new section (d) -

"(d) - The secretary is authorized to consult with intra-statc and inter-
state mobile home manufacturers' organizations to the end that representative
small, medium and large mobile home manufacturers have input into the
development of mobile home safety standards and methods for evaluating,
inspecting and testing to determine compliance v^rith such standards."

1022

Page 12, Line 11, Sec. 108 (b) - Delete Sections 2 and 3 and all but the
first sentence of Paragraph 1.

Page 15, Line 7, Sec. 109 (a) - Delete the following at the end of the Section:
"except that the maximvun civil penalty shall not exceed $400,000 for
any related series of violations."

Page 18, Line 4, Sec. Ill - Add a new Section to preceed Sec. 11 (a):
"Unless a state plan, approved under Section 120, is in effect and
provides for procedures for correcting defects found in mobile homes
which do not comply with the mobile home safety standards, the following
section shall apply;"

•"-"Page 20, Line 14, Sec. 112 (b) - Delete the words "and a written notice" in
the first paragraph.

Page 20, Line 20, Sec. 112 (b) (2) - Delete the words "and within reasonable limits
and in a reasonable manner" and delete the words "each such inspection shall
be commenced and completed with reasonable promptness."

'"''"■"Page 21, Line 1, Sec. 112 (c) - Add the words "current plans, specifications,
engineering analysis, test reports, compliance control check lists for
each unit and" bet\/een the word "maintain" and the word "such" at the
first part of the paragraph.

-"-Page 22, Line 8, Sec. 112 (e) - Delete this Section.

Page 23, Lines 23,25 & 24, Sec. 113 (d) - Delete the following in the second
sentence: "so much of" and "as he deems will assist in carrying out the
purpose of this title" aiid "a trade secret or other."

Page 25j Line 22, Sec. 113 (c) (2) - Delete the following at the end of the third
sentence: "or that the alleged defect does not affect mobile home safety."

'"-"Page 26, Line 24, Sec. 117 — Add the words "and independent private agencies"
bet\>feen the words "agencies" and the word "to".

Page 29, Line 2, Sec. 120 (c) (1) - Add the words "on all mobile homes manufactured,
sold or offered for sale" bet\^een the word "plan" and the word "throughout".

-y-"-"Pafie 29, Line 3, Sec. 120 (c) (2) - Delete and substitute the following in lieu
thereof: "provides for the enforcement of mobile home safety standards by
requiring plan approval, confirmation of tests and in-plant inspections under
the same inspection procedures and inspection frequency regardless of state of
manufacture. Such in-plant inspection required and approved by the state must
be effective and be available to manufacturing plants in all states."

1023

Page 29, Line 11, Sec. 120 (c) (4) - Add the words "engineers to evaluate, confirm
tests and make inspections of the structural, mechanical and electrical
features of the standard" in lieu of the word "personnel,"

Page 29, Line 13, Sec. 120 (c) (5) - Add the words "charge adequate and reasonable
fees to administer the plan and othen^ise" between the words "will" and the
word "devote".

Page 29, Line 17, Sec, 120 (c) (6) - Substitute "as required by" for the word "to"
and delete the words "in the same manner and to the same extent as if
the state plan were not in effect,"

'"-"Page 29, Line 23, Sec, 120 (c) - Add a new section as follows:

"(8) - Provides satisfactory assurances that qualified state personnel will
monitor jointly with other states the work of all mutually approved state
inspection programs and mutually approved independent inspection o_rg^tn:L^ations
so they all will be equally effective in pro\'lding for safe mobi'Je homes within
the State's jurisdiction."

Page 30, Line 21, Sec. 120 (f) ~ Delete the word "and" on the second line and add
a comma and add the following after the word "inspection": "and inspections
by independent private agencies under contract,"

-x-"-"Page 32, Line 3, Sec, 121 - Add the following at the beginning: "In order to
promote and assure a continuing and effective national mobile home safety
program, it is the policy of Congress to encourage each state to adopt and
implement effective inspection prograiiis applicable to all laobilc homes
manufactured, sold or offered for sale within their jurisdiction and to
encourage such states adopting such progr^un to cooperate with each other in
the joint monitoring of mutually approved inspection programs. (To tliis end,
the Secretary may authorize an annual grant to each state of a miaimum of
$50j000 or an amount equal to five dollars for each mobile home sold within
the state during the past year \.'hichcver is the most or a maximum of $200,000.
Tliis grant shall continue for a period of t^^'o years provided such funds are
used for the purpose of providing start-up funds to hire a staff of engineers
and inspectors who are qualified to evaluate, confirm tests and inspect the
structural, mechanical and electrical feature s of the mobile home safety standard.
This amount may be adjusted in accordance \/ith Section 121 (c) and an approved
state plan at the end of t\-/o years.")

-"-"-:-Page 32, Line 16, Sec. 121 (c) - Add the following at the end of the sentence:

"based on the agency being qualified to evaluate, confirm tests and inspect
the structural, mechanicaJ and electrical features for compliance with approved
standards and other criteria the secretary determines necessary to provide safe
m.obile homes within the State." "

-::-;: First priority amendments -"-"- Second priority amendments -"- Third priority

amendments

1024

POLICIES AND RECOMMENDATIONS OF rRINCIPLES FOR INCORPORATION IN FEDERAL MOBILE
HOME LEGISLATION (Excerpted from presentation of NCSBCS on S-1348 before Senate
Committee on JiOy 24, 1973)

If the Congress determines that federal legislation is needed and S-1348 is to
be utilized, the following NCSBCS policies and recommendations of general
principles adopted by the NCSBCS Reciprocity Committee for incorporation in
federal legislation should be given consideration:

(1) Recognize the validity of existing effective state mobile home and
recreational vehicle regulatory programs, which accept units crossing
state lines which have been evaluated, inspected and labeled in conformance
to criteria uniformily acceptable to all states c

(2) Establish a reasonable time period for states not now having effective
mobile home and recreation vehicle regulatory programs to develop and implement
such programs.

(3) States failing implementation of an effective prograjn within the
stipulated time period would then be subject to an effective federal program
including evaluation, inspection and labeling in accordance with the same
criteria accepted by the states, with fees to be levied commensurate with
the cost of services provided,

(4) Before mobile homes are required to be accepted by any state or
other political subdivision, under any federal or state enforcement system,
the labels or the certificates indicating compliance must assure that
representative samples of such mobile homes have been evaluated and inspected

I

1025

in the plant by federal or state personnel (or their approved and monitored
iiidependent agent personnel) who are competent to evaluate and inspect the
structural, mechanical and electrical features for compliance with the
mobile home safety standard and that sufficient in-plant inspections are
made by such unbiased personnel to assure that all units produced are
in compliance.

(5) The responsibility for the developing and amending of the mobile home
standard must be under the jurisdiction of a duly appointed balanced
Board consisting of persons who are competent to evaluate and inspect
mobile homes for compliance with mobile home standards, which should consist
of representatives of the state and local code enforcement officials, the
design professions, consumers, independent testing organizations, independent
inspection organizations, insurers and mobile home manufacturers.

(6) In states ^vithout an inspection program, the federal agency should be
encouraged, to the extent practicable, to contract with competent independent
private inspection agencies which specialize in such work for their inspection

• in lieu of liiring an army of federal inspectors and federal engineers which
would be required if the federal government assumed the responsibility to
make sufficient inspections to protect the public.

(7) The inspection of used mobile homes should be under the jurisdiction of
the State and their legal subdivisions.

1026

MOBILE HOME ACT

With the growth of a nationwide market for many types of housing products,
including mobile homes, and regional markets for others, a uniform and
comprehensive approach to regulation of such products has become highly
desirable. The Mobile Home Act and two companion bills, the Manufactured
Building Act and the State Building Code Act, respond to this need through
state, rather than Federal, action by promoting intra- and interstate
unifonnity of regulation and interstate reciprocal acceptance of building
products. This legislation represents a synthesis of the experience of
Federal, state and local government in regulation construction to enable
the states to protect the public health, safety and welfare better. The
three Acts are written in a manner permitting them to be administered by
a single state agency and a single building code council if a state enacts
any two of them, or all three. If a state enacts but one of them, each
Act is complete and may be administered independently.

The basic regulatory scheme of the ^Jobile Home Act is as follows:
(1) a manufacturer sijjmits to the state agency or to sn independent third
party approved by the state the plans, specifications and other necessary
documentation for the mobile hornes which he intends to produce; (2) if
these are approved as complying with the lav;, either the state agency or
an independent third party approved by the state will inspect the actual
mobile homes as they are being produced; (3) the compliance of a mobile
home with the law is indicated by a state approved label attached at the
factory; and (4) local enforcement agencies inspect such units upon
installation to detennine whether they are correctly installed.*

The Mobile Home Act was drafted by representatives of the National
Conference of States on Building Codes and Standards, the Mobile Home
Industry, the International Confere-nce of Building Officials, Inc.,
Building Officials and Code Administrators International, Inc., and the
Southern Building Code Congress, with assistance by the U. S. !')epartment
of Co:mi-.erce and the U. S. Department of Housing and Urban Development.
It was sponsored for publication by the Council of State Governments by
the National Conference of States on Building Codes and Standards, a
cooperating member of the Council of State Governments.

*A Section-by-Section Analysis of the Act, prepared by the drafting group,
may be obtained from the Council of State Governments, Iron Works Pike,
I^cxington, Kentucky 40505.

1027

MOBILE HOME ACT

Section 1. SHORT TITLE

This Act shall be known and may be cited as the "[Name of State]
Nbbile Home Act."

Section 2. LEGISLATIVE FINDINGS AND INTENT

[NOTE; Each State should write its own legislative findings to meet
the individual conditions. The following are suggested possibilities:]

[Conditions exist in this State which create a shortage of decent,
safe, and sanitary housing. The production and utilization of mobile
homes and the use of new and improved technologies, techniques, and materials
will increase the available supply of housing at prices v;hlch most residents
of this State can afford,

[Uniformity of standards governing mobile homes and uniformity in pro-
cedures for enforcing standards throughout the nation and the State are
matters of nationwide and statewide interest and concern in that uniformity
would increase the efficiency of the mobile home industry and futher assure
the safety of its products. The necessity for uniforriiity is increased
because mobile homes may be moved from jurisdiction to jurisdiction.

[The production and utilization of mobile homes and the use of new
technologies J techniques, and materials are enhanced by the utilization and
application of uniform standards and uniform procedures for enforcing the
standards within this State, and v;ould be further enhanced by widespread
reliance upon uniform and reasonable material specifications and the use of
performance criteria.

[M£)bile homes, because of the manner of their construction, assembly,
and use, like other finished products with concealed vital parts, may present
hazards to health and safety unless properly manufactured. Also, mobile homes
may contain hazardous defects not readily ascertainable when inspected by
purchasers or by local enforcement agencies. The legislature intends, by
this Act, to provide protection to the public against these possible hazards.

[The legislature intends, by this Act, to create conditions in this
State which will facilitate the production and use of mobile homes and
the use of new technologies, techniques, and materials consistent vzlth the
requirements of health, safety, and v.'elfare.

[The legislature intends tha; the administration and enforcement of this
Act shall be within the jurisdiction of a single administrative agency.]

99-855 O - 73 - pt. 1 -- 66

1028

Section 3. DEFINITIONS

(a) Ivherever used or referred to in this Act, the terms defined herein
have the ineanings assigned to them unless a different meaning is clearly
indicated by the context.

(b) ADMINISTRATIVE AGENCY. "Administrative Agency" means ,

(name of agency)
v;hich is charged v/ith the administration and enforcement of this Act.

(c) /iP PROVED. "Approved" means approved by the [Administrative Agency].

(d) COMPLIA^iCE ASSUR-ATJCE PROGRAM. "Compliance Assurance Program" means
the system, documentation, and methods for assuring that mobile homes,
including their m.anufacture, storage, transportation, assembly, handling, and
installation conform with this Act and the rules and regulations promulgated
pui'suant thereto.

(e) EVALUATTON AGENCY. "Evaluation Agency" means an approved person or
organization, private or public, including a governmental agency, determined

by the [Adm.inistrative Agency] to be qualified by reason of facilities, personnel,
experience, and demonstrated reliability and independence of judgment, to
investigate, evaluate, and approve mobile home systems, or compliance
assurance programs, and to issue labels.

(f) INDEPENDENCE OF ■Jl;DG^r5NT. "Independence of Judgement" means not
being affiliated with or influenced or controlled by mobile home manufacturers
or by producers, suppliers, or vendors of products or equipment used in mobile
homes, in a manner likely to affect capacity to render reports and findings
objectively and v;ith&ut bias.

(g) INSPECTION AGENCY . "Inspection Agency" means an approved person or
organization, private or public, including a governm.ental agency, determined

by the [Administrative Agency] to be qualified by reason of facilities, personnel,
experience, and dem.onstratcd reliability and independence of judgment, to con-
duct or supervise compliance assurance programs, certify mobile homes, and
issue and attach labels.

(h) INSTALLATION. "Installation" means the process of placing a mobile
home on a site, and connecting it to utilities. Installation also may m.ean
the connecting of two or mere mobile home units designed and approved to be
connected for use as a dwelling,

(i) LABEL . "Label" means an approved device or seal evidencing certi-
fication in accordance with this Act and the rules and regulations promulgated
pursuant thereto.

1029

(j) LOCAL ENFORCEMENT AGENCY. "Local Enforcement Agency" means the
agency or agencies of local government v^ith authority to make inspections
of buildings [including mobile honies] and to enforce the laws, ordinances,
and regulations enacted by the State and by the local government which
establish standards and requirements applicable to the. construction, altera-
tion, repair, occupancy, or demolition of buildings [including mobile homes],

(k) LOCAL GOVERNMENT. "Local Government" means any county, city, munici-
pal corporation, town, or other political subdivision of this State with authority
to establish standards and requirements applicable to the construction,
alteration, repair, occupancy, or demolition of buildings [including mobile homes].

(1) MOBILE HO>tE. "Mobile Home" means a factory-assembled, movable
dwelling designed and constructed to be towed on its own chassis, comprised
of frame and v;heels, to be used without a permanent foundation, and distinguishable
from other types of dwellings in that the standards to which it is built include
provisions for its mobility on that chassis as a vehicle.

(m) MOBILE HOME SYSTEM. "Mobile Home System" means plans, specifications,
and documentation for a system of mobile home, which may include structural,
electrical, mechanical, plumbing, and fire protection systems and other systems
affecting health and safety, including variations which are submitted as part
of the mobile home system.

Section 4. [BUILDING CODE COUNCIL]

(a) A [Building Code Council or such other name as may ba designated for
this function, hereinafter called the "Council"] is created. The [Council] shall
consist of twelve qualified persons: The [chief executive officer of the
Administrative Agency] (nonvoting), a representative of the general public.

one registered architect, one registered professional engineer (structural),
one registered professional engineer (mechanical), one registered professional
engineer (electrical), one licensed general contractor, one representative
of the building trades, one homebuilder, one building code enforcement
officer from local government, one mobile home manufacturer, and one
building manufacturer,

(b) Members of the [Council], except the [chief executive officer of the
Administrative Agency], shall be appointed by the Governor for four-year teitns
of office and serve until qualified successors are appointed, except that the
Governor, for the first appointments to the [Council] shall appoint three
members for terms of four years, three members for terms of three years, three
members for terms of two years, and two members for terms of one year. Three
or more consecutive failures by a member to attend meetirgsof the [Council],
without reasonable cause, constitutes cause for removal of the member from
the [Council] by the Governor, or by the Chainnan with concurrence by a

1030

majority of the [Council], The Covornor shall appoint a new member when a
vacancy occurs. Klien a vncancy occurs, a majority o£ the remaining members
of the [Council] may appoint an Interim member to fill the vacancy for the
remainder of the tej.-m or until the C-overnor appoints a permanent msrabar.

(c) Kfeiahars of the [Counr-il] shall receive an allowance of $ per day

or part of a dny actually spent attending to the business of the [Council] and

ba compensated for traveling expenses as provided in . [NOTE: Fill in the

first blank with the State's standard amount and the second v;ich the appro-
priathi statutory reference.]

(d) The [Council] shall meet at the v/ritten request of the [chief
executive officer of tha [Administrative Agency] or of three or more members

of the [Council]; but the [Council] shall meet no fewer than times

per year.

(e) The [Council] shall establish rules and regulations and bylaws for
its internal operation,

(f) The [Council] shall be part of the [Administrative Agency] and
exercise its powers, duties, and functions independently of the [Administrative
Agency], except that all budgeting, procurement, and related functions shall be
under the direction and supc^rvision of the [chief executive officer of the
Administrative Agency].

(g) No member may act as a member of the [Council], or vote as such in
connection with any matter in which he has a private interest.

(h) The [Council] may employ an executive secretary. The [Adm.inistrative
Agency] shall assign personnel to assist the [Council] in the performance of
its functions.

Section 5. RULES mD REGULATIONS

(a) The [Administrative Agency] shall and any other interested party may
propose rules and regulations and amendments thereto. The [Council] shall
adopt and may amend or repeal rules and regulations. After adoption by the
[Council], thii [Aclministrative Agency] shall publish, administe'i:, and enforce
the rules and regulations.

(b) The rales and regulations shall establish standards, specifications,
and rnquiremants for mobile ho:aes; they also shall establish requirements foi*
mobile home systems and compliance assurance programs. To the extent practicable,
the standards, specifications, and requirements shall be set forth in terms of
Performance objectives, so as, inter alia to facilitate the use of new technology,
techniques, and materials. Preference shall be given to performance standards
reasonably consistent vjith those of other States.

1031

(c) Ihe [Adninistrative Agency] shall consider and may pro;)osa, and
the [Council] shall consider and may adopt the codes, standards, and require-
rnants which apply to mobile homes and are proinulgated by such org-inizations
as the American National Standards Institute and other nationally recognized
organizations, including governmental agencies,, The [Council] shall endeavor
to maintain the rules and regulations current with the; state of the art.

(d) In adopting codes, standards, and requirements, no changes or
modifications may be made therein without express findings setting forth
reasonable cause of the changas or modifications. Any changes or modifi-
cations adopted by the [Council] shall be submitted, with the recsons
therefor, for consideration by the appropriate organization for amend^iienC
of the code, standard> or requirement.

(e) The [Council] shall provide for a public hearing prior to adopting
any rule or regulation or amendment thereto, following adequate public notice.

(f) The [chief executive officer of the Administrative Agency] shall
establish a position of [Building Official], establish minimum qualifications
for the position, and appoint a qualified person to fill the position. The
[Building Official] shall assist the [chief executive officer] in the adminis-
tration and enforcement of all provisions of this Act and the rules and
regulations promulgated pursuant thereto.

(g) Except as provided by or pursuant to this Act (or any Mobile Hom'=j
Park law of this State), land use zone requirements, fire zone boundaries,
building set-back requirements, side and rear yard requirements, property
line requirements, and on-site development, construction, iiistallation, and
inspection are specifically and entirely reserved to local government.

Section 6. APPROVAL

(a) The [Administrative Agency] shall evaluate mobile home systems and
approve those which it determines to be in compliance with this A.ct and the
rules and regulations. The [Adm.inistrative Agency] may utilize the results

'of approved tests to determine if a mobile home system meets the requirements
of this Act and the rules and regulations, if that daterm.inatiai canr.ot be
made from evaluation of plans, specifications, and docuraentation alone.

(b) The [Administrative Agency] shall evaluate manufacturers' compliance
assurance programs and approve those which it determines to be in compliance ■
vjith this Act and the rules and regulations.

(c) A mobile hom.a system, a compliance assurance program, or an amendment
thereto, which has been approved, shall not be varied in any v/ay without
authorization by the[Administrative Agency] in accord-ince with tl.e rules and
regulations.

(d) The [Administrative Agency] ntsy authorize evaluation agencies to
evaluate and approve mobile home systems and compliance assurance programs
and to issue labels. The [Adi;iinistrativc Agency] may suspend or revoke such
authorization for cause.

1032

(e) The [Administrative Agency] shall periodically monitor the entire
process of mobile home system approval and compliance assurance pi'ogram
approval of each evaluation agency in order to verify its reliability.

(f) The [Administrative Agsncy] may suspend or revoke, or cause to be
suspended or revoked, the approval of any mobile home system or any compliance
assurance program whenever the approval was issued in error, or on the basis
of incorrect information, or in violation of this Act or of any rule or

regul ation. If the [Administrative Agency] determines that mobile homes
manufactured pursuant to an approved mobile home system do not comply with
this Act or the rules and regulations, and the m.anufacturer fails' to comply
with a corrective ordar, the [Administrative Agency] shall suspend or revoke,
or cause to be suspended or revoked, the approval of the manufacturer's
compliance assurance program. Notice of suspension or revocation of an
approval shall be in writing with the reasons for suspension or revocation set
forth therein. Appeals from suspensions or revocations shall receive timely
review pursuant to Section 13 hereof.

Section 7. CERTIFICATION

(a) Nbbile homes shall be certified by the [Administrative Agency] as
complying with this Act and the rules and regulations, if they have been
manufactured in accordance with an approved mobile home system end passed
inspection in accordance with an approved compliance assurance program.
Certification shall be evidenced by the attachment to each mobile, home of

a label issued by the [Administrative Agency]. Certified mobile homes
sh?»ll not be altered in any v/ay prior to the issuance of [registration or
title by the Department of Motor Vehicles, or other appropriate agency] or
[applicable occupancy permits, certificates of occupancy or whatever
similar device is used] without resubmission for approval of the alteration
and of the unit which includes the alteration.

(b) The [Administrative Agency] may authorize inspection agencies to
perform all or part of the inspection and certification of mobile homes,
including either or both the issuance and the attachment of labels thereto.
The [Administrative Agency] may suspend or revoke such authorization for
cause.

(c) Notwithstanding the provisions of any other law, mobile homes
certified pursuant to this Act shall be deemed to comply with the require-
ments of all lav;s, ordinances, and regul d: ions of this State or of local
governments which govern the matters within the scope of the approval and
certification applicable to mobile homes, including those bearing upon
technologies, techniques, and materials, or the safety of mobile homes.
Local enforcement agencies shall issue [whatever permit or cf-irtif icate is
required] for certified mobile homes prior to installation and issue
[certificates of occupancy] for certified mobile homes after they have been
installed and inspected pursuant to Section 11 of this Act; any mobile home
found not to comply with this Act shall be brought into compliance with this
Act before the [certificate of occupancy] is issued.

1033

(d) The [Administrative Agency] shall suspend or rc/oke, or cause to
be suspended ov revoked, the certification of any mobile home v;hich the
[Administrative Agency] finds not to comply with this Act or the rules and
regulations, or which has been manufactured pursuant to a mobile home system
or compliance assurance program as to which approval has been suspended or
revoked, or which has been altered after certification. Notices prohibiting
sale or installation shall be posted on, and, if the manufacturer fails to
comply with a corrective order, labels of certification shall be removed from
any such mobile home until it is brought into compliance with this Act and
the rules and regulations. Notice of suspension or revocation of certifica-
tion shall be in writing vjith the reasohs for suspension or revocation set
forth therein. Appeals from suspensions or revocations shall receive timely
review pursuant to Section 13 hereof.

Section 8. LIMITATION ON USE

(a) No mobile home manufactured after shall be offerrad for sale

(effective date)
for, sold for, delivered to, or installed on any site located in this State
unless such mobile home has been certified pursuant to this Act. In juris-
dictions with building codes, tha manufacturer shall be permitted, in lieu
of obtaining approval and certification by the [Administrative Agency], to
apply for approval in accordance with the building code of general applicability,
and in that event shall comply with such code.

(b) No mobile home shall be structurally attached to any permanent
building or structure, unless the resulting combined structure complies with
the applicable requirements for permanent buildings.

Section 9. EXCEPTION FOR SPECI^VL ENVIRONMEf.TAL CONDITIONS

(a) The [Administrative Agency] shall limit an approval of a mobile
home system by requiring each manufacturer to list on each mobile home
manufactured pursuant to that mobile home system, the environmental conditions
which the m.obile home meets. No mobile home shall be installed on a site or
occupied in an area of this State where special environmental conditions
including, but not limited to, snow, wind seismic conditions, or temperature
require special or different standards, unless the mobile home meets the
standards. If a mobile home is to be altered from the approved mobile home
system to meet the special environmental conditions, an amended mobile home
system shall be submitted for approval.

(b) In jurisdictions having building codes, the local government shall
prescribe requirements for special environmental conditions requiring special
or different building standards for those parts of the site development, and
other v7ork reserved to local enforcement agencies. Such requirements shall be
based on express findings setting forth reasonable cause therefor, and shall
be subject to the [local appeals procedure].

1034

(c) A local enforcement a{;ency may propose special local environmental
rcquiror.ients for fidoption pursuoji.t to Section 5 of this Act, and unless the
[C-ouncil] disapproves the proposal within 60 days of the date of its Gub-
niissiofi, or nt tha next meeting of the [Council], whichaver is sooner, the
proposal shall be deemed adopted.

Section 10. RSCIPr.OCITY

(a) If the [Administrative A3ency]finds that the standards for the manu-
facture and inspection of mobile homes prescribed by statute or rules r.nd
ro.'iulations of another State, or other f^overniriental agency, meet the objnc-
tives of this Act and the rules and regulations, and arti enforced satisfactorily
by th- othar State, or go\7ernmental agency, or by their agent;3, the [Adminis-
trative Agency] shall accept mobile homes which have been certified by the
other .State or governmental a^jency, and assure that the appropriate label is
attached theireto. The standards of another State shall not bo deemed to be
satisfactorily enforced unless the other State provides for notification

to the [Administrative Agency] of suspensions or revocations of approvals
issueJ, bj' that other State, in a manner satisfactory to the [Administrative
Agency], and so notifies the [Administrative Agency].

(b) The [Administrative Agency] shall suspend or revoke, or cause to

bs suspended or revoked, its acceptance or certification, or both, of certified
mobile homes if it determines that the standards for the manufacture and
inspection of such reobilf; homes of another State or other governmental agency
do not meet the objectives of this Act and the rules and regulations, or that
the standards are not being enforced to the satisfaction of the [Administrative
Agency]. Notice of the suspension or revocation shall be in writing with the
reasons set forth therein. Appeals from suspensions or revocations shall
receive timely review/ pursuant to Section 13 hereof.

(c) If another St.uto or governmental agency, or its agent, suspends or
revokes its approval or certification, the acceptance or certification, or both,
granted under this Section shall be suspended or revoked accordingly,

(d) In order to encourage reciprocity, the [Administrcitivs Agency] and
the [Council] shall cooperate with similar authorities in other jurisdictions
and 'jitii nationally recognised codes and standards organisations in developing
rautually acceptable methods and procedures for testings evalu.e.ting, approving,
and inspecting mobile homos, and other-.v-ise encouraging their production and
acceptance.

Section 11. IMSPECTlOii

(a) .'vny person or firm, manufacturing mobile hoi.ias, and desiring certi-
fication, shall agree in vjriting that the [Ad.p.inistrat ive A;?ency] has the
right to conduct unanjiounced inspections at any reaso..'ible tiuie.

1035

(1) The [Administrative Agency] shall periodically make,
or cause to be made, inspections of the entire process
of manufacture and certification of mobile homes
produced under approved mobile home systems, and o£
mobile homes already certified, in order to verify
the reliability of each compliance assurance program
and inspection agency.

(2) In addition to other on-site inspection provided for in
subsection (d) of this Section, the [Administrative
Agency] shall inspect, or cause to be inspected, certified
mobile homes it detcnnines sufficiently damaged after
certification to v/arranC such inspection, and to take
action with regard to these mobile homes as authorized
under Section 7 (d) hereof, or as otherv;ise necessary

to eliminate dangerous conditions.

(3) No inspection entailing disassembly, damage to, or
destruction of certified mobile homes may be con-
ducted except to implement Sections 7 (d) or 11 (a)
(1) and (2) hereof.

(b) The [Administrative Agency] shall authorize inspectors and other
representatives to travel within or without the State for any purpose
directly related to the administration and enforcement of this Act.

(c) The [Administrative Agency] may authorize inspection agencies to
perform all or part of its inspection functions under this Section. The
[Administrative Agency] may suspend or revoke such authorization for cause.

(d) In jurisdictions having building codes, local enforcement agencies
shall inspect all mobile homes upon, or promptly after, installation at th.-.
site to determine if all applicable requirements and installation instructions
have been followed. This inspection may include tests permitted by the rules
and regulations and a visual inspection for obvious violations of the rules
and regulations. Destructive disassembly of certified mobila homes shall not
be performed in order to conduct such tests or inspections, nor standards more
stringent than those promulgated pursuant to this Act be imposed. Nondestruc-
tive disassembly may be performed only in accordance with the rules and
regulations. Local enforcement agencies shall cause the disposition of non-
complying mobile homes in accordance with applicable law and with the rules
and regulations.

(e) In jurisdictions lacking building codes, the [Administrative Agency]
may inspect mobile homes upon, or promptly after, installation in the manner
prescribed in subsection (d) of this Section, and may perform the other
functions prescribed or permitted therein.

1036

Section 12. raES

(a) The [Administrative Agency] shall establish a schedule of fees in
connection v;ith the administration and enforcement of this Act and publish
it in the rules and regulations. The amount of the fees shall be based on
the cost of performing functions undertaken pursuant to this Act. The
effects of the fees upon the cost of mobile homes to residents of this
State shall be considered by the [Administrative Agency] in setting and
approving its own fees as well as the fees charged by evaluation and
inspection agencies under contract to it.

(b) Fees charged by local enforcement agencies for activities conducted
under this Act or the rules and regulations shall be based on the cost of
performing such functions.

Section 13. APPEALS

The [Council] shall promptly hear and decide appeals brought by any
person or party in an individual capacity, or on behalf of a class of
persons or parties, affected by any rule, regulation, or decision pursuant
to this Act. Final decisions by the [Council] are reviewable on appeal
(or on successive appeals) in the [courtsof competent jurisdiction].

Section lA. INJUNCTIVE RFJLIEF

The [Administrative Agency] may obtain injunctive relief from any
court of competent jurisdiction to enjoin the offering for sale, sale,
delivery, or installation of mobile homes, for which certification is
required under this Act, upon an affidavit of the [Administrative Agency]
specifying the manner in which the mobile homes do not conform to the
requirements of this Act or the rules and regulations.

Section 15. STATUTORY CIVIL ACTION

Notwithstanding any other remedies available, any person or party,
in an individual capacity, or on behalf of a class of persons or parties,
damaged as a result of a violation of this Act or the rules and regulations,
has a cause of action in any court of competent jurisdiction against the
person or party to whom the label evidencing certification has been issued
with respect to the pertinent mobile home(s), or, if it is not certified,
against the manufacturer of the pertinent mobile home(s). An award may
include damages and the cost of litigation, including reasonable attorneys'
fees. [The cause of action created by this Section is subject to the same
limitations period applicable in this State for causes of action of
similar nature.]

103.7

Section 16. CRIMINAL PENALTIES

[(a) Any person who violates any provision of this Act, or of the
rules and regulations, is guilty of a misdemeanor, and, upon conviction,

shall be fined not more than dollars ($ ), or imprisoned for

not more than , for each offense, or both.

[(b) A separate violation is deemed to have occurred with respect
to each mobile home not in compliance with the Act or the rules and
regulations. Each day the violation continues constitutes a separate
violation.

[(c) Any person who counterfeits or alters one or more labels, or
who makes fradulent or misrepresentative us e of one or more labels, or any
person who knowingly makes use of one or more counterfeit or altered labels,
is guilty of a felony, and, upon conviction, shall be fined not less than

thousand dollars ($ ), nor more than thousand dollars ($ ),

or imprisoned for not more than years, for each offense, or both.]

Section 17. SEVERABILITY

[NOTE: Insert usual State severability clause here.]

Section 18, EFFECTIVE DATE

[NOTE: Insert effective date.]

1038

SECTION BY SECTION ANALYSIS OF THE
MOBILE HOME ACT

This proposed State legislation is designed to facilitate the production
and utilization of mobile homes while assuring the safety of their construction,
and to facilitate the use of new technologies, techniques and materials through
application of uniform building codes based upon performance criteria and
through uniform procedures for enforcing such codes.

Section 1: "Short Title," provides a convenient and descriptive name for
the Act.

Section 2: "Legislative Findings and Intent," provides background for the
legislation in terms of the police power of the State. Because conditions and
policies differ from state to state, a range of suggestions is offerred. A
State v;ould use one or more of the suggested provisions, or write others appro-
priate to conditions in that State.

Section 3: "Definitions."

Subsection 3(b), "Administrative Agency," identifies the agency that will
administer and enforce the Act.

Subsection 3(c), "Approved," eliminates the need to repeat the words
"approved by the Administrative Agency" throughout the Act.

Subsection 3(d) defines "compliance assurance program" which refers to the
efforts of both the manufacturer and the State to monitor the manufacturing
process to assure that all certified units conform to the approved mobile home
system. This should not be confused with the manufacturer's quality control
program which refers to the manufacturer's effort to prevent the production
of defective units, to maintain high standards of workmanship, to control
costs, etc.

Subsection 3(e) defines "evaluation agency," the entity to which the State
may delegate the functions of approving mobile home systems or compliance assurance
programs, or of issuing labels.

Subsection 3(f), "independence of judgment," is intended to give States
guidance in preventing conflicts of interest in evaluation and inspection
agencies.

Subsection 3(g) defines "inspection agency" as the entity to which the
State may delegate the functions of monitoring compliance assurance programs,
certifying mobile homes, and issuing and attaching labels.

Subsection 3(h) defines "installation" for purposes of identifying at
v;hat point controls and inspections, etc., shift principally from State to
local jurisdiction.

I

1039

Subsection 3(i), defining "label," is for the purpose of establishing
that the attachment of a label means that the labeled mobile home has been
certified as having been manufactured in accordance with an approved mobile
home system and inspected in accordance with an approved compliance assurance
program.

Subsection 3(j), "local enforcement agency," is a referent for the agency
or agencies of local government to which functions may be delegated under this
Act.

Subsection 3(k), "local government," is a referent for the types of
political subdivisions which different States may include.

Subsection 3(1) defines "mobile home" in such a way as to distinguish
m.obilQ homes from manufactured buildings and conventionally constructed

buildings.

Subsection 3(m) defines "mobile home system" as the material which must ^
be submitted for evaluation when approval is sought by the manufacturer, and
against which, when approved, the actual mobile homes will be checked.

Section 4: "Building Code Council."

Subsection (a) creates the Council and defines its membership. The
Council is established to assure that a broad range of expertise and interests
is represented in the rule-making process and in hearing and deciding appeals.

Subsection (b) provides for gubernatorial appointment of members to the
Council, and sets other standards related to their appointments.

Subsection (c) provides compensation for members of the Council.

Subsection (d) provides alternate methods of convening the Council.

Subsection (e) provides for the establishment of bylaws for the internal
'operation of the Council.

Subsection (f) provides for the Council to be a part of the Administrative
Agency for administrative and budgetary purposes.

Subsection (g) is designed to preclude conflicts of interest on the part
of Council members.

Subsection (h) provides for staffing for the Council.

1040

Section 5: "Rules and Regulations."

Subsection (a) divides the authority for proposing, adopting, promulgating
and enforcing rules and regulations between the Council and the Administrative
Agency. Formal adoption of rules and regulations is allocated to the Council,
while other functions related to rule-making, v/hich involve lengthy and detailed
staff work, are given to the Administrative Agency.

Subsection (b) requires the rules and regulations to set forth standards
governing building systems and compliance assurance programs and encourages
the adoption of performance-based standards and standards which are consistent
with those of other States.

Subsection (c) provides that the Council must consider nationally
recognized model codes and may adopt them. The Council is also required to
maintain the rules and regulations current with the state of the art.

Subsection (d) states that modifications to such codes must be justified
in writing and that modifications must be submitted to the appropriate national
code writing organization for its consideration.

Subsection (e) calls for public hearingsprior to the adoption of rules
and regulations.

Subsection (f), which provides for the appointment of a Building Official,
is intended to assure that a technically qualified person is in charge of the
administration and enforcement of the Act.

Subsection (g) reserves zoning and similar matters to the jurisdiction of
local government.

Section 6: "Approval."

Subsection (a) provides for the Administrative Agency to subject mobile
home systems to engineering analysis and evaluation to determine v/hether
mobile homes constructed in accordance with such systems will comply with
the codes and standards adopted pursuant to the Act. Those which comply
must be approved. Physical testing of prototypes is authorized if evaluation
of the plans, specifications and documentation alone is inadequate to indicate
whether replications of the mobile home system V7ill comply with the codes and
standards.

Subsection (b) authorizes the Administrative Agency to evaluate compliance
assurance programs to determine v;hether they v;ill reliably monitor the pro-
duction of mobile homes.

Subsection (c) provides that approved mobile home systems and compliance
assurance programs shall not be varied without authorization by the Administrative
Agency, in order to assure that nonconforming mobile homes ore neither built nor
certified.

1041

Subsection (d) authorizes delegation of the functions of approval of mobile
home systems or compliance assurance programs and issuance of labels to evalu-
ation agencies since some States have neither the personnel nor the finances
to conduct the programs themselves. It also provides for suspension or revoca-
tion of such delegations for cause.

Subsection (e) provides for monitoring of evaluation agencies to review
their performance.

Subsection (f) provides sanctions of suspension or revocation of approvals
to support enforcement of the Act. Suspending or revoking approval of a mobile
horns system stops production of mobile homes. Suspending or revoking approval
of a compliance assurance program prevents certification of the mobile homes.

Section 7: "Certification."

Subsection (a) provides for the Administrative Agency to certify mobile
homes if they have been manufactured in accordance with an approved building
system and passed inspection in accordance with an approved compliance assurance
program. Certification is shown by the attachment of a label to a mobile home.
Subsection (a) also provides that certified mobile homes are not to be altered
between certification and the issuance of title or of a certificate of occupancy
or their equivalent without, submitting plans of the alteration for evaluation
and approval and submitting the altered units for a physical inspection.

Subsection (b) authorizes delegation of the functions of certification
and issuance of labels to inspection agencies and provides for suspension or
revocation of such delegations for cause.

Subsection (c) provides for pre-emption of local and other State laws
v/hich govern matters covered by the Act. It also requires local enforce-
ment agencies to issue building permits and certificates of occupancy for
certified mobile homes.

Subsection (d) provides for certification to be suspended or revoked if
necessary to enforce the Act.

Section 8: "Limitation on Use."

Section 8 provides that no uncertified mobile homes manufactured after a
certain date may be installed in the State. It also prohibits structurally
attaching mobile homes to permanent structures unless the resulting combined
structure meets the requirements for permanent structures. This Section also
gives the manufacturer the option of having his mobile homes approved by the
local enforcement agency of the area in which they are to be located if they
comply with the generally applicable building code.

Section 9: "Exception for Special Environmental Conditions."

Subsection (a) prohibits the installation of a mobile home in an area
in V7hich environmental conditions will impose greater demands on the mobile

1042

home than it is designed to withstand. For example, a mobile home v;hich can
x-;ithstand the stresses expected in a 20-pound snow load area may not be
placed in a AO-pound snow load area where it could become a safety hazard.

Subsection (b) requires that in jurisdictions having building codes,
local governments must prescribe standards covering special environmental
conditions found in their area for on-site work left to their regulation.

Subsection (c) allows local enforcement agencies to propose mobile
horr.a standards to meet special environmental conditions for mobile homes.

Section 10: "Reciprocity."

Subsection (a) provides for the Administrative Agency to accept mobile
homes certified by another State if the statute and rules and regulations of
the other State meet the objectives of this Act and are satisfactorily
enforced.

Subsection (b) requires the Administrative Agency to suspend or revoke
its certification or acceptance of mobile homes for other States if the statute
or rules and regulations of the other State no longer meet the objectives of
thlr. Act, or are no longer enforced satisfactorily. Such suspension or revoca-
tion may be appealed under Section 13 of the Act.

If the Administrative Agency has accepted or certified mobile homes in
reliance upon the certification of another State and that other State suspends
or revokes its certification of them, Subsection (c) requires the Administrative
Agency to suspend its acceptance or certification of those mobile homes also.

Subsection (d) requires the Administrative Agency to cooperate with
similar agencies in other States in order to encourage reciprocity.

Section 11: "Inspection."

Subsection (a) requires manufacturers seeking certification to give
pciniiission to the Administrative Agency to conduct inspections. It further
provides for the Administrative Agency to inspect the entire manufacturing
process as well as already certified mobile homes to monitor the reliability
of compliance assurance programs and inspection agencies. The Administrative
Agency is also directed to inspect certified mobile homes if they have been
damaged or if it is otherwise necessary to eliminate dangerous conditions.

Subsection (b) allov/s the Administrative Agency's inspectors and other
representatives to travel as needed to enforce the Act.

Subsection (c) authorizes the Administrative Agency to delegate its
functions under this Section to inspection agencies. It also provides for
suspension or revocation of such delegation for cause.

1043

Subsection (d) requires that in jurisdictions which have building codes,
local enforcement agencies must inspect mobile homes when they are being
installed or shortly aftenv/ard. The types of tests which may be performed are
set forth and destructive disassembly of certified buildings or components by
the local enforcement agency is forbidden.

Subsection (e) requires that in jurisdictions without building codes,
the [Administrative Agency] may perform the on-site inspections.

Section 12: "Fees."

Subsection (a) requires the Administrative Agency to establish and
publish fees for functions performed under this Act. The amount of the fees
charged by the Administrative Agency and by inspection and evaluation agencies
under contract to it is to be based on the cost of perfonning the functions,
and is to take into account the effects of the fees on the cost of buildings.

Subsection (b) requires that fees charged by local enforcement agencies
for functions performed by them under this Act must be based upon the cost of
the functions performed.

Section 13: "Appeals."

This Section requires the Building Code Council to hear and decide appeals
brought by persons or classes of persons affected by any rule, regulation or
decision made pursuant to this Act. The Council's decisions are reviev;able in
courts of competent jurisdiction.

Section 14: "Injunctive Relief."

This Section authorizes the Administrative Agency to request a court to
prevent the offering for sale, sale, delivery or installation of manufactured
buildings or components v;hich are required to be certified, but v;hich do not
meet the requirements of the Act or the rules and regulations.

Section 15: "Statutory Civil Action."

This Section authorizes individuals harmed as a result of a violation of
the Act or the rules and regulations to seek relief in a court against a
manufacturer or against a person to whom a label of certification has been '
issued for the pertinent mobile home.

Section 16: "Criminal Penalties."

This section creates categories of misdemeanors and felonies for certain
violations of the Act or of the rules and regulations, and provides penalties
for such violations. The Section is placed in brackets so as to allow each
State to adapt the provisions to reflect the appropriate State penalties.

99-855 O - 73 - pt. 1 -- 67

1044

Section 17: "Severability."

Section 18: "Effective Date."

These Sections are designed to accommodate the State's standard
severability and effective date clauses.

'n\

n

! I

1045

THE COUNCIL OF STATE GOVERNMENTS

IRON WORKS PIKE

LEXINGTON. KENTUCKY 405O5

July 9, 1973

Mr. i'red D. Ocnt, Socrsta-y
U. S. Dapartnant of Cornnerca
Hasninston, D. C. 20530

Dear Secretary Dent: '

I I n Tiie Council of State Gov-omnents' Coranittee on

'^~_>'' Si;^g33£ei State Legislation, at its annual niaetlns held Jun« 21-22,

1973, In Seattle, '.Ja^ihiugton, aoproveri threa nodal act;i for inclujion
ill the 1374 Suggasted State Lesislation, Voliiina rccail. Thc3a are
■^j', the .^;odt-5l ftate Buildii<> ^oda Act, tha i'odal n.qnuf acturad Bi-.ildir.g

Act, aod tha I'odal Hoblla Home Act.

Although the3-2 raodel acts v/aro soiit to us for con-
aidaracion by the Naiioaal Confaronce of Stataj on Eulldins Codas
and Standards, we ara av/are that thay are th? product of a joint
effort by nany Wor'-cing Croups in tha buildins flald. ICnowlag tlia
aEounU of work which want into thalr davalopp.ent and the naad for
such nodf;! legislation, wa ara plcjaised they •;ill be publishad for
v/ida dissaininatioa throughout tha Stitea.

Ve are i:>.forr:ad that the Departraat of Coiir.niarcs
participated in tha devalopaatit of those su;^ga3tcd act aJonjj with
tha BapartTnant of Housing and Urban Davalopsant. 0>i bai;alf of tax.
\\ /I Council of State Goverrments it la tny pleaiura to axpraas our

\'.// appreciation for tha a'-.siatonce randarad by yoar Dapartir.ant in

\i thicj ijiportant cooparative effort.

JSil/lh

=raiy.

Jo:in K. Hickay
Sacratary, Ccnssitcaa oq
Si'jgar.tsd State La^ialatlon

bcc: Mr. Kern E. Church^'

Mr. Thomas J. Graves

Mr. Harry Stone

Mr. Brevard Crihfield

1046

July 9, 1973

.^/

Mr. J-3n:e3 T. Lyr.n, Sacratary

Dspart^.^nt of Hotiainj nnd Urban Devalo,>.^.snt

Vvashinston, D, C. 20530

Daar Sacratary Lyan:

i 1 .

ir::

\/^

Thl!i l3 a folio:/ up to your lei:t:or o2 April 27, 1973,
and my raply of May 2 coucamins isujjaatad stata laG^sl^cion ia
the buildln.5 fiaid.

Tl'.a Council of Stata Covarnnenta' Co.-ru-aittea on
Svig^aatsd Stata Laglalation, at its annual r/.a^tlng >.2ld Jun2 21-22,
1073, in Ssattle, '/ashington, approvad thre-2 nodvil acta for iaclu3ioa
in tiia 1974 Su35,asted State Lesislatlon, Voliine XX:{III. Taso;? ara
tlia Model Stata iiuilding Coda Act, tha I-odal Manufactured Juildln,'^
Ace, and the Modal Ilobila Hon-j Act.

AlthouS'T t-.i.esa uodai acts './are r:eat to u.-; for con-
eidaratlon by tha National Cont-jrenca of Stataa on Balldir.g Codes
and Standards, va ara awr\ra that thay ara tha product of a joint
effort by many Uor'.cin3 Croups ia th.a buildlns flold. laiovlng tlia
a;?.oant of '..'ork which '.vent into tl'.air davelopnant and tha naad for
sach ^sodal legislation, wa ara plaasad thay './ill ba pubii-shad for
-./Ida dlrsaaainatioa throuqaout tha Stataa.

I visa to e::pra33 ny appraciatioa Jor tha e;:aallant
cooperation and a.-?'3l3taaca rcndarad by narabars of your DapartnieaC.
Ma cspacially appreciated the sactlon by aactioa analysis of tha
draft aatis './hich '..-35 dona by yoar Offico of Car.aral Couasai. I
woald also Hl;e to add a apecial note of appreciation for tha halp-
fal aaaistanca provided by I'.r. S. i.'arh LindJiy, Offica of Gar.aral
Coungal, ;/ho attanded tha Saattla r.satinj and axplainad naay tach-
nlcal provi.'jloag of tha Duggaatad lagislaticn.

Sincerely,

joan is. liickay
Sacratary, CoriQtttaa on
J::;-./lh Su^gastad State La.-;lslation

bcc: Mr. Karn E. Church/^

Mr. Thomas J. Craves

Mr. Harry Stone

Mr. Brevard Crihfield

1047

statement by Louis P. Spitz

Executive Director, American Association

of Motor Vehicle Administrators
S. 1348

(Filed) August 15, 1973
Senate Committee on Banking

Housing and Urban Affairs
Hon. John Sparkman, Chairman
Hon. Robert A. Taft, Jr., Member

The American Association of Motor Vehicle Administra-
tors (AAMVA) deeply appreciates Senator Taft's letter of June
25th, inviting our Association's comments on the proposed
National Mobile Home Safety Standards Act of 1973, and the
subsequent Amendment 147, which would provide warranty pro-
tection to the consumer.

In order to place this commentary in an appropriate
persepctive, the AAMVA is the association of state and provin-
cial officials responsible for the administration and enforce-
ment of motor vehicle and traffic laws in the United States and
Canada. Included among its membership are the chief motor ve-
hicle and traffic enforcement officials in all 50 states, the
District of Columbia, Puerto Rico, the 10 Canadian provinces
and the Yukon Territory.

Our Association currently is in its 41st consecutive
year of operation. Its basic objectives are to promote uniform
laws and model programs designed to expedite the movement of
people and goods over our vast North American highway system.

AAMVA ' s programming is divided into four basic
categories:

— Driver Services
— Vehicle Services

— Equipment Approval and Product Safety
— And, Administrative Services — including
Fiscal, Legal and Communications programs.

This commentary is addressed to specifics related
to S.1348 and to subsequent amendment 147. It also conveys
a brief explanation of a pertinent AAMVA program, which is
not referenced in the bill; nor has it been covered in any
previous testimony, at least to the present knowledge of AAMVA.

1048

Because of the limited time available to prepare
this statement, the AAMVA was unable to poll its member jur-
isdictions for individual responses to the proposed act and
amendment. Thus, the comment herein contained is necessarily
limited to the expression of a projected consensus of our mem-
bers, based upon existing AAMVA policy, as well as the person-
al experiences of me and my staff in motor vehicle administra-
tion.

But I am confident that the motor vehicle administra-
tors of the United States support the overall concept and
rationale of the proposed National Mobile Home Safety Stand-
ards Act of 1973, including Senator Taft's amendment, to pro-
vide warranty protection to the consvimer.

From the motor vehicle administrators' viewpoint
there has long been a dilemma concerning mobile homes. In
virtually all of the 50 states the motor vehicle administra-
tor is the principal state official responsible for overseeing
the vehicular attributes of mobile homes. However, at the
same time, the vehicle administrators have tended to resist —
to be extremely reluctant — to become involved in the promul-
gation of standards or regulations applicable to the living
attributes of mobile homes.

Thus, it appears that the proposed National Mobile
Home Safety Standards Act of 1973 could become a remarkable
piece of legislation, if it is amended to recognize the uni-
que administrative needs of the motor vehicle administrator.
It could clearly resolve the problem of the dual nature of
the mobile home: Namely, it is a vehicle; it is a residence.

In previous testimony and statements filed with the
committee relative to S.1348, AAMVA notes disagreement among
the witnesses as to the definition of a mobile home. It is
significant to note, that as presently defined in the bill
and in alternative suggestions that have been posed, that the
definition would not preclude the inclusion of certain travel
trailers and certain "fifth wheel" travel trailers.

There are certain times when a mobile home most
certainly fits the criterion of a vehicle. It has a chassis,
suspensiorv wheels, tires, highway lighting and reflective
devices, and a towing hitch. And, in most instances, a mobile
home travels on the public highway from its point of origin
to its destination site. Thus, from the viewpoint of the motor
vehicle administrator, it is logical that all applicable vehi-
cle standards and regulations should apply during such a period
of highway use.

1049

In view of this, AAMVA respectfully suggests that
Sec. 102, Para (6) of S.1348 (page 3, lines 5-9) be amended
to include the following:

(6) " 'Mobile Home' means a structure, designed

primarily as a permanent dwelling, assembled
on a chassis, with approved suspension,
wheels, tires, highway lighting and reflec-
tive devices, and towing hitch..."

I wish to address myself, very briefly, to Senator
Taft's amendment number 147, which would require that warranty
protection be afforded the owner of a mobile home. I agree
with the sentiments voiced repeatedly in other statements to
the committee, that the lack of such warranty protection in
the original language of S.1348 is a serious omission, and that
the amendment is appropriate.

The AAMVA would pose one additional suggestion which
we believe would further ensure that precise identification of
a given mobile home could be contained in all records pertain-
ing to it including: (a) the warranty record; (b) the manu-
facturer's certificates of origin; (c) invoices; (d) state
registration records; (e) state title records; and (f) mobile
home recall notification program records.

Such a precise identification can be achieved by the
utilization of a meaningful Uniform Vehicle Identification
Numbering System — a practice which, and regretably to our way
of thinking, is not utilized by the mobile home industry at
this time.

In January, 1970, AAMVA launched a study of various
alternative Vehicle Identification N\ambering (VIN) systems.
This study led to the formulation of a specific recommended
program, which was approved by the AAMVA Regional and National
Conferences held that year.

Since 1970, our Association has worked, cooperatively,
on the VIN subject interest with the Society of Automotive
Engineers (SAE) . In each of several areas of interest we have
worked toward appropriate consideration for development of SAE
Recommended Practices (Standards) . The respective areas of
interest pertain principally to various classifications of
motor vehicles.

1050

We feel that the track record of accomplishment has
been noteworthy. Of the eight areas where AAMVA has requested
development of Recommended Practices, to date: Three have been
issued, one approved for issue, one nearing completion, and
three others are in process. The three SAE Recommended Prac-
tices already issued include:

— Recommended Practice SAE-J272, which outlines
the basic criterion for all vehicle identifi-
cation numbers. (The material in SAE-J272 is
the basis for the remaining Recommended Prac-
tices in the series) ;

— Recommended Practice SAE-J273, which includes
the basic criterion established in SAE-J272,
plus incorporation of the identification at-
tributes which apply only to passenger cars;

— Recommended Practice SAE-J218, which denotes
the basic terms of passenger car terminology
and definitions utilized by motor vehicle
agencies, government and industry. (This is
critical to standardize information systems
for data transmission.)

In addition, a new — yet undesignated SAE Recommended
Practice — has been approved and will be published soon. It
related to VIN systems for fold-down tent campers, travel
trailers pulled primarily by passenger cars, pick-up truck
campers, recreational boat trailers, and pick-up truck caps.
Also nearing completion is a Recommended Practice which will
denote the basic terms of truck terminology and definitions
used by motor vehicle agencies, government and industry.

Probably much more significant from the perspective
of this committee is the fact that among the other AAMVA/SAE
VIN system projects scheduled to follow is a Recommended Prac-
tice relating specifically to mobile homes.

Therefore, AAMVA believes that the Uniform Vehicle
Identification Numbering System definitely should include
mobile homes. Furthermore, we believe that the VIN should be
the principal means for identifying a specific mobile home, as
well as all of the documents of record relating to it.

1051

The AAMVA is convinced that a VIN system that includes
mobile homes would be in the best interests of everyone involved:

— The mobile home owner;

— The state and federal agencies administering
the movement of mobile homes on the public
highways;

— And, even the mobile home manufacturers,
themselves.

Therefore, we believe that a requirement that the
manufacturers adopt such a system would be in order.

AAMVA would like to thank Senator Taft for providing
this opportunity to comment on this proposed legislation. If
any question arises or there is a need for additional informa-
tion from our Association, AAMVA will be pleased to cooperate.

1052

INSURANCE COMPANY

POST OFf ICE BOX 2450

GRAND RAPIDS, MICHIGAN 49501

August 7, 1973

For Presentation to

Housing and Urban Affairs Sub-Committee

Senator John Sparkman

c/o National Association of Independent Insurers

Mr. John J. Nangle

Watergate Building

Washington D.C.

Dear Senator:

I am speaking on behalf of the Mobile Home Committee made up of
a dozen or so companies who are members of the National Association of
Independent Insurers and comprise the major companies within that
organization which write mobile home insurance extensively throughout
the country. It has been estimated that NAII member companies account
for approximately 80% - 857o of the mobile home insurance premiums
written throughout the United States.

The purpose of our discussing with your Committee the mobile home
industry and the mobile home product is not necessarily in the insurance
vein, however, but in the structural areas to which your Committee has
addressed itself.

Considerable concern over the last few years has been expressed
over the construction standards applicable to mobile homes and how
those standards should be improved to improve the safety and livability
features of this important product.

I'd like to say at the beginning that it is necessary at all times
in analyzing the mobile home as a product, to analyze its reasons for
popularity in our country.

The mobile home answers a very serious housing need that developed
shortly after and during World War II and exists to an even greater
degree today. The mobile home has answered this need. Therefore, it
is necessary for the mobile home manufacturer to address himself to the
fact that while he must build as safe a product as possible, he must
also remember that the cost factors are the primary reason he is in
business. The manufacturer's goal is to produce a safe and comfortable
home that is still acceptable to the millions of Americans who have
found the mobile home an attractive solution to their housing needs.
The present mobile home is a good product. There is a considerable
lack of information concerning this product. To my knowledge, most

1053

INSURANCE COMPANY

August 7, 1973

Page Two

Housing and Urban Affairs Sub-Committee

mobile homes being manufactured today have, for example, not only a main
door towards the front or middle of the mobile home, but they also have
escape panels and knock-out windows in cases of emergency in rear bedrooms,
etc. Considerable improvement has been made over the past five years in
the construction of the mobile home with the cooperation of the insurance
industry serving and insuring and specializing in mobile home insurance
and in cooperation with the mobile home manufacturers themselves.

It is a movable product. Therefore, it has problems of leakage after
it's set up at the insured's choice location, but such minor problems are
easily corrected. There are many areas that produce unnecessary loss in
mobile homes. In the insurance industry, through the National Association
of Independent Insurers and independently on the part of many insurance
companies, great strides have been taken to improve that condition. One
of these is in seeing that mobile homes are tied down. Recently, the
State of Florida passed a Tie Down Law that is now being enforced and will
be in effect on all mobile homes as of April 1, 1974. One of the members
of the NAII, Foremost Insurance Company, anticipates windstorm losses in
excess of $10,000,000 during the year 1973 on mobile homes alone. It is
their estimate that better than 70% of those losses could be saved by
almost any system of tie. downs. Sophisticated but inexpensive systems of
tie downs are readily available throughout the country. Foremost, as well
as other companies within the National Association of Independent Insurers,
have pressed for such legislation on a statewide basis.

Several Senators and Representatives of Congress have mentioned the
fire peril or the fire hazard which is extensive in a mobile home. Most
interiors of mobile homes are paneled and therefore, lend themselves to
fire spread. The manufacturers, however, have continually increased the
fire retardancy gradings of the materials used in mobile homes. They've
increased the fire precautionary measures of lining the areas in which
flame exists, such as the furnace and water heaters, with fire retardant
materials. Much of this improvement is built into the construction codes
of each state. The National Fire Protection Association publishes what
they call their ANSI Code. This Code deals with the construction
standards of plumbing, wiring, heating and actual construction of mobile
homes and also provides for anchoring mobile homes once they are located
at the sight of the insured's choice. In our opinion, a simple Federal
rule requiring that each state pass the National Standards Act (it has
already been passed and is in effect in forty-one states) would give
sufficient control of this industry to the state level.

There are proponents of the mobile home industry that feel a single
standard throughout the country would be desirable since mobile homes
are movable, and to effect savings in the manufacturing process. If the

1054

INSURANCE COMPANY

®

August 7, 1973

Page Three

Housing and Urban Affairs Sub-Committee

ANSI Codes are passed in each state and become a minimum standard under
Federal Law, a uniformity of construction could easily and inexpensively
be adhered to by the mobile home loanufacturers , without, in our opinion,
serious increases in the retail prices.

In our opinion, it is not necessary to go to additional expensive
studies of this product which would be running parallel to studies being
made by the people within the industry itself, in order to see that
mobile homes sold on the open market meet prudent minimum standards of
construction and safety features. All the Federal Government need do would
be to pass a law requiring that each state accept standards at least equal
to the American National Standards Institute and promulgated by the National
Fire Protection Association. The Standards Committee which draw these basic
structural standards and the revisions to them, are made up of members of
the insurance industry, construction industry. National Weather Service,
the mobile home industry and engineers of experience and knowledge.

We sincerely hope this paper has been of some help to your Committee
in determining a prudent way of action for our Federal Government.

Thank you for the opportunity.

icerely.

^mes W.yOar/ad
?ice President
Forempst /insurance Company
Vice /Chairman
NatiMial Association of
Independent Insurers
Mobile Home Committee

1055

Senator Proxmire. So obviously if there is something wrong, very
wrong about a plant operation, that is subjected to being remedied
in a week or two, you are notified in advance, and the manufacturer
simply corrects that and goes his merry way. Or if you have a small
inspection staff, and you can only get around to inspecting a firm
very rarely, then they would go on in a way that would not provide
protection, but would, of course, be low cost.

Mr. Church. You are entirely correct.

Senator Proxmire. Until they are notified there will be an inspec-
tion. Only then would they make the improvement. Is that right?

Mr. Church. You are correct. Xorth Carolina, in monitoring our
agencies that do tlie work, when we go to Alabama, Georgia, Florida,
or Tennessee, wherever we go, send an inspector to look at the plant
to see that our agency is doing the work ; we look at it as an administra-
tive procedure. We would rather monitor 4 or 5 agencies than to try
to monitor the 200 plants or so.

So in making these inspections we find in those States that provide
for authorization to inspect and don't require inspections, don't require
plan approvals, we find the manufacturer is manufacturing at two
levels of compliance, and the exterior wall members, the roof members,
everything is about half what it is for North Carolina. They write
"North Carolina" right on the unit itself that comes into our State.
They put this label on it, but they put as many as five State labels and
the self -certification label on the other units and they are "way below
the standard.

Senator Proxmire. Doesn't that make it difficult for North Caro-
lina mobile home manufacturers to compete ?

Mr. Church. No, sir.

Senator Proxmire. To compete on the out-of-State business. How
can a North Carolina manufacturer sell his mobile homes in competi-
tion with somebody in another State ?

Mr. Church. They could not. I mean, you are right.

Senator Proxmire. During the Easter recess I worked in a pack-
ing plant, and one of the things I noticed there was tliey had — this
is a big packing plant — they had 800 employees but they had over 30
Federal inspectors on the job all of the time, right on the assembly
line, so every hog was examined by 30 different inspectors, every
hog.

Now of course that is to protect the public.

Mr. Church. We don't liave that much.

Senator Proxmire. That is right. That is to protect the public from
being contaminated by food that would be a danger to their health.

But in this case how costly is this kind of inspection and how do
you kno^v it is adequate ?

Mr. Church. It averages less than $10 per unit. The cost of the in-
spection to the manufacturer.

Senator Proxmire. Who pays it ?

Mr. Church. Tlie manufacturer.

Senator Proxmire. It is not paid by the State, the taxpayers, it is
paid by the manufacturer ?

Mr. Church. Yes. The true cost is what he has to do to meet the
standard. This varies from about $50 per unit up to $400 or $500 or
as much as $600, depending on how far he was from the standard.

1056

There are 15 States that accept the North Carolina units labeled
under our system, Senator.

Senator Proxmire. Now, Mr. Bono, as the engineer, are you satis-
fied with the Noi-th Carolina system, that it is sufficient to protect the
consumer fully and completely ?

Mr. Bono. I think the North Carolina system, and the system has
been duplicated in other States, is one of the finest methods of regu-
lating mobile homes that we have encountered.

Senator Proxmire. Is it sufficient so that you can say that every
mobile home that leaves the plant will meet the standards when it
leaves the plant?

I take it that is one of your principal objections to this bill, that
it would permit people to sue for damages and that kind of recourse,
but that you say in your testimony that there is no assurance that when
the mobile home leaves the plant it meets tlie standards.

Is that right?

Mr. Bono. Well, the degree of inspection that we presently are
geared to do is to have an inspector in the plant frequently enough
so that he can examine some portion of every mobile home that goes
down the production line. That is quite a frequent inspection in
comparison with the inspection of other safety products.

Senator Proxmire. What I am getting at, I don't want to be a
perfectionist on this, you fellows have gone much further than this
bill would provide, and much further than perhaps any other State,
but I am wondering if it is far enough.

Senator Brock said he wanted to make his bill as strong as it could
be, so the strongest States would be in compliance and would not feel
they were giving up any protection.

Mr. Bono. Well, there is no system that will ever reach perfection
in examining a mobile home. A mobile home is very complex, even
though it looks simple, a complex product.

Senator Proxmire. As I understand it, you have a spot system in
which one part of the home would be inspected for each mobile home
that leaves, but it would be a different part of it.

In other words you would inspect the walls in some cases, inspect
the plumbing in other cases, the wiring in others. Is that right?

Mr. Bono. Yes. And this seems particularly amenable to a produc-
tion-line type of operation.

Senator Proxmire. Of course this would mean that while there may
be some that don't quite meet the standards, the overwhelming ma-
jority would, and you would be able to quickly spot a situation if
there were any comprehensive evasion of the standards?

Mr. Bono. And if that is the case, we will know, because there are
many mobile homes that are going out with the Underwriters Labora-
tory label on in the last 3 years and there will be more this year.

We will increase our inspections if needed.

Senator Proxmire. What about the sale of credit life insurance of
mobile homes ? Is that regulated by North Carolina statute or law or
practice, do you know ?

Mr. Ingram. Yes, by North Carolina general statute, chapter 58, and
by regulation.

Senator Proxmire. Would you let us know what the regiilations are.

Mr. Ingram. I will send you a copy of the North Carolina Regula-
tions (see p. 1127).

1057

Senator Proxmire. Thank you.

Thank you, Mr. Chairman.

The Chairman. Thank you very much, gentlemen.

Mr. Ingram. Senator, if I might add one thing, New Jersey — and
Senator Williams could brief you on this — has the third-party agency
type system similar to North Carolina.

Massachusetts, Senator Brooke can advise you, has just adopted
something similar to our system, I believe. And Ohio, they have not
implemented theirs yet. Delaware and Connecticut I believe are in
their infancy.

The other alternative which we mentioned was California, which has
its own inspection system. There they have, according to Deputy
Church, approximately 100 plants, but they have the manpower to
accomplish the inspections, about 36 inspectors. So that is the alterna-
tive to the independent agency approach, that you have the manpower
in the State to do it.

Senator Proxmire. Mr. Ingram, you are not only a very competent
commissioner, but you are also an excellent politician. You have just
given us a majority of our committee, right down the line of the
States.

Mr. IxoRAM. Senator, we were hopeful we could accomplish the same
thing with this committee that Deputy Church did with the legislative
committee in North Carolina's General Assembly, in which they had a
bill that was substituted for a committee bill, which was much stronger
and of which North Carolina is very proud.

The Chairman. Thank you very much, gentlemen.

The next witness is Mr. John M. Martin, president. Mobile Homes
Manufacturers Association.

STATEMENT OF JOHN M. MARTIN, PRESIDENT, MOBILE HOMES

MANUFACTURERS ASSOCIATION

Mr. Martin. Good morning, Mr. Chairman.

The Chairman. We are very glad to have you, sir.

Let me throw out just this word of warning : It is almost 12 o'clock,
the Senate is in session, and we don't know just how soon we may be
called over. So if we could move along, it would be appreciated.

Mr. Martin. Yes, Mr. Chairman. We have copies of this testimony
which we submitted to the committee, and I would like it inserted in
the record, and I will cover just a few parts of it (see p. 1069).

We would like to make observations on some of the comments made
today and clear the air on a couple of the provisions of the Brock legis-
lation as we understand it.

First, the Mobile Homes Manufacturers Association, the Trailer
Coach Association on the west coast, and the Southeastern Manufac-
tured Housing Institute all support the basic concept of S. 1348.

There are amendments included in our testimony that we would like
the committee to consider.

It is unfortunate that you have a piece of legislation that people gen-
erally favor as far as regulating an industry, and yet the industry is
subjected to a biased presentation such as the "60 Minutes" program,
that CBS documentary, so-called, that was presented this morning.

/

1058

When that was presented originally, it was biased, because prior to
the preparation of the program, CBS had all of the answers to all of
the questions they raised. The film that was shown this morning also
had other excerpts taken from it that the committee did not see this
morning and which will not be included in the record, I am sure.

The thing that concerns us, when people talk about fire safety is
that the mobile home industry asked for regulation and went into all of
tlie States throughout the country and asked the States to adopt State
laws to regulate the industry.

This began with the first legislation in 1958 by the State of Cali-
fornia. It has now grown to 36 States doing the same thing.

The mobile home industry went into many States that didn't even
want to look at regulation, because they didn't want to be bothered
with it. But the industry went ahead to get the regulation passed and
then we get people coming in in the last 2 years saying that it has been
done wrong.

The industry would like to get out of self-certification, but until we
have strong State enforcement programs throughout the country, gov-
erned by one Federal regulation and one Federal standard, then the
mobile home industry is still going to be involved in self -certification.
We want to be out of that part of the business.

One thing I would like to clear up as far as State enforcement is
concerned in this legislation, the industry feels that the North Caro-
lina inspection program is an excellent one.

Conversely, we also feel that the State of California inspection pro-
gram is an excellent one. We think that the provisions of this legislation
enable the State to enforce the industry, to regulate the industry by
following merely the guidelines of the Department of Housing and
Urban Development.

We are not asking, I don't think Senator Brock and the other spon-
sors of the legislation are asking, that that power be taken away from
the States. We feel that the State enforcement is closer to protecting
the consumer, and we favor that approach.

It has been determined and stated by several, including several mem-
bers of the committee, that the mobile home is a needed commodity.
It is housing that many people can afford. For that reason I think the
committee has to keep in mind that one standard is essential.

If you are going to provide housing for lower income people, you
must do it on a production line basis. And we agree with the concept
of the legislation, and with the comments of other witnesses that it
must be quality construction and done in a factory. But anj time you
provide variations, you will face the same thing that the stick-builder
faces today, with a median sale price in excess of $31,000.

The people you are supposedly trying to protect cannot afford to buy
that housing. We think it is essential to have one standard.

The question was raised that there might be a difference by region
or by State as to the type of construction necessary.

Let me point out that if we are going into the State of Wisconsin,
as an example, where they have a snow load factor, versus the State
of Florida, the two that were compared, I think there can be and has
already been presented a roof load factor that can take care of the
situation in both States, so that the people in Florida have their pro-

1059

tection and the people in Wisconsin have their protection.

To come out and say we are going to have 50 variations of roof load
or anything else will be difficult not only for the industry, but for the
consumers.

I would like to point out that the "60-Minutes" film, talked about
A 119 as the manufacturers code. It is not the manufacturers code. Mr.
Bono from Underwriters Laboratory pointed out that it is the con-
sensus standard. jNIHMA happened to serve as the Secretariat.

The National Bureau of Standards, HUD, and other Federal agen-
cies serve on the committee that developed that standard.

In "60 Minutes" they talked about the longevity of mobile homes.
They didn't point out, they had a dramatic presentation of the fire in
Phoenix, but they didn't point out that immediately after that Phoenix
adopted A 119 as the local requirement and the State has since done
the same thing.

The other point that should be made on that one particular fire is
that mobile home was a 1955 travel trailer, built prior to the adoption
of standards by anybody in the industry. It was because of things like
that that the industry went into the standards program and tried to
get the States, and now the Federal Government, to get involved.

We feel very strongly that the industry has tried over the years to
improve the standards situation, to improve the quality of production
and to provide lower cost housing.

We appreciate the criticisms and suggestions as long as they are
presented in a constructive manner. And we feel that with the legis-
lation before us, S. 1348, that it will enable the industry to provide the
housing that it has been providing, enable the customer to be pro-
tected because of the method of construction, and enable the States to
continue to enforce the regulations such as North Carolina and Cali-
fornia and a few others are doing.

The essential part of any legislation is to be sure that the provisions
are enforced. In many States this is not the case and the industry has
tried to get more enforcement, has gone in with appropriations bills
to help get money for those State agencies, even at a per unit cost to
help pay for the programs.

So, we feel that the industry has gone a long way. We are asking
for an objective look at providing a very uniform system of building
mobile homes.

We would also like to briefly comment, Senator, that most of the
time is being spent on S. 1346, but we would like to point out we
would like to support the provisions of S. 898 and 899, which cover
financing terms and which have been presented basically by other
witnesses.

With that, I am open for questions, Senator.

The Chairman. Thank you very much. As a matter of fact, I think
the hearing this morning has indicated that we have got a wide range
of opinion and it is going to take a good bit of work to work out a
satisfactory piece of legislation.

Would you not agree with me on that ?

Mr. Martin. I do agree with you, Senator. I think it is going to
take a strong look at it. I think the principles of S. 1348 are excellent.
I would prefer that we keep everything on a local basis, as far as en-
forcement. I think this enables North Carolina and California to keep

99-855 O - 73 - pt. 1 — 68

1060

their good sound systems. And all it does is make the other States that
don't have sound programs come up to their level. That we support.

The Chairman. Let me ask you, with reference to this film that was
shown this morning, did the mobile home industry feel that the film
was unfair?

Mr. Martin. Yes, sir. The mobile home industry felt that having
gone through the presentation with CBS, 4 hours of discussion were
held with the CBS people, Morley Safer and Jim Jackson, the pro-
ducer, all of the questions raised throughout the entire presentation
were adequately answered and even the producer agreed we had an-
swered many of the questions in their minds.

There were industry reactions to the film also included in the presen-
tation. The actual filming of the industry's position took 45 minutes.
They used 90 seconds on the CBS program.

There are complaints currently filed with the FCC on the bias of
CBS on this for various reasons, not by the association, but by inde-
pendent people in the industry.

One is a publisher who has challenged the CBS presentation as be-
ing biased because of conflict of interest.

The Chairman. By the way, the editor and publisher of the Mobile
Home News wrote a letter asking for equal time from the Federal
Communications Commission to answer the CBS presentation. That
was denied by the FCC.

At the request of Senator Proxmire, this letter will be printed in the
record.

[The letter and transcript of the film follows :]

Federal Communications Commission,

Washington, B.C., June 22, 1973.
Mr. Cliff Wilmath,
Editor and Publisher,
Mobile Home News, Inc.,
Miami, Fla.

Dear Mr. Wilmath : This is with reference to your fairness complaint filed
with the Commission on April 12, 1973 against CBS concerning its March 5, 1973
"60 Minutes" program which dealt, in part, with mobile home living and the
mobile home industry. You allege that this program presented a "biased report on
mobile homes" ; that on eight occasions during the program statements were made
by CBS News Correspondent Morley Safer, and by others in response to ques-
tions put to them by him, which did not present a true picture of the industry,
and that an opportunity to present their views was not afforded to those knowl-
edgeable in the mobile home industry. You requested CBS to afford you "equal
time" to respond to this program.

CBS responded to a March 1, 1973 request by you for "equal time" on April 9,
and stated that "although the 60 Minutes segment focused on the problems faced
by mobile home ovpners, nowhere in the broadcast was it stated or inferred that
the problems discussed were typical of the entire industry. Indeed, it was specifi-
cally stated that there are many fine mobile homes manufactured in the United
States." In addition, CBS had stated in response to a November 30, 1972 Com-
mission inquiry (regarding another aspect of your complaint) that "CBS News
Correspondent, Morley Safer, stated during the program that 'it .should be pointed
out that most of the mobile homes produced in this country are sound ; at the
very least they conform to the manufacturer's own specifications.' " In addition,
CBS stated that two letters critical of the March 5, 1972 "60 Minutes" program
were aired on the March 12. 1972 edition of "60 Minutes." CBS concluded its
April 9. 1973 response to you by stating that "we are of the view tJiat the "60
Minutes" segment in question did not give rise to any fairness doctrine obliga-
tions . . . and therefore, we respectfully reject your request for time to reply."

The fairness doctrine obligates a licensee presenting one side of a contro-
versial issue of public importance to afford reasonable opportunity in its overall

1061

programming for the presentation of contrasting views. It does not require
equal time, and both sides need not be given in the same broadcast or series
of broadcasts. Furthermore, no particular person is entitled to appear on the
station, since it is the right of the public to be informed which the fairness
doctrine is designed to assure rather than the right of any individual to broad-
cast his views.

With respect to the sufficiency of fairness complaints, the Commission has
consistently distinguished between the question of whether a reasonable oppor-
tunity has been afforded for the presentation of contrasting views and allega-
tions which challenge the "truth" or accuracy of broadcast material or contend
that the licensee has deliberately slanted or distorted its news coverage or
other public affairs programming. With reference to complaints disputing the
"truth" or accuracy of program material, it has been stated :

"The Commission has never examined news coverage as a censor might to
determine whether it is fair in the sense of presenting the "truth" of an event
as the Commission might see it. . . .

Rather, we shall consider the overall question of whether reasonable oppor-
tunity for contrasting viewpoints was afforded with respect . . . controversial
issues referred to in the complaints we have received. Letter to ABC, et al, 16
FCC 2d 650, 655-656 (1969)."

With respect to the allegation that CBS presented a "biased report on mobile
homes" we refer you to our letter of February 12, 1973 where we stated :

"[I]n order for the Commission to commence action in this sensitive area
it must receive significant extrinsic evidence of such deliberate conduct on the
part of the broadcaster in the form, for example, of statements from persons
who would have to be in a position to know what news had been deliberately
distorted or suppressed."

Your allegation of "bias" merely disputes the truth and accuracy of the
material presented and again fails to set forth any extrinsic evidence of de-
liberate distortion which the Commission requires before it can take action
in such matters. Therefore, further consideration of this point is not warranted.

With respect to your allegation that CBS violated the fairness doctrine, it
should be noted also that the Commission reviews complaints to determine
whether the licensee can be said to have acted reasonably and in good faith.
In addition, the fairness doctrine does not require a line by line analysis and
balance as to every statement made in discussing a controversial issue of public
importance. In this regard, the Commission in Letter to NBC, {AOPA Com-
plaint) 25 FCC 2d 735 (1970) stated:

"Clearly the licensee must be given considerable leeway for exercising rea-
sonable judgment as to what statements or shades of opinion require offsetting
presentation. ... A policy of requiring fairness, statement by statement or
inference by inference, with constant Governmental intervention to try to im-
plement the policy, would simply be inconsistent with the profound national
commitment to the principle that debate on public issues should be 'uninhibited,
robust, wide-open.' "

A review of the program script indicates that CBS presented views favorable
to mobile home ownership. This is evidenced by interviews with the President
of the Mobile Manufacturer's Association, Mr. John Martin, and a mobile
home dealer, Mr. O. R. Bennett. CBS also noted in its response that during the
March 12, 1972 edition of "60 Minutes" the program moderators read two letters
critical of the mobile home expose.

In view of the foregoing, and assuming that a controversial subject of
public importance was involved, it does not appear that CBS acted unreason-
ably or in bad faith in its decision to deny you time to respond. Accordingly, no
further Commission action appears warranted.

Staff action is taken here under delegated authority. Application for review by
the full Commission may be requested within 30 days by writing the Secretary,
Federal Communications Commission, Washington, D.C. 20554, stating the
factors warranting consideration. Copies must be sent to the parties to the
complaint. See Code of Federal Regulations, Volume 47, Section 1.115.
Sincerely yours,

William B. Ray,
Chief, Complaints and Compliance

Division.

,1062

[Reprint of transcript of "60 Minutes" as broadcast over CBS Television Network, Sun-
day, March 5, 1972, with CBS NEWS Correspondents Morley Safer and Mike Wallace]

Safer. It's an American phenomenon, the mobile home. It's a reflection of our
history : the modern covered wagon for the modern itinerant family. If you
live in New York and spend your time here, you barely know they exist. But
if you travel to Arizona or Kansas or Florida, as we did in the course of
this report, you find the mobile home park as ubiquitous and American as the
gas station or hamburger stand. More than seven million Americans live in
mobile homes and it's a phenomenal growth industry. Almost half a million
homes were made last year ; more than that will be made this year. 60 MINUTES
decided to take a look at the phenomenon and this is what we found.

From Key Biscayne in the Southeast to San Clemente on the Pacific Coast,
the sight of the trailer is to be seen across the land. "Trailer" is really not
what they're called. The current euphemism is "mobile home," but they are
rarely mobile. They are houses put temporarily on wheels in order to get
them from factory to mobile home park. Some people regard these places as
a blight on the countryside : acres of live-in shoe boxes covering the greenery
that has not already been covered by concrete. Others find them an answer to
the housing problem and enjoy inexpensive living in the great outdoors.

They're not the "Ma and Pa" trailer courts of 20 years ago. They're smart-
ened-up communities that are part of a multi-billion-dollar industry. And mil-
lions of Americans live in mobile home parks ; few are fortunate enough to live
in parks as elegant as this one in Florida. But the people who own the parks and
the people who build the mobile homes can't find land enough or mobile homes
enough to satisfy the growing demand. But a growing number of buyers are
growing angrier and angrier with both the sales methods and the building
practices in the industry.

Every 30 minutes, 25 a day in this plant alone, almost 500,000 a year, they
stream off the assembly line. But unlike the home-building business, mobile
homes are subject to almost no building codes. If you wanted to put up a simple
partition in a standard house, you'd be subject to every local building code —
fire, health, etc. If you build an entire house on wheels, the local building codes
do not even apply. The most common coach sold today is 12 feet wide and 60 feet
long. You can buy them double width or even triple width, and so long as they
put wheels on them, they can be built of cardboard and paste. They slip into
a gaping loophole in federal, state and even local laws in many places. Most
states classify them as vehicles, thus they get around the building codes. And
because they don't have engines, they get around the federal automotive stand-
ards. Most of them can only be moved by tractor or heavy-duty truck. Few ordi-
nary ears can pull the big ones. Yet once they're put on the mobile home park,
they are rarely moved from the site.

Half of the one-family houses built in the United States today are mobile
homes. Ninety-five percent of the houses sold for under $15,000 are mobile homes.
Attractive when new, they can fall apart long before they've been paid for.
Consumer fraud oflBces throughout the country have been flooded with complaint
after complaint from mobile home buyers. Most of them are about the cheap and
medium-priced coaches.

Typical of the complaints is this coach in Phoenix, Arizona, after only a few
months' occupancy. Ceilings that can be pushed up from the walls. Bathroom
fixtures rusting away and sinks coming loose from the wall. Kitchen cabinets
without sides and without bottom shelves. Sliding doors that do not slide, on
cheap tracks that come off the runners in a few weeks. Built-in drawers that have
to be forced open and closed. Heating vents that are not even fastened to the
floor and sometimes lead nowhere. "The cheapest sort of window insulation.
Walls so thin you can push them in with one hand. And the list goes on and on
and on. The ride from the factory to the dealer and the second trip, from the
dealer to the mobile home site, can turn a badly-finished home into a shambles.

Don Wallace. I've seen coaches come in where that the cabinets were off on
the floor and the paneling might be off laying down. I've seen them where the
ceilings have fallen down in them. A lot of them, when they come in like this,
the doors won't open on them.

Safer. Don Wallace used to sell mobile homes in Phoenix.

Don Wallace. The furniture package on a coach, which would consist of,
other than the appliances, a couch, a chair, two end tables, lamps, a table, an
occasional chair and, say, two beds in a two-bedroom trailer : dealer's cost,
about $165.

1063

Safer. In some parts of the country you can ride past acres of mobile home
dealers. It is a business of high profits and tempting possibilities. The phenom-
enal growth of the mobile home industry has led to the kinds of practices that
were common among horse traders and used car dealers in the past. This year,
almost half a million mobile homes will be delivered to dealers, many of whom
will use every trick in the book to make a sale. The favorite victims are the
naive, the retired, the elderly widow.

Don Wallace. Older people will become confused if you show them too many
coaches. So you could show them one coach or two coaches or three, sign them
up, get their payment, have them sign a blank contract and then deliver the
coach to them — except one thing: the coach you deliver to them wouldn't be
the one maybe they looked at.

Mrs. Regina Hubkr. I looked at one and decided that was it and that was the
one I wanted. But I didn't get the one I looked at and the one I picked. They
switched trailers on me. They gave me a more expensive one and, well, every-
thing was wrong. The plan was all wrong.

Safer. A victim of that practice was Mrs. Regina Huber. She told her troubles
to an Arizona Consumer Complaint investigator, Dick Wolff.

Wolff. Did you look at the papers you signed?

Mrs. Huber. I didn't see any papers. They were all blank ; everything I signed
was blank. And they didn't give me a copy of the sale or any sort of copy.

Wolff. Well, this shows that you have a balance of over $18,000. Payable 12
years, $125 a month. Is that correct?

Mrs. Huber. Correct.

Wolff. Think it's considerably more than you can afford.

Mrs. Huber. Very much so.

Wolff. What are your plans now?

Mrs. Huber. I'm hoping Legal Aid will do something for me, because I can't
afford to live here.

Wolff. You understand that you may lose the home?

Mrs. Huber. Very much.

Safer. Most mobile home dealers do not live in mobile homes. This is the house
of one of Kansas's leading dealers, O. R. Bennett, who switched from selling
pots and pans door-to-door to mobile homes.

What does the term "bait and switch" mean?

Bennett. A bait and switch, well, bait and switch, as I understand it. is to
advertise a house, a real cheap house, to get people out to your place of business,
and then switch them up to a higher-priced house, show them something real
plush and get them to buy that good house rather than that cheap one you
advertised. Most everybody, naturally, buys some kind of an old dog and I've
been guilty of that, too : buying a cheap house and advertising it — advertising the
price — and get people out and show them that house and be real frank with
them and tell them it isn't a very good house, then show them one that is a good
house and let them use their own judgment.

Safer. How far can you go as a dealer in satisfying people who come in with
complaint after complaint?

Bennett. Well, you're going to find this, that some people are going to complain
if it was gold-plated. Now, that's a very minority. And of course, what you've got
to do is try to pacify the — you can't satisfy everybody. The good Lord can't
even do that.

Safer. The conspiracies of man can be demoralizing. The hazards of nature
can be devastating. Mobile homes are peculiarly susceptible to high wind. When
wind swept through this mobile home park in Colorado, many of the coaches
were hurled through the air. Most states do not have requirements to tie down
the mobile homes at the site. These coaches actually were tied down with cables
said to be able to withstand winds up to 130 miles an hour. At 90 miles an hour,
the cable .snapped and the coaches were torn apart. In Arizona, strong winds
swept through this mobile home park with devastating results. And at Ft.
Rucker, Alabama, in January, a tornado swept through two mobile home parks :
five people killed and 80 injured. The coaches were lifted into the air and
smashed to the ground. The worst damage to nearby houses: a few roofs lifted
but no personal injury.

And wind isn't the only hazard. If there is a fire, the results can be deadly.
Syracuse, New York, this winter : five people dead within minutes of this mobile
home catching fire. Indianapolis : in the explosion and fire in this one, a two-
year-old baby died. A man living alone in Phoenix, Arizona, died in this mobile

1064

home. Producer Jim Jackson asked the Phoenix fire inspector to conduct an
informal post-mortem.

FiKE Inspector. The trailer was occupied by a single elderly man. And from
our investigation it appeared that he was smoking in bed, or at least the point
of origin was in the bedroom, which is to our rear back here. And our people
arrived on the scene and found the man — he obviously was trying to escape —
and they found him in the closet, right here. Either from being overcome by
the smoke or in his confused state, he clawed the walls and confused the closet
door for the door — the exit door.

Jackson. Are those claw marks on the wall over there?

Inspector. Yes, yes, they are. Those were made by the victim.

Jackson. Is there a higher mortality rate in mobile home fires than in standard
homes?

Inspector. Yes, there sure is. From our records here in Phoenix, in 1971 we
had about eight times the mortality factor in mobile homes as our ordinary
dwellings. A mobile home is virtually one fire area, whereas comparing it with
a dwelling, say a bedroom in a dwelling, if the door should be closed, then that
fire area is limited to the bedroom. The persons in the far end of the trailer
would have been just as susceptible to being overcome by the smoke and heat as
the victim was.

Complete destruction here because they've taken a plywood that when manu-
factured has a high rate of flame spread and then they take and they coat it with
highly combustible materials, your lacquers, your spar varnishes. As indicated
in this particular room here, you have complete destruction of the plywood, yet
in very close proximity you have a cotton, loosely-knit drape that is only heat-
and smoke-damaged and has not been consumed by fire as the plywood has.
All mobile homes, because they are compact, are using smaller windows. And
with this type, it would be virtually impossible to use windows as a means of
escape.

Safer. In spite of all this, there are more than 15,000 mobile home parks in
the United States and their numbers grow every year.

In Florida, where sites are at a premium, the owners of mobile home parks
can dictate the most stringent terms. We talked to an attorney for a mobile home
owners' association in Florida, Alvin Enton.

What's life like in these mobile home parks?

Enton. It's not easy. These mobile home parks in south Florida don't offer
leases and all the people that live in these mobile home parks are month-to-
month tenants, which means they can be evicted at the landlord's whim for no
reason at all on 15 days' notice. So life in these mobile home parks is one of
constant fear.

Safer. You mean he can just say "Out !"

Enton. He can just say "Out !"

Safer. Is this a good business, owning a mobile home park?

Enton. It's a real good business. You take some of the newer parks, where
right now, in order to get a space, you have to buy the mobile home from them.
Therefore, they immediately raise the prices of the mobile home because they've
got an exclusive dealership. There's money to be made there. Then they put it
on the land, which they rent from anywhere from sixty-five to ninety-five dollars
a month. Then after they take it and put in on the land, they'll charge you in
some parks as much as eight dollars a month for each child that you have. They'll
charge you five dollars a month for a washer, five dollars a month for a dryer,
then they'll charge you five dollars a month for a pet. And once they're done
adding up all thees extra charges, plus the money you're paying on the mobile
home and finance charges, they're making off like a bandit.

Safer. But the basic problem, the very first bit of banditry — or carelessness —
is often in the construction of the mobile home itself. The industry has put out
a code describing minimum standards. But manufacturers are not bound by the
standards and, as in most self-policing industries, there is the suspicion that
self-policing has become self-protection.

California and some 25 other states have adopted the manufacturers' code. It
exists on their statutes, but it is rarely enforced. But even if it is. the manu-
facturer can still stay in business. For example, Arizona, which has no code,
has become a dumping ground for rejected coaches from California, which has
adopted the code. Another state with free-wheeling and fiy-by-night manu-
facturers and dealers is Kansas. An Assistant Attorney General for the State
of Kansas is trying to clean up his state. His name is Lance Burr.

1065

Are there no minimum standards for building these things?

Burr. Well, there's no federal or state or local regulations. The industry has
proposed some standards of their own. But as far as I know, one does not have
to meet these standards.

Safer. What recourse does an unhappy customer have? What can he do?

Burr. Well, right now, I don"t think he has very much — hardly any recourse,
to be frank about it. The warranties are ineffectual ; they're — ^some of them are
only 90 days. Most of the things that go wrong usually occur right after they
get the trailer or within a short period of time. The unit is then out of warranty.
We had one company that said that if you want your warranty honored, you
have to bring the trailer to us, which— it was about seven or eight hundred miles
from where the per.son purchased the trailer. And so, right now, there's just not
much a consumer can do.

Safer. Shoddy construction, fire traps, unscrupulous dealers. There is still
more to tell. In most states, once a mobile home is sold on credit, the dealer, who
is also the finance company, can take the contract and sell it at a discount to
another finance company or to a bank. The effect of this is to release the dealer
from all of his contractual obligations — like making good, damage caused by
shoddy workmanship — but still binding the customer to his financial obligation.

Burr. There's a doctrine in Kansas, as there is throughout the United States,
called the holder in due course doctrine. The bank simply says : You've got to pay
us because we're a holder in due course and we purchased that paper without
any knowledge that there was anything wrong, and so don't talk to us about
any contract defenses, because you have to pay us. And that's the way the law
is in Kansas, as it is in about 30 other states in the Union. There's about 20
states that have been progressive enough to abolish it. We're in a big fight
right now attempting to get this doctrine abolished as it applies to all consumer
goods and services. But it's particularly bad in the mobile home — with the mobile
home problem, because there's so much money involved.

Safer. So the only two times that a mobile home is mobile is the day it's
delivered and the day it's repossessed.

Burr. I guess that could be said in some cases.

Safer. So far, we've heard from just about everyone but the people who make
the mobile homes. Well, we went to the Mobile Homes Manufacturers Association
and the first thing they told us is that there is a code — this book of rules, which
they themselves sponsored.

It must be pointed out that not all coach builders belong to the Association. But
most of the bigger companies do. The manufacturers' association say that if all
states adopted their code, their — and I quote — "bad image" would be improved.
I asked the President of the manufacturers' association, John Martin, how effec-
tively the code is policed where it does exist.

Martin. Well, it's been something that we've had to police ourselves and this
is one of the problem areas, that people say, "Well, it's an industry-enforced
code." But we have done it as a requirement of membership, we have terminated
companies who have not complied \\-ith it, and our Association has taken that
standard into various states to get it adopted to the state law — not to be enforced
by us, but by state inspectors. The first state to do it was California, and they
are probably the strongest as far as enforcement. And I think California has
something like 32 men involved in this field.

Safer. As somebody told me, that they're dumping all the ones that get red-
tagged in California in Arizona.

Martin. Well, I think this is where a manufacturer, whether he does it in-
tentionally or unintentionally, and he gets a unit that's bad, he might do that.
That's why we feel that a state law requiring state enforcement is necessary in
every state.

Safer. What about attempts to cut comers ? They seem to put them up awfully
quickly.

Martix. They build a lot of them in a hurry, that's right. I think the shoddy
workmanship that you might find in some of the less-expensive units or those
where there's no regulation could be a problem. But I don't think that the manu-
facturer intentionally cuts corners in between visits by inspectors. I don't think
he says, when an inspector walks out the door, "Okay, boys, knock off every other
stud." That's not the case. The manufacturer gets in a production line basis and

1066

his units are going down the line and the men on the job have the same respon-
sibility on every unit to see that it's done right.

Safer. Is the mobile home business a good business?

Martin. It has been a very good business and quite a growth business. 1971 was
our banner years, with almost a half a million units. And people like mobile
homes.

Safer. Many people do like living in mobile homes and not the least reason is
that it is the least-expensive kind of home that you can really call your own. It
should also be pointed out that most of the mobile homes produced in this country
are sound ; at the very least, they conform to the manufacturer's own specifica-
tions. But a significant number are badly enough made to worry the entire
industry about its image. All of the industry has been thriving in the current
unregulated climate. And until all the states or the Federal government decide
to do something about it, the sharp practices and the shoddy construction we've
just seen will continue.

Mr, Martin. I might point out that that request was denied by
Mr. Ray, one of the staff members of the FCC and Mr. Cliff Wilmath
has taken the next step, to file with the Commission itself.

The Chairman. With the full Commission ?

Mr. Martin. Yes, sir.

The Chairman. I note he said the way the request was filed that
it was being acted upon by him, but that he could ask for the full
Commission.

Mr. Martin. And he has done that, sir.

The Chairman. Thank you very much.

Senator Taft?

Senator Taft. Thank you, Mr. Chairman,

I might just say that I have just had a chance to review your state-
ment briefly here. I will review in far greater detail the comments on
the proposed amendment to S. 1348,

I gather that you feel that the warranty approach is a perfectly
sound approach within the limitations of the suggested changes that
you propose here?

Mr. Martin, Yes, sir. Senator, in keeping with that approach and
your warranty, which we do approve of with a couple of suggested
changes we have recommended. We also have model legislation that
we are hoping to get introduced in various States throughout the
country, so that at least something is going in that direction at the
same time. Because we feel the warranty is an important part of pro-
tecting the consumer in this issue.

Senator Taft, With the warranty running to the consumer ?

Mr, Martin. Yes, sir.

Senator Taft. Even though there isn't legal privity in some
instances ?

Mr, Martin. So that the manufacturei- and the dealer fulfill their
obligation to be sure the mobile home is satisfactory to the consumer
through the life of the warranty.

Senator Taft. I have a number of questions from Senator Brock,
the sponsor of this bill. I will ask them at this point, if I may, Mr.
Chairman,

The Chairman. Yes, but before we get away from this last question
you asked, may I ask this : You said that you have model legislation.

Is it your hope that it can become uniform legislation in all of the
States?

Mr. Martin. Senator, this is a project that we started prior to Sen-
ator Taft's amendment being introduced and we intend to proceed

1067

with it regardless of what happens to the legislation or the amend-
ment as far as the Senate is concerned.

We feel that this approach has to be taken in order that there be
unifonnity in warranties throughout the country.

We have seen abuses, so far as after-the-sale service, and whether
a manufacturer or dealer causes it or not, we think these things should
be corrected.

The industry had already started to go with the model legislation
to get the program underway.

The Chairman. I know, but the point is though, is it your hope
that it will be adopted State by State and not as Federal legislation ?

Mr. Martin. I must admit we prefer the State-by-State approach
initially.

The Chairman. I wonder if you would supply us with a copy of
that model legislation ?

Mr. Martin. We would be most happy to, sir.

The Chairman. For the record.

All right, thank you.

Senator Taft?

Senator Taft. Thank you, Mr. Chairman.

Some of these questions you may be able to answer quickly and
others, if you care to, you may submit further information later on.

According to statistics published by the Office of State Fire Marshal
in Oregon, mobile homes are more unsafe than site-built homes.

Do you have any comment regarding these statistics ?

Mr. Martin. Yes, Senator.

One of the things they pointed out in their statistics, and it has
been used by two Members of Congress up to this point, as well as
by other outside organizations, the thing they fail to mention is there
is less likelihood of a fire in a mobile home than any other type of
housing. That is m the same report, but not one that is picked up by
our critics.

There are other points in there. They talk about a fire death ratio,
which is several points off in their report, and the Oregon people are
going over the reports now to change it.

Senator Tapt. "\^niat effect would a completely new construction
code have on the mobile home industry ?

Mr. Martin. If we are talking about a new construction code, we
are using a 119.1 as a national building code for mobile homes, and
we think that the way it was developed by these other agencies is
the proper way to develop a national code.

If the thought is to come up with something completely different
than All 9, or at least using A119 as a guideline, then I think it is
contrary to the best interests of the consumer and would certainly
damage the industry.

Senator Taft. Does the ANSI code provide sufficient protection
to mobile-home owners from injury or loss of life ?

Mr. Martin. Senator, I think it does. As Mr. Bono of U.L. pointed
out, there are changes being made continually. Every year there are
revisions being made to A119.

To give you some examples quickly, we have such things as changing
safety glass requirements in mobile homes, in larger windows, flame
spread requirements on the paneling, ground fault equipment, truss
tests, increased insulation, anchor tie-downs, the last one under con-
sideration now is smoke-detection devices.

1068

These are things that the industry, working with the ANSI com-
mittee, has already put into effect.

Senator Taft. The ANSI consensus standards approach has been
criticized in the past as being unresponsive. I take it you feel recent
changes have been made which improve the safety standards?

Mr. Martin. We feel it is very responsive, and there are several
Federal agencies and other outside agencies that come to ANSI with
standards that have been incorporated into A119 and the requirements
for the industry.

Senator Taft. In the testimony, you suggest that a part of section
112(d) be omitted. This section requires that technical data be given
to the first purchaser of any mobile home.

Why do you feel they do not need to have this type of material?

Mr. Martin. I would have to state, Senator, that it would probably
be like providing a copy of blueprints to every person that buys a
home or any other commodity. I think that the people are interested
in floor plans and the fact that it does comply with the State or Federal
requirements. Prospective purchasers requesting a detailed set of plans
of mobile homes, just by itself, would raise the cost not only to the
manufacturer, but to the consumer ultimately.

Senator Taft. I am not sure whether you mentioned it in your
testimony, I am sorry I wasn't able to be here earlier, but what has
been the experience in recent months particularly with regard to tor-
nado damage on mobile homes?

Mr. Martin. The tie-down requirements on tornadoes, this study
started some years back, and frankly it was because the industry
started getting larger, and going to different parts of the country and
becoming more of a factor in housing. It became more of a prominent
problem, so the industry started the testing approaches to come up
with anchoring tie-down requirements.

We have imposed that on our members, we have worked with the
States to impose it by law in the State legislatures, and we also have
legislation, model legislation, that we provide to a State and say here
is the suggested way to require that mobile homes, all mobile homes in
the State, be tied down.

And the industry supports the tie-down requirement.

Senator Taft. Do you think the tie-down method is adequate to
handle this problem ? I don't know how strong the tie-downs specified
are, but are you dealing with something that can be handled in this
way?

Mr. Martin. There are several approaches to tie-downs. Some came
underneath the unit to hold down the floor. Our standard specifies
that there must be tie-down straps over the top of the mobile home,
spaced at a periodic spacing according to the length of the mobile
home. And those tie-down straps then are fastened underneath the
units in an appropriate manner.

There are several engineering tests that have been prepared to back
up these different approaches of tie-down. There are probably a half
dozen tie-down approaches that we have.

We would prefer the over-the-top strapping.

Senator Taft. Thank you, very much.

Thank you, Mr. Chairman.

[Complete statement of Mr. Martin and additional information
follows :]

1069

Remarks on S. 1348, S. 898, S. 899

For

Senate Subcommittee on Housing
and Urban Affairs

July 24, 1973

By

John M. Martin
Mobile Homes Manufacturers Association
Trailer Coach Association
And
Southeastern Manufactured Housing Institute

Mr. Chairman, Members of the Committee:

My name is John M. Martin and I am President of the Mobile
Homes Manufacturers Association, P. 0. Box 201, 14650 Lee Road,
Chantilly, Virginia. I am also appearing on behalf of the Trailer
Coach Association, 3855 East LaPalma Avenue, Anaheim, California,
and the Southeastern Manufactured Housing Institute, 348 E. Paces
Ferry Road, Atlanta, Georgia. Together, our Members • produce approx-
imately 75 percent of all the mobile homes manufactured in the United
States each year. In addition, we represent approximately 3,000
dealers from coast to coast'.

Attached to the copies of my remarks is a copy of "Flash Facts
on Mobile Homes," a pamphlet which gives a composite look at the
mobile home industry, its growth, its consumers and its prominence
in the marketplace for homes selling for under $25,000. This
booklet also contains a great deal of historical data on the industry.

1070

We are here today to lend our support to the principles embodied
in S. 1348. While our industry is not totally convinced of the need
for federal control of mobile home construction, we find ourselves
in a position which the majority of American industries find themselves
today; that is, faced with an ever-increasing burden of federal |
involvement. While several mobile home "safety" bills have been
introduced in the last year and a half, we feel very strongly that
none of the proponents of this legislation has made a particularly
compelling case establishing the need for federal mobile home safety
standards. Nevertheless, if federal regulation is to be mandated
by the Congress, we feel certain minimal requisites should be
included.

One of the strongest points in this legislation is that it
would achieve reciprocity among states for our homes and would also
create uniformity of inspections to a degree far beyond that which
we have been able to develop through individual state by state
legislation. At the current time, 36 states have adopted the
American National Standards Institute Mobile Home Standard A 119.1.
We have actively sought enforcement legislation in each state and
have consistently offered the technical experts in our Standards
Division as a resource to the states to assist them in training
and developing inspection capabilities. This has apparently not
been sufficient for Congress, as a number of mobile home safety
bills have been introduced in the last year and a half.

The following is a Section by Section analysis of amendments
which the industry feels would strengthen S. 1348 and ensure a
workable law from which the consumer would benefit and the industry

1071

could support. Also attached is a copy of S. 1348 marked up with
our recommendations.

Section 102 (6)

The definition presently included in S. 1348 would restrict
the law to "single wide" mobile homes only. We feel that the
following definition would adequately cover all mobile home product-
types and, therefore, be the best definition for the purposes of this
Act:

"Mobile hone" means a structure, transportable in one
or more sections, which exceeds eight body feet in width,
equipped with running gear, and designed to be used as
a dwelling when connected to the required utilities;
The above definition separates the mobile home industry from
the recreational vehicle industry and, yet, it clearly defines
all mobile homes.
Section 103 (a)

The American National Standards Institute has spent 13 years
developing what we feel is a good performance standard for mobile
home construction. We would like to recommend that in Section 103 (a) ,
line 8, the following insertion be made after the word "standard";
"shall be reasonably consistent with nationally recognized standards
as promulgated by the American National Standards Institute," . This ,
we feel, would strengthen the legislation by giving the Secretary
of HUD an example in performance standards upon which he could base
his national mobile home safety standards. A great deal of research
and work has gone into this standard by ANSI, the National Fire
Protection Association, the Department of Housing and Urban Development,

1072 J

the International Association of Electrical Inspectors, Underwriters'
Laboratories, Incorporated, the National Bureau of Standards, the
American Gas Association, numerous state officials, and many other
groups. In addition, it has been adopted by some 36 states and is
awaiting enactment into law in several others. As you may already
know, it is also the standard required by both the FHA and the VA
as a condition of participation in their respective mobile home
programs.
Section 103 (g)

The American National Standards Institute Mobile Home Standard
A 119.1, has evolved to its present form over a period of 13 years.
It was developed through the cooperation of a large number of
professionals from all fields of building standards, government, and
industry. It has taken a great deal of time and research to develop
this comprehensive standard; and, therefore, we are opposed to setting
a deadline for the Secretary of the Department of Housing and Urban
Development for a complete revised mobile home safety standard one
year after the enactment of this Act. We would suggest that HUD
take the mobile home standard A 119.1 and continue to accept
modifications to this standard as the industry has in cooperation with
numerous technical experts over the past 13 years. To request that
the Secretary have new and revised mobile home safety standards after
one year is to suggest the impossible, and we cannot see any advantage
to either the consumer or the mobile home industry for this kind of
deadline to be mandated by law.
Section 104 (a)

The National Fire Protection Association, we feel, should be

1073

represented on the Mobile Home Safety Advisory Council, and mobile
home industry component suppliers should be included as well. Both
groups have participated extensively in past standards-making
activities and possess considerable expertise which could be con-
tributed to the Mobile Home Safety Advisory Council. The National
Fire Protection Association is a cosponsor of the ANSI A 119.1 standard
and is the national clearing house for fire safety information and
fire safety standards. They reference the mobile home standard as
NFPA 501. B. The suppliers of mobile home components are knowledgeable
in materials technology and have been instrumental in the development
of the mobile home as we know it today. Their inclusion on the
Safety Advisory Council will ensure that the standards are kept
current with advances in the building materials and components
industry.
Section 108 (b)

Section 108 (b) has a totally new concept embodied in it with
which the mobile home industry disagrees. Due to the fact that no
one has ever attempted to create standards for used homes, for used
mobile homes, or for used motor vehicles, we feel that such legislation
is entirely out of perspective with the building industry. There
appears to be no legislative justification whatsoever for this
kind of amendment. The only type of legislation ever passed with
this kind of amendment embodied in it was the National Motor Vehicle
and Traffic Safety Act of 1966 which included a provision for
standards for used automobiles. Seven years after the enactment of
that bill, no attempt has been made to actually create these used
car standards. This has not been done because a system of standards

1074

and enforcement would be difficult, if not impossible, to Implement.
The same dynamics which affect used car standards come to bear on
used mobile homes as well. The owner of a used home would be
faced with a depressed price for his noncomplying home in the event
he chooses to trade it in on a new home. His alternative would be
to bring the home into compliance at his own expense and then privately
offer it for sale. The used home market would be adversely affected
to the extent that resale prices would almost surely bring them into
competition with new mobile homes. The average retail price of the
nearly 600,000 mobile homes sold in 1972 was approximately $7,000.
This price included all major household appliances, carpeting, and
draperies. A noncomplying used home brought into compliance through
manual construction practices at today's wage and material prices
would cost as much as many of the less expensive new homes being
offered for sale today. It should be readily apparent that there
would be little market for such a renovated home; and, moreover,
dealers would be extremely reluctant to accept them as trade-ins,
renovate them, and offer them for resale. Finally, we know of no
prevailing conditions in the private housing sector which require
a home offered for sale to be brought into compliance with existing
codes before any such sale is consummated. Mobile homes, like site
built^ homes, are subject to alterations which are occasioned by
conditions of use by the occupant. We feel it would be an unjusti-
fiable and devastating economic burden to require that used mobile
homes which are offered for sale meet any such test.
Section 111 (a) (1)

The mobile home industry feels that the repurchase agreement
embodied in Section 111 (a) (1) is an unnecessary and particularly

1075

onerous addition to S. 1348. The vast majority of mobile home
manufacturers warrant their products and stand behind their warranties.
It is for that reason that we find no particular fault with the
provision requiring the manufacturer to furnish the distributor or
dealer any required component part and, further, to reimburse them
for any reasonable cost of installation. Almost without exception,
this method of correcting compliance deviations would be superior
to a scheme whereby the home would have to be returned to the factory.
Mobile homes are permanent dwellings. They are designed, quite
frankly, to be moved from the factory to the site. They may be
moved once sited, but this relocatabM.i<-> capability is not a
factor in the purchase decision of the majority of mobile home
owners. They are seeking dependable housing which they expect to
perform as well as any other type of shelter but at a price which they
can afford. Again, we must emphasize the fact that no producer of
any other type of shelter is faced with a repurchase agreement such
as^hat embodied in S. 1348. The simple requirement that manufacturers
bring any noncomplying home into compliance obviates the need for any
provision as excessive as the repurchase requirements. This bill
provides extreme penalties for flagrant violators of the Act under
Section 109.

In the past, manufacturers have voluntarily replaced homes
when it became apparent that there was no other solution to the
consumer's problem. Repairs have been made on homes which have
been out of warranty for three to five years. All reliable mobile
home manufacturers realize that the best ally they have in the
marketplace is a reputation for building a quality product and

99-855 O - 73 - pt. 1 -- 69

1076

ll

standing behind it. If the Committee insists on retaining the

repurchase provision in Section 111, we would respectfully urge

that they either include language in the Act or recommend administrativen

procedures to the Secretary which will protect reputable manufacturers ,

from having to summarily repurchase noncomp lying homes.

Section 112 (d)

Under this Section, the Secretary can require the mobile home
manufacturer to provide performance and technical data to each jl
prospective purchaser of mobile homes. The mobile home manufacturer
can easily understand why it would be necessary to provide technical
data and performance information to the Secretary; however, we feel
that it could be an unnecessary burden to require that technical
data be furnished to the average individual purchaser of a mobile
home. Most mobile home manufacturers today furnish pertinent
booklets and materials for the consumer's educational benefit; and
we do not feel that the average mobile home purchaser would be
capable of utilizing technical plans and data as appears to be
required under this section. Providing prospective mobile home
purchasers with technical data would be the equivalent of having
home builders provide prospective purchasers with blueprints.
The typical home buyer is interested in floor plans, room layouts,
and the like. We respectfully suggest that he is not interested
in technical data regarding the heating, electrical, plumbing, or
mechanical aspects of his prospective home.
Section 113

This Section, which requires the manufacturer to notify purchasers
of defects discovered after the home is acquired, should be primarily

1077

concerned with deviations affecting life safety. The notification
of defects provision comes directly from the National Motor Vehicle
and Traffic Safety Act of 1966. While it may be appropriate for
motor vehicles which are mass-produced through automated techniques,
we feel strongly that it has no applicability in the housing field.
Defective component parts of mobile homes are specifically covered
under the '-consumer Product Safety Act and, in fact, a gas range
manufacturer has already effected a defect notification campaign
to mobile home owners and dealers under the provisions of that Act.
Moreover, accordiijg to an opinion issued by the Federal Highway
Administrator on March 20, 1970, mobile homes are, in fact, subject
to the provisions of Section 113 of the Traffic and Safety Act.
For purposes of regulation, mobile homes are defined as "mobile
structure trailers" by the National Traffic and Safety Administration
^o further require defect notification under S. 1348 would be to
perpetuate needless redundancy. On the other hand, should the
Committee wish to bring this function completely under the purview
of the National Mobile Home Safety Standards Act of 1973, we
respectfully urge that they clarify the jurisdictional picture by
amending Section 113 of PL 89-563 by specifically excluding mobile
homes from that Section.

In review, there are three provisions embodied in this
legislation to which we would like to give our full support.

First of all, S. 1348 would develop one national standard under
which all mobile homes will be built. Much has been said in the past
in favor of a single standard in the home building industry, but most

1078

efforts to develop such standards have been futile. The National
Mobile Home Safety Standards Act is a step in the right direction to
ensurie uniform performance standards for a large segment of the
home building industry.

The mobile home industry has been able to maintain the low
cost of its home because of two major factors; the first is the
ability to produce the homes year round because they are built
indoors in a factory. The second, and most important, is the ability
to build the home to a single, universal standard. Through a series
of state laws which have preempted local jurisdiction, the mobile
home industry has been able to avoid costly construction changes
necessitated by compliance with the code requirements of a multiplicity
of local political jurisdictions. If the various states are permitted
to deviate from the federal construction standards, one of the major
benefits of S. 1348 will be forfeited. Permitting states to deviate
from or exceed the federal standard would not be consistent with the
current state of the art in the mobile home industry and would
introduce chaos into the standardized production sequence. A viable
performance- type standard, such as the ANSI A 119.1, will provide
every state with the latitude it needs to meet its particular
construction requirements.

A second concept which we fully support is that of reciprocity
between states. It has often been pointed out that economies in
the housing industry can only be accomplished when economic boundries
become the only limiting factor to a manufacturer's building
capabilities. By requiring a single preemptive federal standard,
this legislation can provide the various states with knowledge as to
the type of homes being built by their neighboring states. A single
standard would, in effect, achieve reciprocity.

1079

The third important factor which the industry fully supports
is that of state enforcement. Some states already have strong
enforcement systems. The passage of this Act will enable the
balance of the states to create and implement effective enforcement
programs. Good examples of strong state inspection systems are the
States of North Carolina and California.

North Carolina has chosen to contract their enforcement program
to a designated "third party". Under this system, qualified,
independent laboratories submit their credentials to the State for
approval. Underwriters* Laboratories, Incorporated; United States
Testing Company; and Pittsburg Testing Laboratories, Incorporated
are typical of the type of laboratory which is approved for enforce-
ment responsibilities by the State of North Carolina.

California, on the other hand, has an agency within the State
governing the inspections of mobile homes under production and
enforcing the construction standards. Both programs do an
excellent job of assuring that the consumer is provided with a
home which is built in compliance with existing state standards.
States such as Minnesota and Indiana, have dual programs which
provide for enforcement by either state employees or independent
third parties.

In summarizing my comments regarding S. 1348, let me strongly
re-emphasize the point that any federal program which does not
include the ingredients of reciprocity, state enforcement, and a
single preemptive federal construction standard, cannot be effective
in providing the best possible home at the lowest possible price.

1080

After the introduction of S. 1348, Senator Taft forwarded an
amendment which would require manufacturers to warrant their home
for a period of one year from the date of purchase. While the
amendment is commendable in its intent, we must point out that its
method of achieving consumer satisfaction does not take cognizance
of the djmamics involved in effecting mobile home repairs. The
dealer is an integral part of the mobile home service and repair
system. He is the first person to whom the mobile home owner turns
in seeking assistance for repairs to his home. Mr. Taft's proposed
warranty makes no -provision for including the dealer in the
achievement of consumer redress. We would like to suggest the
changes in his amendment beginning with Section 114 (2) .

Strike everything from the first word, "agrees..." through the
end of the sentence which concludes, "...section 113." We recommend
that the following be inserted in its place: "warrants that the
mobile home was manufactured in compliance with the standards
specified under Section 103 of the National Mobile Home Safety
Standards Act of 1973 and was delivered to the dealer in such
condition. Dealers shall warrant that the mobile home, when sold to
the buyer, is in compliance with the standards specified under
Section 103 of the National Mobile Home Safety Standards Act of 1973.
Neither manufacturer nor dealer shall be liable for any defect in
said mobile home which is the result of improper set up, move,
materials furnished, or work done by persons other than manufacturer
or dealer.

(c) Manufacturer and dealer warrant that they, or one of them,
shall take appropriate corrective action at the site of the mobile
home in instances of noncompliance with the aforementioned standards

1081

for which they are respectively responsible, as provided in
paragraph (b) (2) hereof, which becomes evident within one year
from the date of the delivery of the mobile home to the buyer provided
that the buyer gives written notice of such defects through the
manufacturer and dealer at their business addresses not later than
one year and 10 days after date of delivery to the original buyer."

We further recommend that the balance of Section 114 (2) (b)
beginning with the sentence, "In the event..." through the end of
that Section be lettered as Section (d) .

As we have stated earlier, mobile home manufacturers make a
practice of providing warranties and standing behind them. However,
any proposed warranty, in order to be effective, must be equitable
to all parties involved. Giving the manufacturer the responsibility
for providing parts and service for the repair of any standards
deviation is neither justifiable nor equitable. Mobile homes are
'subject to activity not generated by the manufacturer once they
have left the factory and been placed in the hands of a dealer.
Transportation companies, dealers, park operators and, in some
extreme cases, even owners cause them to be moved. This is done
with varying degrees of expertness, or inexpertness, if you will.
Similarly, mobile homes are installed at the site by dealers, park
operators, and again, in some extreme cases, owners. The installation
and set up of a mobile home is critical to the performance of that
home as a satisfactory dwelling. If it is not installed, leveled,
or blocked correctly, it may malperform in a variety of ways. 7.;-
manufacturer, who is remote from the 1- ' ' latiot •>.•? no way

of ensuring the integrity of r: fn tion and set -irs -.tO'-iace.

1082

For that reason, we strongly urge that the Coimnlttee adopt the
language suggested above in favor of that forwarded in the Taft
amendment .

We would like to make a few additional comments regarding
S. 898 and S. 899, which are also being considered here today.
Senators Hollings and Cranston have sponsored S. 898, a timely
and much-needed adjunct to the FHA mobile home mortgage insurance
program. This bill would change the FHA program in three ways.

First, it allows a provision for the mobile home lot and
improvements to t^e lot to be added to the FHA insurance program.
This is a necessary addition since nearly 50 percent of all mobile
homes are sited outside of mobile home parks. This provision
would allow the individual to purchase a developed lot or purchase
land and develop his own lot with maximum FHA insurance up to
$7,500 or up to $5,000 for the purchase of an unimproved lot.

The maximum length of financing under the existing program
is 12 years and 32 days for a "single-wide" with an improved lot
and 15 years and 32 days for two or more modules on an improved
lot. The mobile home industry strongly recommends that the maximum
maturity be extended to 20 years and 32 days for the mobile home
and improved lot instead of 12 years and 32 days for the single-
wide and 15 years and 32 days for the double-wide as recommended
in S. 898. In the past, the mobile home has been considered much
like the automobile in that it has a decrease in value as it increases
in age. However, it has been found that when a mobile home is placed
on a permanently developed site, the over-all package of both the
mobile home, land, and improvements increases in value in a similar

1083

fashion to that of the site built home. All mobile homes insured
under FHA must be built to the American National Standards Institute
Standard A 119.1. This performance standard has been improved to
the point where we feel strongly that a mobile home, with proper
care, will have a life span far exceeding 20 years.

In a recent Federal Reserve Bank of Chicago Review of. Mobile
Homes and the Housing Supply, the author states that, "Properly
maintained and barring a catastrophe, a well-constructed mobile
home can last indefinitely, like conventional housing."

A study published in April 1973 by the Research Triangle
Planning Commission of Research Triangle Park, North Carolina, had
this to say about mobile homes built to the ANSI A 119.1 code:
"Use of this Code is likely to reduce safety hazards associated
with mobile home living. The safe and useful life of units com-
plying with the Code is estimated at 20-25 years." The study
attributed this assessment of mobile home product life to Mr. Kern
Church, Chief Engineer, North Carolina Department of Insurance; and
Administrator of that State's mobile home enforcement program. In
the Senate Housing bill of 1972, 20 years was the approved maximum
loan-term for two or more modules. Logic dictates that this is
equally applicable to the single wide mobile home built to the
same standard.

A third important change embodied in S. 898 provides the
Secretary of HUD with the authority to set maximum interest rates
for FHA Title I mobile home insurance. The mobile home industry
enthusiastically supports this recommendation. The Federal Reserve
Board reports that the average interest rate on mobile homes for

1084

the first six months in 1973 was approximately 12.5 percent. The
FHA interest rate, due to a sheet summary originally developed for
the home improvement portion of FHA Title I, allows an average
interest rate of 8.5 percent on mobile homes. Unfortunately, due to
the set rate on Title I, potential mobile home buyers have been unable
to use the FHA insurance program to any great extent. If the
Secretary of HUD were to set the interest rate somewhere between
the current conventional rate and the present FHA rate, the FHA
insurance would aid prospective home buyers by allowing them to
obtain financing dt a lower rate. To leave the program as it
presently exists would frustrate the original intent of Congress to
make mobile homes readily available to those Americans unable to
afford other housing alternatives.

S. 899 would extend to the Farmers' Home Administration the
same provisions afforded the FHA under S. 898. An increasing number
of mobile homes are being sited in rural America. The purchase
price of the home and the improvements to the home site are more
often than not being financed at interest rates whicli average
approximately 12.5 percent annually. An analysis of the FHA loan
program has revealed that in only a very few instances has it been
able to afford assistance in these rural home owners. They are
paying the penalty for wanting to remain in a rural environment.
Extension of the FHA program provisions to the Farmers' Home
Administration would provide financing at a far more favorable
rate than is available through conventional sources. The historical
development of the mobile home industry has shown convincingly that
the majority of mobile homes sold are being sited in rural and

1085

semi-rural areas. Our projections for growth indicate that this
trend is likely to continue in the years ahead. This Committee
can aid the potential buyer of thfe future by expanding the Farmers'
Home Program to include mobile homes. If this is not done, thousands
of mobile home ovmers will be forced to suffer the penalty of paying
high interest rates which result as a lack of a viable federally
insured mortgage insurance program.

Mr. Chairman, this concludes my remarks. We would be happy
to answer questions that you or other Members of the Committee might
have at this time.-

1086

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Ami s-iJ'.-.rirT l.'fi. H7
(111 ji.ii'o vv I'' ' fi, .sfr:lT o\il "«.r*',
»jn p.>r<^ I''. iH'lwioii 111 in II und 0, In-
r-rr\. Vlic (,.llou luf;

"(1) full Ui I- uc h MiriiiiitT ir'iulrr<l V/»
lection 1 14. \-'r\\r n v uriniity ulilc h lie knows
or hui rci\rv.>n to ): now (U.-<."i not ru'-rt 111** rp-
qvilii inri.t.i of Kii.llon 111. or full or rctii^r to
jMrfcnn ilutlcs owlnp \iudei k\tch n wnr-
rf>nty; or".

cm pnpc 12. line P, r.trll:e out "(4)" and lu-
Mt t In lieu tliorcof " (G)".

Oii imilf 23, Uno I. Elrlke out "within a
rcnse>n3blo time" and Insert In Ucu thereof
"piMinplly".

On ivi:e S.l. line 17, (tflcr "CEJITIFICA-
■nON" Iri.'.ert "AJID WAIlR.MiTY".

On paf.e 25, Uno 10, after "IH." Insert
"(a>".

On pace 25, ftftcr line 24, add the follow-
In^:

"(b) I-'.cry ntrtnufartiirer thnll furnl'jh to
eacli fii:it purclia^'cr of r mobile home for
pvirpor.co other thun rcrtile n warranty under
vihlch such nmnufacturcr —

"(1) w^irrratf; that the mobile home meets
a!l appllcnhlc stanUaids tinder section 103;
riitl
• -^^•^2) fcfjrftOB In rcpnir. cr jrp'nrn If -noryr-
rnrv, u, .tln^iut rr.ii,t to cueh pvifolicwwri the
mnVl'c h-mn fir miy pr^rt thrrmt if (A) ru'-h
TOotjtlo homo CL paxt iJ«ee-ntrt~<K'niprT-*U+h
am: iucli EVau<l-"-rd, «ik1— (B> mtrh ptrrctmiicr
piuj TTlllnn n'?'iiro tlmrrof to the moRu-
f.aluiii Of tu tiny i»;rii» clc-stf noted i»y the
ir^ii'if.uJUU'i' 101 — Uir jiuiJJOW or reccivTrtn
fiU';h uotjifc wltiiln 0<><v-yf<\r (cr Enrft temper
11"'..^ porif^l n,*; liie jtmnufacturor rhill r^t

th-fr*-— 'M-*!' "■^"'■^ fKoii iimt. -t»e- ftqritffd ter
ifTtnln'i nr rffplrif p"i"i^' i ]i t -nr...^,, y iii.,i« j^..
<i,,-,,> I'fr''^' fi-y.ih.-fi to i,W3-T^"K~^^ Tt> ^ —
CQixtct. Jiiiy tUtXect— ^(t.'ilcli Is tTn"~9«te:}«ct of
notrtTt-TTTrtn'Jnr — U.o uiAiiim^-tiU'i — pMravt.int
to-!n-e+4OTT-^fc|ih tho evc-nt that the manu-
fnc'.urrr c.ncftno firrt purchaser of p. niobl'e
hon:c with rcfi:x-ct to vhlcli a warmnty under
t;-.i', fL-ct'.on is rt('.iilrv;d do not arrco uhclher
Fiich mobile hoiue or part thereof docs In
lr>':l coir;>Iy vHh any ctich Etarcl.".rd. either
the r.i!i.nvitr.otv.;or or tl-.o first purcha'^r m.-xy
rc-qt;cPt In wrliLrif; thr.; tlie S<-cret'.u-y mnl'e
a il'-lc ruiinr»'.lon vvhcll-.cr ther(» hfvi In fnrl
hocn F'ich cwimr.U.-ncc. Cpon r-^e'pt of any
fruch rccn'.ffit, the Lk^cretr.ry !ih,-iU make such
tictrnnini.llon In ^^Uh.c on foon as pnvc-
tlc\:)le. 'Hie \v,irrri.nty rcfiviirc<i by thU tub-
fceci'ou f.h.i'l c.->'.i*a;ii not LfSc-itlon to the first
px'rohi.sT of !:!/> i '.JTl't 'o icqtinst such a dc-
tcrminaiion from the Secretary.

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1091

93d congress

1st Session

S. 1 348

IN THE SENATE OF THE UNITED STATES

MAncu 22,1973

Mr. Bkock (for Inmsclf, Mr. Bf.nnktt, Mr. Hathaway, Mr. Si'akkman, aiid
Mr. Tower) iutrodiiooil the foUowiiifr bill; wliich was road twice aiul
referred to tlie Cominittco on Hanking, Housing and Urban Affairs

A BILL

To provide for the establishment of safety standards for mobile
homes in interstate commerce, and for other purposes.

1 Be it enacted by the Senate and House of Representa-

2 tives of the United States of America in Congress assembled,

3 That Congress declares that the purpose of this Act is to

4 reduce the amount of insurance costs, property damage,

5 personal injury, and death resulting from mobile home
(J accidents without any substantial increase in the retail price

7 of a mobUe home. Therefore, Congress determines that it is

8 necessary to establish practical Federal safety standards for

9 mobile homes in interstate commerce; to authorize mobile

10 home safety research and development; to encourage and
II

99-855 O - 73 - pt. 1 -- 70

1092

2

1 provide ruiaiicial {issislaiioo for tlic dcM'lopiiKMil (tf State

2 mobile home safely programs; and lo provide, llial for llie

3 purposes of any Federal guarantee of a loan for tlie purchase
'^ of a mobile home or (he makinii; or in\"esting in any sueli
T) loan by a. Fedeial savings and loan association, each such

6 mobile home shall meet such Federal safety standards.

7 TITLE I— ^MOBILE HOME SAFl^^TY STANDAED8

8 vSllOUT TITT.E

9 Sec. 101. This iVct may be cited as the "National Mo-

10 bile Home Safety Standards Act of 1973".

11 DEFINITIONS

12 Seo. 102. As used in this title, the tenu-
is (1) "dealer" means any person who is engaged in

14 the sale and distri])ution of new mohile homes, primarily

15 to persons who in good faith purchase any such mobile

16 home for purposes other than resale ;

17 (2) "defect" includes any substantial defect in the

18 performance, constiuction, conij)onents, or materials of

19 a mobile home ;

20 (3) "distrihutor" means any person who is engaged

21 in the sale and distribution of mobile homes for resale;

22 (4) "interstate conniierce" means commerce he-

23 tween any place within a State and an}' place within

24 another State, or between places within the same State

25 through another State;

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(5) "manufacturer" means any person engaged in
inamifac(inin«r <tr asseniMltiii; nioMU! liomes, in(lii(lin<;
an}' person cngaoed in importing mobile homes for
resale ;

(6) "moliilr' lionic" im-nn.^ :i 1 i:ins,pi>i-t.')l.]«- slnii-liiro
■which ext-ecdii eight bod}^ feet in width and tbirty4wo
))od3'^ foot in length and i>i built oii a chassis and designed
t<> be used as a dwelling with oi- wliiiout a permanent
foundation when connocled to the required utilliies;

(7) "mobile home safet}'" means the perfomiance
of a mobile home in such a manner that the puldic
is protected against any unreasonable risk of the occur-
rence of accid<^nts due to the design or construction of
such mobile home, or any unreasonable risk of death
or injury to the public if such accidents do occur;

(8) "mobile home safely standard" means a mini-
miun, practicable standard for mobile home performance
which meets the need for mobile home safety ;

(9) "Secretary" means the Secretaiy of Housing
and Urban Development ;

(10) "State" includes each of the several States,
the District of Columbia, the Commonwealth of Puerto
Rico, Guam, the Virgin Islands, the Canal Zone, and
American Samoa ; and

(11) "United States district courts" means the

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Federal District Courts of tbe United States and the
United States courts of the Conmionwcalth of Puerto
Eico, Guam, the Virgin Islands, the Canal Zone, and
American Samoa.

FEDERAL MOBILE HOME SM^^ETY STANDA1?I)S

Sec. 103. (a) The Secretary shall establish by order
appropriate Federal mobile home safety standards. Eacli
such Federal mobile home safety standard) shall be })riicri-
cable, shall meet tlie need for mp])ile home safety, and shall
be stated in objective terms.

(b) The provisions of sections 551 through 559 of
title 5, United States Code, shall apply to all orders estab-
lishing, amending, or revoking a Federal mobile home safety
standard under this title.

(c) Each order establishing a Federal mobile home
safety standard shall specify the date such standard is to
take effect, which shall not be sooner tlian one hundred and
eighty days or later than one year fiom the date such order
is issued, unless the Secretary finds, for good cause shown,
that an earlier or later eiTective date is in the public interest,
and publishes \\vj> reasons for such finding.

(d) Whenever a Federal mobile home safety standard
established under this title is in elTcct, no State or political
subdivisi(m of a State shall have any authority either to

1095

D

1 home, any safety standard applicable to the same aspect of

2 perfonnance of such mobile home which is not identical to

3 the Federal standard. .

4 C^) j^ The Secretar}' may by order amend or revoke

5 any Federal mobile home safet}' standard established under
0 this section. Such order shall specif}^ tlie date on which such

7 amendment or revocation is to take cflVct, Avhich shall not

8 be sooner than one hundred and eiglily daj^s or later than

9 one year from the date the order is issued, unless the Sec-

10 retary finds, for good cause shown, that an earlier or later

11 effective date is in the public interest, and pubhshes his

12 reasons for such finding.

13 (f) In prescribing standards under this section, the

14 Secretary shall —

15 (1) consider relevant available mobile home safely
IG data, including the results of the research, •devehtpmeiit,

17 testing, and evaluation activities conducted pursuant to

18 this title, and those activities conducted by the Ameri-

19 can National Standards Institute Committee on Mobile

20 Homes and Recreational Vehicles and the National Fire

21 Protection Association to determine how to best protect

22 the public ;

23 (2) consult with such State or interstate agencies

24 (including legislative committees) as he deems appro-

25 priate ;

1096

0

1 (3) consider whelLer aii}' siiili pioposcd slaiKlard

2 is reasonable, practicable, and approi»riate for the par-

3 ticular type o,f mobile home for which it is prescribed;

4 (4) consider whether any such standard will place
") an undue financial burden upon manufacturers and dis-
f) tributors of mobile homes ;

7 (5) consider whether any such standard will result

8 in a substantial increase in the retail price of mobile

9 homes ; and

10 (6) consider the extent to which any such standard

11 will contribute to carrying out the purpose of this title.

12 (g) The Secretary shall issue initial Federal mobile

13 home safety standards upon the expiration of the one hun-

14 dred and eighty day period which begins on the date of

15 enactment of this Act. Tho ^ocrotary shall issue now and
10 rcvis»ed Federal mobile home safety standards under thin title -

17 upttn tbo expiration of the tliive luuidred and si.xty day period

18 whieli bcgiti!) on iho duio of oiiai-tuieiit of this Act.

19 NATIONAL MOUIlil!: UOMI': SAFETY ADVhSOBY COUNCIL

20 Sioc. 104. (a) The Secretary shall estabUsh a National

21 Mobile Home Safety Advisory Council.^a majonty of which

22 shall be representatives of the general public, including rep-

23 resentatives of Federal, State, and local governments, ft»^

24 fcho remainder nholl inoludo members of the American Na-

25 tional Standards Institute Committee on Mobile Homes and

T>-

1097
■the. /\J/i tic^^l Fire. '?r>c tea tJp^^ss o t _^a,_ tic n

1 Kecrcational Vehicles /and 'representatives of mobile home

2 manufacturers, dealers, financcrs, ftft^insurers^ a. no, S" <yy^//^ /^6 ,

3 (b) The Secretary shall consult with the Advisory

4 Council before establishing, amending, or revoking any

5 mobile home safety standard pursuant to the provisions of

6 this title.

7 (c) MemlxM-s of the National Mobile ITonio Siifcty Ad-

8 visory Council may be compensated at a rate not to exceed

9 $1(X) per diem (including travehime) when eng-aged in the

10 actual duties of the Advisory Council. Such members, while

11 away from their homes or regular places of business, may

12 be allowed travel expenses, including per diem in lieu of sub-

13 sistence as authorized by section 5703 (b) of title 5, United

14 States Code, for persons in the Government service em-
l'") ployed intermittently. Paynunits under this section shall not
3(i render members of the Advisory Council employees or offi-
n eials of the Unit(>d States for any purpose.

18 JUDICIAL KEVIEVV OF ORDER

U) Se(\ 105. (a) (1) In a case of actual controversy as

20 to the validity of any order under section lO'i, an}' person

21 who will be adversely affected by such order when it is effec-

22 tive may at any time prior to the sixtieth day after such

23 order is issued file a petition with the United States court of

24 appeals for the circuit wherein such person resides or has his
23 principal place of business, for a judicial review of such or-

1098

8

1 der. A copy of the petition shall be forthwith transmitted by

2 the clerk of the court to the Secretary or other officer desig-

3 nated by him for that purpose. TLe Secretary thereupon shall

4 file in the court the record of the proceedings on which the

5 Secretarj' based his order, as proA-ided in section 2112 of title
G 28 of the United States Code.

7 (-) If tlie petitioner applies to the court for leave to

8 adduce additional evidence, and shows to the satisfaction

9 of the court that such additional evidence is material and

10 that there were reasonable grounds for the failure to adduce

11 such evidence in the proceeding before the Secretary, the

12 coui't may order such additional evidence (and evidence in

13 rebuttal thereof) to be taken before the Secretary, and to

14 be adduced upon the hearing, in such manner and upon

15 such terms and c^mditions as to llie court may seem proper.
K) The Secretary may modify his findings as to the facts, or

17 make new findings, l)y reason of the additional evidence so

18 taken, and he shall file such modified or new findings, and

19 his recommendation, if anj', for the modification or setting

20 aside of his original order, with the return of such additional

21 evidence,

22 (3) Upon the filing of the petition referred to in para-

23 graph (1) of this subsection, the court shall have jurisdic-

24 tion to review the order in accordance with the provisions

1099

9

1 of sections 701 through 700 of title 5, United States Code,

2 and to grant appropriate relief.

3 (4) The judgment of the court affirming or setting

4 aside, in whole or in part, an}' such order of the Secretary

5 shall be final, subject to review bj^ the Supreme Court, of
Q the United Staples upon certiorari or certification as pro-

7 vided in section 12r)4 of title 28 of the United States Code.

8 (5), Any action instituted under this sultsection shall

9 survive, notwithstanding any change in the person occupy-

10 ing the office of Secretary of any vacancy in such office.

11 (()) The remedies provided for in this subsection shall

12 be in addition to and not in sul>stitutlon for any other reme-

13 dies provided by law.

14 (b) A certified copy of the transcript of the record

15 and proceedings under this section shall be furnished by

16 the Secretary to any interested party at his request and pay-

17 ment of the costs thereof, and shall be admissible in any
Ig criminal, exclusion of imports, or other proceeding arising

19 under or in respect of this title, irrespective of whether pro-

20 ceedings with respect to the order have previousl}' ])een

21 initiated or become final under subsection (a).

92 EESBARCTI, TESTING, DEVELOPMKNT, AND TRAINING

23 Sec. 106. (a) The Secretary shall conduct research,

24 testing, development, and training necessarj' to cany out the

25 purposes of this title, including, Itut not limited to —

1100

10

1 ( 1 ) collecting data from any source for the purpose

2 of determining the relationship between mobile home

3 performance characteristics and (A) accidents involv-

4 ing mobile homes, and (B) the occurrence of death, or

5 personal injury resulting from such accidents;

6 (2) procuring (by negotiation or otherwise) ex-

7 perimental and other mobile homes for research and

8 testing purposes;

9 (3) selling or otherwise disposing of test mobile

10 homes and reimbursing the proceeds of such sale or dis-

11 posal into the current appropriation avnilable for the

12 purpose of caiT5'ing out this title.

r.i {!)) The Secretary is authorized to conduct research,

14 testing, development, and training as authorized to be car-

15 ried out by subsection (a) of this section by making grants

16 for the conduct of such research, testing, development, and

17 training to ^States, interstate agencies, and nonprofit insti-

18 tutions.

19 (c) Whenever the Federal contri])ution for any research

20 or development activ'ity authorized )w this title encouraging

21 mobile home safety is more than minimal, the Secretary

22 ^hall include in any contract, grant, or other arrangement

23 for such research or development activity, provisions cffec-

24 five to insure that all information, uses, processes, patents,

25 nnd other developments resulting from that activity will be

1101

11

1 made freely and fully available to the general public. NothiDg

2 herein shall be constnied to deprive the owner of any back-

3 ground patent of an}"" right which he may have thereunder.

4 COOPERATIOX WITH PUBLIC AND PKIVATB AGENCIES

5 iSEC. 107. The Secretary is authorized to advise, assist,

6 and cooperate with, other Federal departments and agencies,

7 and State and other interested public and private agencies,

8 including the American National Standards Institute Coni-

9 mittee on Mobile Homes and Kecreational Yeliicles and the

10 National Fire Protection Association, in the planning and

11 development of —

12 (1) mobile home safety standards; and

1.J (2) methods for inspecting and testing to detcr-

14 mine compliance with mobile home ^safety standards.

15 PROHIBITED ACTS

IG Sec. 108. (a) No person shall—

17 (1) mfmufacture for sale, sell, ofTer for sale, or in-

18 troduce or deliver for introduction in interstate com-

19 merce, or impcu't into the United States, any mobile

20 home manufactured on or after the date any applicable

21 Federal mo])ile home safety standard takes effect under

22 this title unless it is in conformity w^ith such standard,

23 o^oopt n»> jirovided in subi^ection (b) of thi.«t section,

24 (2) fail or refuse access to or copying" of records,

25 or fail to make reports or provide information, or fail

1102

12

1 or refuse to pemiit entry or inspection, as required under

2. section 112;

3 (8) fail to issue a certificate required by see.tiou

4 114, or issue a certificate to tlie edect that a mobile

5 home conforms to all applicable Federal mobile home
0 safety standards, if such person in the exercise oi due

7 care has I'eason to know that such certificate is false or

8 misleading in a material respect ; or

9 (4) fail to furnish notification of any defect as re-

10 quired by section 113.

11 (b) (1 ) — J^agr«.ph — (4-) — el— wibseotion — fft-)- sliall not

12 apply to the snlr, the offer for .sale, or the introduction or do- —

13 lively for introdnction in intprsfnfp ponuvit'Tpp of any mobik—

14 homo flftef the firnt purchftj'.e of it in good iolth for purponeo

15 other than resale i In order t.o ■a.'^sure .a continuing iuid effeti= —

16 tiA'e national mobile home safety i)rogTam,at is the policy of —

17 Congrosp to encourage the adoption uf State in^ptu-tinn nf

18 used mobile homes. Therefore, to tliat mid tho f^onroii^ry >;ball

19 cnuduot a tlmvnugji study and i)ives,tigation <^n flftprmine tliP

20 adetpiary of mobile honip <nfpiy slnndnrds; and mob

21 inspection requirpmonts and procedures applicnblo to mad —

22 mobile — homes in — eaxJj — Statc^ — imd — Hin t^ffect of ]>io- .

23 f^rf^^^^f' n,iit]ion7f'd by HiU- tifl.. upon 'iur-h staiobirds, regnire-

24 ments, and prrycedures for used mobile hanics;, an_^ ri^poji-liL_

25 CongroF.fi an r-oon as'praotioahlo, but not Inter than one year

1103

13

1 flftnr th(\ .flntQ. nf pnoftrnptit nf th\<i \nt t.VtA rASiiU.e nf ^noh

2 stufiji^^ ajul recoiiunendf^tions foi .such additiouul log'i'jlal4oft-»&

3 liP d''*'"^!^ npccsvinry to f'^ipy i^iit-iJaP pnr.p*u-nff nf tV>r?-4klft^—

4 Siifh vpport sluill^ako-iudude reconimpudationg by the Se€^

5 rpfajy—tielfltillg: to flip proldpms of fK.c;pn>;fi1 nf n^Pfl Tnaltllp ^

6 homea^ As soun a-s practir.ahle aftf.u' the, suhniissifin of sndi

7 report, but no later than €>ne 3fear from the date of sub^

8 iBisKJoii f.)f, sndf— peport,, the S<*cretj^ry, after 'XowBultatipn

9 witb the ■ CouTiPvl and suoli intprestpd publi.c aii,d private-

10 agenr^jps nnd groups as h^ deems, advisabla. shall ftstabHsh

11 unif onn . ■E'edoral mobile home safety standards, applicable

12 to. all ttSed .mnhilp hftrnp^. Stipb atnndnrdK.ghfln bo oxprQecod

13 in tormo of mobile home safet}^ performance. The Secretary

14 is authorized to a'mcnd or revoke siicli fitaadards pursuant

15 to thia Act.

IQ(h)O)l^) Paragraph (1) of subset-tion (a) shalj not apply

17 to any person who establishes that he did not have reason

jg to know in the exercise of due care that sudi mobile home

19 is not in conformity with applicable Federal mobile home

20 safety standards, or to any person who, prior to such first

21 purchase, holds a certificate issued by the manufacturer or

22 unportcr of such mobile home, to the effect that such mobile

23 home conforms to all applicable Federal mobile home safety

24 standards, unless such person knows that such mobile home

25 docs not so conform.

1104

U

i Wit^ A mobile home oflfered for importation in vie^lation

2 of paragraph (1) of subsection (a) shall be refused admis-

3 sion into the United States under joint regulations issued

4 by the Secretary of the Treasuiy and the Secretary; except

5 that the Secretary of the Treasury and the Secretary may,

6 by such regulations, provide for authorizing the importation

7 of such mobile home into the United State's upon such terms

8 and <;onditions (including the furnishing of a bond) as" may

9 a|»pear to them appropriate to insure that any such mobile

10 home will be bronght into conformity with anj' applicable

11 Federal mobile home safety standard prescribed under this

12 title, or will be exported or abandoned to the Unit-ed States.

13 ^3)j(^The Secretary of the TrCasuiy and the Secretary

14 iifiay, by joint regulations, permit the temporary importation

15 of any mobile home after the first purchase of it hi good

16 faith for purposes other than resale. /

17 ^4^^ j(^^Paragi'aph (1) of subsection (a) shall not apply

18 in the case of a mobile home intended solely for export, and

19 so labeled or tagged on the mobile lK»me itself and on the

20 outside of tlie container, if any, wbich is exported.

21 (c) Compliance with any Federal mobile hojiie safety

22 stahdard issued under this title does not exempt any pei'sOn

23 from any liabiHty under common law.

24 CIVIL PENALTY

25 Sec. 109. (a) Whoever violates any pfovision of sec-

1105

15

1 tion 108, or any regulation issued tliereunder, shall be sub-

2 jeot to a civil penalty of not to exceed $1,000 for each such
;j violation. Such violation of a provision of section 108, or

4 regulations issued tliereunder, shall constitute a separate

5 violation with respect to each mobile home or with respect

6 to each failure or refusal to allow or perform an act required

7 thereby, except that the maximum civil penalty shall iwt

8 exceed $400,000 for any related series of violations.

9 (b) Any such civil penalty may be compromised by
10 the Secretary, In determining the amount of such penalty,
H or the amount agreed upon in compromise, the appropriate-

12 ness of such penalty to the size of the bushiess of the person

13 charged and the gravity of the violation shall be considered.

14 The amount of such }»enalty, when finally determined, or

15 the amount agreed upon in coinj)romise, may bo deducted

16 from any sums owing by the United States to the person

17 charged,

18 JIIKISDICTIOX AM) VKNUP]

19 Sk<\ 110. (a) The United States district courts shall

20 have jurisdiction, for cause shown and suliject to the pro-

21 visions of rule 65 (a) and (b) of the Federal Rules of Civil

22 Procedure, to restrain violations of this title, or to restr^iin

23 the sale, offer for sale, or the introduction or delivery for

24 introduction, in interstate commerce, or the hnportation into

25 the United States, of any mobile home which is determined,

1106

16

1 prior to the first piux-hase of such mobile houie in good faith

2 for purposes other than resale, uot to conform to applicable

3 Federal mobile home safety standards prescribed pursuant to

4 this title, upon petition by the Hpi)ropriate United States

5 attorney or the Attorney General on ])ehalf of the United

6 States, Whenever practicable, the Secretary shall give notice

7 to any person against whom an action for injunctive relief is

8 contem})lated and afTord linn an opjM)rtunity to present his

9 views, and, except in the case of a knowing and "v\allful vio-

10 lation, shall aflford him reasonable o]jportunity to achieve

11 comphance. The failure to give such notice and afford such

12 opportunity shall not preclude the granting of appropriate

13 relief.

14 (b) In any })roceeding for criminal contempt for viola-

15 tion of an injunction or restraining order issued imder this

16 section, which \iolation also constitutes a vii)lation of tliis Act,

17 trial shall be by the court or, u])on demand of the accused,

18 by a jury. Such trial sball l)e oonciuctcd in accordance with

19 the practice aiid procedure applicable in the case of pro-

20 ceedings subject to the provisions of rule 42 (b) of the Eed-

21 eral Rules of Criminal Procedure.

22 (c) Actions under subsection (a) of this section and

23 section 109(a) may be brought in the district whereii: any

24 act or transaction constituting (lie violation occurred, or in

25 the district wherein the defendant is found or is an inliabi-

1107

17

1 taiit or transacts business, and process in such cases may be

2 served in anv otber district of wliich the <k'fcudant is an in-

3 habitant or wberever tlie defendant may be found.

4 (d) In any actions brought under subsection (a) of

5 this section and section 109 (a) , subpenas for witnesses who

6 are required to attend a United States district court may run

7 into any other district.

8 (e) It shall be the duty of every manufacturer offering

9 a mobile home for importation into the United States to des-

10 ignate in writing an agent upon whom service of all admin-

11 istrative and judicial processes, notices, orders, decisions, and

12 requirements may be made for and on behalf of such man-

13 ufactm-er, and to file such designation with the Secretar)^

14 which designation may from time to time be changed by like

15 writing, similarly filed. Service of all administrative and

16 judicial processes, notices, orders, decisions, and requirements

17 may be made upon such manafa<^turer by service upon such

18 designated agent at his office or usual place of residence with

19 like effect as if made personally upon such, manufacturer,

20 and in default of such designation of such agent, service of

21 process, notice, order, requirements, or decision in any pro-

22 ceeding before the Secretary or in any judicial proceeding for

23 enforcement of this title or any standards prescribed pur-

24 suant to this title may be made by posting such process, no-

99-855 O - 73 - pt. 1 -- 71

1108

IH

1 tlce, order, requireineiit, or decision in tlie office of the

2 Secretary.

3 NONCOMPLIANCE WITH STANDARDS

4 Sec. 111. (a) If any mobile home is detennined not

5 to conform to applicable Federal mobile home safety stand-

6 ards, or contains a defeict which relates to mobile home

7 safety, after the sale of such mobile home by a mamifac-

8 tiirer or a distributor to a distri])Utor or a dealer and prior

9 to the sale of such mobile home by such distributor or

10 dealer^

11 (Jr) — tb». maavtfact.Mrer or distribtttoifr-fls ike case

12 may be, shal4-4mfttediately-y»>f)urchaMe ^wch mobile honte-

13 from such distributor or dealer at the price paid by suph

14 distributor or dealer, plus all transpt»rtfttkH» chargeu in
j5 volvtjd and a reasonable rcimbiuv.t>meiit of not loss thmt
■j^g 1 per centum por mouth" «»!■ uuch piice paid proratrd"
17 from tht) date of rtjceipt by ccTtrfreil ■ mail of noiite of
jg imeli nouoonfonnance to the dale of lepurcliHye by the

19 manufacturer or distributor ; -m^

20 {^ ^^^ manufacturer or distributor, as the case

21 may be, at his own expense, shall immediately furnish

22 the purchasing distributor or dealer the required con-

23 forming part or parts or equipment for installation by

24 the distributor or dealer on or in such mobile home, and

25 for the installation involved the manufacturer shall re-

1109

19

1 imburse such dlstribittor or dealer for the reasonable

2 value of such installation plus a reasonable reimburse-

3 ment of not less than 1 per centum per month of thef

4 manitfa<5turer's or distributoi-'s selling price prorated

5 from the date of receipt bj^ certified njail of notice of such

6 nonconformance to the date such vehicle is brought into

7 conformance with applicable Federal standards, so long

8 as >the distributor or dealer proceeds with reasonable

9 diligence with the installation after the required part or

10 equipment is received.

11 (b) In the event that any manufacturer or distributor

12 refuses to comply with the requirements of paragraphr'tt)'

13 and (2) of subsection (a) , then the distribute or dealer,

14 as the case may be, to whom such nonconforming mobile

15 home has been sold may bring suit against such manu-

16 facturer or distributor in any district court of the United

17 States in the district in which such manufacturer or distribu-

18 tor resides, or is found, or has an agent, without respect

19 to the amount in controversy, and shall recover the damage

20 by him sustained, as well as all court costs plus reasonable

21 attorneys' fees. Any action brought pursuant to this section

22 shall be forever barred unless commenced within three years

23 after the cause of action shall have accrued.

24 (c) The value of such installations and such reasonable

25 reimbursements as specified in subsection (a) of this section

1110

20

1 shall be fixed by mutual agreement of the paii-ies, or falling

2 such agreement, by the court pursuant to the provisions of

3 subsection (b) of tliis section.

4 INSPECTION OF MOBILE HOMES AND KECORDS

5 Sec. 112. (a) The Secretary is authorized to conduct

6 such inspection and investigation as may be necessary to

7 enforce Federal mobile home safety standards established

8 under this title. He shall furnish the Attorney General and,

9 when appropriate, the Secretary of the Treasurj^ any infor-

10 mation obtained indicating noncompliance with such stand-

11 ards, for appropriate action.

12 (b) For purposes of enforcement of this title, officers

13 or employees duly designated by the Secretary, upon pre-

14 senting appropriate credentials and a written notice to the

15 owner, operator, or agent in charge, are authorized —

16 (1) to enter, at reasonable times, any factory, ware-

17 house, or establishment in which mobile homes are manu-

18 factured, or held for introduction into interstate commerce

19 or are held for sale after such introduction ; and

20 (2) to inspect, at reasonable times and within rea-

21 sonable limits and in a reasonable manner, such factory,

22 warehouse, or establishment.

23 Each such inspection shall be commenced and completed with

24 reasonable promptness.

25 (c) Every manufacturer, distributor, and dealer of

nil

21

1 mobile homes shall establish and maintain such records, make

2 such reports, and provide such information as the Secretary
3 . may reasonably require to enable him to determuie whether

4 such manufacturer, distributor, or dealer has acted or is

5 ■ acting in compliance with this title and mobile home safety

6 standards prescribed pursuant to this title and shall, upon

7 request of an officer or employee duly designated by the

8 Secretary, permit such officer or employee to inspect appro-

9 priate books, papei's, records, and documents relevant to

10 determining whethei- such manufacturer, distributor, or dealer

11 has acted or is acting in compliance with this title and mobile

12 home safety standards prescribed pursuant to this title.

13 (d) Every manufacturer of mobile homes shall provide

14 to the Secretaiy such perfonnance data and other technical

15 data related to performance and safety as may be required

16 to carry out the purposes of this Act. Tfee-S<*eretq.?y-ts-futthw

17 iaed to requiiv th« manufaoturor to ^ivo oueh notification of-

18 sucli iperfonaatw?^ and t<jc.hnical dat^i that the Sooreta^y deter —

19 minns npcessar}^ to cany out the purposes of ihis Act; to- ■"-

20 (1) oaoh prospootivo purchagcr of a mobile home

21 bfifttfe-Ttr first sale for purpoGog other than regale at each ■

22 location where any such manufaoturcr's mobile homea—-

23 are oflfered for sale by a person with whom ouch-H9fte«itt-

24 facturer haa a. oontractual^ proprietary, or othe? -legal

25 rolationship in fli manner dotorminod by tho Seerotary

1112

22

1 t,n hp. npuropriatp, whicii may iududL-, but la not tii«ittvd

2 t.n^ printpH matter | A ) flva,Un>t^ln fnr rofnnfinti l>y suoh

3 prnsipptftivo pofcliaiicr and (-B-) — nturt by nrntl to siucli

4 prospective puif(jba>ier upon hk ic<fue^t ; and -

5 (3) tho first peit-oii who pitrt;hag.ee a moHte home

6 for purpoMes other than ye»ale, at the time of sHch puafr

7 chaagy or in priated matter placed in the mobile hom«. ■■

8 i€S){/} All iiifonnation reported to or othei-s^'ise obtained

9 by the Secretary or his representative pursuant to subsection
10 (b) or (e) which contains or relates to a trade secret or
n other niattei- refen-ed to in se<3tiou 191X5 of title 18 of the
12 United States Code, shall be cwisidcred confidential for the
}3 purpose of that section, except that such infomiiition may be

14 disclosed to other officers or employees concerned with carry-

15 ing out this title or when relevant in any proceeding under
10 this title. Nothing in this section shall authorize the with-

17 holding of information by the Secretary or any officer or

18 wnployee under his control, from the duly authorized coin-

19 mittces of the Congress.

20 NOrriFlCATJON OF DEFECTS

21 Sec. 113. (a) Every manufacturer of mobile homes

22 shall furnish notification of any defect in any mobile home

23 produced by such manufacturer which he determines, in good

24 faith, relates to-i»4>hik^h««i« sftf^, to the purchaser of such

1113

23

1 mobile home, withm a reasonable time after such manufae-

2 turer haps discovered such deiect.

3 (b) The notifieatiou required by subsection (a) shall

4 be accomplished —

5 (1) l>y certified mail to the first purchaser (not

6 includmg any dealer of such manufactui'er) of the mobiie

7 home containing such a. defect, and to any subsequent

8 pfurchaser to whom has been transferred any warranty

9 on such mobile home; and

10 (2) by certified mail or other more expeditious

11 means to the dealer or dealers of sneh manufacturer to

12 whom such mobile home was dehvered.

13 ' (c) The notification required by subsection (a) shall

14 contain a clear description of such defect, an- evaluation of

15 the risk to jttalwk.]^J#»e- safety reasonably related to such
IG ilefect, and a statement of the meavSures to be taken to repair
17 sueh defect.

Ig (d) Eveiy manufacturer of mobile homes, shall furnish

19 to the Secretary a true or representative copy of all notices,

20 bulletins, and other communications to the dealers of siuih

21 manufacturer or purchasers of mobile homes of such mansj*
23 facturer regar^ng an^^efect in such mobile home sold or

23 serviced by such dealer. The Secretar}'- shall disclose so much

24 of the information contained in such notice or other infor-

25 raation obtained under section 112(a) to the public as he

1114

1 deems will asaii^t in carrying out tl;ie .pui'poses of this title,

2 but he shall not disclose any information which contains or

3 relates to a trade secret or other matter referred to in section

4 1905 of title 18 of the United States Code, unless, he deter-
,5 mines that it is necessary to carry out the purposes of this

5 Act.

7. (e) If through testing, inspection, investigation, or

g research carried out pursuant to this title, or examination of

9 reports pursuant to subsection (d) of this section, or other-

IQ wise, the Secretary determines that, any mobile home —

j^l (1) does not comply with an applicable Federal

12 mobile home safety standard prescribed pursuant to

13 section 103; or

14 (2) contains a defect which relates to mobilo homo--

15 Bafety; .

Ig then he shall hnniediately notify the manufacturer of such

17 mobile home of such defect or failure to complyj. 'The notice

13 shall contain the findings of the Secretary and shall include

19 all information upon which the findings are based. The Sec-

20' retary shall afford such manufacturer an opportmiity to pre-

21 sent his views and evidence in support thereof, to establish

99 . that there is no failure of compliance or that the alleged

23 defect does not afTect mobile h^mer safety. If after such pres-

24 entation by the manufacturer the Secretary detcnnines that

25 such mobile home does not oonjply with applicable Federal

1115

25

1 safety standards, or contains a defect which relates to mobik-

2 home safety, the Secretary shall direct the tnanufacturer to

3 furnish the notification specified in subsection (c) of this sec-

4 tion to the purchaser of such mobile home as provided in sub-

5 sections (a) and (b) of this section.

6 > (f) Every manufacturer of mobile homes shall maintain

7 a record of the name and address of the first purchaser, other

8 than a dealer or distributor, of (5rach mobile home produced by

9 that mailufacturer. The Secretary may establish, by order,
10 procedures to be followed by manufacturers in establishing
il and maintaining such records, including procedures to be fol-

12 lowed by distributors and dealers to assist ihanufacturei"s to

13 secure the information required bj^ this subsection which will
I'l not affect the obligation of manufacturers under tliis subseo-

15 tion. Such procedures shall be reasonable for the particular

16 t3T)e of mobile home for which they are prescpbed.

1'^ CEKTIFTCATION OF CONFORMITY WrPH SAFETY STANDARDS

18 Sec. 114. Every manufacturer or distributor of a mobile

Ifi home shall furnish to the distributor or dealer at the time of

20 delivery of each such mobile home by such manufacturer,

21 the certification that each such mdbile home conforms to all

22 applicable Federal safety standards. Such certification shall

23 be in the form of a label or tag permanently afhxed to each

24 such mobile home!

1116
26

1 NATIONAL MOBILE JKMB SAFETY lilJKEAU

.2 Sec. 115. The Secretary sliall carry out the provisions

3 ef this title through a National Mobile Home Safety Bureau

4 (heremafter refeiTed to as the "Bureau"), which he shall

5 estabhsh in the Department of Housing and Urban Devel-

6 opment. The Bureau shall be headed by an Assistant Secre-

7 tary who shall he appointed by tlie President, by and with

8 the advice and oonsent of the Senate. The Assistant Secre-

9 tary shall be a citizen of the United States, and shall be aj)-
10 pointed with due regard for his fitness to discharge efficiently
31 the powers and duties <lekgated -to him pursuant to this

12 title. The Assistant Secrotary shall peiiann such xluties as axe

13 delegated to him by the Sccivtary.

14 EPFKCT UPOX ANTITRUST LAAVS

15 Sec. 116. Nothing contained in this title shall be deemed
IG to exempt from the antltnist laAvs of the United States any

17 conduct that would otherwise be unlawful under such laws,

18 or to prohibit under the antitrust laws of the United States

19 any -conduot that would be lawful under such laws.

—7

20 USE OF EESEARCII AND TESTING FACILITIES QF PUBLIC

21 AGENCIES

22 Skc. 117. The Secretary, in exercising the autliority
Zi under this title, shall utilize the services, research and testing
24 fa<iilities of ])u]>lic agencies to the maximum e.\tent practicable
2') in order to avoid duplication.

1117
27

1 BULES AND KBGITLATIOXS

2" Sec. 118. The Secretary is authorized to issue, amead,

3 and revoke such rules and regulations as he deems necessary

4 to carry out this title.

5 ANNUAL BEPORT TO CONORESS

6 Sec, 119. (a) The Secretary sliall prepare and sul))j«it

7 to the President for transmittal to the Congi-ess on Slareh 1

8 of each year a comprehensive report on the administration

9 of this title for the preceding calendar year. Such report

10 shall include hut not he restricted to ( 1 ) a thorough statisti-

11 eal compilation of the accidentis and injuries occurring in

12 sucli year; (2) a list of Federal mobile home safety stand-

13 ards prescril)ed or in effect in suc^ year; (3) the degree of

14 ol)servance of applicable Federal moliile home standards;

15 (4) a summary of all current research grants and contracts
Ifi together with a description of the problems to he considered

17 hy such grants and contracts; (5) an analysis and evalua-

18 ation, including relevant poHcy recommendations, of research

19 activities completed and technological ])rogress achievtMl

20 dm'ing such year; (6) a statement of enforcement actions

21 including judicial decisions, settlements, or pending htigati^on

22 during sueh year; (7) the extent to which technical infoj-

23 mation was disseraimited to the scientific community and

24 consumer-oriented information was made available to mohiJe

1118

28

1 home owners; and (8) a list of all State plans m effect

2 pursuant to section 120 and an evaluation of each such plan.
.8 (b) The report required by subsection (a) of tliis

4 section shall contain such recommendations for additional

5 legislation as the Secretary deems necessary to promote

6 cooperation among the several States in the improvement

7 of mobile home safety and to strengthen the national mobile

8 home program. '

9 ' STATE PLANS

10 Sec, 120. (a) Nothing in this title shall prevent any

11 State agency or court from asserting jurisdiction under State

12 law over any mobile home safety issue with respect to

13 which, no standard has been established pursuant to the pro-

14 visions of section 103.

^^ (b) Any State which, at any time, desires to assume

16 responsibility for development and enforcement of mobile

17 home safety standards relating to any safety issue with re-

18 spect to which a Federal standard has been established

19 under section 103, shall submit to the Secretary a State

20 plan for the development of such standards and their en-

21 forcement.

22 (c) The Secretan'^ shall approve the plan submitted by

23 a State under subsection (b) , or any modification thereof,

24 if sncli plan in his judgment —

25 (1) designates a State agency or agencies as the

1119

29

1 agency or agencies responsible for administering the

2! plan throughout the State;

3 (2) provides for the development and enforcement

4 of mobile home safety standards which are identical to

5 the standards promulgated under section 103;

6 (3) provides for a right of entry and inspection of

7 all factories, warehouses, or establishments in such State

8 in which mobile homes are manufactured, and which is

9 at least as effective as that provided in section 112;

10 (4) contains satisfactory assurances that such agency

11 has or will have the legal authority and qualified person-
32 nel necessary for the enforcement of such standards;

13 (5) give satisfactory assurances that such State will

14 devote adequate funds to the administration and enforce-

15 ment of such standards ;

16 (6) requu-es manufacturers, distributors, and dealers

17 In such State to make reports to the Secretary in the

18 same manner and to the same extent as if the State plan

19 were not in effect ; and

20 (7) provides that the State agency will make such

21 reports to the Secretary in such form and containing

22 such information, as the Secretary shall from time to

23 time require.

24 (d) If the Secretary rejects a plan submitted under sub-

25 section (b), he shall afford the State submitting the plaa

1120

30

1 due notice and oppoitunity for a hearing before so doing.

2 (e) After the Secretary approves a State plan submitted

3 under subsection (b) , he may, but shall not be requu-ed to,

4 exercise his authority under sections 106, 108, 109, 112,

5 and 113 with respect to en,forcement of standards established

6 under section 103 for the period specified in the next sen-

7 tence. The Secretary may exercise the authority refciTcd to

8 above until he determines, on the basis of actual operations

9 imder the State plan, that the criteria set forth in subsection

10 (c) are being applied, but he shall not make such determi-

11 nation for at least three years after the plan's approval under

12 subsection (c) . Upon making the determination referred to

13 in the preceding sentence, the provisions of sections 108,

14 109, 111, 112, and 113, and standards promulgated under

15 section 103 of this title, shall not apply v^'ith respect to any

16 mobile home safety issues covered under the plan, but the

17 Secretary may retain jurisdiction und»^r the a))ove provisions

18 in any proceeding commenced under section 108 or 109 be-

19 fore ilie date of determination.

20 (0 The Secretary shall, on the basis of reports sub-

21 mitted by the State agency and his own inspections, make a

22 continuing evaluation of the maimer in which each State

23 having a plan approved under this section is carrying out

24 such plan. Whenever the Secretary finds, after affording

25 due notice and opportunity for a hearing, that in the admin-

1121

31

1 istration of the State plan there is a faihire to comply sub-

2 staiitially with any provision. of the State plan, he shall notify

3 the State agency of his withdrawal of approval of such plan.

4 Upon receipt of such notice by such State agency such plan

5 shall cease to be in effect, but the State may retain jurisdic-

6 tion in any case commenced before the withdrawal of the
^ plan in order to enforce mobile home standards under the
8 plan whenever the issues involved do not relate to the rea-
y sons for the withdrawal of the plan.

10 (g) Each State may obtain a review of each decision of

11 the Secretary wnthdrawing approval of or rejecting its plan

12 by filing in the United States court of appeals for the cir-

13 cuit in w'hich such State is located within thirty days follow-

14 ing receipt of notice of such decision, a petition to modify

15 or set aside in whole or in part the action of the Secretary.

16 A copy of such petition shall forthwith be served upon the

17 Secretary, and thereupon the Secretary shall certify and file

18 in the court the record upon which the decision complained

19 of was issued as provided in section 2112 of title 28, United

20 States Code. Unless the court finds that the Secretary's de-

21 cision in rejecting a proposed State plan or withdrawing his

22 approval of such a plan is not supported by substantial evi-

23 dence the court shall affimi the Secretary's decision. The

24 judgment of the court shall be subject to review by the

25 Supreme Court of the United States upon certiorari or cer-

1122

32

1 tification as provided in section 1254 of title 28, United

2 States Code.

3 GBANTS TO THE STATES

4 Sec. 121. (a) The Secretary is authorized to make

5 grants to the States which have designated a State agency

6 under section 120 to assist them —

7 (1) hi identifying their needs and responsibilities

8 in the area of mobile home safety standards; or

y (2) in developing State plans under section 120.

10 (b) The Governor of each such State shall designate the

11 appropriate State agency for receipt of any grant made by

12 the Secretary under tliis section.

13 (c) Any State agency designated by the Governor of

14 the State desiring a grant under this section shall submit an

15 application therefor to the Secretaiy. The Secretary shall

16 review and either accept or reject such application.

17 (d) The Federal share for each State grant mider sub-

18 section (a) of this section may not exceed 90 per centum

19 of the total cost of the application. In the event the Federal

20 share for all States under such subsection is not the same, the

21 differences among the States shall be established on the basis

22 of objective criteria.

23 (e) The Secretary is authorized to make grants to the

24 States to assist them in administering and enforcing pro-

25 grams for mobile home safety contained in State plans ap-

1123

33

1 proved by tlie Secretary pursuant to section 120 of tliis

2 title. The Eederal share for each State grant under this sub-

3 section may not exceed 50 per centum of the total cost to the

4 State of such a program. The last sentence of subsection (d)

5 shall be applicable in determining the Federal share under
G this subsection.

7 AUTHORIZATION OP APPROPRIATIONS

8 Sec. 122. There are authorized to be appropriated

9 such sum^ as may be necessaiy to cany out the provisions

10 of this title.

11 EFFECTrV^ DATE

32 Sec. 123. The pro\'isions of this title shall take effect

13 upon the expiration of the one-hundred-eighty-day period

14 which begins on the date of the enactment of this Act.

15 TITLE n— CHANGES IN EXISTING LAW

16 HOME owners' loan ACT OF 19 3,3

17 Sec 201. The third paragraph of section 5 (c) of the

18 Home Owners' Loan Act of 1933 (12 U.S.C. 1464(c) ) is

19 amended by striking out clause (B) and insertmg in lieu

20 thereof the following:

21 "(B) a^y loan made for the purchase of a mobile

22 home which meets or exceeds the mobile home safety

23 standards established under the National ]\Iobile Home

24 Safety Standards Act of 1973."

99-855 O - 73 - pt. 1 -- 72

1124

34

1 NATIONAL HOUSING ACT

2 Sec. 202. The last sentence of tlic second paragi'aph of

3 section 2 (a) of the National Housing Act (12 U.S.C. 1703

4 (a) ) is amended by —

5 (1) striking out "the livahility and durability of

6 the mobile home and" in clause (i) ;

7 (2) striking out "and" after the semicolon at the

8 end of clause (i) ; and

9 (3) striking out the period at the end of clause
IQ (ii) and adding in lieu thereof "; and (iii) requh'e

11 that the mobile home meets or exceeds the mobile

12 home safety standards established under the National

13 Mobile Home Safety Standards Act of 1973."

14 TITLE 3 8, UNITED STATES CODE

15 Sec. 203. Section 1819 of title 38, United States Code,

16 is amended by — ''

17 (1) striking out subsection (i) and inserting in
Ig lieu thereof the following :

19 " (i) No loan for the purchase of a mobile home shall

2Q be guaranteed under this section unless —

21 " ( 1 ) the mobile home meets or exceeds the mobUe

22 home safety standards established under the National

23 Mobile Home Safety Standards Act of 1973 ; and

24 "(2) the lot, if any, meets or exceeds standards

25 prescribed by the Admuiistrator for the planning, main-

1125

35

1 tenance, and development of mobile home sites which

2 are attra<;live residential areas and which arc free from,

3 and do not substantially contribute to, adverse scenic

4 or environmental conditions.

5 For the purpose of assuring complin nee with such mobile

6 home safety standards, the Administrator shall from time

7 to time inspect the manufacturing process of mobile homes

8 to be sold to veterans and conduct random onsite inspec-

9 tions of mobile homes purchased with assistance under this

10 chapter."; and

11 (2) striking out "standards prescribed by the Ad-

12 ministra tor" in clause (1) of subsection (j) and insert-

13 ing in lieu thereof "safety standards required".

14 EFFECTIVE DATE

15 Sec. 204. The provisions of this title shall apply with

16 respect to any loan apphcation filed, pursuant, to the pro-
l"*^ visions of the Home Owners' Loan Act of 1933, the National
18 Housing Act, or section 1819 of title 38, United States Code,
1^ as the case may be, after the efTective date of title I of
20 this Act.

1126

Mobile Home Manufacturers Association,

ChantiUy, Va., August 2, 1973.
Hon. John J. Sparkman,
U.S. Senate,
Washington, D.C.

Dear Senator Sparkman : We appreciate having tlie opportunity to testify on
the mobile home safety legislation during the recent Housing Subcommittee
hearings. After listening to the statements of a number of witnesses, we would
lilve at this time to submit some additional material and note a few classifications
that we feel are needed.

Enclosed is a copy of our Model State Mobile Home Warranty Bill, as requested
by the Chairman. We are also enclosing a copy of the State of Wisconsin's mobile
home standards bill that has passed the Senate and is presently being considered
in the House. The state of Wisconsin has adopted the ANSI Code with only one
exception at this point. They require four-inch vents rather than the three-inch
standard plumbing vent. The new Wisconsin ANSI bill (Assembly Bill No.
569), which provides for enforcement of the code with the one deviation above
stated, will replace the former measure known as the "Panelized Housing Act",
which recognized ANSI and the three-inch plumbing vent standard but had no
provisions for enforcement.

Mr. Fosdick, representing the State of Wisconsin, indicated that it wasi "less
than coincidental that the ANSI committee is all industry people". We are enclos-
ing a list of the members of the American National Standards Institute's Com-
mittee on Mobile Homes. Included in this list are representatives of the National
Bureau of Standards, the State of Oregon's Department of Commerce, Under-
writer's Laboratories, the Fire Marshals Association of North America and many
others that have absolutely no vested interest in the mobile home industry.

In the conversation between Senator Proxmire and Congressman Frey, Sen-
ator Proxmire made the point that in Florida there seemed to be only six men
to inspect 700,000 mobile homes existing in Florida at the present time. We would
like to point out that the mobile homes already existing are not those inspected
by the six Florida inspectors. They inspect only those new mobile homes produced
and sold in the state each year.

We would also like to indicate that the mobile home industry fully supports
the concept of unannounced plant inspections as the proper form for mobile home
safety inspections. This is already commonplace in the industry and has been for
a number of years.

Regarding the discussion concerning the different requirements for building
standards for Wisconsin and Florida, we would like to point out that oftentimes
a mobmile liome purchasetl in one state will be moved to another. We feel that
the legislation would better serve the consumer if the industry were allowed to
continue to build to a single i)erformance-type standard. This would assure tJiat
mobile home con.struction would be standardized and equally safe, no matter in
which state is was produced. The industry recently responded to a request by the
Council on Environmental Quality to increase the insulation in all new mobile
homes in support of the nation's drive to conserve energy. This increased insul-
ation requirement VA'ill create a mobile home which will perform better under
extreme hot or cold climatic conditions. A performance-type standard such as the
one now in use by the industry is resix)nsive to changes or variations without
disturbing the integrity of the basic standard.

We feel that the ANSI A119.1 Standard has been a very workable standard
in recent years. Enclosed is a list of items that have been adopted by the ANSI
committee between 1970 and 1973. These are examples of the increasing aware-
ness of safety standards that has been demonstrated by the Mobile Home Com-
mittee of the American National Standards Institute.

In further support of S. 898, I am enclosing a copy of an article indicating
that a Portland, Oregon. Federal Savings and Loan Association made a deter-
mination to finance mobile homes on a 20-year basis before November of 1971.
This article indicates that the concept of 20-year financing for mobile homes
is not a new one.

Also attached is a definition of "life safety" which we propose for additiog to
Section 102.

Again, thank you for your time and consideration in the hearings.
Sincerely,

John M. Martin,

President.

1127

Proposed Mobile Home Bill

An Act to provide for establishment of required warranty provisions relating
to the sale of mobile homes.

SECTION 1. SHOBT TITLE

This Act shall be known and may be cited as "The Uniform Mobile Homes
Warranty Act."

SECTION 2. DEFINITIONS

Unless clearly indicated otherwise by the context, the following words and
terms when used in this Act. for the purpose of this Act, shall have the follow-
ing meanings :

(a) "Dealer" means any person, other than the manufacturer, as defined in
this Act, who sell three or more mobile homes in any consecutive 12-month period.

(b) "Manufacturer" means any person who manufacturers mobile homes.

(c) "Mobile Home" means a moveable or portable unit, designed and con-
structed to be towed on its own chasis (comprised of frames and wheels), and
designed to be connected to utilities for year-round occupancy. The term shall
include: (1) units containing parts that may be folded, collapsed or telescoped
when being towed and that may be expanded to provide additional cubic capacity,
and (2) units composed of two or more separately towable components designed
to be joined into one integral unit capable of being separataed again into the
components for repeated towing. The term shall include units designed to be used
for residential, commercial, educational or industrial purposes.

SECTION 3. ESTABLISHMENT OF WARRANTY

Afier the effective date of this Act, all new mobile homes sold by a mobile
hone dealer situated in this State shall be covered by the warranty hereinafter
sjjecified. Such warranty shall respectively apply to the manufacturer of the
mobile home and to the dealer who sells the mobile home to the buyer in accord-
ance with the terms of the warranty hereinafter specified.

SECTION 4. WRITTEN WARRANTY AND CERTAIN TERMS REQUIRED

Each mobile home sold by a dealer situated in this State shall be covered by a
written warranty from the manufacturer or dealer and shall contain as a
minimum, the following terms :

(A) Defects. Manufacturer warrants that the mobile home was manufactured
free from any substantial defects in materials or workmanship and was delivered
to the dealer in such condition. Dealer shall w^arrant that the mobile home when
sold to the buyer is free from any substantial defects in materials or workman-
ship. Neither manufacturer nor dealer shall be liable for any defect in said
mobile home which is the result of work done or materials supplied by persons
other than manufacturer or dealer.

(B) Corrective Action. Manufacturer and dealer warrant that they, or one of
them, shall take appropriate corrective action at the site of the mobile home in
instances of substantial defects in materials or workmanship, for which they are
responsible, which become evident within one year from the date of the delivery of
the mobile home to the buyer, provided that the buyer or any one to whom he
has resold the mobile home gives written notice of such defects to the manufac-
turer and dealer at their business addresses not later than one year and 10 days
after date of delivery to the original buyer.

SECTION 5. CUMULATIVE REMEDIES ; PROHIBITION AGAINST WATVEB

The required warranty provided for in this Act shall be in addition to and not
in derogation of any other rights and privileges which the buyer may have under
any other law or instrument. The manufacturer or dealer shall not require the
buyer to waive his rights under this Act and any such waiver shall be deemed
contrary to public policy and shall be unenforceable and void.

Life safety violations are those standards violations that would seriously
affect the life and safety of the mobile home inhabitants.

1128

Standard Requirements From Years 1970-73
Item No. 1

(a) Safety glass (window) ; requirement — February 8, 1972; ANSI Standard
1972.

(b) Egress window (means of emergency escape in case of fire similar to that
required by other types of housing) ; requirement — January 26, 1972 by NFPA ;
requirement — July 17, 1972 by industry.

Item No. 2

(a) Flame spread requirement (interior wall and ceiling panelling materials) ;
requirement — January 1971 by industry ; end of moratorium — May 1, 1971.

Item No. 3

(a) Ground-Fault Equipment (the use of Ground-fault equipment in con-
junction with exterior receptacles) ; requirement — January 1, 1973.

Item No. 4

(a) Door (size change from 22" clear opening to 28" clear opening) ; re-
quirement— approved by Board September 1972 ; requirement — May 1973 by
NFPA.

Item No. 5

(a) Truss Test; requirement — 1969 Standard; enforced by industry 1970.

Item No. 6

(a) Symposium (ANSI A119.1 Interpretive Symposium). Held in San Antonio,
Pittsburgh, Tallahassee covered all aspects of the Standard. Approximately 250
people from the industry attending these Symposia. August 1972-December 1972-
March 1973.

Item No. 7

(a) Tie-downs (anchorage system) ; proposed — March 1972; ANSI Committee
adopted September 1972; requirement — January 1, 1973 (by MHMA, to be ap-
proved by NFPA May 1973.

Item No. 8

(a) Standards Enforcement Program:

1. Standard Violation Penalties (fines); requirement — July 1971 by
MHMA-industry.

2. Inspection Report Forms ; proposed — November 1970 (MHMA) ; require-
ment—July 1, 1971.

3. Training program (MHMA) ; requirement — Aprils, 1971.

4. Form Guide (how to use new inspection forms) ; requirement — July
1, 1971.

Item No. 9

(a) Secondary Relief Vent (plumbing device, not intended for use as the
only vent in a mobile home, and emphasis is placed on the word secondary) Stand-
ards Committee accepted April 18, 1972.

[From Northwest Trailer and Mobile Home News, November 1971]
New Code Sets Trend — Sales Tops in Nation — 20- Year Loans in Oregon

Oregon's burgeoning mobile home market is attracting national attention for
8,650 reasons, which we shall enumerate.

1. Guy E. Jaques Jr., President of Portland Federal Savings and Loan Asso-
ciation.

2. Harry F. Baker, Supervisor, Mobile Home and Recreational Division, De-
partment of Commerce, state of Oregon.

8,648. The number of Oregon families who purchased mobile homes during the
first nine months of 1971, representing a gain in sales of 134 per cent over the
same period a year ago (3,700 retail sales) the greatest percentage gain in the
United States.

Jaques startled the housing industry earlier this month by announcing Port-
land Federal's 20-year mobile home policy, the first in the nation.

1129

Baker, who is already nationally known as a member of the executive board
of the American National Standards Institute and is chairman of the subcom-
mittee on mobile home park codes, and who is chairman of the new national
organization, Code Administrators for Mobile Homes and Recreational Vehicles,
is helping set up Oregon's new mobile home and recreational vehicle codes.

Lets start with Baker, who in Oregon is Supervisor of the Mobile Home and
Recreational Division of the state Department of Commerce.

The division was created as a result of legislative action, Senate Bill 188 from
the last Oregon session, to be exact, that removed administration and enforce-
ment of Oregon's three mobile codes from three separate state agencies, added
a fourth and put them all in the department of commerce.

Oregon's mobile home and recreational vehicle plumbing codes had come under
the state department of health ; its electrical codes under the department of
labor, and the heating codes under the state fire marshall. There had been no
building code.

With a building code added, Baker's division will be the single state regulat-
ing authority, under the department of commerce.

The code regulations being drafted, with assistance of the Mobile Home Con-
struction Standards Advisory Committee, are nearly completed and a public
hearing will be called in late December at the state oflSce building in Portland,
Baker told NORTHWEST TRAILER AND MOBILE HOME NEWS.

"We look for implementation in the early spring," Baker said.

The new codes are based on American National Standards Institute models,
A119.1 (mobile homes, adopted by 28 states) and A119.2 (recreational vehicles).

The new codes will apply to all mobile homes and recreational vehicles, "for
sale, rent or lease," in Oregon. There are 187 such manufacturers registered with
the state, according to Baker, of whom 59 are in the state and 128 out-of-state.

As the division staff is built up, administration calls for insignias of compli-
ance to be placed on all approved mobile homes and recreational vehicles. New
models can be approved on the basis of plans and specifications, or by visual in-
spection of pilot models. Spot checks at manufacturing plants will assure that
model lines are in compliance.

The Oregon codes will require an in-plant quality control program. Baker
stated and plant managers will be required to submit methods of quality control.

The structural portion of the codes is new to Oregon. Baker said consideration
is being given to means of determining compliance of structural materials in
three ways : the use of stress graded materials, through the manufacturer's
own testing and through testing by an outside independent organization.

Oregon will become a leader in mobile home and recreational vehicle codes.
Although the codes will be ANSI A119.1 and ANSI A119.2 substantially, th^
concept and administration is something else.

The Mobile Home Construction Standards Advisory Committee is a standing
committee, representative of the industry, government and the public, whose
recommendations will be heard by Hillman Lueddeman, Director of the Depart-
ment of Commerce.

The committee is playing and will continue to play a major role in formulating
the codes and their revisions as required. And, the division feels that mobile
homes are mobile homes, not on site constructed homes, requiring entirely
different structural requirements.

One of the recommended requirements of the new code has to do with emer-
gency egress, which calls for windows that can be opened in habitable rooms.

Attitude of a regulatory agency is important too. Just by the way of a clue :
Baker is considering buying a mobile home for his family.

Meanwhile, back at Portland First Federal. Guy Jaques' idea is that a mobile
home, when placed on a permanent site, becomes a piece of real property that
is not going to depreciate, provided the site is planned properly.

Therefore Portland Federal's new policy on 20-year loans is this. Twenty-year
loans, from 75 to 90 per cent of the value of the home and property, will be
made, initially at Heritage Village, an 82-acre development southwest of Port-
land, planned for 474 home sites. Heritage Village is being developed by the
Green Tree Development Company, a wholly-owned subsidiary of Portland
Federal. Similar loans are to be extended similar developments, in which the
homes are permanently set up.

Twenty-year mortgages with interest rates under nine per cent will enable
Oregonians to buy mobile homes more easily than ever before, officials say.

Which brings us to the other 8,648 reasons Oregon is gaining national atten-
tion in the housing industry.

1130

American families during September alone, a record month for the industry,
spent over $330,000,000 on new mobile homes, not including taxes. Mobile home
sales in Oregon during that month were 1,618 units. On a per capita basis, a rate
three times the national average.

The gain in Oregon in September 1971, over the same month a year ago was
206 per cent, third highest in the nation, exceeded only by Washington, with
a 236 per cent gain, and California with a 222 per cent gain.

A trend is beginning in the state of Oregon. Mobile homes are beginning
to take hold as a new way of life, something that the manufacturers, dealers
and owners have known all along, and now something that the lenders and govern-
mental officials are taking into consideration.

The Chairman. Thank you, Mr. Martin.

Our next witness is J. Lanny Wiens, chairman of the board, Mobile
Home Dealers National Association.

STATEMENT OF J. LANNY WIENS, CHAIRMAN OF THE BOARD,
MOBILE HOME DEALERS NATIONAL ASSOCIATION

Mr. WiENs. Senator, I have a brief statement I would like to read.

The Chairman. Fine.

Mr. Wiens. My name is Lanny Wiens ; I'm from Enid, Okla. I have
been a mobile home dealer for 16 years, presently chairman of the
board of the Mobile Home Dealers National Association.

I am here to testify on behalf of the Mobile Home Dealers National
Association in support of S. 1348, a bill to provide for the establishment
of safety standards for mobile homes moved in interstate commerce.

While we support the proposed involvement of the Department of
Housing and Urban Development in this area of safety standards, we
want to assure the subcommittee that from the dealers' point of view,
the mobile home manufacturers have not been remiss in their obligation
to the consumer.

Thirty-six States have adopted the American National Standards
Institute's A119.1 guidelines which set performance standards for
structural design, plumbing, heating, and electrical work. Also, the
Mobile Home Manufacturers Association, whose members produce
more than 70 percent of the Nation's mobile homes, has made every
effort to insist on high safety standards and the lionoring of all
warranties.

However, the expansion of the industry over the past decade has
revealed several weaknesses in present arrangements ; notably, lack of
reciprocity between the States, varying degrees of enforcement, and
varying interpretations of the ANSI code as well as fundamental
weaknesses in the code itself.

These weaknesses, which in our opinion are inherent in State systems
of regulating commodities moving in interstate coimnerce, can be re-
solved only by the development of a single Federal standard.

We also concur in those provisions of the bill which would permit
States to enforce mobile home safety standards which are identical to
the Federal standards or which concern safety matters not covered by
the Federal guidelines.

S. 1348 reflects the most practical approach because it vests respon-
sibility in the Department of Housing and Urban Development, unlike
other approaches which would divide jurisdiction between the Depart-
ment of Transportation and HUD. Mobile homes are housing, a sub-
stantial source of low- and moderate-income housing, and HUD is the
logical agency to be vested with this responsibility.

1131

I would like now to address my testimony to the amendment pro-
posed by Senator Taft, which would make two changes in the bill.

First, the amendment would require a manufacturer to act
"promptly-' instead of "within a reasonable time" after the manu-
facturer has discovered a defect. We believe the need for this change
IS self-evident.

ONE-YEAR WARRANTY

The Taft amendment would also require the manufacturer to supply
purchasers with a 1-year warranty specifying that the mobile home
meets the Federal safety standards established by the act. The war-
ranty corrects a major defect in S. 1348 — the omission of any direct
and timely relief for the consumer who finds that he has a defective
mobile home several weeks or months after he has taken possession.
The defect may be peculiar to this particular mobile home and ma}'
have been overlooked by the dealer who prepared the unit for posses-
sion and occupancy by the purchaser.

We recommend approval of the Taft warranty amendment.

USED MOBILE HOMES

Section 108(b) of S. 1348 addresses itself to the subject of used
mobile homes. While the bill covers only new mobile homes, this sec-
tion directs the HUD Secretary to conduct a study and investigation
of the adequacy of existing State requirements and procedures appli-
cable to used moble homes and to report to the Congress within 1
year the advisability of legislation for the establishment of uniform
Federal mobile home safety standards applicable to all used mobile
homes.

Wliile we seriously doubt the practicability of Federal standards
for used mobile homes, we find it difficult to oppose direction to HUD
to study the matter and report back to the Congress. Should the bill
be enacted with section 108(b), we hope to convince the Department
that such Federal standards would be impractical, difficult to enforce,
and make it very difficult for mobile-home owners to trade up their
units, or to sell them and recapture part of their equity.

INTEREST RATES

We strongly recommend that the subcommittee include in its hous-
ing bill authority for the HUD Secretary to adjust the interest rate on
the title I mobile home sales program to reflect market conditions. The
problem of adequacy of FHA rates is not new to this subcommittee.
We ask that the power of flexibility which the Secretary has with re-
spect to the regular FHA program be extended to the title I program.

The situation with respect to FHA mobile home sales is particu-
larly inequitable because the Veterans' Administration has no com-
parable restrictions, and the maximum rate permitted by the VA on
mobile home sales is more than 2 percentage points in excess of the
FHA ceiling. The administration has recommended this amendment,
and I understand it was included in the bill approved last year by
this committee.

1132

S. 8 98 ^AMENDING FHA SALES PROGRAM

We recommend approval of S. 898 which would amend the FHA
mobile homes sales program by including in the insurance extended
lenders under the title I program, the cost of acquisition of a lot by
the mobile home purchaser and borrower. The additional amount
would be $5,000 for an undeveloped lot with a 15-year maturity ; and
if the acquired lot is suitably developed, the principal amount of the
added obligation could be $7,500 with a 15-year maturity.

This amendment to the title I program would make the FHx\. mobile
home sales program comparable to that administered by the Veterans'
Administration. This amendment was also included in last year's
housing bill which cleared the Senate but was not enacted because of
inaction on housing legislation by the House of Representatives.

With respect to the FHA mobile home sales program, we urge an
additional change, extension of the maturity on single units to 15 years
from the present 12 years, and 20 years for double-wides instead of the
present 15.

With respect to single units, we note that the Federal Home Loan
Bank Board recently amended its mobile home regulations to permit
a maximum 15-year maturity. With respect to double-wides, we be-
lieve that a 10-year differential between a conventional home, which
has a maturity of 30 years, and a double-wide, which has most of the
permanent characteristics of conventionally built housing, is more rea-
sonable than the present 15 -year differential.

S. 89 9 FARMERS HOME ADMINISTRATION

S. 899 would extend the housing programs of the Farmers Home
Administration to mobile homes. An identical provision was approved
by the committee and included in last year's housing bill.

I am sure that the committee is aware of the substandard housing
in rural areas and the great need for lower cost housing in such areas.
Surely, this segment of our population should not be denied the bene-
fits of assistance in the purchase of mobile homes, assistance that is
accorded the urban areas in which FHA activity predominates.

This concludes my testimony. On behalf of the Mobile Home Deal-
ers National Association, I express my ap]:)reciation for this oppor-
tunity to testify on these bills affecting mobile homes.

Senator Taft [presiding]. Thank you very much, Mr, Wiens.

The Chairman had to leave, so I will take over.

Mr. Wiens, what does a dealer do specifically to a unit after he re-
ceives it from the manufacturer ?

Mr. WiENs. When it is immediately received ?

Senator Taft. And prior to sale.

Mr. Wiens. Prior to sale. When it is immediately received, it is what
we call ready for setup, made ready for sale on the lot. It is hooked
temporarily to electrical connections to provide lighting for display.
The furniture is set up and the unit is cleaned up. When the unit is
sold, it is

Senator Taft. Is there any actual structural change to any of the
units that have become disassembled ?

Mr. Wiens. Not normally, with the exception of the furniture. The
next step, when the home is sold, it goes through a checkout procedure.

1133

in which the electricity, gas, whether it is LP or natural gas is used,
the plumbing and all is checked out and pressured up before delivery
to the customer.

Senator Taft. What do you do to prepare it for the owner after the
sale ? Do you take some steps then ?

Mr. WiENS. That is what I Avas referring to. Then we pull it up to a
checkout stand, completely hook it up to water, electrical connections,
gas connections, and check it out.

Senator Taft. This is at your lot, though ?

Mr. WiENS. Right, at the sales lot.

Senator Taft. But after it is actually delivered somewhere, do you
have some further role ?

Mr. WiENS. Yes. Then when it is delivered, we hook it up again for
the customer, completing all connections and setups and recheck it
again there, in case something was missed on the lot, and get it ready
for the customer to move in.

Senator Taft. What do you do with regard to complaints after the
customer is in the unit ?

Mr. WiENS. Well, depending on the type of complaint, whether we
make a work order out on it, turn it over to the service department, and
they take care of it. If it is an immediate thing, we go right out, or else
we get to it in the next several days.

Senator Taft. Do the dealers generally do something for a prescribed
period ?

Mr. WiENS. Yes.

Senator Taft. Without charge ?

Mr. WiENS. Yes; the policy of your company is we feel that any-
thing that is not the fault of the customer, within a reasonable amount
of time, we take care of it.

Senator Taft. "\Yliat would that be in time ?

Mr. WiExs. It depends a lot on the incidence of the complaint. We
don't have, as far as our dealership is concerned, we don't have a spec-
ified set time.

Senator Taft. Your contract of sale doesn't provide free service for
a certain period of time ?

Mr. WiENS. No ; we just take care of it on our own word and reputa-
tion and formally it may involve anything within a year.

Senator Taft. Mr. Martin testified earlier that the warranty pro-
vision that I have suggested, should be modified to include a warranty
by the dealer in addition to a warranty by the manufacturer. Are you
in agreement with that, or do you think some specified provisions in
the law ought to set out a required warranty from the dealer ?

Mr. WiENS. Well, in general, I'm in agreement with it. I think there
might be separate provisions for each type of responsibility. But gen-
erally, I'm in agreement that the dealer should have responsibility and
be held to that.

Senator Taft. Do you do servicing after the year period is over on a
reimbursed basis ?

Mr. WiENS. Yes.

Senator Taft. You actually do servdce work?

]Mr. WiENS. Yes ; our shops do insurance repair, any type of ser\dce.

Senator Taft. I don't have any further questions. Thank you very
much, Mr. Wiens.

1134

Mr. WiENS. Thank you, sir.

Senator Taft. The next witnesses are a panel of Dr. James Fosdick,
executive secretary to Lt. Gov. Martin Schreiber, of Wisconsin; Mre.
Lynda McDonnell, Center for Auto Safety, Washington, D.C. ; and
Dr. Margaret Drury of the Senior Kesearch Staff, Urban Institute,
Washington, D.C.

Ladies and gentleman, we welcome you. We would be glad to have
you start in and give us your statements. I would ask that they be kept
relatively brief, as I have another commitment I have to make fairly
shortly.

We don't want to cut you off. We welcome any additional informa-
tion you would care to file.

statements of james s. fosdick, executive secretary
to lt. gov. martin schreiber, of wisconsin; lynda
McDonnell, center for auto safety, Washington, d.c;
and margaret j. drury, senior research staff, urban
institute, washington, d.c.

Ms. McDoxNELL. I am Lynda McDonnell, I am with the Center for
Auto Safety, a public interest research group located in Washington,
D,C,

The center has been conducting for the past year or so an investiga-
tion of the mobile home industry.

I am going to abbreviate my remarks considerably, so I would like
to file my full testimony in the record before I begin.

There are three major parts of Senator Brock's bill that we are very
concerned about. First we would like to see the scope of the bill ex-
tended to explicitly include const iiicti on.

It seems that the Senators' intent is to include the quality of con-
struction in his bill. The way it is presently written he bill would seem
to include construction quality as well as safety. But we think it is im-
portant for definitional reasons and in case of future court tests that
construction be explicitly included in the bill.

As regards construction standards I have to disagree with some of
the testimony that has come before today about the adequacy of the
ANSI code.

We have not done an indepth engineering analysis of the code be-
cause we do not have that sort of technical expertise on our staff. But
there are several parts of the code which are obviously inadequate. Let
me give you an example. The code in many parts is very ambiguous,
and we think that makes it a weak code in many respects.

There is one requirement that the interior partitions in a mobile
home be "of adequate strength," That is all the code requires. Well, in
mobile homes we visited, this "adequate strength'" consists of putting
a 2- by 2-inch stud behind a piece of plywood, maybe evei-y 2 feet or
so. We had one Illinois dealer tell us that he discourages his prospective
customers from leaning agaisnt these walls in model units for fear they
will crash into the next room,

A more serious example of the inadequacy of the present code are
its fire safety requirements. There is a flame spread requirement for
interior materials in the present code. But in most of the mobile homes

1135

made today the interior material used for interior walls is thin, five-
thirty seconds of an inch plywood paneling.

We do not consider this material satisfactory in terms of safety.

The National Commission on Fire Prevention and Control recently
released a report which stated explicitly that mobile homes are the
most flammable, the fastest burning of all residences.

If you take this as an indication of the quality of the ANSI code
you can understand why we would object to adopting that code as a
Federal standard.

There are some improvements, some great improvements in mobile
home construction that the ANSI committee has made in recent years.
It recently passed an amendment that will double the amount of in-
sulation required in mobile homes and that is a significant improve-
ment. But we would certainly object to taking this code and adopting
it in toto and making it a national code.

My written testimony expands on how we feel the Secretary of HUD
should consult sources other than ANSI and initiate original research
in his development of a national mobile home construction code.

In addition to having the bill's scope extended, we would like to have
the bill's defect provisions strengthened.

Senator Taft, we would support the 1-year warranty amendment
you have proposed. There are mandatory 1-year warranties now re-
quired by the State of California and the State of Wisconsin.

Many of the major mobile home manufacturers are also supply-
ing 1-year guarantees with their products,

But in regard to safety defects in a mobile home, things that would
actually endanger the life and safety of its occupants, we feel there
should be no time limit on the guarantee that the home will be safe
to live in.

We think that as long as the home is habitable, as long as people
are living in the home, they should be assured that while their paneling
and furniture may wear, they will have a safe place to live.

So in that respect we would support a mandatory 1-year warranty
covering all parts of the home, but would extend the warranty in
respect to safety-related aspects of the home, having an unlimited war-
ranty on the safety features of the mobile home.

We also agree with the gentlemen from North Carolina that there
are problems with the section of the bill which deals with State en-
forcement plans.

We think there are more specific criteria which should be included
in the bill to make sure that it provides for strong enforcement,
inspections, and review of blueprints before the homes go into pro-
duction.

Those added criteria are also outlined in my written testimony.

I would like to point out a few potential problems in having third
party agencies conduct inspections. In States where third-party in-
spection is used, the agencies are usually chosen directly by the
manufacturers.

There are three major testing laboratories that do this sort of inspec-
tion and the manufacturer has the option, in the States that I am
familiar with, to choose which of those agencies he wants to inspect
his plant.

1136

There is one official of U.S. Testing Laboratory who told us his
company's contract with one manufacturer was canceled because the
manufacturer told him he could get by with using cheaper materials
by hiring another third-party agency.

That is not the sort of uniform quality' of inspection that this bill
mandates.

I think the bill must provide for that sort of abuse.

If the third party is being paid by the manufacturer you are going
to have to cope with the third party behaving as though he is an
employee of the manufacturer, rather than serving the consumers and
the State agency.

So those in brief are the comments I would like to make.

[The statement and additional information follow :1

Statement of Ms. Lynda McDonnell of the Centeb fob Auto Safety

Mr. Chairman, I am Lynda McDonnell, a member of the staff of the Center
for Auto Safety. The Center is a non-profit public interest research group
located in Washington, D.C. We are concerned with safety problems in the
automobile and related industries.

For the past year, the Center has been engaged in an intensive study of
the mobile home industry which will be published this fall. I have served as
project director for that study. Among the subjects we have investigated
are mobile home construction, safety, quality, insurance, financing and park
living. We have culled through hundreds of letters from unhappy mobile
home owners ; we have talked with state oflBcials, mobile home manufacturers, sup-
pliers, dealers, insurance companies and bankers. Our research has uncovered
a rat's nest of problems in the mobile home industry. Among these are shoddy
workmanship, cheap materials, high financing costs and extensive losses of
life and property due to fire and wind.

We thank the committee for inviting us to testify here today. We applaud
Senator Brock's interest in the mobile home problem and his desire to enact
legislation which would call a halt to many of the consumer abuses now prev-
alent. The proposed bill before us today takes a significant step toward
assuring the mobile home owner that his home will be a safe place to live.

But there are several areas addressed by the bill which we feel do not
go far enough in protecting the consumer from unsafe and poor quality mobile
homes. Specifically, we feel the bill's scope should be expanded to include
construction as well as safety. We would also like the defect provisions to be
strengthened and the state enforcement system further defined. I will elaborate
on why we feel these changes should be made and how this could be done.

I. EXPANDING the BH^L'S SCOPE TO INCLUDE CONSTRUCTION

First, we feel that the scope of Senator Brock's bill should be extended to
explicitly include construction quality as well as safety. As it is now written
the bill ties safety directly to accidents, injuries and details caused by defective
components in a mobile home. But in housing, the durability, quality and
safety of construction are inextricably combined. Most of the more than 1.000
consumer letters we have received do not deal with serious safety defects which
re.sulted in injuries or deaths. Instead the overwhelming majority deal with
construction complaints ranging in severity from scratched panelling to walls
separating from roofs. A survey of mobile home owners conducted by Owens-
Corning Fiberglas Corporation indicates how prevalent mobile home construc-
tion defects are. In that survey, 51 percent of the mobile home owners inter-
viewed said they had construction-related problems immediately after moving
into their homes.

While construction defects may not often result in injuries or deaths, they caT>
result in extensive economic loss to the mobile home owner.

For example, the construction defects we hear about most often are leaks. Leaks
at first appear to be insignificant but if they go undiscovered or unrepaired, de-
layed by buck-passing between manufacturers and dealers who both deny re-
sponsibility for repairing the home, simple leaks can cause hundreds or even

1137

thousands of dollars worth of damage. Warped panelling, rotting floors and wet
insulation which must be removed and replaced are frequently the end results
of mobile home leaks. Senator Brock's bill seems to have the intention of reducing
such property losses. But safety as it is defined in the bill is too narrow a pur-
view to include most common mobile home defects. For these reasons we urge the
committee to amend the bill to include construction and change the bill's title
to "The Mobile Home Construction and Safety Act of 1973."

We are delighted that Senator Brock's bill provides for implementation of stand-
ards within six months of the bill's enactment. But we are concerned that this
schedule for implementation will result in too heavy a reliance by the Secretary
on the industry's expertise. The mobile home industry has done significant work
in developing a construction code for mobile homes and that work should not be
wasted. But neither should time pressures force the Secretary to be completely
dependent on the industry's knowledge and experience. Senator Brock's bill has a
strong built-in bias favoring adoption of a widely accepted mobile home construc-
tion standard written by an industry-dominated committee known as the Ameri-
can National Standards Institute's Committee on Mobile Homes and Recrea-
tional Vehicles. The six month lead time before implementation of the federal
standard would give the Secretary little time to conduct original research. Sena-
tor Brock's bill frequently singles out the ANSI committee for special attention,
requiring that the Secretary consult with the ANSI committee before issuing
his standards. We feel this directive gives far too much importance to what is
essentially a lethargic industry-dominated committee and the standards this
committee has written.

The ANSI standards, though a vast improvement over the days when the wild
and woolly mobile home industry was completely unregulated, are limited in
scope and often weak and ambiguous. The ANSI committee has depended almost
exclusively on the mobile home industry's expertise in writing its standards. The
present committee is heavily dominated by persons having close affiliations with
and vested interests in the mobile home industry. At a meeting of the ANSI com-
mittee on mobile homes in January 1973, fully 75 percent of those in attendance
were representatives of mobile home manufacturers, suppliers, industry associa-
tions, insurance companies and private inspection agencies, all having a hand in
the mobile home pot. It would be unwise for the Secretary to rely too heavily on
the expertise of this committee, instead of consulting other sources and initiating
original research.

Let me give you an example of how the industry-oriented ANSI committee
has fai'ed to make its code as stringent as is needed. Many of the standards
within the present ANSI code are ambiguous enough to allow manufacturers to
virtually ignore them. For example, the code requires that interior partitions
between rooms be "of adequate strength." In actuality, many of the walls which
supposedly meet this requirement are simply pieces of plywood supported by an
occasional two by two inch wood stud. One Illinois dealer told us he discourages
prospective customers from leaning too heavily against the walls in display
models for fear they'll go crashing into the next room. A more serious example
of the ANSI committee's lethargy are the code's weak fire safety provisions
which allow manufacturers to build their interiors almost completely of cheap
thin plywood panelling.

There are many persons in addition to ANSI committee members whom the
Secretary should consult in developing federal standards. Canada and the state
of California have l)oth developed mobile home codes which are stiffer in many
respects than the ANSI code. Many academicians, fire protection experts and
state and local government officials are familiar witli mobile homes, their con-
struction and various safety and non-safety deficiencies. The bill's frequent
references to ANSI discriminate against other important sources of information
which are not mentioned by name in the bill.

We might note that if the Secretary simply adopts the ANSI standards, he
will be effecting little change in mobile home construction, safety and quality.
More than sixty percent of the mobile homes now produced supposedly meet the
ANSI standards because the manufacturers who produce them are required as
members of the Mobile Homes Manufacturers As.sociation to meet these con-
struction requirements. And since 36 states also require mobile home manufac-
turers who sell mobile homes in those states to adhere to the ANSI code, far more
than 60 percent of the mobile homes now produced already supposedly meet the
ANSI code. Yet there is still a surfeit of poor quality mobile homes being mar-
keted and a need for federal construction standards.

1138

We do not suggest that implementation of the federal standards be postponed
beyond the six month period Senator Brock's bill sijecifies. But we do recommend
that to minimize the bias toward the ANSI standards, all specific references
to this body be struck from the bill. We also suggest that the Secretary be
required to submit to Congress one year from the bill's enactment a report eval-
uating the current federal standards, their strengths and deficiencies, and outlin-
ing a program of amendments, new standards, research and testing to be
implemented during the following year.

We also suggest eliminating the section of the bill which would allow proposed
standards to be vetoed solely because they would increase the cost of the mobile
home. This clause could easily precipitate freciuent court battles from mobile
home manufacturers who are notoriously preoccupied with keeping costs down,
whether or not safety and quality suffer in the bargain. Mobile home manu-
facturers are well aware that the wider the gap between the price of mobile
homes and the price of conventional homes, the better their business will be.
Because of this, mobile home manufacturers are interested in keeping their homes
cheap and they are not likely to favor standards which would significantly in-
crease the retail price of their products. If cost alone is allowed to veto proposed
construction changes, it is doubtful that the quality and safety of mobile homes
will improve substantially with federal standards.

But there is a minimum acceptable level of safety and quality which homes
must meet. Many of the mobile homes we have seen and heard about from
consumers fall short of that minimum level. If it is necessary to make exten-
sive construction changes (with concomitant price increases) to enable mobile
homes to reach that level, then the bill should allow such increases in cost. We
would like to see the price con.sideration eliminated from the bill. At the very
least, cost increases should be considered in the light of the benefits they would
bring. Tliis change would allow the Secretary to enact standards which would
increase the cost of mobile homes as long as the benefits to consumers from these
changes would equal or exceed the increased costs.

II. STRENGTHEN DEFECT AND RECALL PROVISIONS

The second section of the bill which should be strengthened is that dealing
with defects and recalls. As presently written, the bill lacks a provision for
mandatory recall, whereby the Secretary, after determining tha't there was a
defect in a particular home, could order the manufacturer to repair or buy back
defective homes. Ironically enough, the bill gives dealers but not consumers this
basic protection. It states that if a dealer has a defective mobile liome on his
sales lot, the manufacturer must either buy back the defective home or pay for
necessary repairs. On the other hand, if a consumer owns the defective home,
the bill requires only that the manufacturer inform the consumer via personal
letter that his mobile home is defective. The manufacturer is not obligated to
buy back or repair free of charge a consumer's defective home. In the same way.
the bill grants a dealer who owns a defective mobile home the right to sue a
manufacturer to force him to buy back or repair the unit. The bill does not
grant the same right to a consumer. This discrepancy unfairly discriminates
against the consumer.

We suggest that the bill be amended to give the consumer the same rights and
protection it gives the dealer. The Secretary should be empowered to order a
manufacturer to buy back defective mobile homes from consumers or repair the
defects at the home's site at no cost to consumers. If the manufacturer is unable
or im willing to repair the defect within a specified period of time, the consumer
should be allowed to choose between waiting for repairs, or having the manufac-
turer buy hack the home. The manufacturer should be responsible for any ex-
penses the consumer incurs if he must temporarily move from his home because
of the defect. The bill should give both the consumer and the Secretary the right
to sue manufacturers who refuse to repurchase or repair defective homes.

We also suggest that the bill explicitly state that a mobile home can be re-
called for safety related defects for the home's entire useful life. Non-safety de-
fects should be covered for five years after the liome's original retail sale. Such
a delineation would avoid confusion once the bill is enacted.

III. FURTHER DEFINE REQUIREMENTS FOR STATE ENFORCEMENT PROGRAMS

Finally, we support the bill's scheme for state enforcement of the standards.
State enforcement will surely be more effective and easier to implement than
would a federal program. However, the bill should include more detailed require-

1139

ments for state enforcement plans. Based on our knowledge of existing state en-
forcement programs, we recommend that the bill require all state plans sub-
mitted to the Secretary include the following :

1. Procedures for approval by state officials of mobile home construction plans
before such plans are implemented and a state requirement that manufacturers
produce only units which conform to an approved plan ;

2. Minimum standards for quality control programs in mobile home manufac-
turing plants ;

3. Minimum ratio of inspectors to the number of mobile homes produced and
sold in the state. This ratio should equal or exceed a federally established mini-
mum ;

4. A state goal of inspecting each unit produced in the state at some time dur-
ing its construction ;

5. Minimum qualifications for inspectors.

The bill should also further define what the state's powers and duties are. For
example, the bill does not specify whether the state can levy fines, suspend pro-
duction or order manufacturers to make repairs. Neither does the bill describe
how states are to report code violations to the Secretary.

We also feel that the Secretary should not be forced to surrender his jurisdic-
tion over the enforcement of the standards once the state plan passes the three-
year test period. As we read the bill, once the Secretary approves a state
enforcement plan, he must go through an elaborate procedure to withdraw ap-
proval of the state plan before he can intervene in the state enforcement pro-
cedures. We feel that the Secretary should instead retain the right to proceed
against a mobile home manufacturer located in a state with a federally ap-
proved state enforcement plan without having to dismantle the entire state
plan to do so.

Also in respect to state codes and enforcement, we feel that the federal stand-
ards should be viewed as a nationwide minimum. All states should be required
to meet these minimum standards but individual states should be allowed to
exceed these standards if they wish. Climatic differences throughout the country
require this. The state of Alaska, for example, adopted the ANSI code but in-
serted tougher requirements for roof and sidewall strength because the state's
harsh weather demanded this. I might add that we receive far more consumer
"complaints about inadequate insulation, poor heating and exorbitant heating
bills from residents of northern states than elsewhere in the country. Once
it meets the minimum requirements, a state should be allowed to compensate
for local weather conditions by exceeding the federal standards.

I would also like to point out that were it not for the states taking the initia-
tive in setting up mobile home construction standards (California first imple-
mented standards in 1958) we would probably not have the present mobile home
construction codes, notably the ANSI code. States should retain the right to
exceed the federal code. Hopefully their initiatives in formulating more strin-
gent standards will prod federal standard-makers to do likewise.

In closing, I would like to reiterate that we believe Senator Brock's bill, if
passed and enacted, would provide a great service to the consumer in assuring
him that his mobile home will at least be constructed to a minimum level of
safety. But the bill could be significantly strengthened in the consumer's behalf
if the following revisions were made : the bill's scope was expanded to include
construction quality along with safety ; the bill's recall and defect provisions
were strengthened to make manufacturers responsible for buying back or re-
pairing free of charge defective homes belonging to consumers ; and finally, the
bill's criteria for state enforcement programs and its delineation of federal and
state powers were further defined.

Appendix To Accompany Testimony of Lynda McDonnell

The following appendix will elaborate on our remarks on the Senate bill, S.
1348, offered in testimony before the Senate Subcommittee on Housing and Urban
Affairs. It will also briefly outline significant problem areas for mobile home
owners which would be appropriate for federal control and are not presently
included in the Brock bill.

We are concerned that some of the bill's limiting language will prove diflScult
to define and could precipitate challenges to safety standards by mobile home
manufacturers. Specifically, we feel the phrases "substantial increase in the re-
tail price of a mobile home" and "practical Federal safety standards for mobile

1140

homes" — both used in the preamble to the legislation — should be struck. We also
feel that "defect" should not be narrowly defined as referring only to "substantial
defects." The definition of defect should be clarified ; for example, it is unclear
whether defects in furniture and appliances, which are normally supplied with
a mobile home, are included in this definition.

We recommend that a warranty clause be added to the bill and that the
definition of "defect" be adjusted so as to be appropriate to the warranty clause.
The warranty provision should specify that manufacturers must warrant the
safety features of a mobile home for the home's entire usable life. Non-safety
features having to do with basic construction should be warranted for five years.
The entire mobile home — furniture, appliances, rugs, panelling, construction and
safety — would be warranted for one year. And any such warranty should be
transferable to future owners of the home.

California and Wisconsin already require that all mobile homes sold in those
states be supplied with one year warranties on all parts of the home. Many of
the largest mobile home manufacturers have extended their warranties from 90
day time periods to one full year. It is hardly too much for a consumer to expect
that all the components of a mobile home will work satisfactorily for at least
one year. A mobile home owner should also have assurance that though certain
parts of his home will wear out, it will be safe as long as it is habitable. A
federal warranty provision should include minimum standards for mobile home
warranties and state that any mobile home not supplietl witli such a warranty
would not be i>ermitted into interstate connnerce. A federal office to issue mini-
mum warranty standards and monitor the performance of manufacturers in
honoring their warranties should also be established by the bill.

Such a provision is necessary since many consumers have complained to us
that their warranties are virtually worthless. Often neither dealers nor manu-
facturers will make necessary repairs under warranty. The Federal Trade Com-
mission is now preparing a complaint against several large mobile home manu-
facturers, faulting them for their failure to honor their warranties. Many
mobile home warranties we have seen contain onerous clauses which would
place a hardship on a consumer who sought warranty service. For example,
some warranties state that the consumer must return his mobile home to the
factory where it was produced in order to obtain service.

Although we have never heard of such a clause being enforced, these clauses
are potentially tools the manufacturer could use to make it difficult for the
consumer to obtain service. Federal legislation could appropriately set mini-
mum standards for mobile home warranties.

To digress slightly for a moment, we would like to discuss "set-up" and
recommend that manufacturers be required to guarantee not only the safety
and construction quality of their homes, but also a satisfactory initial set-up.
Set-up consists of jacking up a mobile home to place piles of cement blocks
under the home as a support and then levelling the home on those supports.
If a mobile home is not properly supported or is not level on these blocks,
serious structural problems can develop. These structural problems can include
walls separating from roofs and floors, cabinets separating from walls, doors
and windows not closing tightly, bowing walls, leaks, sagging floors and backup
of sewage in pipes. Set-up is usually performed by the dealer who sells the
home and the charge for set-up is included in the sales price of the home.

Because manufacturers do not actually perform the set-up of the homes
they manufacture, their warranties do not guarantee that the procedure will
be carried out correctly by the dealer. Oftentimes, dealers and manufacturers
become embroiled in lengthy debates over who is responsible for making a
particular repair. A manufacturer will claim that a defect developed because
of poor set-up ; the dealer will claim that the defect developed because of poor
set-up ; the dealer will claim that the defect originated in the factory. The
consumer is caught in the middle and may wait for months while the dealer
and manufacturer negotiate about who will make the repair. Many consumers
simply give up in frustration and repair the home themselves or hire service-
men to make repairs. To minimize this sort of dealer-manufacturer squabbling,
we propose that the bill specify that the manufacturer is responsible for all
structural defects whether they were caused by faulty set-up or not. We
would require the manufacturer to guarantee that the home will be set-up
correctly by his dealer-agent or the manufacturer himself is liable for damages
if it is not. We see no other way to force manufacturers to exercise more control
over dealers and thereby eliminate the rampant dealer-manufacturer runaound.
The "buckpassing" between dealers and manufacturers is a chronic problem

1141

in the mobile home industry. Manufacturers have consistently refused to organize
and control their dealer networks by demanding servicing capability and issuing
formal franchise agreements. They eschew responsibility for any of their dealers
actions. An attorney for Schult Mobile Home Corporation expressed this lack
of control over dealers in a letter to an attorney representing a mobile home
owner who.se home's roof had collapsed : "Please be advi.sed that neither North-
land Homes nor any other dealer for Schult Mobile Home Corporatin is an
agent of Schult. Mobile home dealers are independent contractors and not subject
to the direction or control of the manufacturer. Most dealers sell mobile homes
manufactured by at least several different manufacturers. The dealer, not the
manufacturer, is the dominant link in the chain of distribution. Any statements
made by the dealer, or by his .stalesmen, would be strictly his and not attributable
to the manufacturer." It is obvious from this statement that any federal legisla-
tion must force manufacturers to assume more responsibility for the actions of
their dealer-agents as well.

Returning to the discussion of criteria used in prescribing standards, we would
recommend that 103(f) 4 and 5 be struck from the legislation because they
are ambiguous and irrevelant. Section 103(f) 3 is suflBcient in stating that any
proposed standards must be reasonable, practicable and appropriate. The ques-
tions of whether the proposed standards place a financial burden on manufac-
turers or will contribute to an increa.se of the mobile home's retail price are
irrelevant. Such considerations if given too much weight, could easily hinder
significant upgrading of mobile home construction quality and safety, regardless
of what the benefits of such improvements would be.

We would also encourage the Senator to further define "representatives of
the general public" as used in 104(a) to clarify that these council members
cannot have any affiliations with the mobile home industry, as stock holders,
employees, etc.

In regard to the research and testing functions of the federal bureau, we
would recommend that even after state enforcement plans are functioning
independently, the federal bureau retain control over research and testing
programs. This would avoid having the .states overlap in their research and
testing programs. Since it would leave all research monies in a single pool instead
of dividing them among 50 states, it is probable that more extensive and compre-
.hensive research programs could be undertaken.

In section 108 (b)i, we applaud the provision for standards for used mobile
homes but feel the lead time before implementation could be substantially de-
creased. Since the standards for used mobile homes will not be as all-encompassing
as those for new mobile homes, it should take less time, rather than more to
prepare the standards for used mobile homes. We suggest that the bill require
the Secretary to report to Congress within 180 days of the bill's enactment on
his study of state standards and inspection procedures applicable to used mobile
homes as well as recommendations for additional federal legislation he may need
to carry out the mandate to establish uniform standards for used mobile homes.
Within 180 days of that report, the Secretary shall establish uniform Federal
mobile home .safety standards applicable to all used mobile homes.

We feel the maximum civil penalties set forth in section 109(a) are far too
low. The top four mobile home manufacturers had sales of more than $200,000,000
during 1972 and a full maximum fine of $4(K),000 would little penalize corporations
of this size. Because the mobile home industry includes both very small manu-
facturers and giant corporations we feel the maximum fine should be set at
$1,000,000 in order to give the Secretary leeway to substantially penalize the
larger mobile home manufacturers .should their violations of the standards be
extremely serious. We would also recommend raising the maximum penalty per
violation to $3,000.

We feel that consumers should have the right to sue manufacturers for non-
compliance with the federal standards. They should also be assured that they will
be able to recover damages should the court award them. The state of Washington
encountered difficulties when consumers sued dealers for repairs and won their
cases, only to find that the dealers had declared bankruptcy and were unable to
pay damages. The state now requires each mobile home dealer in the state to
carry a $10,000 bond. A similar requirement might be made of mobile home manu-
facturers. There is still great fluctuation in the mobile home industry ; manufac-
turers are continually entering and leaving the industry. For this reason, it may
be appropriate to require that manufacturers carry bonds totalling 25 percent
of the previous year's gross income.

1142

Finally, we would like to briefly discuss the subjects of financing and insur-
ance which the bill does not presently deal with. Most purchasers of mobile homes
must finance their homes with long-term, high interest consumer credit loans
comparable to those used to finance purchases of automobiles. Paying an average
annual percentage rate of 12.6, most purchasers of nu)biie homes are compelled
to finance through dealers rather than directly from banks. As opposed to an
automobile loan where the high interest rates are paid on loans of $2,000 to $3,500
for terms of two to three years, mobile homes require loans of up to $10,000
running for average terms of seven to 10 years. Yet mobile home biiyers are
forced to pay the same high interest rates charged on smaller, shorter term
automobile loans. Very rarely can a consumer obtain a conventional mortgage
at terms of 8 percent or 30 for the purchase of a mobile home. Neither can most
consumers finance their homes directly through banks, principally because
banks are reluctant to grant these direct loans to consumers when it is far
simpler and more profitable for the bank to finance through dealers. Many banks
require that in order to obtain a direct bank loan, a consumer pay one-third of
the price of the home as a down payment and pay off the loan within five years.
Most middle income mobile home buyers cannot afford such terms.

Because a mobile home is considered personal rather than real property, re-
possession of a mobile home, should the owner default on his loan, is far easier
than a foreclosure on a conventionally mortgaged site-built home.

Under the Uniform Commercial Code, all the lender needs to repossess the
mobile home is for the debtor to be between 10 and 20 days late in his payment.
The lender must also be able to repossess the home without causing a breach of
the peace. Mr. and Mrs. Richard Walters of Morrice, Michigan, stopped payments
on their mobile home in hopes that the bank would use its influence to force
the dealer to make long-awaited repairs. Instead the bank decided to repossess
the home. "It wasn't long after that (failure to make payment) that they come
out and served papers on me, and made me move out on the spot," reported Mrs.
Walters.

By way of contrast, if the Walters had lived in a conventional home and had
a mortgage loan, the bank would have had to give the family a 30 to 60 day grace
period in which to make up missed payments. If the payments were not made
within that time, the bank would have had to go to court to file an order of fore-
closure against the home owner. Even if the court granted i>ermission for a fore-
closure, the bank would still be required to give the owner a "period of redemp-
tion," sometimes running as long as two years.

The bank cannot sell the home during the redemption period and the home
owner is given that time to accumulate enough money to pay off his loan and
I'eclaim his home. No such safeguards protect the mobile home owner who can
be thrown out of his home if he is but a few weeks late in his payments.

Mobile home owners who have their homes repossessed frequently find that
their troubles do not end there. Because of mobile homes' rapid economic de-
preciation (estimated at 50 percent in five years) the price the home brings
in a public auction after it is repossed may not be enough to pay off the balance
of the loan. Should this occur, the bank can go to court and request a deficiency
judgment against the home owner. If the court agrees, the mobile home owner
may well find himself without a home, still owing the bank several thousand
dollars.

The federal government established a program in 1969 for insuring mobile
home loans under the FHA. The program provides that mobi'e home loans have
maximum terms of $10,000 for 12 years at 7.97 percent simple interest for single-
wides and $13,000 for 15 years at 7.64 percent simple interest for doublewides.
But few banks have been willing to grant loans under the FHA program. As
of June 1972, of the $10 billion outstanding in mobile home loans, only $34 mil-
lion were FHA insured. Hopefully, federal legis'ation could include a provision
to attract more lenders into granting FHA-insured mobile home loans.

An additional expense frequently added into the financing contract is a long-
term insurance premium costing several hundred dollars. Dealers frequently
double as insurance agents and by one estimate depend on insurance commissions
for five percent of their total income (financing income accounts for another
15 percent).

Frequently, seven-year physical damage policies and five year credit-life in-
surance policies will be tacked onto a consumer's financing contract and he is
forced to finance not only the purchase of the mobile home but purchase of
the insurance as well, both at high cost add-on rates. In many cases, the con-
sumer ends up paying 10 years worth of interest on a loan for an insurance

1143

pf)licy which lasts for only 7 years. Consumers are pressured by dealers who
assure them that the dealer will "take care of every thing" by tacking insurance
premiums onto the financing contracts. We have also heard consumers told mis-
takenly that banks "require" mobile home buyer to purchase long-term physical
damage policies. Thirty-five percent of the physical damage policies, (virtually
all the policies sold by dealer-agents) sold by the Foremost Insurance Co.. the
largest insurer of mobile homes, are those long-term policies. The state of
Michigan's Insurance Bureau is presently attempting to limit the maximum
term for mobile home physical damage insurance policies to three years in
order to reduce the amount of interest a consumer must pay in financing his
policy.

Finally, we feel the bill must further clarify the state and federal powers
granted by the bill. It does not presently clearly detail whether state officials
are emposvered to level fines or other penalties against manufacturers not in
comp'iance with the federal standards. Since the production of mobile homes
is far more localized than the production of automobiles (mobile homes are
usually shipped no more than 250 miles from the plant to the dealer) defects are
likely to be extremely localized and state officials should be empowered to
use some sanctions against a manufacturer who violates the standards through
poor workmanship, design or materials in one plant.

Department of Law,
159 State Capitol Building,
Phoenix, Ariz., December 13, 1972.
Ms. Lynda. McDonnell,
Director, Mobile Home Task Force,
Center for Auto Safety,
Washington, D.C.

Dear Ms. McDonnell: I regret the obviously extended delay in responding to
your inquiry of November 13, 1972 concerning the problems of Mobile Home sales
in the State of Arizona and the statutes and ordinances which deal with the
problem. In a sense, that delay is indicative of our dilemma. This office has two
staff attorneys who are responsible for all consumer complaint handling and liti-
gation on consumer matters within the state of Arizona. This is obviously an
overwhelming task. We receive an incredible number of requests for information
such as yours, and regretably, are unable to take time from our primary respon-
sibility to do the requisite research for response.

The only information that I can provide you at this time is simply to state
that mobile homes are and for some time in the past have been a substantial prob-
lem in the state of Arizona. It has been necessary for us to litigate the problem
in the past and, unfortunately, it would appear that yet further legal action will
be necessary before this industry adequately assumes its responsibilities to the
consuming public. Fundamentally the suits are based upon misrepresentation
concerning the quality and characteristics of mobile homes at the time of sale and
the unwillingness of the manufacturers and/or sales organizations to undertake
their warranty responsibilities in good faith.

I realize this is substantially more abbreviated than the information you re-
quested. However, I am sure that most of that detail can be accumulated by ref-
erence to the Arizona Revised Statutes and the Compendium of Arizona Ordi-
inances.

Very truly yours,

Gary K. Nelson,

Attorney General.
Jack McCormick,
Assistant Attorney General.

State of North Carolina,

Department of Justice,
Raleigh, N.C., December 6, 1972.
Ms. Lynda McDonnell,
Director, Mobile Horns Task Fwce,
Center for Auto Safety,
Washington, D.C.

Dear Ms. McDonnell : Your inquiry about the mobile home industry in North
Carolina has been forwarded to several attorneys on our staff. I am responding to

1144

some of your questions, and I am certain that you will hear, or have heard, from
others about areas of interest to them.

When the Attorney General established the Consumer Protection Division in
this oflBce in 1969, there was no other State agency which had the authority or
responsibility for investigating general consumer complaints. The response we
have received from the public has continued to grow and to improve. However,
there are many complaints about consumer products that never come to our atten-
tion. In pursuing your inquiry, you may wish to communicate with the five Better
Business Bureaus located in North Carolina, and with the North Carolina Manu-
factured Housing Institute, Lawyers Building, Raleigh, North Carolina 27601.

We receive many complaints from consumers about their problems. A large
number are received from owners of mobile homes who are dissatisfied with the
quality and with their ability to obtain repair service. Such complaints are un-
doubtedly a significant part of our work load.

We have not been involved in any litigation involving mobile home consumer
complaints. Those complaints we receive have been forwarded to dealers and
manufacturers for their attention. We have detected no consistent pattern of mis-
representation or poor quality which would indicate the possibility of action
under our law which prohibits unfair and deceptive trade practices (North
Carolina General Statute § 75-1.1). We have found that most manufacturers are
quite willing to send an investigator to determine the validity of complaints we
receive, and to make appropriate repairs. We have found that most complaints
are justified. A large number have resulted from leaks in roofs, around windows,
and around doors. Much of the inexpensive furniture which comes with the unit
is lacking in durability, and many complaints have resulted from this essential
feature of the merchandise.

The financing of mobile homes is covered by our Retail Installment Sales Act
(Chapter 25A). When this legislation was originally introduced, the annual per-
centage rates were lower, and were raised as a result of lobbying efforts of the
mobile home industry. Most mobile home retail installment sales contracts in-
volve the financing of an amount in excess of $5000, and an annual percentage
rate of 14 percent may be charged. However, if a security interest is taken in real
property, the maximum rate is 12 percent (North Carolina General Statute
§25A-15).

We have been unable to correlate complaints about mobile homes with the
recent changes in manufacturing standards adopted by most manufacturers sell-
ing mobile homes in our State. Beginning in 1969, as a result of legislative action,
many mobile homes began to be produced under the supervisions of Underwriters
Laboratories, and other independent testing agencies. That legislation was
strengthened in 1971, and now all those sold in North Carolina presumably are in
compliance with standards established by our Building Code Council. I believe
that complaints regarding these units will not be as great, or involve problems as
severe as those experienced with units produced earlier. They are stronger and
considerably safer from fire hazards.

If we can be of any further assistance to you, please let us know.
Yours very truly,

Robert Morgan,

Attorney General.
Eugene Hafer,
Assistant Attorney General.

State of Montana,
Oftice of The Attorney General,

Helena, Mont., December 11, 1972.
Ms. Lynda McDonnell,
Director, Mohilc Home Task Force,
Center for Auto Safety, Washington, D.C.

Dear Ms. McDonnell : I am in receipt of your letter requesting information
concerning Montana law relative to the mobile home industry.

The state of Montana has no state-operated consumer protection agency. The
ma.iority of complaints concerning mobile home operation and sales are directed
to this office. Such complaints do comprise a vSignificant portion of our workload.
However, the state of Montana is not currently involved in any litigation con-
cerning mobile home consumer complaints.

In 1971 the state legislature enacted legislation to provide for luiiform con-
struction standards in the mobile home industry. This law is currently codified
in Title 69, chapter 21, Revised Codes of Montana, 1947, a copy of which is en-

1145

closed for your information. Pursuant to tlie legislative directive in section 69-
2122, R.C.M. 1947, the state building code council in December. 1971, adopted the
standard for mobile homes, A119. 1-1971, published by the American National
Standards Institute.

Statutes relating to the taxation of mobile homes are contained in Title 84,
chapter 66, R.C.M. 1947. Copies of the pertinent .statutes in this regard are also
enclosed for your information. Further information relative to mobile home
operations in Montana may be obtained by contacting Mr. John Hale, Chief,
Building Standards Bureau. Department of Law Enforcement and Public Safety,
LaLonde Building, Helena, Montana 59601.
I hope the above information is of assistance to you.
Very truly yours,

Robert L. Woodahl,

Attorney General.
John W. Northey,
Chief Deputy Attorney General.

State of Kansas,
Office of the Attorney General,

Topeka, Kans., November 27, 1972.
Ms. Lynda McDonnell,
Director, Mobile Home Task Force,
Center for Auto Safety, Washington, D.C.

Dear Ms. McDonnell: Thank you for your letter of November 13, 1972, re-
garding your research into the Mobile Home industry. I am currently assigning
two of our legal items to prepare a reix)rt and to hopefully answer all the ques-
tions you raised in your letter.

The manufacturing, sale, transportation, site location, taxation, zoning, etc.,
etc. of mobile homes is becoming an uncontrollable problem within the State of
Kansas. In your letter you touched upon some of the severe problems but I hope
we can bring to your attention, information showing that the consumer is at the
mercy of manufacturers, sales representatives, and mobile home park owners
because of the lack of effective and meaningful legislation in this area.

It will take approximately thirty days to have this report prepared but I can
"assure you that it will get top priority treatment by this otiice because of the
severity of this problem.

If we can be of further assistance, please write.
Very truly yours,

Vern Miller,

Attorney General.
Jerold V. Fen NELL,
Assistant Attorney General.

Bethel, Conn., September 9, 1970.
Mr. Ralph Nader,
Winsted, Conn.

Dear Mr. Nader: I am writing to you in hopes that perhaps in some manner
or somehow you may be able to help me. In the event that you cannot, then
whatever you can do regarding the mobile home racket in the State of Connecti-
cut, will prevent some other consumer from being swindled and subjected to
indignities and injustices that I have been in the past.

I purchased an unfurnished mobile home from a Danbury dealer on July 27.
11KJ7 for ,$6.iO(). This coach was u.sed by the dealer as his office. He was given
a down payment of .$29.3.3.50. including sales tax.

I later learned that a coach used as an office, demonstrator, etc. is classified
as "used." The coach was sold to me as a new one.

I made a complaint to the Danbury Chamber of Commerce. A very sui>erficial
investigation was made and the investigator asked me why the hell I bought it
and stated I should have looked elsewhere. I also wrote a letter of complaint
to the Connecticut Consumer Protection Division. I was advised by the Division
to obtain the services of an attorney because I would need one. The investigation
was also a very superficial one.

1146

On January 10, 1968. I was served with an eviction notice and charged with
being a general nuisance. This type of charge constitutes defamation of
character since it is untrue and was used to removed me from the premises
because I reported the park owner-dealer for having sold me a used coach
for a new one.

The Danburg Community Action recommended an attorney to handle the
eviction problem. He advised me to write a letter of complaint to the Bureau of
Motor Vehicles, which I did. The Bureau, at the end of January. 1968, requested
copies of the title application, purchase order, and invoice, none of which I
received at the time of purchase. On February 8, 1968, the attorney requested
that I sign the above three papers. I refused to sign the purchase order because
it contained false information and statements. At that time, the attorney
advised me that he kept his mouth shut where the Bureau of :\Iotor Vehicles was
concerned and did not want to get involved with them. I would also like to add
that all the papers were pre-dated for July. 1967.

At the end of February in 1968, the attorney advised me that I would have
to move from the dealer's premises or he would remove my coach from his
property. The Community Action and I had looked in New York State as well
as Connecticut, but no space was available for the coach. (It is impossible to
obtain any space in any of the parks unless one purchases a coach from the
park owners/dealers. The owners of parks who do not sell coaches reserve
the spaces for for dealers who do not own parks.) My attorney informed me he
could do nothing for me because my case was different from apartments and
houses. When I ased him where he expected me to put my coach, he said he
didn't care where I put it, but to get it the hell off the dealer's property. Even if
I had found a space for it. I would not have been able to move it since the
dealer refused to return the wheels and tires he had removed from the coach
when he set it up.

The attorney refused to give me the files and it was necessary for me to
go to the State Attorney General's office in order to find out what my rights
were. That attorney told me it was a cardinal sin to remove any files from the
office, but after informing him that I went to the State ofl[ice, he released
the files.

I was able to obtain an attorney from West Hartford to handle the eviction.
It was only then that I learned the Danbury attorney signed a court judgment
without my knowledge.

The eviction was heard in Danbury. The .judge did not want to hear any-
thing about the case, told my attorney not to come back and said he was all for
property owners evicting people they did not want on their property, and gave
me two weeks to move.

Since I was not able to find a space for my coach, I was forced to leave it on
the dealer's premises. I stopped payments to the bank because I could not pay
for rent and the coach at the same time.

The bank sent me a notice of sale dated June 11, 1968, stating that 15 days
after May 31. the coach would be put up for public or private sale. I never received
the notice until June 17, 1968, which was 3 days after the coach was sold.

On June 25, 1968, the Bureau of Motor Vehicles held a hearing and the dealer
was penalized and put on probation for a year. At this hearing, the dealer's
testimony was proven to be perjured. I also learned that the dealer swindled me
out of $3.00 on the tax and title fee.

After a two-year wait, my suit against the dealer to recover my down payment
was held on May 18, 1970, in the Litchfield Connnon Pleas Court. The judge did
not want to hear the case because he felt there was a great deal of work involved
in it. The dealer, his wife, daughter, caretaker and a bank representative again
gave perjured testimony the papers were never served to me because they could
never locate me and also that I moved into the coach without permission. I had
no witnesses and relied on my strong sense of justice and integrity.

Last week. I received the judge's decision and was appalled that his decision
was in favor of the park owner/dealer. The judge also granted him the right
to enter a judgment against me.

There are very little, if any, laws covering mobile homes in the State of Con-
necticut. There are practically no laws protecting the consumer and there is no
help from the Consumer Protection Division, or anyone else, for that matter.

The mobile home situation is deplorable and it is obvious the courts uphold
frauds and condone the tactics of these exploiters.

1147

I do not have the money to appeal or to pay any judgments. There have been
many injustices in my case and I believe there is an urgent need for realistic
laws where mobile homes are concerned, and for frauds to be properly punished
by law.

I am employed at Western Connecticut State College, 181 White Street, Dan-
burv. Conn. 06S10, from Monday through Friday. 8:00-4:00 P.M. The telephone
number is 203-792-1400. I can be reached at my home after 4 :30 P.M. My phone
number is 203-748-4596.

I look forward to hearing from you.
Sincerely yours,

Mrs. CiSELLA M. Prue.

June 30, 1972.

Dear Mr. Nader: I hope I have finally found someone that can help me. I
have previously written to Barbara Dunn, Dept. of Consumer Protection in
Hartford. Conn., but was told she couldn't help me because it dealt with an
out-of-state compan.A , that is why I am writing to you for help.

My husband and I bought a mobile home in November, 1970 from Pine View
Mobile Sales in Winslow, Maine. It is 12 x 42 and cost us $J29.j not including
tax, finance charge, etc. It is financed through General Electric Credit Corp.,
in Stamford, Conn.

Less than one month after we got it. it started leaking in the kitchen. We
notified the trailer co., and after a few days of waiting a man finally came to
fix it. The only trouble was he came after dark so my husband had to hold a
flashlight for him to see, and as a result of this he did a very poor and sloppy
job. The tar was dripped down the side of the trailer and the leak was very poorly
fixed because it still leaks, now worse than ever. As a matter of fact, the roof
leaks in a number of different places in three of the rooms. At least it was three
the last time I was there. (To explain that, we have since moved to Conn., but
visit the trailer quite frequently. )

I have written a number of letters to both Pine View Trailer Sales and Gen-
eral Electric in the last eight months or more but have received no satisfaction
from either of them. At first I asked only that the roof be fixed properly but I
was told it was too wet. In my last letter, to Mr. Hayes, District Collection
Manager of General Electric, I said I refused to make any more payments until
something was done. His answer? There is still snow on the roof. If that's true,
then my trailer is the only object with snow on it since its been in the 67-70 and
a few times in the 80's.

Enclosed you'll find copy's of all my letters to them and their answers to me.

I hope that in some way you'll be able to help us. Hopefully to get some of my
money back since I hate to lose out on $2200. I'll be glad to supply you with
any more information that you need.

Also could you please inform me how much of a fee will be charged before
something — if anything — is done.
Sincerely,

Mrs. Diana Benner.

Warren, Ohio.
Mr. Ralph Nader,

Dear Mr. Nader: I read an article recently in the Warren Tribune, written
by Jack Anderson, about Mobile Homes. Mr. Anderson based his article on
findings of one of your committees.

We have such a INIobile Home. It has leaked since we bought it. The people
we bought it from have caulked it several times and the manufacturer did the
same and also replaced parts of two (2) ceilings, but it still leaks.

The water heater leaked and the park maintainence supposedly repaired the
leak. Sixteen (16) months later the floor under the water heater weakened
enough to cause the legs of the water heater to sink in and tip. thus causing
the vent pipe to pull out. The pipe then leaned against a closet wall. The heat
from the pipe charred the paneling nearly catching fire. Luckily I found this
in time to prevent a tragedy.

The park management put a piece of 2 by 4 between the outside wall and the
heater and no other means has been made to correct this.

We have consulted a lawyer and need a reliable person to make an estimate of
damage, but cannot find one because, no one wants to get involved in this be-
cause of the legal proceedings.

1148

I work and support my two (2) children and my mother, and of course I am
obligated for any repairs that need to be done after the warranty is up. But,
the complaints I have made above are all things that were wrong from the
beginning and after a time they have of course gotten worse.

How does one go al)out getting people to properly service what they sell. I
know by exerting pressure on these people living here will be very difficult, yet
there surely must be something that can be done. Can you advise me? Is there
a possibility of getting a refund on this Mobile Home? Any advice you can give
we would be so grateful for. Thank You and
Sincerely,

Mrs. Sandra Weston.

Convoy, Ohio, May I4, 1973.
Ralph Nader,
Center for Auto Safety,
Washington, D.C.

Dear Sir : A few weeks ago I read an article in our newspaper about the in-
vestigation you are conducting on the mobile home industry. I was sure glad to
read somebody is trying to do something about this industry. Would like to have
a copy of your findings.

My main reason for writing you is to let you know I am one who got caught in
this industry's trap. The way I feel at the present time is that this industry is
the largest fraud and racket we have in this country today. Along with the indus-
try ai*e some of the dealers around the country who just want to make a fast buck
in any way they can. There are some good honest dealers around but like me one
does not always know until after a deal has been made. I had one dealer ask me
if I knew how to get a good mobile home, 'coarse I said no but I would like to know.
He told me to have he dealer I dealt with to order a show home and another
dealer told me to buy one from the lot and do not order from the factory. This is
good for the inside and what the eye can see but what about all that is covered up.
Look at Fleetwood Corp. homes, they advertise 4 inch walls then use 1 inch
blanket insulation on the outer walls and floor so there is nothing in these 4
inch walls but air.

I think the big joke is the blue sticker the industry uses MHMA approved and
the ANSI code. Let's look at who heads the MHMA then consider what good it
would do to go to them with a complaint on a home. Also the ANSI code stand-
ards are so flexible any kind of a cheese box can be built and sold to the public.
I have found the dealers will set up a model on the lot which is all clean and
shined up and this is what you order from but when the unit comes from the fac-
tory it is something else. This is what has happened to me.

The home I ordered came to the dealer's lot and sat there for a week then he
moved it on my lot and it sat for another week in the same condition it came from
the factory and he made no effort to clean anything. While this home was on my
lot I had a chance to inspect it and I found it in such a condition I decided I was
not going to live in a home of this kind. I then went to an attorney told him the
situation and showed him the order, he told me the dealer could hold me to
nothing. Now after about 7 months the home is still sitting on my lot which I
cannot use and I am faced with a law suit for the price of the home plus $500.
I have had the second attorney on the case but still nothing settled.

We talk about justice and consumer protection but where is it or vrho is it for.
I can't help but wonder how many thousands of people are living in homes of this
type but do not realize what they have.

At this point I am going to close and wish you luck in your investigation.
Respectfully Yours,

Paul A. Redlinger.

Nashville, Tenn.,

March 16, 1973.
Mr. Jack Anderson,
Washington, D.C.

Dear Mr. Andersox : I read with very much interest your article "Mobile
Home Boom Bungle." It appeared in the Sunday, March 11, 1973 issue of the
Nashville Tennessean. So many times I have remarked : ''Ralph Nader should
take a look at the entire Mobile Home Industry." All items you mentioned are
true, however, you only touched the surface. If the industry has any standards
they are either very weak or are completely ignored.

1149

It would be real interesting to know what the builders discuss each year
when they meet in Louisville. Kentucky. It's no wonder the sessions are closed
to all except dealers.

I purchased a mobile home 22 months ago. It was about two months old. I paid
$0.51)0.00. it sold new for $7.100.00±. It is a 1971 Crimson 12' x 68' 3 bedroom.
2 full baths, manufacturer's Identiticatiou Xo. 168-3371. The following problems
exist :

(1) Very Poor Insulation. — Wind blow.s* unrestricted at all windows, doors,
electric outlets, switches at the floor where walls join floor. Electric bills have
been as high as $70.00+ per month. In this area, a house with about the same
S.F. of living area, same appliances, the electric bill is about $30.00. Also very
hard to cool in hot weather.

(2) Cheap Paneling, Poorly Installed.- — I am enclosing sample of paneling
and mold. Also a sample of shoe removed from a home next door due to leaks
causing the carpet to be replaced. Note this plastic shoe mold burns very good.
It's from an Atlantic 12' x 60'.

(3) Cheap, Poorly Installed Plumbing Fixtures. — Have no overflows, faucets
very cheap.

(4) Very Poor Overall Construction.

I agree some mobile homes are well built, travel trailers Airstream. HoUiday
Rambler are very nice. In large homes I believe Xorris builds a good unit.

I always read your column. This being the first time you covered a subject
that touched me so direct.

I had the pleasure of knowing your late associate, Mr. Drew Pearson. I spent
about three hours in his home and on his farm on May 4. 1968. We had breakfast
and a conversation on many subjects.
Very truly yours,

James I. Davis.

December 22, 1971.
Mr. Ralph Nader.

Dear Sir: In 1969 we bought a new Skyline from B & M Sales in Albany,
Oreg.. on Nov. 29. 1971. We went to see the managers of B & M. We have
had trouble with it leaking from the first day we got it. They came out and
put junk on the roof. We put 2 gals of silver sealer on and it still leaks. They
say there is nothing they can do now the warranty is up. The ceiling is all
water stained. They tried to repaint the stains but that's impossible. We had
trouble with the water heater. They came out and said they had fixed it. We
are without hot water. After paying that much money we feel they should re-
place this mobile home. Hope to hear from you soon.
Yours truly,

DoTTG Nrpp.

Eugene, Oreg.
Consumer Protection Bureau
Commerce Building,
Salem, Oreg.

Mrs. Wanda Merrill : On June 26th we purchased a homette trailer home from
Flair East of Portland, 1800.") S.E. Division, built by Skyline Corporation, 550
Booth Bend Rd., McMinnville, Oregon this is a 24 by 64 mobile home.

We were shown a display home model on the lot fully equipped with stove
oven, range hood, garbage di.sposal, refrigerator and fully carpeted. We ordered
ours, this model direct from the factory, to be delivered to our sight in Eugene.
so we did not see it until it arrived (was delivered) .

When we arrived in Eugene to move into our trailer we had some of the follow-
ing problems, the trailer was placed forty four inches above the ground on high
blocks and in violation of park rules and the park manager informed them of
this when they were setting it up. after numerous calls to Flair East Trailer
Sales and talking to everyone from the service manager to the owner, I was
forced to lower this trailer my self, my son. my daughter and my wife, we lowered
it : this trailer weighs about ten ton. The plumbing was hooked up wrong and
in violation of the city code, by the city of Eugene, the city inspector was out
here several time and voiced his disapproval and left written instructions. Flair
East was advised of this also. The plumbing and sewage was changed at the time
we lowered the trailer to comply with city code at a cost of fifteen dollars and .sixty
five cents to myself, and before this we had numerous leaks throughout the entire

1150

system, these leaks have now been taken care of through Flair East. The electrical
system was also in bad shape on arrival, liare wires protruded through the wall
where a range hood should have been, the built in dishwasher was not eoiuieeted
to the electrical system, again bare wires, half of the kitchen outlets did not
work, some of our over head liglits did not work, we had no power in one bedroom,
our heater did not work. Flair East was advised of this numerous times and did
nothing. At the end of the third week we contacted a Mr. Bowers, owner of Flair
East and suggested legal action who then put us in touch with the factory at
McMinnville, ten days later an electrician came out and over liauled the elec-
trical system in order to make it work, he spent about ten hours, he found among
other things, three circuits that went no where and posed a terrible fire hazard.

This trailer was supposed to comply with Oregon code when delivered from
the factory and obviously was not inspected at the factory. Wliy?

In repairing the electrical system the electrician had to tear out inner walls
and siding from the outer walls and this has not been repaired as yet.

We have weak spots in the floors, two walls that do not fit up right, we have
leaks in the ceilings in the front room and kitchen, we have a back door that takes
water, ceilings have been stained from the leakage, it is now the 20th and still
raining; we may sustain more damage to our home, furniture etc. : We have i)an-
neling pulled away from the frame and ceilings pulled away while in transit
from the factory and we are still waiting for repairs.

When we ordered our carpets we sriecified good household iMdding be used,
instead we received a cheap poor grade of foam rubber, we complained to the
dealer at which time they brought out a cheap waffle pad and installed it not
bothering to, take out the staples from the other pad and we feel sure that in time
these \\ill work up through f)ur carpet.

Storm windows that we were assured came with this coach are still missing,
window screens and mirror damaged in transit, a drape damaged in setting up
an additional cabinet which was to be installed as yet none of this has been
done, taken care of.

We ordered our trailer from one on the lot fully equipped except for a refrig-
erator at the price of $13,000.00; we also wanted coppertone appliances which
the factory could not furnish liut that Flair East could. On .Tune 2(>th we signed
a contract for $13,000.00 and at 7% interest, when we signed the final contract it
was $13,950.00 and at 11%% interest, which at the time we had to accept since we
had sold our house and had to have a place to live, all of our furniture, household
goods clothing etc. ; was setting on our trailer, truck and we were living in our
camping trailer in a .state park with all of my family. I had already been trans-
ferred to my .iob in Eugene and we were waiting delivery of our mobile home.

Our trailer was delivered without any appliances except the dish washer, we
were informed the dealer could not furnish anything else, since then we have
purchased a table top range at our expense, a washer and dryer at our expen.se.
the dealer took our old set with the understanding of getting us a new set at
builder cost we still have no word on any of this. We still have no oven and cannot
purchase one to fit the cut opening for an oven.

We were assured by the dealer this trailer was fully warranted and would
be properly set up by them, and at the last we were informed they would not book
up the electricity which was done at a cost to me of $82.28 plus an additional
$11.00 building permit.

AYe have been under tremendous pressure by the plumbing dept., electrical dept.,
and the park manager, because this trailer did not comply with city code or park
regulations. We have tried every way we know to get an adjustment of our
grievances and have been luisuccessful. We have another meeting set for the 28th
of August with Flair East, the owner and salesman, but have little hope for
adjustment of our grievances. We sincerely hope you will be able to help us.
Sincerely.

Roger S. Barber.

Wheel Estates,
North Adams, Mass.. April 21, 1972.
Mr. Ralph Nader,
Washington, D.C.

Dear Mr. Nader ; On .January 1, 1971, I purchased a Peerless Mobilhome from
Wheel Estates, Inc., North Adams, Mass. for $7,000. The first week I moved in
I noticed there were no light covers for the fixtures in the bathroom, the
aluminum door was bent and the glass broken, the moulding was not put in on
any of the panelling, the faucet in the kitchen broke off the first time it was

1151

used, the faucets and toilet leaked and numerous other things that one does not
find until they have moved in. They have since then been repaired or replaced
by Wheel Estates all but the aluminum door which the manager of "Wheel
Estates has told me he has called Peerless a great many times concerning this
door and has never received an answer.

On Approximately January 6, 1972. the furnace broke down and I sent a letter
to Duo Therm (copy attached) to which I have never received the courtesy of
a reply. If you will note from the letter attached the guarantee was effective
1-22-72 so the furnace was within warranty.

During the March thaw the roof leaked and all my dishes were swimming in
water which left all the ceilings with water marks.

On April 20. 1972 I left my home to go to work and my bathroom was flooded
with water. My electric water heater had a hole in it and had to be replaced
which Peerless said I had to pay for. (Approximately $125). On that same day
I called Peerless and asked for the Sales Manager, who was not in, to return my
call. The operator at Peerless said someone would be in touch with me by Friday
April 21st for sure. On Monday. April 24th when I did not receive an answer
I called and demanded that I speak to the President or the Sales Manager. The
Sales Manager came to the line and I told my story to him. He told me that
everything put into the Mobilhome was warranted by a different company, the
aluminum door by Phillips, the furnace by Duo Therm, the electric water heater
by General Processing Corp., etc. I explained that I had written to Duo Therm
witliout even the courtesy of a reply and that I was not going through that every-
time something went wrong. I believe Peerless should stand by the Mobilhomes
that they manufacture. The Sales Manager then promised that I would have an
answer by Tuesday, April 25th to which I have heard nothing. I cannot believe
that these manufacturers can charge a person $7,000 for an item that will not
even last for a year and 4 months.

Another point I would like to bring out is the fact that the furniture is so in-
ferior in this Mobilhome that 16 months later it all has to be replaced. I have
large holes in all my living room furniture and it is not because my family is
destructive. A month after I moved in all the springs in the sofa had broken
through the bottom and Wheel Estates repaired it.

I thought this might be of interest to you since I have read in the papers of
your investigation of many large concerns.

Thank you for your interest.

LlJTDA Tassokte.

Stoneham, Mass., April 2, 1912.

Dear Mr. Xadee : Just got finished reading your article in Ladies Home Jour-
nal concerning unsafe homes.

I'm very discouraged at this point so I'll write you now as last resolve.

We are a family of three — mother, fatner and son, sixteen years old and our
two dogs and cat and an orphan dog we are desperately trying to find a home for.
We live in a very old mobile home that is 40x10 — one bedroom, kitchen and living
room. We are not only living imder crowded conditions but unhealthy and ver.v
un.safe. Every time it rains water pours into all the holes in our trailer at some
spots one can put their hand thru the paneling. The door to our bedroom in
winter freezes up so that the handle has now broken and the door we had to
close off. It can not be replaced because they don't make doors for this trailer
anymore and the frame is all warped. The other door to the kitchen also is be-
ginning to freeze up in winter and the handle on that is almost gone. Soon bugs
will be invading us and I mean into our beds and food. Lights blink. Water also
comes in thru roof. We've spent over $2,000 trying to fix this place up but to no
avail. It still is very unsafe I

I've written to Pres. Nixon and Gov. Sargent but got nowhere.

We've gone before the "Boards of Appeals" and was turned down by one vote,
because they say that replacing this trailer would be "prolonging the life of a
nonconforming structure". This trailer was here before laws were pas.sed pro-
hibiting trailers. My son has made many fine friends here and wants to stay,
but he is very doubtful, when the time comes that he might have to go fight for
his country and he calls this unconstitutional.

'Please helj) us, Mr. Nader, we are very hopeful my hu.sliand will find a ^oh
soon and wlien he does we'd like a permit to replace this "fire trap", for a safer
one. Can you help? I will certainly appreciate any advice you can give us.
Sincerely,

Mrs. Kenneth Laskey.

1152

Lewisvilxe, Tex., January 5, 1911.
Mr. Ralph Nader,
Washington, D.C.

Dear Mr. Nader : This past July 15 we moved into a brand new, nearly $10,000
Patriot mobile home, purchased from Highlander Mobile Home sales here in
Dallas, Texas. This home is manufactured in Kilgore, Texas by Blakeney Manu-
facturing Company. The financing is being done through General Electric Credit
Corporation in Oklahoma City. This unit supposedly is guaranteed for one full
year.

From the very beginning we have had nothing but problems with this home.
We had leaks through the back bedroom windows and it was only after we'd
hired an attorney who called them to tell them we were filing suit that they
finally repaired the leaks. There are still several other items to be remedied. We
have sent them registered letters, we have telephoned them to no avail whatso-
ever. Our attorney has also contacted them by the same means and has been
ignored.

Our biggest concern and the point of this letter is : who is liable for the war-
ranty of the mobile home itself and/or its appliances? Our main problem is the
dishwasher that came installed in this home. Its a Modern Maid and comes from
Chattanooga, Tennessee. This appliance has never worked properly. At first we
could not get water into it ; then it leaked, all of which coincided with garbage
being all over the dishes after the cycle had been completed. I have handwashed
and dried dishes, placed them in the dishwasher, run the cycle and you wouldn't
believe the mess I have when its finished ! "We have contacted the mobile home
dealer, the manufacturer in Kilgore and the dishwasher people themselves — all
of whom agree there is a problem, but who pass the buck to the other which puts
us right in the middle because no one is doing anything." The last time we had
any contact was in October at which time a representative put coffee grounds
down the sink, turned on the dishwasher and the coffee grounds came back up
in the dishwasher. He promptly pronounced it an installation problem ! The
mobile home people keep telling us there's something wrong with the appliance
itself and its up to Modern Maid to repair it and consequently, we can't get any-
body to do anything.

Mr. Nader, somewhere, someplace there surely is an agency that can help
protect consumers like us. It cost us $100 to retain an attorney to get the leaks
fixed (he earned his money) and he's thrown up his hands on this dishwasher
problem. I don't suppose there's any way we can ever get that $100 back. We'd
sue ,about the dishwasher but who do we file suit against? We feel like we're
hitting our heads against a solid brick wall. I'm sure there are hundreds more
just like us who purchase some item in good faith, only to have it fizzle out (if
its ever worked at all that is) in a short time and never be able to use that item
again.

I would appreciate your directing us as to the proper action we should take
regarding this matter so that hopefully it can be resolved as quickly as possible.
We're fed up with paying for an expensive item that we can't use.

Thank you for any assistance you can provide.
Sincerely yours.

Mrs. Mosie Clark. Jr.

San Antonio, Tex., November 16, 1971.
Mr. Ralph Nader,
Washington, D.C.

Dear Mr. Nader: You are doing excellent work in trying to change things
somewhat for the customer rather than let the manufacturer make inferior
grade merchandise & then the customer is stuck with the repair bills. I do think
you missed one business that is really putting out inferior merchandise and
charging high prices for what they are selling and that is the Mobile Home
Business.

I am enclosing this letter regarding the plumbing & I will draw a diagram
showing just about where our kitchen sink drains. I think it is ridiculous & as
I stated in my letter. I am sure we will have much trouble with this system.

In looking for a mobile home in which to live we found such shoddy work that
it was unbelievable. Very few of the cabinets had floors in them. (We found the
^Patriot" that was built better than some of the others, but, we also paid a good
price for it too.) Most of the cabinet work in the kitchens was not finished. It

1153

looked like the workmen might have had a spare piece of wood and just put it
anywhere to get rid of it. The furniture, the carpeting, drapes, paneling & every-
thing else put into them seemed to be the very cheapest items that could be
purchased.

All of the plumbing is made of plastic, the tubs, sinks & commodes in most
mobile homes are the cheapest plastics that money can buy.

It was not my choice that I live in a mobile home, but since I am here, I feel
like we did purchase one of the better ones on the market. If you could see all
of the errors in this one I think you would understand what I am talking about.
With rent so high now & house payment out of sight, people do have to live in
something. It is too bad that all of us have to be prey for money hungry vultures.
Respectfully,

Mrs. O. K. Henson.

San Antonio, Tex., November 16, 1971.
Blakeny Manufacturing Co.,
Kilgore, Tex.

Gentlemen : We purchased a beautiful "Patriot" mobile home in Septem-
ber. The dimensions are 14X73. The mobile home is extremely livable and we
have many compliments on it. However, I cannot figure out why the sewage
system was put in in the manner that it was.

At the present time our sink is so stopped up that there is no way to unplug it
short of tearing out the bottom cover & insulation in order to even get to the
pipes, and then we have to cut the pipe to clean it out. If there should be a leak
in the future all of the insulation will get soaked. There is not even a clean-out
joint in the pipe anywhere & the pipe from the kitchen runs clear back to the
water heater then makes a 90 degree angle to connect with a pipe across the
mobile home which is an additional distance of at least 12 feet. Just how did you
expect anyone to repair the plumbing in this particular mobile home?

We also had a leak under the sink due to the poor installation of the copper
tubing. It had been crimped so badly that it sprang a leak so fine that it was
almost undetectable. I finally located it with my hand, but, not until the wood
in the floor of the cabinet + the insulation was soaked.

We bought the mobile home in September, as I stated previously. At the time
I reported a cracked fiberglas tub. I was told by Mr. Stanly Poisso that a fiber-
glass kit was being sent from the factory. I still have the cracked tub & so far
there has been no sign of the kit for the repairs unless it was sent & we were not
told about it.

When we purchased the mobile home we were also under the impression that
we were getting i/4" paneling. This is not the case in our mobile home. Due to
circumstances that were not of our doing, we have a 1" hole in the paneling in
the rear bedroom that is near the ceiling. We just overlooked it when we were
checking the trailer out. The paneling at that point is about the thickness of my
fingernail.

I am very disappointed in some of the things I am finding wrong with our
mobile home. Since we never lived in one before we just were not aware of what
to look for.

I would like something done about the sewage system because I feel sure this
is only the beginning of a long series of repairs connected with it.
Respectfully,

Mrs. Ollie K. Henson.

Newport, Maine, July 28, 1972.

Dear Mr. Nader : I do not know if you have done any research on mobile homes
but my husband and I certainly wish someone would. We thought you might be
interested in hearing our story.

In March of 1971 we bought a Redman mobile home (1971) and moved into
it in July of 1971. It was new at the time of our purchase and we were led to
believe it was one of a better line of trailers. It was not small (70 x 12). nor
was it inexpensive. AVe have no children and we both work days so the trailer
has not had rough treatment.

The second day we lived in our trailer the kitchen faucets had to be replaced.
The hot Waaler could not be shut off and the faucets could not be repaired.

1154

The third day we lived here we had a repairman come to adjust the water
heater which no longer worked. The repairman had to return again within the
week and replace the thermostat on the water heater.

In the early fall a furnace repairman came to replace the furnace thermostat
which did not work. Within a month he had to be called again to make an
adjustment on the furnace itself. Later he had to return to replace the emergency
switch which burned (electrical ^vires and the plastic switch itself).

We had several electrical fires in the lighting-wiring because the s);\'itches were
adapted to copper and the vsdring was aluminum.

During the winter the inner-walls separated from the ceiling approximately
two inches. When the partition separation was repaired the repairman told us
the walls and ceiling were never actually connected.

The legs broke off both the beds and the couch in the living room.

Three of the electrical outlets were not even screwed into the wall.

In particularly hard rain storms the trailer leaked between the paneling and
the outside walls, by a kitchen window, and in one closet.

In our den, kitchen, hall, and living room the floor separated enough so that
it squeaked and bounced when anyone walked across it.

This spring while washing dishes in the kitchen double-sink, I thought I
heard water sloshing. I opened the cupboard doors to find my dishes, pots and
pans filled with water. The plastic pipes let go and fell off. They were not
threaded so there was no way to screw them back on and there were no nuts
or bolts to tighten. Of course the water did not do the fiberboard shelves any
good.

We went to Grant's Trailer Sales in Bangor with our first few complaints on
the water heater. The first two times we called Grant's they sent us a repair-
man after that they refused our requests for service. We bought our trailer
from Mr. Grant himself with the understanding they would service all major
complaints, however he has considered all our complaints too minor to be handled
by their company.

In February we contacted Redman Industries Inc. in Penns.vlvania. Our letter
was forwarded to Dallas, Texas and returned to the branch office in Pennsyl-
vania. In April we received a letter from the Pennsylvania branch sales manager
saying that his company would reimburse us for the faucets and electrical wiring
(which they have not done yet). Their service department did come eventually.
Memorial Day weekend, to fix the partition separation and the floor separation,
replace the electrical switches, and repair the major roof leak.

If you are doing any research on mobile homes we wanted you to know about
ours.

Sincerely,

Mrs. Barbara Brown.

January 21, 1972.
Mr. Ralph Nader,
Washington, B.C.

Dear Mr. Nader: I am writing this letter to your department, very honestly
as a last resort. I do not know if my complaint would be of anv interest to you,
but if not, perhaps you cou'd refer me to someone that could help.

February 16, 1971 our mobile home was completely destroyed by fire, and since
that time ray husband and I have tried every way we can think of to settle this
matter with our insurance company. The York Mutual Insurance Company of
Maine, Buxton, Maine, however, has refused to pay the claim.

At the time of the fire my husband and I were at a funeral in New Jersey and
did not learn of the event until the next day. The insurance company says that
they suspect foul play in this fire and that they are investigating it. They have
presumably been investigating for almost a year now and to my knowledge have
brought no charges against anyone.

We have hired an attorney to bring legal suit in this matter, but due to the
over crowding of civil court cases in this area, we don't have any prospect of a
hearing imtil March and more likely not even then.

In the meantime we have continued to make mortgage payments in order to
hold our credit rating. When we explained this to the insurance company, we
were told that this was our own responsibility. I can not imagine that this is
the purpose of insuring anything, only to be left out in the cold. We purchased
this insurance in good faith, and can not honestly see why this claim has not
been settled. I don't know why anyone should pay insurance premiums and then

1155

have to go to the expense of hiring an attorney to collect what is rightfully due.
Not only have we lost our home and all our belongings, but now have to pay an
attorney one-third to collect it for us.

My husband is quite sure that I have wasted my time writing this letter, but
at this point I am willing to try anything.

I don't mean to bring tears to your eyes with a heart rending tale of woe, my
only purpose in writing this letter is to find out if there is someone or someplace
I can go too for advice in settling this mess. I know your offices must be ex-
tremely busy after all you surely receive at least a few thousand letters a day,
but if you could just acknowledge receiving my letter then I won't feel as though
I've wasted my time and about forty sheets of paper for nothing.
Sincerely,

Mrs. RiCHABD H. Howard.

YOUNGSVILLE, La.

Executive Office of the President,
Presidenfs Committee on Consumer Statistics,
Washington, D.C.

Dear Secretary : On Oct. 2, 1971, I purchased a 1972 Manatee Mobile Home
from Southwest Mobile Homes, Inc., P.O. Box 1506, Opelsusas, La. 70570. The
home was built by the Division of Champion Home Builders (P.O. Box 663,
Commerce, Texas 75428) in Sept. of 1971.

With the purchase of the home came a 90-day verbal guarantee, which included
any minor or major repairs which were caused by manufacture's defects in
workmanship.

"Within the 90 days several repairs have had to be made, most of which have
been corrected. However, the major problem which is that of raining through the
tops of 14 out of 20 windows has not been solved.

Since Oct. I grant you they have sent several different repair men to fix it.
These are the things they have done to try to fix it but still have not succeeded.
They have removed all windows, recaulked and resealed them. Removed roof
caping. resealed and nailed aUuninum exterior panels, installed caping and roof,
sealed both roof and caping overlay. Also sealed exterior panels above windows,
all of which did not solve the problem. The men returned and replaced all the
frames, caulked and sealed windows from the inside which keeps the window
from leaking but doesn't stop the rain from coming in the walls.

I in turn removed one interior window home that had been repaired and
found that water from the day before was still on top of the window frame.
I then water-checked window and found it to be leaking through the exterior
panels into the wal's.

A sales manager from Texas came to our home while the trailer was being
worked on. We showed him where the floor sags in the hall by the door, which
by the way had been leaking before, and he said they all do this. He also said
we should have paid 13 or 14 thousand dollars if we wanted anything, that we
couldn't expect much for $7500. He also said that no matter what he did, we
wouldn't be satisfied, therefore they wouldn't do anything else to fix it, unless
we found the trouble ourselves, then they would fix it. Well as I stated, we did
find the trouble and it was verified by a professional carpenter we hired to come
and check it.

I then called the factory and spoke with a Mr. Minos and explained they had
really tried hut the trailer was not fixed. He said he would call Southwest Mobile
Homes to speak witli them and return our call. To this day he hasn't returned
it. They in turn called him back and he says they will not repair it or give us
another trailer. They will on^y give us another trailer by taking this one on a
trade-in and we would have to pay the difference.

I simply can't see paying $7500 on a 10 year loan to get something that breaks
and * * *that comes through the * * *

* * * at the bottom of the window frames, large enough that you can put your
hand and feel the insulation.

I sincerely do hope that when you read this letter the trailer would be
fixed. I suppose the only way we will be able to benefit would lie for us to go
to court and sue, but I sincere' y do hope that you can look into this matter and
if you can't help us perhaps you can prevent someone else like myself from get-
ting a bad deal.

Sincerely yours,

Mrs. Nelson G. Gonzales.

99-855 O - 73 - pt. 1 -- 74

1156

Repairs That Were Needed

( 1 ) Raining in back door ( corrected by sealing ) .

(2) Hole in duct work of heating system (corrected by taping it).

(3) Cracked commode tank (pvit new one).

(4) Leaky gas line on hot water tank (took one week to fix, said would not do
anything until it was fixed).

(5) Sagging floor (not fixed).

(6) All light switches were bad (changed all of them).

(7) Cuts in floor (was supposed to be on order when we moved in but says
they discontinued it ) .

(8) Leveled trailer five times (has to be unlevel for back door to close).

(9) Frame is all twisted and bent.

(10) Connections for a washing machine was not connected (had water all over
floor and tile came up which they glued back) .

(11) Front wooden door wouldn't close after trailer was leveled. (Had to
take off hinges. Said we needed a complete new door lint. Will not give it to
us because he says they will all be the same) .

( 12 ) Rains in walls which is not corrected.

March 24, 1972.

Dear Mr. Nader : I am writing you in hope of assistance in what my attorney
has told me is consumer fraud.

I bought a double wide modular home 2 years ago, there was several things
wrong with the house after it was assembled, the outfit I purchased it from told
me not to worry, that they would fix them faults I had found. After a year passed,
I hired me an attorney and he is now bringing the matter into court, but he stated
that he has had corresponded with you before, he suggested that I contact you
for assistance. I had my house inspected by an inspector or representative from
the Attorney Generals office in Springfield, 111., they sent a man up to inspect it,
and found several defaults with my house, I have paid $14,700 for my home here,
I give him a check for $10,360 and a very nice house trailer which I feel was
mxich better shape than my home is now, I made 26 phone calls to this company
pleading with then to come and make the necessary repairs, after a year I had
to get an attorney, Loren Golden in Mt. Carroll, Illinois, he is the one that said to
contact you. I sure hope you can help me, please let me hear from you Mr. Nader.
Thank you.

Charles K. Cravette.

P.S. — Some of the things that are wrong with my home are the ceilings are
falling down, loose paneling, faulty storm doors, all other inside doors do not fifc
properly, faulty kitchen counter top, faulty plumbing, including the in the
shower and bath, faulty broiler door on the oven, faulty fan in vent over the
stove, faulty heating ducts, faulty downspouts and gutters, sealer under win-
dows not painted, no heat vent in bathroom, fauly leaky bathhub and shower.

March 29, 1972.
Center for Auto Safety,
National Press Bldg.,
Washington, B.C.

Dear Sir : Sorry for the delay, but here is the data we discussed on the phone
about my Croydon Mobile Home. I am listing defects I consider inexcusable to
the buyer of new property, and will try to exhibit without too much rancor or
personal feeling. Home purchased February 25, 1972, for $18,425.00 Croydon
Serial #1198.

( 1 ) Heating System —

Incorrect thermostat.

No door on furnace.

All floor registers badly installed.

No pre-wire to air conditioner.

1157

(2) Plumbing-

Bathroom (main) sink chipped.

Leak in bathtub drainage resulting in damage to insulation and sub-
flooring.
Kitchen sink drainage out of plumb.
No piping cover in front ( i/4 ) bathroom.
Leak in dishwasher intake.
Hot water heater damaged.

(3) Electrical-

Fixture in buffet faulty and installed in wrong place.
Dinette fixtui-e hung crookedly.

(4) General — Interior —

Dinette chairs damaged (corrected).

Trim (base board and facing) not finished in both units.

Double door frame sprung.

Front of tag corroded from road surface splash en-route.

Clothes rod hangers deviate from factory representation.

Iron work not complete.

Window in living room sash out of plumb, same rear bedroom.

Cabinets promised in kitchen and bathroom missing.

All doors and paneling edges rough and seemingly not properly finished.

(5) Safety-

Fire hazard caused by debris left resting atop kitchen stove vent fan

flap, blocking vent.
Screws and nails points sticking through into cabinet openings in kitchen.
All these defects were, I believe factory-originated. The dealer ajnd park
operator has been very cooperative in trying to correct most of them, and will
complete the job as he can. However, with the price being what it is. I think
more inspection of work should be made before delivery to protect future buyers.
It is obvious that attention to speed of production damages workmanship skills.
It is also my opinion that the so-called "depreciation" of a mobile home begins
at the factory.

Would also suggest for insurance records and buyer's information that dealer's
commission, transit fees, hook-up, and other involved expenses, be itemized. I also
believe that the sales tax in the &tate of Illinois on the total price is grossly
unfadr.

Yours truly,

James I. Rogers.

Jamul, Calif., September 10, 1972.
Mk. Ralph Nadee.

Dear Sir : After reading your article in Newsweek, I decided to write to you.
hoping you may be able to advise me.

I lost everything in the San Diego County fire, Sept. 1970.

With a loan from the federal government, thru the Small Business Asso, T
bought a brand new mobile home. It was delivered in the evening of Jan. 13th,
1971. I could not see the condition of it until next day Jan. 14th, when I imme-
diately phoned the seller and asked how it got to be .so badly damaged {the roof
caved in) and why was it delivered to me like this. He told me not to worry there
uyas a 1 year ffuarantee, which he and the manufacturer stands behind, and the
repair crew would be along to put a new roof on.

For 6 months 1 repairman came along doing 5?uch repairs, which I think has
only added to the damage. About 14 months ago I turned this over to an at-
torney who I believe could do something about it. Today he told me to apply
to the S.B.A. for a loan to take care of aH the damage, then sue for that amount.
According to esitmates it coidd be as much as .$7000.(X).

I could neither qualify or carry such a loan, my husband has to retire in
Jan. '73. I am wondering where both manufacturer and sellers of mobile homes
find a loop-hole that it is so difficuH to be able to get a case like this into court,
when the purchase contract is clearly written.

I asked the attorney why not sue for a new mobile home, that is what was
paid for, he doesn't think we could do this.

1158

Maybe there is nothing can be done for me, but I'm sure your investigation
will benefit future mobile home buyers.
So I thank you for reading this letter.
I am yours Truly,

Mrs. Gladys Winter.

Santa Rosa, Calif., June 14, 1971.
Mr. Lowell Dodge,
Associate to Mr. Ralph Nader,
Ben Franklin Station,
Washington, D.C.

Dear Mr. Dodge : Some time ago, when you were on KGO Radio Station, re-
garding "lemon" cars, I called you and you were kind enough to return the call.
\t was regai'ding our Mobile home. Manufactured by Holiday Mobile Home
Company, 915 Finer Road, Santa Rosa, Ca., 9r)401. The President is Mr. Adrain
Sharlach. and the Service Manager is Mr. Boyd Burton. We did not purchase
from Holiday, but from American Mobile Homes Corporation, and we paid them
cash. Their address is 4241 Redwood Ave., Los Angeles, California 90068. The
President is Mr. Hugh A. Temple.

We seem to have nothing but trouble with this so-called mobile Home. The
roof is the worst offender. The rumble bars are loosening, and knock in the wind,
so by next winter the roof will have more leaks than ever. Even the last hard
rain we had it leaked into the house in two places — not while it was raining,
but a delayed leak of several hours. When I reported the mice coming in under
the sink, to Mr. Don Bradley, the Service Coordinator for American Mobile
Homes Corporation, I al.so talked with him about the roof. A salesman there
in the sales office, asked what a rumble bar is. His name is Max Gibbon. Any-
way. Mr. Bradley explained it to him, and said "If you ever have a mobile h(mie
and the roof rumbles, never let anyone put rumble bars on it". Then, why do
they allow Holiday to install rumble bars?

What recourse do we have. Mr. Dodge, if any? We are told the rafters are too
weak to have the roof tarred and graveled, after taking the rumble bars off. We
are so soured on this home, and see so many others having so much trouble get-
ting things taken care of. that wish we could get reinibur-sed for what we have
put into the place, both inside and out. The air-conditioning system alone cost al-
most a thousand dollars, which is also paid for.

This mobi'e home was put here on the lot on June 24, 1970, and Holiday wrote
us a letter, advising that we had a 90 day guarantee, but they did do quite
a bit of work here after September 24. 1970. We still continue to let them know
of things that are wrong, but advise through the sales office here in the park,
which '"gripes" are relayed to Mr. Don Bradley. But he takes no notice of them.

Thank you so much for returning my call that day, and we do hope you will be
able to help us. It is not easy to get together the money to pay for a place, and
expect it to last for a while, at least. Then you find it is a wreck to start with.
Sincerely.

E. DwiGHT Hoover.

North Conway, N.H.
Mr. Ralph Nader,
Washington, B.C.

Dear Mr. Nader : While from what we have seen, and been able to find
by the publicity you have received about your work, we have the impression
that you concern your efforts toward the cori:)orations, and companies who are
in some way doing something detrimental to the public on a large scale.

In writing to you it is my hope that you can give me some advice on how
to Droceed with the foPowing situation :

On December 1, 1970. I purchased a 1970 Elcona Mobile home from Skipper's
Mobile Homes Inc., on Route #260 in Bordentown, New Jersey. This mobile
home was new. carrying a new 90 day guarantee.

The mobile home was delivered to me at North Conway. New Hiimpshire on
Dec. 10. 1970. Since taking delivery I have discovered several discrepencies
such as plumbing leaking, the roof leaks, the workmanship is not. by any stretch
of the imagination, up to par.

I have written Mr. Skipper about these discrepencies without receiving any
reply. In addition I wrote to the Elcona Homes Corp. in Elkhart, Indiana, con-

1159

ceming these discrepencies, and they advised that the dealer was responsible

for the necessary repairs.

Further during the ten days between the time I purchased this Mobile Home,

and the delivery to me, there was stolen from this home an AM-FM radio.

This occurred while the Mobile Home was on Mr. Skipper's property. I felt that

he should be responsible since he did not apparently, take reasonable measures

to assure the property on his lot-
Please advise what I can do, or how to proceed with this in order that I

may have this Mobile Home repaired while it is still under the aforementioned

guarantee.

Sincerely,

Charles J. Wittsey.

SuNcooK, N.H.. Septemher 29, 1972.
Mobile Homes Manufacturing Association,
Dulles International Airport,
Washington, D.C.

Gentlemen : I'm going to tell you about a new mobile home manufactured
by Torch Industries Inc.. Elkhart, Ind., and let you decide whether the MHMA/
TCA seal of approval should be attached thereto. We purchased this 14 X 70
unit last December from Raiche Mobile Homes Inc.. Hooksett, N.H.

When we moved in, the furnace wasn't working. A wire hadn't been stripped
before it was connected.

We tried to use two electric heaters for the night, biit they blew the same
fuse twice — even though the heaters were plugged into outlets in different
rooms and on opposite sides of the unit.

Twisted bits of metal, nails, splinters, and other debris were scattered
throughout the home in the carpeting. Not a few here and there, but hundreds
of them all over. After a half dozen cleanings and a lot of crawling on hands
and knees, we still find these burrs whenever we walk barefooted.

There was no insulation at all around the water heater compartment, and
we had freeze-ups in that area last winter — even with the furnace running
and the temperature up to 70 degrees and higher. I'm wondering about the insu-
lation, or lack of it. in the rest of the unit. There is no map or chart posted in
the home, as required by MHMA/TCA, to indicate the zone for which this
unit was built.

Plumbing under the bathroom sink fell apart when the plug was pulled to
drain water, plumbing under the kitchen sink dripped continuously, and the
tank over the toilet bowl leaks every time anyone leans back against it a
slight amount.

Nails driven through window frames and corner molding entered nothing
but thin air on the other side. Molding strips have fallen off the walls and
the ceiling, and one corner molding had no nails at all for more than half its
length.

The ceiling light fixture fell apart, a wall receptacle pulled away from
the wall when a plug was withdrawn, the shade for a bedroom ceiling light
fell off because the attaching nut was missing.

A large mirror in the bathroom fell off the wall, shattered over the sink,
and sent glass flying to the floor — in large chunks and fine slivers — which could
have seriously, even fatally, injured our baby if she had been sitting there
in her chair at the time.

The fu.se box has no cover, leaving the bare terminals and wire ends exposed
to a pet or innocent toddler. Both the dealer and the manufacturer refuse
to provide this cover, or to take care of the other defects mentioned — and the
defects still to follow.

Upholstery on the living room furniture is pulling apart at the seams. Not
just on the cushions, but on the back of the sofa as well. "We rarely have com-
pany, never have parties, and have only a four-month old baby."

Paper-thin shelves threaten to collapse because they are unsupported on
either side. One shelf wasn't even level, and anotlier had to be reinforced before
it could be used. Drawers were not installed on a straight line and were open
an inch and a half at one end when closed at the other end. Closet doors fell
off the tracks when opened or closed, and mounting hardware was so badly
deformed that one door scratched the other when moved.

Four screws supporting the hood over the range protruded a half inch into the
shelf space above.

1160

The opening for the light fixture over the kitchen sink was cut so big that the
lens cover does not hide the opening.

Decorator pieces on the wall are cracked and chipped. Carpet cement pressed
up through two holes in the kitclien carpet and was left that way.

I may have forgot a few items, and all my records are with the Better Business
Bureau in Concord — I cannot review them at this time. These records will go to
the Consumer Protection Division of the Attorney General's ofiice next.

A copy of this letter is being sent to the President's Consumer Protection Divi-
sion in Washington, and to Mr. Ralph Nader. Perhaps by working together, we
can get these mobile hazards off the market.

Incidentally, didn't pay .$7,000.00 for this mobile home — nor .$8,000, $9,000, or
$10,000—1 paid $10,900.00. I'm not isolated in the boondocks, either ; I'm located
in the dealer's own park.

The dealer and the manufacturer did repair some of the minor defects, but
they gave up. Neither one will so much as respond to a letter. When the factory
repairman was here — after at least two letters ; one to the President of Torch
Industries — he promised to return or send another man with a month. That was
back in April (April 7th, to be exact) and we've neither seen nor heard anyone
or anything since then.

"Consider our position. We can't sell the home ; who would want it? We cannot
continue to live here ; it isn't safe. We have over $3,000.00 invested ; we certainly
can't afford to lose that. A replacement unit would only start our troubles all over
again, and even if all the defects we've detected so far were taken care of, what
can we expect to happen next?" For example, a section of interior paneling is
bulge inward, and the outside skin at the same point is deformed inward.

The Serial No. on your MHMA/TCA Seal of Approval is 2538291. How much
that Seal means is up to you .
Sincerely yours,

Arthur J. Crossland.

Februabt 2, 1972.

Del\r Mr. Nader: Since you are on Board of Director, and I believe you are
working to provide consumers with information and counse'ing on consumer
goods and servicing etc., etc., we are begging help and counseling concerning
Mobile Homes — living ; etc !

We ordered a Mobile Home in July 1971 moved into it Oct. 27th. We have had
so many things wrong with this $11,500.00 home, and do not get decent service.
The mon. mole. pk. purchases these homes from Shultz Corp. in Elkton, Md.

We did not receive any warranties until we fought for them and received them
and Mobile Home maintenance manual on Jan. 28th, 1972. I am enclosing copy of
warranty given us on Jan. 28th, 1972. Over 3 mos. after we're in, and as your
may have noticed, it isn't even filled in, warranty coupon and was to be sent
back to manufacturer within 10 days after delivei'y of our home.

There are a terrible lot of residents in this park that have had the same prob-
lems, and don't know which way to turn. We pay $93 plus $5 (for son) per month
lot rent. We just received notice (copy .shown) please read. We can hardly
afford the raise, and the so-called improvements, are things that were supposed
to be done and be here, when we moved in. Some people have had their lot rent
raised twice in a little more than a year now. A couple widows here will not
be able to afford it, and have given their life's savings for their home, et cetera.

When I wrote the owner and mentioned your name, he called right away, but
doesn't seem too concerned, because they have money.

Could you, and would you plea.se, have time to check into the mobile home park
owners and the manufacturers, as we are suffering due to prices not being what
they quoted us at first and have lost money, due to the management saying things
were put into mobile homes (that we didn't even order).

Myself, along with most residents of the park are waiting to hear, as we know
that if anyone can help us or advise us, you sure could, and Mr. Nader, if you could
ever find the time, .some second Tuesday of a month that would be available would
you come to the park (unannounced) and sit in on a meeting and maybe you
could help us through this ! I know it's asking a lot of you, but we'd appreciate
any consideration given us (other residents would, too ! )

Please try to find the time and let us know.

Thank you ! !

Karl and Jane Wentlandt and Son.

1161

Wharton, Stewart & Davis,
Somerville, N.Y., June 1, 1911.
Eugene Gassere, Esq.,
General Counsel,
Skylhie Corp.,
Elkhart, Ind.
Re Mrs. Drusiana Reniewicki.

Dear Mr. Gassere : In accordance with our telephone agreement, Mrs. Renie-
wicki inspected her trailer on Thursady evening. May 27, 1971. Although some
progress had been made on deficient items, the following is a list of items of an
unsatisfactory nature which prevent Mrs. Reiniewicki from moving into the
trailer :

1. Aluminum siding located behind a separately purchased tool shed and near a

window, buckles.

2. Ground under trailer is uneven ; blocks on which trailer is mounted appear to

to be sinking.

3. The interior walls are loose and out of plumb; specifically, the wall near the

aisle in the second bedroom and the wall over the vanity in the bathroom are
very loose to the touch ; the master bedroom wall against the bathroom wall
and the living room feature wall (facing the kitchen) are also loose; the
master bedi'oom door does not fit into the frame.

Damaged storm door not replaced.

Damaged inside front door not replaced.

Toilet flushes slowly.

Toilet tank top missing.

Molding around kitchen arch is in short, random lengths which do not butt
together.

Ends of molding in built-in dining room closet are unpainted and cut at
improper angle.

10. Splash suppressing mechanism on kitchen faucet does not function — watei

flows unevenly and splashes.

11. Guest closet interior is unpainted, rough wood.

12. Draw drai e rods Iti master bedroom do not function properly.

13. There is no manual emergency control for the oil burner.

14. The second bedroom speciallv designed closet which was improperly con-

structed has not been modified to fill the space it was intended to fill.

As I mentioned in my telephone call, the trailer was put into place without in-
ouiry bavins: been made as to whether ^Irs. Reniewicki wanted a concrete slab.
When Mrs. Reniewicki inquired about having a slab installed, Mr. LoBianco ad-
vised her that he was too busy to do it now and that he might get a chance in the
fall. It is po.ssible that many of the defects aliout which we are complaining could
be overcome if the trailer were properly mounted and we hope that Skyline
Corporation will use its efforts to see that the trailer is properly set up.

Also as I mentioned in our telephone conversation, in view of the many and
varied defects in this particular trailer, we request that an inspector from Skyline
Cori>oration or Homette make a final inspection of the trailer after all of the
mentioned items have been completed and prior to Mrs. Reniewicki's moving in.

Thank you for your continued interest and cooperation in this matter.

Very truly yours,

Robert K. Hornby.

4.
5.
6.

7.

8.

9.

Onalaska, Wise.

Jarmary 2.'f, 1911.

Mr. Nader ; I write to you in hopes maybe someone can do something about
a situation no one else cares to tangle with.

It concerns mobile homes. It seems there are very few laws and regulations
governing the construction and building of them. If you get a bad one. as I did.
there is very little can be done about it.

I have one the storm windows don't fit, storm door won't clo.se, bed room doors
won't close, furnace tilts, floor slopes, its unbelievable the condition this thing
is in.

I purchased it April of 1970 from Northernaire Manufacturing, Auburndale,
Wise, through a dealer in T.a Crosse, Wise.

According to Northernaire the original frame had no reverse camber in it to
hold up home. (Also it was not built strong enough.) They replaced the frame.
That did it, its worse now than before.

1162

I went up to the factory and complained, while there, was shown through
plant and saw homes being built. I couldn't believe my eyes.

I'm sure if you cliecked this out you wouldn't believe parts of it either. Yet
I pay property taxes and no code or regulations are in force to protect my safety
or welfare.

Edgar Edberg.

Town of Ptjlvermacher,
Poynette, Wis., April 26, 1972.
Ralph Nader,

Wash ington PuWw Interest Research Group,
Washington, D.C.

Dear Sir: I am attaching a xerox copy of a letter I have written to Mr.
James Sprague, President of Aetna Mobile Home Sales, Inc., Denver, Colorado,
The letter is fairly complete and relativel.v self explanatory.

I purchased the home in August of 1971 and this is the most recent correspond-
ence in a long chain of letters ranging from the funny to the ridiculous. And. as
will be gendered from the letter, I have yet to find satisfaction.

I am sending this information to you because (1) I had heard .vou were
becoming interested in the problems the consumer finds in buying a mobile home,
and (2) at the suggestion of the local consumer protection agency.

As sole head of the household with two children, as a female, and as a graduate
student investing every penny of my meager savings to insure a decent living
condition for my children, I feel the scales were loaded against me — the con-
sumer. Further I feel the utmost advantage was taken of the fact that I was
obviously broke from having been forced to live in a motel and feed two boys in
a cafe for an extended period of time awaiting the delivery of the home — I
desi)erately needed a place to stay. Of course, hindsight tells me I was '"frankly"
stupid — unexcusably so in light of my education and experience.

In closing, I can only hope this information can be used in motivating regu-
lation of the sales and warranty practices of the mobile home industry.
Sincerely,

Shirley A. Martin.

P.S. — The mobile home was purchased for $11,400.00 plus finance charges
totalling a grand figure of $21,000 and is a "Detroiter."

Town of Pulvermacheb,
Poynette, Wis., April 25, 1972.

Mr. James Spragxje,

President, Aetna Mobile Home Sales. Inc.,

Denver, Colo.

Dear Mr. Sprague : Pursuant to our telephone conversation of April 22nd, I
am setting down in detail the transactions surrounding the purchase of a
Detroiter mobile home from your company.

First, I purchased this home in Colorado for delivery in Wisconsin because
Mr. Marte'on advised me that it could be ordered from the factory with a 30-day
advance notice and that the floor plan (i.e. enlarging two bedrooms) could be
altered. I placed an order with a $500 deposit followed by a $l."i00 down payment
for a 14 X 70 Detroiter mobile home with an altered floor plan as follows :

(1) The front bedroom was to be enlarged b.v utilizing the space occupied
by a half bath. This entailed eMminating a commode and not erecting the divid-
ing wall between the "John" and the bedroom. The built-in sink and cupboard
were to remain.

(2) Twenty-four inches were to be added to the middle (small) bedroom by
utilizing twent.v-four inches of the front room space thereby also extending the
hall the same distance.

In addition. I ordered the home with harvest gold appliances and flxtures
throughout including washer dryer, dishwasher, refrigerator and built-in range
and wall oven. I specifically orderpd the decor package with bar stools and
with twin beds in all three bedrooms.

When the home came in, as you know, it had been involved in an accident.
But in addition :
1. No floor changes had been effected whatsoever !

1163

2. The commode had been removed from the half bath off the front bedroom but

a hirge open hole extended to the plumbing. The dividing wall which was not
to have been erected was indeed erected and the space was not carpeted,
which it should have been in any case.

3. The middle (small) liedroom had not been enlarged pursuant to my order.

4. A neatly drilled hole the size of a quarter was found in the wood panelling

behind the counter-top range.

5. While the kitchen appliances were harvest gold all appliances and fixtures in

the bath were avocado green (ugh !)

6. A relatively large electrical circuit was nonfunctional amounting to no elec-

trical output in over half the house.

7. The dishwasher was incorrectly installed to the garbage disposal.

8. There were leaks from one end to the other.

9. And, no bar stools were provided.

Then Mr. Martelon flew out to "set things straight." T specifically stated I
didn't want the home and I'd prefer a new unit. He assured me and reassured me
that the changes would be made. I stated at that time that I didn't want to sign
the new contract (he said the new contract was necessary because of an error
on the old one) initil all changes were made or take the unit back. I did suggest
that I would consider a reduction in the selling price in lieu of the changes but
Mr. Martelon indicated that that wouldn't be satisfactory — that afterall the unit
had been delivered and was considered my property now and that if I didn't
accept it I would stand to lose my investment. I didn't, in any case, want to be
unreasonable and I was under extreme pressure to have a place to live at that
time. Wlien Mr. Martelon showed good faith on the behalf of the Company in
acquiring estimates from the Surburban Mobile Home Repair Company (the
closest Detroiter dealer is apparently in Milwaukee), I agreed to take the unit
with the specified changes. The estimate was submitted three times to my knowl-
edge to Mr. Martelon and covered and included the following :

1. Repairing damage due to the accident — such as replacing broken glass,

straightening the tongue and front frame including a split horizontal timber,
replacing exterior panelling, etc.

2. Enlarging the front bedroom .

3. Enlarging the middle bedroom.

4. Replacing appliances and fixtures in bathroom with harvest gold.

5. Other miscellaneous warranty items such as electrical problems, leaks, etc.
Now I reiterate I would never have agreed to take the unit without these

change*. Warrantv work has been done in the interim as follows :

1. Fixing electrical circuit — authorized by Martelon.

2. Fixing dishwasher connection to disposal (plug has been left in) — authorized

by Martelon.

3. Numerous attempts to fix heating system finally replacing thermostat and fuel

injector system — authorized by Martelon.

4. Replacing guts of closet in front bedroom when it split in half & fell down and

further adjusting of closet sliding doors because of warping (still not
correctly adjusted) — authorized by Martelon.

5. Numerous attempts to stop leaks — authorized by Martelon.

6. Repairs because of damage due to accident (still not totally completed because

factory sends wrong material) — authorized by Martelon and Mueller.

7. Major bathroom leak due to inadequate calking in .seating bathtub (so bad

that fungus-mushrooms were growing from the carpet) — authorized b.v
Mueller.

8. Enlarging the front bedroom — started but not completed. The wall has been

moved. Now wall moldings & ceiling molding & carpeting need to be done.
The factory equipment is on my sofa but the renairman refuses to do more
because he hasn't been paid since February — authorized by Martelon .
Therefore, in summary, according to my working agreement with Martelon as
regards my accepting this unit — there remains :

1. Finishing the enlarging of the front bedroom.

2. Enlarge the small middle bedroom.

3. Replace fixtures and appliances in the bathroom without harvest gold.

4. Supply bar stools. I wonder at this point if I even got the furniture quality

ordered. I specifically didn't want the "standard mobile home furniture"
which has a tendency to fall apart within six months. I was buying a home —
I thought — of quality to last as long as I needed to live in it or desired to
replace it including furniture.

1164

5. Fix hole in panelling behind counter-top range. Mr. Mueller authorized this
repair but the piece of material which Mr. Martelon stated had been shipped
from the factory was in fact not included when material was received.

In addition, now that the snow has turned to rain, we seemingly spring a new
leak with every storm.

In closing I want to refer to the $80 rent deposit which I owe your company. I
have delayed paying it purposefully (as stated in an earlier letter) because I
haven't seen any real sustaining effort to meet the conditions tendered pursuant
to my accepting and beginning payment on this unit. Again I state — I have no
intention of cheating you out of this amount and I do intend to pay it just as
soon as this situation is cleared up.

I also want to clarify that all calls placed to your company were authorized
by Mr. Martelon.

I have taken the liberty of supplying Mr. Walt Wilson, Adjustment Division.
The Central Bank & Trust Company, Denver, and Mr. George Martelon with a
carbon copy of this letter.

I am clearly at the point that unless I have communication from you concern-
ing this matter (it appears to me that the left hand doesn't know what the right
hand is doing) that I must inform the agencies concerned with consumer protec-
tion and an attorney who can do a better job of protecting my interests than I have
been able to do to date. So — please — I feel I've been reasonable and have been put
off long enough and I don't really want to be placed in a position of being totally
unreasonable. I'll negotiate but I won't accept things as they are at this time.
Sincerely,

Mrs. Shirley Martin.

LoxBT, Ala., December 18, 1972.

Dear Mr. Nader : I don't know how to ask you for your help other than just
right out. So could you please help us to get our mobile home fixed?

The problem is our heating unit. It doesn't keep us warm at all and we use 100
gals, every two weeks. At 21 cents a gal. that runs into more money than we
have. The heater cuts off and on like someone is playing with the switch on the
fan.

Also wind comes in around the windows and light switches something terrible.
In my bedroom it gets so cold that we have to have a large quilt on our bed to
keep warm and my little girls has to sleep with her younger brother because his
room is the warmest of all.

We have asked and begged and we've pleaded with the trailer sales to fix
it for us. And they either send their repairman out here, who doesn't know his
head from a hole in the ground about heaters, or they would just put me off
like they did today.

Then we tried the people we bought the trailer through, First Federal Savings
and Loan Assoc, of Mobile, Alabama, and all they can say is they are sorry but
their hands are tied.

I asked them if these was any way we could give the trailer back without hurt-
ing what little credit we have and they said no.

Mr. Nader, I love my trailer but we can't go all the way through winter like
this. We are expecting a new baby in about 4 weeks and I don't know if I can
bring it home to a cold trailer. We are all sick with bad colds now, just think what
could happen to a new baby.

So would you please try and help us real soon. We would be forever grateful
to you for it. We need all the help you can possibly give.

If you can't, please let me know so I won't be looking for your help.

Here are the facts you should know. We bought the trailer from Glendale
Trailer Sales on Hwy. 45 in Eight Mile, Ala. through First Federal Savings &
Loan Assn. of Mobile, Ala. We have had the trailer one year this past November
14. The name of our trailer is a Manhatten. It is 12 by 65 and we paid around
$8,000 for it at 113.26 a month.

Please help us ! We are at our roads end.

Everyone tells us if anyone can get it fixed that you could.

Thank you.

Mr. and Mrs. Earl Hartley.

1165

HuNTSviLLE, Ala,
Mr. Harry Bebman,
General Manager, J d- L Homes Manufacturing Co., Chierdon Industries, Inc.,

Longeran Division, Ocala, Fla.
Attn : Mr. James Taylor.

Subject : Defects, defective materials and workmanship, coach "1260-F-0-20129
959&-0-70.
Requested by Mr. James Taylor of above industry.

Below are listed the defects and corresponding services completed by Mr.
Shelby Cole (dealer) and further corrections not satisfactory or completed.
External Defects :

(1) There was a total of thirteen (13) breaks in underneath outer flooring
caused sagging.

Metal patches have been placed over each break which should not exist
in a newly built coach.

(2) There was a metal screw driven into the wiring of the electric water heater.
This screw was removed and a new element was placed in the heater ;
the thermostat was checked in the heater.

(3) All rivet type screws were loose and several were missing over the entire
coach.

The upper and missing screws were tightened and replaced by a service-
man. The Callahan's assisted in tightening the lower screws, and pur-
chased a special screw driver for this.

(4) The roof had been cool sealed by Mr. Cole, but there were four ceiling
leaks which affected the inside of the small bedroom, hall ceiling, and large
bedroom. The large bedroom leak soaked the built-in dresser and our personal
belongings, and left a musty oder in floor of dresser. The hall roof leak soaked the
carpet against the wall.

This has been corrected but it took four separate corrections by a service
man and this was indeed costly to both Mr. Cole and the Callahan's.

(5) Facing the front of the trailer, the right side of living room window
does not close properly. This double window isn't evenly set into coach ; this
has not been corrected.

This has not been corrected and we request this be corrected.
Internal Defects :

(6) The hall closet door had to be adjusted. All inside window frames were
loo.se and pulling from the wall.

In order to adjust this door the serviceman discovered the inside frame
had to be secured and nailed. All molding was retacked with finishing
nails ; he found the same condition inside window frame ; he tacked all
molding on. but did not have time to tear every window apart — these con-
ditions appear beyond the normal responsibility of any dealer.

(7) The all-over wall paneling has continuous splinters sheding from the
grooves of the sections. It has stain missing and appears bulged. Staples continue
to work out, some staples right in the middle of panel .section.

Short of repaneling, this is a hopeless condition, due to defective material
and workmanship.

(8) Under the kitchen, frigid air just pours in. We finally discovered that no
molding has been placed between the back wall and flooring. There's a large
uneven space here.

The Callahan's bought foam rubber, cut it and stuffed in this area for a
temporary eorrection. Request this condition be corrected.

(9) Finishing molding and shoe molding continue to pull loose and spilt.
Door frame molding continues to pull loose. In large bedroom corner we have
placed ribbon putty where outside light can be seen coming through. Along the
inside hall molding the cold air can be felt pouring in.

Mr. Cole had much of this molding corrected, but much more needs secur-
ing. We request ahsolute correction of this condition. The bedroom corner
condition allon-s heat and cold to enter. Req"cst cause to be checked.

(10) Bedroom closet doors still keep falling ofE. Upper aprons were loose.
Some molding and trim came off and still off. Large bedroom door still sliding
on top only. Small bedroom closet door had insuflBcient screws in top metal frame.
Further, small bedroom clothes bar is not centered and one bar bracket is split.

1166

Inside of small bedroom door frames are so rough and splintering that if a gar-
ment touches it, it snags the garment. It is difficult to hang clothing because of
the position of bar.

Action. The screws of small bedroom frame have been added — several
adjustments have been made on the door by the service man. The crank
bar has two screws driven clear through inside bedroom wall. Request
the bar be centered and inside door be planed and smoothed.

(11) Plumbing: All plumbing facilities were loose; the toilet water box over-
flowed when flushed and soaked the floor several times.

The serviceman had to pull and tighten all fittings and screws which
corrected the overflow problem ; he also caulked and tightened all other
connections. He further caulked all ugly large openings around plumbing
to keep mice and bugs from coming in.

(12) Bathroom sink — the attachment screws which holds the sink are stripped
and one is missing.

Request this problem be corrected.

(13) All rivet screws. All bathroom tub trim cannot be tightened.

(14) Floor registers (heat) original ones had no lever to open nor close.

Mr. Cole replaced originals but the levers would not work. The Calla-
han's purchased, at their own expense, a set which work. The screws floor
holes are very bad — it is difficult to take in and out for cleaning. Mrs.
Callahan recently almost fell when her foot lifted up a register (poor
safety measure).

(15) Coleman furnace is a lOW with double switch action.

We have been told that 12x60 should have a 15W heater. We are going
to verify this.

(16) Living room ceiling had one seam that was not even placed straight.
It was stated it couldn't be corrected.

Mr. Cole's service man did straighten it. (Wall area is crooked) Poor
workmanship.

(17) Carpeting — very poor. It has bare-like patches, poor nap, has a split
in living room floor about 8" long. It becomes grayish in well-tred areas. We
have worn ourselves out trying to clean.

The split has been taped and a chair placed to hide it. We are careful —
clean our feet and wear house-slippers most of the time.
Non-safety factors :

Rough splinters in many areas. Staples coming out onto rug. We must watch
for staples and splinters. Mrs. Callahan .iust misserl running a fine needle-like wire
into her hand while cleaning the raised fioor shelf behind the toilet. Further,
she has had five small splinters in her hand when dusting walls, grasping closet
edge with her hand. She has learned to be careful and cover hands.

William J. Callahan,
Helen L. Callahan.

Senator Taft. Thank you very much.

Mr. FosDiCK. Senator, it is a pleasure for me to be able to be here
with you today. I regret that an unexpected chain of events in our
State senate prevented the Lieutenant Governor from being here.

The senate last Friday rejected the executive budget and adjourned
until 10 o'clock this morning and he had to be there for that.

As chairman of the Governor's council for consumer affairs the
Lieutenant Governor has been involved in the matter of mobile homes
since July of 1972 when the council identified consumer dissatisfaction
with mobile homes as a target area.

They conducted extensive research, they and the council staff, and
developed legislation which we feel will be landmark legislation in the
area of mobile home regulation and warranties.

That bill has passed the Wisconsin assembly and is pending as a
special order of business before the State senate and we expect prompt
adoption of the bill by the senate.

I tliink from viewing tlie testimony thus far today we are all read-
ing out of the same hymn book with regard to the statistics about the

1167

size of the industry and the percentage of the housing industry that
mobile homes make up and so I will just skip over that. It is contained
in my testimony.

I also have included in my written testimony a series of examples of
pi'oblems that have been discovered by the council for consumer af-
fairs in a recent survey they conducted of approximately 200 mobile
homeowners in the Madison area.

One individual complained of a new home purchased for $13,000
in which the paneling peeled off, the roof leakecl, tile buckled, bathtub
leaked, the shower didn't work, the furnace had to be replaced when
the water pipes froze and the 1-year warranty that the dealer and
manufacturer provided was never honored in that situation.

I have a series of these and they are similar, but not at all unusual in
our experience with those individuals surveyed.

I would reinforce what Mrs. McDonnell said with regard to devel-
opment of construction standards as opposed to safety standards.

The Secretary should be made responsible for the development of
standards which will insure the construction of safe and reliable
housing.

I would also urge that an approach similar to the one that was used
in "Wisconsin be followed with regard to warranties.

I know. Senator Taft, that you have introduced an amendment in
this regard.

We require manufacturers to provide a 1-year warranty on new
mobile homes and by including in the definition of a mobile home the
components, plumbing, heating, electrical systems, applicances and
so on, we also thereby warrant those components.

We further provided in the warranty that repairs were to be made
within 30 days at the site of the mobile home, and this mandatory war-
ranty makes every mobile home buyer an active participant in the
system of insuring sound construction. It, in essence, creates 600,000
watchdogs a year, if that is the number of mobile homes being sold.

The 30-day time restriction prevents lengthy delays and insures
that the owners will not be without shelter for extensive periods of
time if the defect renders the home uninhabitable.

I would urge also that you make both the manufacturer and dealer
jointly responsible for honoring the wai-ranty. Too often we found
that consumei-s were bounced back and forth between the dealer and
manufacturer when they had complaints.

Senator Taft. Is that Wisconsin law. That both the dealer and the
manufacturer jointly warranty ?

]\Ir. FosDicK. Yes; under the law not yet passed they would be
jointly held responsible.

At this point I would like to enter into the record as exhibit 1 of my
testimony a draft mobile home warranty bill which details how we ap-
proached this problem.

At one point in our negotiations with the industry and with the
legislature we had contemplated two separate bills and this one was
drafted specifically to serve as warranty legislation and subsequently
the predominant portions of this legislation were included in our Com-
presensive ]Mobile Home Act. But it does have some improvements
over that because the final ^Mobile Home Act is a compromise.

1168

Senator Taft, you have introduced an amendment, No. 147, which
provides a warranty very much along the lines of that which we sug-
gest, and with modification as to the time allotted the manufacturer to
adjust the warranty claim and providing for reimbursement for alter-
native living expenses for an owner who is temporarily required to
jive elsewhere, I think we would certainly support that amendment
strongly.

I would like to make some specific comments at this point on S. 1348
as presently drafted.

With regard to definitions, I believe you should expand them to in-
clude mobile homes available for lease as well as those which are for
sale.

The definition of mobile home safety standards states that the stand-
ards shall be "the minimum practicable standard for mobile home per-
formance which meets the need for mobile home safety."

Requiring the minimum implies the easiest way to get by and not
the best or most reasonable, but the minimum.

I question how many of us would like to live in a home constructed to
the minimum standards for safety.

Section 1013(d) prohibits the States from enacting more stringent
requirements if the Federal Government acted in a particular area.

In Wisconsin we are opposed to this, because we feel we are about
to get a very strong piece of legislation on the books. I think certainly
the States should be required to match the Federal standards and ex-
ceed them if they wish.

One of the representatives from the industrv indicated that he un-
derstood that S. 1348 does just that, that those States with strong legis-
lation, as Wisconsin will have, and as Cnlifomia does, could continue
those fine programs I think he said, and the States which don't have
will have to come up to that standard.

Such a change has practical implications, particularly in situations
where regional differences in weather may require different needs, as
has been discussed, and stronger roof support requirements, for ex-
ample, are needed in the North.

Section 108 does not include affirmative restrictions in the area of
the sale of used mobile homes. These sellers should be required to make
an inspection of the home and reveal to the buyer substantial defects
that he knows of or should know of, in other words, defects that would
at that point in time make this home meet standards below those pre-
scribed by the Federal law.

As the used mobile home seldom carries a warranty, there should be
a mechanism to protect the consumer. Liability for damages may be
attached to the seller for failure to disclose defects which the seller
knew of or should have discovered through reasonable inspection
procedures.

S. 1348 refers to ANSI A 119.1, and while my prepared testimony
doesn't address this subject, it is a matter we had some experience with
in developing our bill.

The situation which the Federal Government faces at this time is
very similar to the one we faced in Wisconsin. The industry was very
anxious to have a bill passed regulating mobile homes. In fact, it came

1169

before several committees saying we want to point out we were the first,
we came and asked the State to pass legislation.

The reason for that was because interstate commerce problems re-
quired them to do so.

The State of Minnesota was in a situation where they were about to
cease inspection of mobile homes in Wisconsin, and the same is true of
the State of Iowa, and that meant that mobile home manufacturers in
Wisconsin were going to have difficulty in shipping homes to those
States. So it was clear they did want mobile home legislation passed.

They wanted, however, mobile home legislation passed which would
leave the standards essentially as they were, industry-set, and essen-
tially the standards that are provided in ANSI A 119.1.

I think it is less than a coincidence that the Secretariat for ANSI
is an industry-related association.

What we ultimately did in Wisconsin, as you will see if you look
at the bill, was to provide that the department responsible should con-
sider ANSI 119.1, but should adopt other standards and standards
which could be more strict than ANSI.

Section 113 concerning the procedure for notification of defects in
mobile homes could be strengthened substantially. It allows the manu-
facturer to describe the defect and evaluate the hazard. Clearly it is
in the best economic interest of the manufacturer to downplay the
significance of safety-related defects. The manufacturer should be re-
quired to make the repairs necessary to remedy the defect at the site of
the home in the same manner that automobile manufacturers handle
recalls.

Given the natural tendency on the part of most human beings to
ignore such a notice, when they realize costly repairs may be necessary,
notice alone will not solve the problem. The manufacturer should be
required to remedy it.

There are other changes which I feel would improve the bill, and
I would like to enter into the record at this time as exhibit II the
current compromise mobile home and warranty legislation which we
are about to pass in Wisconsin.

I should point out that this is the final compromise bill and now has
the support of our State mobile home industry, labor and consumer
groups, and it bears in fact the speci.fic endorsement of the Wisconsin
Council for Consumer Aifairs, and the mobile home industry associa-
tion. It is not as tough as we would have liked, but at the same time
it is tougher than the industry would have liked, and I think it will
provide real protections for consumers in Wisconsin. I think there
should also be added to S. 1348 a requirement for inspections and
specific requirements for unannounced inspections. The committee has
already addressed this, so I won't belabor the point.

The finest standards are obviously meaningless without strict en-
forcement.

In summary, I urge that the regulatory mechanism be expanded to
include construction standards in general, in addition to those related
solely to safety and affirmative protection remedies be built into it
in the form of mandatory warranties, disclosure of used mobile home
conditions, and a recall mechanism similar to that which is used in the

1170

automotive industry. State efforts should be encouraged and States
should be empowered to enforce more rigid standards.

I believe there is a compelling need for regulation at the Federal
level. State activity nationwide has been varied and generally ineffec-
tive. While 36 States have adopted the American National Standards
Institute Code 119.1 in one form or another, either the current code or
one in effect in earlier years, a number of States have no enforcement
agency or have failed to fund a designated agency.

It has been estimated that almost 88,000 mobile homes were con-
structed in 1971 that were not subject to any enforcement or inspection
procedures.

I feel very strongly that the Federal Government can and should
act in this area. Every effort must be made to insure that mobile homes
are constructed according to reasonable standards which guarantee
safe, reliable housing for millions of Americans living in mobile homes.

The authors of this bill deserve the highest commendation for their
cocern for the needs of mobile homeowners and their f amiles.

[The prepared statement of Mr. Fosdick follows :]

1171

i,j. , S<atc of Wisfonsi'.i \ COUNCIL TOR CONSU;.'.i;R AKFAIRS

CHAIR '.' A N
MARTIN J. JCHBLISFR
Lll in LNANT GOV LRNOR

PiRr CTOR

JAMC5 R scon

ASSOCIATE DIRECTOR
PATTI L. NOi'.AK

1 c I

CAUNO.

MADISON, V»ISCO"*SI«
PHUNC ( 60B) 26C>3I0«

STATEI'ffiNT OF LIEUTENANT GOVERNOR MARTIN J. SCHREIBER OF WISCONSIN
BEFORE THE SUBCOyiMITTEE ON HOUSING AND URBAN AFFAIRS
OF THE U.S. SENATE BANKING, HOUSING AND URBAN AFFAIRS COMMITTEE

JULY 24, 1973.

Mr. Chairman and members, it is a pleasure for me to be able
to appear before this diEtingui shed committee today.

As Chairman of the Governor's Council for Consumer Affairs, I
have been involved in the matter of mobile homes since July of 197 2
when our Council identified consumer dissatisfaction with mobile
homes as a target area of attention. In the ensuing months, much
basic research was conducted by Council members and staff and what
we feel is landmark legislation was developed. That bill has since
passed the Wisconsin Assembly and is presently pending in the State
Senate.

We have, I believe, some insights and experiences which may be
useful to this distinguished committee.

There can be no doubt that the manufacture of mobile homes is
a rapidly expanding industry in this country. Ninety-five per cent
of all new single family dwellings under $15,000 are mobile homes.
Six hundred thousand mobile homes were manufactured in 1972 alone.

1172

Often they are the sole housing option available to low income persons
desiring a nev; dwelling. Young families and the elderly make up a
large share of the consumer market and mobile homes are particularly
popular in those rural areas where housing shortages exist.

As consumer demand has increased, the industry has moved rapidly
to fulfill this demand for bigger, more ornate and more complex
mobile home structures. Unfortunately, concomitant improvement
in the safety and reliability of mobile homes has not been evidenced.

U. S. Senate Bill 1348, presently under consideration by this
committee is primarily concerned with remedying the serious problem
of safety in mobile homes. It is also important, I believe, to
consider the question of the reliability of mobile homes.

Our studies have shown that safety is one component of an overall
mood of consumer dissatisfaction with mobile homes. It is important
to remember that people who buy mobile homes as their principal dwelling
place generally are less affluent than conventional home buyers. Due
to the depreciation factor, a mobile home, unlike a conventional home,
must be viewed as a consumable item.

Lending institutions treat the mobile home in the same manner
that automobiles are financed. After ten to fifteen years, the
mobile home depreciates to salvage value and loans for the purchase
of a mobile home are set up with this factor in mind. They simply
do not appreciate in value or even retain their value as a conventional
home does. Yet the mobile home meets the very fundamental human need
of providing shelter just as an ordinary home does. When a family
is driven from their home as a result of defects in the structure,
it is a serious matter.

1173

If the federal government is willing to establish a regulatory
system to insure the safety of mobile homes, it is only a small step
to also include provisions designed to insure that the home will be
reliable and reasonably free from defects.

It has been shown in our studies that the consumer experience
with the purchase of a new mobile home is dominated by inadequate
v/arranties, frequent serious defects and painfully slow action on
the part of the manufacturer and/or dealer to remedy such defects.
In the spring of this year, we surveyed about 200 people living in
mobile homes in the Madison, V'Jisconsin area. Those surveyed were
owners of mobile homes which were purchased new, and we questioned
them about their experiences during the first year of ownership.
Eighty-two per cent encountered defects in their homes during this
period. About 50% of those encountering defects either failed to
have the defects remedied or they encountered substantial delays in
having the repairs made.

The range of complaints about the mobile homes during the first
year was broad including defective furnaces, plumbing, poor work-
manship, and frequent leaks. Let me give you a sampling of some of
the experience'- owners had during the first year of ownership in
their own words: *

-A new home purchased for $13,000 in 1971.
"Paneling peeled off, roof leaked, tile buckled, bath
tub leaked, shower didn't work, furnace had to be
replaced, water pipes froze. One year warranty which

4

dealer and manufacturer never honored."

1174

-A new home purchased for $6,300 in 1970. "Home full
of deceptive veneers, paper disguised as wood, plastic
disguised as steel, furniture absolute trash, electric
hot water heater good for nothing. No warranty."

-A new home purchased for $6,800 in 1968. "Plumbing
defective, finish peeled off walls, bathroom floor fell
out as a result of leaking toilet. Ninety day warranty."

-A new home purchased for $10,000 in 1972. "Water faucets
leaked continually, water pipes froze everytime tempera-
ture got below zero. Wall paneling cracked at seams,
front door fell off. No warranty."

-A new home purchased for $8,200 in 1967. "Furnace blew
up, wife received second degree burns over head and
body. No warranty. Had to bring legal action to get
repairs . "

These are not unusual. We found repeated occurences of
defective plumbing, leaky ceilings, plastic pipes that froze in
the winter, walls and ceilings that buckled, and frost forming
on interior wall because of inadequate insulation.

If you are going to require the development of construction
standards, I urge that you do not confine those standards to safety
related matters. Make the Secretary responsible for the develop-
ment of standards which will insure the construction of safe and
reliable housing.

1175

I would also urge that an approach similar to that used in
Wisconsin be followed. We required manufacturers to provide a
one-year warranty on new mobile homes including their plumbing,
heating and electrical systems. Warranty repairs were to be
within thirty days of the complaint, at the site of the mobile
home. The mandatory warranty makes every mobile home buyer an
active participant in the system of insuring sound construction.
It builds in self -enforcement through the availability of adequate
remedies to the buyer. The thirty day time restriction prevents
lengthy delays and insures that owners will not be without shelter
for extensive periods of time if the defect renders the mobile home
uninhabitable. I would also urge that you make both the manufacturer
and dealer jointly responsible for honoring the warranty. Too often
we found consumers who were bounced back and forth between the
dealer and the manufacturer when they had complaints. It is of
critical importance to the mobile home buyer that he have a home
which is safe and reliable. As one home owner we surveyed put it,
"I didn't expect the Taj Mahal for $7,200.00 but I didn't anticipate
worrying from day to day whether I would have shelter for my family."

Let me at this point make some specific comments on S. 1348
as it is presently drafted.

-With regard to the definitions, I believe you should
expand them to include mobile homes available for
lease as well as those which are for sale.

1176

-The definition of "mobile home safety standard"
states that the standard shall be the "minimum
practicable standard for mobile home performance
which meets the need for mobile home safety."
Requiring that the standard be the minimum to me
implies the easiest way to get by. Not the best
or surest nor even the most reasonable, but the
minimum. I ask you, how many of us would like to
live in a home constructed with the minimum standards
for safety?

-Section 103 (d) prohibits the States from enacting
more stringent requirements if the federal government
has acted in a particular area. I believe that States
should be permitted to enact more stringent requirements
if they so desire. They should be required to match
the federal standards and exceed them if they wish.
Such a change has practical applications in situations
where regional di'fferences in weather may require
different needs. For example, stronger roof . support
requirements are needed in the North than in the South
because of heavy snow accumulations and the danger of
roof collapse.

-Section 108 does not include affirmative restrictions
in the area of the sale of used mobile homes. Commercial
sellers of used mobile homes should be required to make
an inspection of the home and reveal to the buyer

1177

substantial defects which he knows of or should know
of. As a used home seldom carries a warranty, there
should be some mechanism to protect the consumer.
Liability for repairs and damages may be attached to
the seller for failure to disclose defects which the
seller knew of or should have discovered through
reasonable inspection procedures.

-Section 113 concerning the procedure for notification
of defects in mobile homes could be strengthened
substantially. It allows the manufacturer to describe
the defect and evaluate the hazards. Clearly, it is
in the best economic interest of the manufacturer to
dov.'n play the significance of safety related defects.
The manufacturer should be required to make the repairs
necessary to remedy the defect at the site of the
home in the same manner that automobile manufacturers
handle recalls. Given the natural tendency on the
part of most human beings to ignore such a notice when
they realize that costly repairs may be necessary,
notice alone will not solve the problem. If the
manufacturer created the hazard at the very least he
should be required to remedy it.

In summary, I urge that the regulatory mechanism be expanded
to include construction standards in general in addition to those
which are related solely to safety and that affirmative consumer
protection remedies be built in in the form of mandatory warranties,

1178

disclosures of used mobile home conditions, and a recall mechanism
similar to that which is used in the automotive industry. State
efforts should be encouraged and States should be empowered to
enforce more rigid standards.

I believe there is a compelling need for regulation at the
federal level. State activity nationwide has been varied and
generally ineffective. While thirty-six states have adopted the
American National Standards Institute Code 119.1 in one form or
another, either the current code or one in effect in earlier years,
a number of States have no enforcement agency or have failed to
fund a designated agency. It has been estimated that almost 88,000
mobile homes were constructed in 1971 that were not subject to any
enforcement or inspection procedures.

I feel very strongly that the federal government can and
should act in this area. Every effort must be made to insure that
mobile homes are constructed according to reasonable standards
which guarantee safe, reliable housing for the millions of Americans
living in mobile homes. The authors of this bill deserve the highest
commendation for their concern for the needs of mobile home owners
and their families.

1179

EXHIBIT 1

DRAFT MOBILE HOME WARRANTY

1973 t'E- STATE OF V^TESCONSIN LRI3-5138/1

PP:l5

1 AN ACT to renumber 218.10 to 218.12; and to create 218.10 and 218.14

2 to 218.17 of the statutes, relating to requiring a one-year warranty

3 on new irobile homes, granting rule-noking pa/er and providing a pen-

4 alty.

6 Analysis by the Legislative Reference Bureau

7 TJiis proposal requires a one-year vnritten wairranty for every

8 new irt±)ile home sold or leased by a manufacturer, dealer or

9 salesperson in tlri.s state and for mobile homes sold through persons

10 vAio induce a l-Jisconsin resident to enter into the tr£jnsaction by

11 personal solicitation or by use of telephone or mail solicitation to

12 a VJisconsin custoner.

13 The v^arranty must include the follcv;ing terms:

14 1. That the mobile hoire meets tliose standards prescribed by

15 lav; or administrative rule in effect at the time of ironufacture.

16 2. Tiiat the mobile home is free from defects in material and

17 workrtBnsh ip .

18 3. Iliat tlie nvanufacturer and dealer will take corrective

19 action for defects whidi become evident ^'/itliin one year from

20 delivery date.

21 Persons violating these provisions may he fined not more than

22 $10,000 or irrprisoncd not rrore than 6 months or both.

23 For further information, see tlie appended fiscal note.

24 — ■ — — —

25 The people of the state of V'Jisconsin, represented in senate

26 and assembly, do enact as follows:

27 SECTION 1. 218.10 to 218.12 of tlie statutes are renunbered

28 218.11 to 210.13.

1180

1 SECTION 2. 218.10 of the statutes is created to read:

2 218.10 DEFINITTCMS. In this, subchapter:

3 (1) "Delivery date" means the date on which a rtcbile home is

4 physically delivered to the site chosen by the nobile home cwner.

5 (2) "Mcbile home" means a vehicle designed to be tewed as a

6 single init or in sections ipon a highway by a motor vehicle and

7 equipped and used or intended to be used, primarily for human habi—

8 tation, with walls of rigid unoollapsible construction, viiich has an

9 overall length in excess of 45 feet. "Mobile home" includes the

10 mobile heme structure, including the plumbing, heating and elec~

11 trical systems and all appliances and other equipi^ent installed or

12 included therein by the nsnufacturer or dealer.

0

13 (3) "I-tobile home dealer" means a person who, for a oommission

14 or other thing of value, sells, exchanges, buys or rents, or offers

15 or attempts to negotiate a sale or exchange of an interest in m±)ile

16 hones or v;ho is engaged wholly or in part in the business of selling

17 mcbile hones, v/hether or not the mobile horres are ormed by him, but

18 does not include:

19 (a) A receiver, tnastee, administrator, executor, giiardian or

20 other person appointed by or acting under the judgment or order of

21 any court.

22 (b) Any public officer while performing his official duty.

23 (c) Any enploye of a person enumerated in par. (a) or (b) .

24 (d) Any lender as defined in s. 421.301 (22).

•25 (e) A person transferring a mobile home registered in his cwn

26 name and used for his personal, family or houscliold purposes, if the

1181

1 transfer is an occasional sale and is not part of the business of

2 the transferor.

3 (4) "Mc±)ile hare manufacturer" means any person within or

4 without this state who manufactures or assembles mobile homes for

5 sale in this state.

6 (5) "Mobile home owner" means any person or lessee thereof

7 who purchases a mobile hone prinarily for use for personal , family

8 or household purposes.

9 (6) "Mcbile home salesperson" neans any person who is

10 enployed by a mcbile home itenuf acturer or dealer to sell or lease

11 mcbile homes.

12 (7) "New mobile home" rteans a mcbile home which has never

13 been occijpied, used or sold for personal or bijsiness use.

14 (8) "Used mobile hone" means a mobile home which has previ—

15 ously been occupied, used or sold for personal or business use.

16 SECTION 3. 218.14 to 218.17 of the statutes are created to

17 read:

18 218.14 \'gVRIWJIY AND DISCLOSURE. (1) A one-year v/ritten v/ar-

19 ranty is required for every ne^v mobile home sold or leased by a

20 mobile home manufacturer, dealer or salesperson in this state, and

21 for every new mobile hone sold by any person v-;ho induces a resident

22 of the state to enter ijito the transaction by personal solicitation

23 in this state or by trail or telephone solicitation directed to the

24 particular customer in tliis state. Hie warranty shall contain the

25 following terms:

26 (a) Ihat the mcbile home meets those standards prescribed by

1182

1 law or administrative rule of the depjjrtinent of industry, labor and

2 hurran relations, which are in effect at the time of its rrenufacture.

3 (b) Ihat the imbile home is free from defects in rtaterial and

4 workmanship and is reasonably fit for human habitation if it

5 receives reasonable care and irointenance as defined by rule of the

6 department of industry, labor and human relations.

7 (c) 1. Ihat the mobile home manufacturer and dealer will take

8 corrective action for defects v^ich become evident within one year

9 fron the delivery date and as to v/hich the mcbile home a-mer has

10 given notice to the manufact\arer or dealer not later than one year

11 and 10 days after the delivery date and at the address set forth in

12 the warranty; and that the mobile home manufacturer and dealer will

13 irake the appropriate adjustmsnts, within 30 days after notification

14 of the defect, at the site of the mobile hctne without charge to the

15 mobile horre avner. The owner shall be made whole and any repairs,

16 replacements, substitutions or alterations made shall restore the

17 mcbile home to its condition as v;arranted. If the dealer makes the

18 adjustment, the manufacturer shall fully reimburse the dealer.

19 2. If a repair, replacement, substitution or alteration is

20 made under the warranty and it is discovered, before or after

21 expiration of tlie v;arranty period, that the repair, replacement,

22 substitution or alteration has not restored the mobile hcsre to tlie

23 condition in v/hich it was v;arranted, such failure shall be deemed a

24 violation of the v;arranty and the mcbile home shall be restored to

25 tliG condition in wliicli it v/as warranted to be at the time of the

26 sale at no cost to tlie purchaser or his assig; :" •- ' -'"■9

1183

1 that the additional repair iray occur after the expiration of the

2 warranty period.

3 (d) Ihat if during any period of time after notification of a

4 defect, the nobile home is uninliabitable , as defined by rule of the

5 departiTEnt of industry, labor and hunon relations, that period of

6 time shall not be considered part of the one-year warranty period.

7 llie warrantor shall be liable for the cost of substitute housing and

8 reasonable living oosts for any period during which the ncbile heme

9 is uninhabitable as a result of such defects.

10 (2) Action by a lessee to enforce his rights under this sub-

11 chapter shall not be grounds for termination of the rental agree-

12 ment.

13 (3) Ihe warranty required under this section shall apply to

14 tlie manufacturer of the mobile hone as ;;ell as to the dealer who

15 sells or leases the mobile home to the customer, and shall be in

16 addition to any other rights and privileges v;hich the customer may

17 have under any instrument or law. Tlie v/aiver of any remedies under

18 any law and the waiver, exclusion, modification or limitation of any

19 warranty, express or implied, including tlie implied warranty of wer-

20 diant ability and fitness for a particular purpose, is expressly pro-

21 hibited. Any such waiver is unenforceable and void.

22 (4) The transfer of a mcbile home from one a-mer or lessee

23 to another during tlie effective period of tlie v/arranty does not

24 terminate tlie warranty, and subsequent avners or lessees shall be

25 entitled to the full protection of the v/arranty for tlio duration of

26 tlie warranty period as if tlie original avncr or lessee had not

1184

1 transferred the mobile hone.

2 218.15 RESPONSIBILITY FOR PEPAIR OF DK^'ECIS. (1) No sale or

3 lease of a used nobile hone by a licensee on an "as is" or "with all

4 faults" basis shall be effective to exclude or rrdify an irtplied

5 warranty of meirchantability or an irtplied warranty of fitness,

6 unless the mobile hone buyer or lessee signs a separate writing

7 listing specifically all defects which are kncwn or should have been

8 kncwn to the seller or lessor before oonsuntnation of the sale or

9 lease, or which would be discoverable by a reasonable inspection.

10 Directly above the custoiiBr ' s signature the f ollcwing notice shall

11 be printed in at least 12-point boldface ti'pe, all capital letters:

12 "-THIS IS A LIST OF KNa«^ DEFECTS IN THIS MOBILE HCME YOU

13 ARE ABOUT TO PURCHASE OR LEASE. . IF YOU SIGN THIS WRIT-

14 ING, YOU AGREE TliAT THE I^ERCHANT IS NOT RESPONSIBLE FOR

15 REPAIRING -HiESE DEFECTS."

16 (2) In the sale or lease of any used mobile hcane, the sales

17 invoice or lease agreement shall contain the point of manufacture of

18 the used irobile home, the name of tlie iranufacturer and the name and

19 address of the previous owner.

20 218.16 DEPA^RTi nJ'JTAL RULES. Ihe department of industry, labor

21 and huitan relations shall promulgate rules and establish standards

22 necessary to carry out the purposes of ss. 218.14 and 218.15.

23 218.17 PEN7\LTIES. (1) Any person who violates any provision

24 of ss. 218.14 to 218.16, or any rule promulgated under ss. 218.14 to

25 218.16, nay be fined not irore than $10,000 or imprisoned for not

26 norc than 6 months, or both.

1185

1 (2) In any court action brought by tlie department of Indus-

2 try, labor and himan relations for violations of this subchapter,

3 the department may recover eill costs of testing and investigation,

4 in addition to costs otherwise recoverable, if it prevails in the

5 action.

6 (3) Nothing in this subchapter prohibits the bringing of a

7 civil action against a irobile hone manufacturer, dealer or

8 salesperson by an aggrieved customer. If judgment is rendered for

9 the cus toner based on an act or emission by the manufacturer, dealer

10 or salesperson, which constituted a violation of this sx±>chapter,

11 the plaintiff shall recover actual and proper attorney's fees in

12 addition to costs otherwise recoverable. .

13 SECTION 4. CROSS REFERENCE CHANGES, ^-herever the reference

14 to section "218.10" appears in sections 342.12 (3) (a), 342.18 (4)

15 (a) and 426.202 (3) of the statutes, the reference "218.11" is sub-

16 stituted.

17 SECTION 5. PPOGRA?! RESPONSIBILITIFiS. At the appropriate

18 place in the list of program responsibilities specified for the

19 department of industry, labor and human relations under section

20 ■ 15.221 (intro. ) of the statutes, insert reference to "subch. VI of

21 ch. 218".

22 SECTION 6. EFFECTIVE DATE. This act shall take effect on the

23 121st day after its publication.
24

1186

EXHIBIT 2

WISCONSIN MOBILE HOME STANDARDS AND WARRANTY LEGISLATION

FINAL COMPROMISE

1973 STATE OF T-JISOCNSIN .LFB-5891/1

PP:pp

ASSEMBLY SUBSTTTtfTE AMENEMENT 2 ,
TO 1973 ASSEMBLY BILL 569

June 28, 1973 - Offered by Itepresentatives TKDPMAN, OESTEEICHER,
BERGER and NIEBLER.

1 AN ACT to repeal 218.12; to renurrber 218.10 and 218.11; and to

2 create 101.90 to 101.96, 218.10 and 218.14 to 218.17 of the stat-

3 utes, relating to licensing of mobile hone itanxifacturers, vTarranties

4 on rew irobile homes, granting rule-naking authority and providing a

5 penalty.

6 The people of the state of Wisconsin, represented in senate

7 and assembly, do enact as follows:

8 SBCTICN 1. 101.90 to 101.96 of the statutes are created to

9 read:

10 101.90 PURPOSE. The purpose of this law is to establish uni—

11 form oonstruction standards, inspection procedures and licensing of

12 nenufacturers of rrobile homes and to prcjmote interstate uniformity

13 and the ability to enter into reciprocal agreements with other

14 states and the federal government.

15 101.91 EEFINITICN. In ss. 101.90 to 101.96, "mobile hone"

16 has the meaning designated in s. 218.10 (2) .

17 101.92 DEPARglEKrAL POWERS AND tXTTIES. The department:

18 (1) Shall adopt, administer and enforce rules for the safe

1187

1 and sanitary design and construction of mobile hones manufactured,

2 distributed, sold or offered for sale in this state.

3 (2) Shall license all manufactiirers desiring to sell or dis-

4 tribute for sale mobile hones in this state.

5 (3) Shall review annijally the rules adopted under ss. 101.90

6 to 101.96, and nay revise niLes upon reoartnendation by the advisory

7 coiimdttee appointed \ander s. 101.96.

8 (4) Shall provide for announced or unannoimced inspection of

9 imnufacturing facilities, processes, fabrication and assenbly of

10 mobile hones to ensure oonpliance with the rules adopted under ss.

11 101.90 to 101.96.

12 (5) Shall establish standards for certification of inspection

13 and testing agencies vAiich shall include standards for in-plant

14 inspection of manufacturing facilities, processes, fabrication and

15 assembly of mobile hones and for issuance of or acceotance of a

16 label of approval.

17 (6) May enter into reciprocal agreements vd.th other states

18 regarding the design, construction, inspection and labeling of

19 mobile hones vdiere the laws or rules of other states meet the intent

20 of ss. 101.90 to 101.96 and where the laws or niLes are actually

21 enforced.

22 (7) Shall establish within the division of industrial safety

23 and buildings a staff for the administration and enforcorent of ss.

24 101.90 to 101.96.

25 (8) l&/ revoke the license of any manufacturer \^tel violates

26 ary of the provisions of ss. 101.90 to 101.96 or any rules pronul—

99-855 O - 73 - pt. 1 -- 76

1188

1 gated thereimder.

2 101.93 INTERDEPARIMENTAL POWERS AND DinTES. (1) The depart-

3 iTient of health and social services, in counsel with the department,

4 shall adopt rules relating to plurrbinq in the design and oonstruo-

5 tion of iTDbile hcnes. Such rxiLes shcill be consistent vrith s. 101.94

6 (1) and (2) and shall be reviewed annually.

7 (2) The department of health and social services, in counsel

8 with the department, shaill establish qualification requiremefits for

9 and shall certify persons to perform inspections of the plumbing

10 systems in mobile hemes.

11 (3) The department of health and social services, at the

12 request of the department of industry, labor and human relations,

13 shall review plans and specifications for approval of plimbinq sys-

14 tems in mobile hones.

15 101.94 MDBIIE HOME MANUFACTURERS, DISTRIBUTORS fl^^D DEALERS:

16 DESIGN AND CCNSTRUCTICN OF MCBIIE HOMES. (1) Mcbile hemes manufao-

17 tured, distributed, sold or offered for sale in this state shall

18 conform to the code promulgated by the American national standards

19 institute and identified as ANSI 119.1, including all revision

20 thereof in effect upon enactment of this section (1973) , and further

21 revisions adopted by the department. The department may establish

22 standards in addition to those reouired imder ANSI 119.1. This

23 section applies to imits manufactured or asserbled after January 1,

24 1974.

25 (2) Each mobile here manufacturer shall submit to the denart—

26 ment typiccil constructian plans and specifications for review. The

1189

1 department shall, by its own inspectors vhether inside or outside

2 this state, perform sufficient inspections of manufacturing premises

3 and manufactured units to ensure corpliance mth this section. The

4 department may contract for inspection services, as provided in sub.

5 C3) , for inspections outside this state. Each mobile hone, \jpcir\

6 final asserrbly, shall display a label vAiich shall be prescribed by

7 and be available only fron the department, or similar agency of

8 other states v*iere units are manufact\n^, providing reciprocal

9 agreements have been executed and are effective betveen this state

10 ard such other states indicating that the mobile home meets the

11 requirements of ss. 101.90 to 101.96 or the applicable laws of the

12 state with which a reciprocal agrearent has been executed. TJo

13 mobile hone vAiich bears such label shall be required by anv person

14 to coitply with any building, plunbing, heating or electrical code or

15 any construction standards other than those promulgated under this

16 section.

17 (3) The department shall inspect mobile hones manufactured in

18 other states to be sold or intended to be sold in this state. For

19 such out— of— state inspections, the department may contract for third

20 party inspection by an inspection agency viiich has been approved by

21 the department. The department shall monitor inspections conducted

22 by third party inspection agencies to ensure the quality of those

23 inspections. To obtain departmental approval, the inspection agency

24 shall submit an application to the department accompanied by written

25 materials evidencing that the agency is:

26 (a) Not under the jurisdiction or oontrol of any manufacturer

1190

1 or supplier of the mobile heme indiistry.

2 (b) Professionally ccproetent to determine that a mobile hone

3 is in corplianoe with the requiranents and standards of this section

4 by having sufficient expertise to:

5 1. Inspect mobile hones.

6 2. Review mobile here plans and specifications.

7 3. Evaluate mobile hcrte manufacturer quality control proce-

8 dures.

9 4. Suhnit detailed reports reqarding all of its findings to

10 the department.

11 (4) ^k^ mobile here after once being approved to display the

12 label prescribed shall be altered in anv ^^y by a manufacturer, fao-

13 tory branch, distributor, distributor branch, dealer or salestan

14 without first obtaining an approval fron the department or its

15 authorized agent.

16 (5) Any person v*k3 violates this section shall forfeit not

17 less than $50 nor more than $500 for each such violation, and may be

18 required to indermify the purchaser for damages caused. Each day

19 the violation continues shall constitute a separate violation.

20 (6) Fees for review of plans, construction inspections,

21 department labels and licoising of manufacturers shall be estab-

22 lished by department rule and shall cover actual cost of the inspeo-

23 tien and licensing programs.

24 (7) The d^jartment shall hear and decide petitieais broixrht

25 under ss. 101.90 to 101.96 in the manner provided under s. 101.02

26 (6) (e) to (i) and (8) for petitions concerning property.

1191

1 101.95 M3BILE HCME MM3UE?VCrURERS REGUIATED. The department

2 shall by rule prescribe the maimer by v^iich a manufacturer shall be

3 licensed for the manufacture, distribution or sellinq of mobile

4 hones in this state.

5 101.96 AIVISORy OCffgTTEE. The department shall appoint an

6 advisory coititiittee of 5 marbers to review the niLes and standards

7 for mobile hares and reccmnend changes. The oartnittee shall be oor»-

8 nosed of 2 meirbers representinq the mobile hone industrv, 2 public

9 members and one mer±)er fran the departmsnt. The ocmittee shall

10 suhcdt an annual report to the department and to the department of

11 health and social services.

12 SECriCN 2. 218.10 and 218.11 of the statutes are renurttoered

13 218.11 and 218.12.

14 SECTICN 3. 218.10 of tJie statutes is created to read:

15 218 . 10 CEFTNITICMS . In this subchapter:

16 (1) "Deliveiry date" means the date on which a mobile home is

17 physically delivered to the site chosen by the mobile hone owner.

18 (2) "MDbile hcrve" means a vehicle designed to be towed as a

19 single unit or in sections upon a highway by a motor vehicle and

20 equipped and used or intended to be used, primarily for human habi—

21 tation, with v?alls of rigid \jncollapsible construction, vAiich has an

22 overall length in excess of 45 feet. "Mabile heme" includes the

23 mobile heme structure, including the plumbing, heating and elec?-

24 trical systems and all appliances and all other equijanent carrying a

25 manufacturer's warranty.

26 (3) "MDbile hone dealer" means a person vivo, for a ocitinission

1192

1 or other thing of value, sells, exchanges, h\x/s or rents, or offers

2 or atteattpts to negotiate a sale or exchange of an interest in irobile

3 horres or vrho is engaged wholly or in part in the hvisiness of selling

4 iTDbile hemes, v*iether or not the itobile hcnes are. owied by him, but

5 does not include:

6 (a) A receiver, trustee, administrator, executor, guardian or

7 other person appointed by or acting under the judgment or order of

8 any court.

9 (b) Ary public officer viiile performing his official duty.

10 (c) Any enploye of a person enumerated in par. (a) or (b) .

11 (d) Any lender as defined in s. 421.301 (22).

12 (e) A person transferring a mobile home registered in his cwn

13 name and used for his personal, family or household purposes, if the

14 transfer is an occasional sale and is not part of the business of

15 the transferor.

16 (4) "Mabile hone manufacturer" means any person vdthin or

17 vrithout this state vdio manufactures or asseribles mobile hemes for

18 sale in this state.

19 (5) "Niobile heme owner" means any person or lessee thereof

20 v*io purchases a mobile heme primarily for use for personal, family

21 or household purposes.

22 (6) "MDbile heme salesperson" means any person v*io is

23 enployed by a mobile heme manufacturer or dealer to sell or lease

24 mobile hemes.

25 (7) "New mobile heme" means a mobile heme T^hich has never

26 been occupied, used or sold for personal or biasiness vise.

i

1193

1 (8) "Used itbbile hone" means a itdbile hone viiich has previ—

2 oi:isly been occupied, \jsed or sold for personal or business use.

3 SBCnCN 4. 218.12 of the statutes is repealed.

4 SECnCN 5. 218.14 to 218.17 of the statutes are created to

5 read:

6 218.14 WARRRNTY AND DISCDJ6URE. (1) A one-year written var-

7 ranty is required for every new itcbile hone sold or leased by a

8 mobile here manufacturer, dealer or salesperson in this state, and

9 for every new nobile hone sold by any person who induces a resident

10 of the state to enter into the transaction by personal solicitation

11 in this state or by irail or telephone solicitation directed to the

12 particular customer in this state. The warranty shall contain the

13 following terras:

14 (a) That the mobile heme meets those standards prescribed by

15 law or administrative rule of the department of industry, labor and

16 hunan relations, which are in effect at the time of its manufactiire.

17 (b) That the mobile home is free fron defects in material and

18 workmanship and is reasonably fit for human habitation if it

19 receives reasonable care and maintenance as defined by rule of the

20 department of indi:istry, labor and human relations.

21 (c) 1. That the mobile hone manufacturer and dealer shall

22 take corrective action for defects vAiich beccme evident within one

23 year from the delivery date and as to v*iich the mobile heme cwner

24 has given notice to the manufacturer or dealer not later than one

25 year and 10 days after the delivery date and at the address set

26 forth in the warranty; and that the mobile heme manufacturer and

1194

1 dealer shall irake the apprcfpriate adjiostments and repairs, witJiin 30

2 days after notification of the defect, at the site of the nobile

3 here without charge to the mobile home cwner. If the dealer makes

4 the adjustment, the rranufacturer shall fiiLly reimburse the dealer.

5 2. If a repair, replacatient, substitution or alteration is

6 made under the vTarranty and it is discovered, before or after

7 expiration of the warrantv period, that the repair, replacement,

8 sijbstitution or alteration has not restored the mobile here to the

9 condition in v*iich it v/as warranted except for reasonable wear and

10 tear, such failiore shall be deemed a violation of the warranty and

11 the mobile hone shall be restored to the oonditicn in vAiich it ^^Tas

12 warranted to be at the time of the sale except for reasonable wear

13 and tear, at no cost to the purchaser or his assignee notwithstand—

14 ing that the additional repair may occur after the expiration of the

15 warranty period.

16 (d) That if during any period of time after notification of a

17 defect, the mobile hcne is uninhabitable, as defined by rule of the

18 department of ind\]stry/ labor and human relations, that period of

19 time shall not be considered part of the one-^ear warranty period,

20 (e) A list of all parts and eauiprient not covered by the war-

21 ranty.

22 (2) Action by a lessee to enforce his rights under this sub-

23 chapter shall not be grounds for termination of the rental agree—

24 ment.

25 (3) The warranty required under this section shall apply to

26 the manufacturer of the mobile hcne as well as to the dealer viho

1195

1 sells or leases the nobile hciT>e to the custaner, and shall be in

2 addition to any other rights and privileges v^ich the custoner itay

3 have under any instrument or law. The waiver of any remedies under

4 any law and the waiver, exclusion, irodification or limitation of any

5 warranty, e^qiress or imolied, including the implied warranty of mer-

6 chantability and fitness for a particular purpose, is expressly pro-

7 hibited. Any such waiver is unenforceable and void.

8 (4) The transfer of a mobile home from one owner or lessee

9 to another d\jring the effective period of the vvorrantv does not
10 terminate the warranty, and subseouent cvaiers or lessees shall be
U entitled to the full protection of the warranty for the duration of

12 the warranty period as if the original owner or lessee had not

13 transferred the mobile hone.

14 --21&-.1.5 SALE- €R lEASE OF USED MCBIIE HCMES. In the sale or

15 lease of any \ised mobile home, the sales invoice or lease agreement

16 shall contain the point of manufacture of the used mobile hcne, the

17 name of the manufacturer and the name and address of the previous

18 owner.

19 218.16 DEPAJ^n^ENTAL RUIES. The department of industry, labor

20 and hxjman relations shall prcnulgate rules and establish standards

21 necessary to carry out the purposes of ss. 218.14 and 218.15.

22 218.165 JUKESDICTICN AND VENUE OVER OUT-QP-STATE MANUFAC-

23 TURERS. (1) The in^rtation of a mabile hone for sale in this state

24 by an out-of-state maniifacturer is deemed an irrevocable appointment

25 by such out-of-state manufactixrer of the secretarv of state to be

26 his true and lawfiiL attorney \ipon whan mav be served all legal

1196

1 processes in airy actican or proceeding against such manufacturer

2 arising out of the iitportation of such nobile hone into this state.

3 (2) The secretary of state upon viiom processes and notices nay

4 be served tinder this section shall, i:qpon being served with such

5 process or notice, nail a copy by registered mail to the out—

6 of-state manufacturer at the nonresident address given in the papers

7 so served. The original shall be retvumed vdth proper certificate

8 of service attached for filing in court as proof of service. The

9 service fee shall be $4 for each defendant so solved. The secretary

10 of state shall keep a record of all such processes and notices,

11 which record shall show the day and hour of service.

12 218 . 17 PENALTIES . (1) Any person v*io violates ciny provision

13 of ss. 218.14 to 218.16, or any rule prcrtulgated under ss. 218.14 to

14 218.16, may be fined not more than $1,000 or irprisoned for not more

15 than 6 months, or both.

16 (2) In any court action brouc^t hy the department of indus-

17 try, labor and human relations for violations of this subchapter,

18 the d^Dartment may recover all costs of testing and investigation,

19 in addition to costs otherwise recoverable, if it prevails, in the

20 action.

21 (3) Nothing in this subchapter prohibits the bringinq of a

22 civil action against a mobile heme manufacturer, dealer or

23 salesperson by an aggrieved custatier. If judgment is rendered for

24 the customer based on an act or emission by the manufacturer, dealer

25 or salesperson, •vrfiich constituted a violation of this subchapter,

26 the plaintiff shall recover actual and proper attorney's fees in

t

1197

1 additicn to costs otherwise recoverable.

2 SECnCN 6. CROSS REFERENCE CHAN(3S. T^]herever the reference

3 to section "218.10" appears in sections 342.12 (3) (a), 342.18 (4)

4 (a) and 426.202 (3) of the statutes, the reference "218.11" is sub-

5 stituted.

6 SECnCN 7. PROGRAM RESPONSIBILITIES. (1) In the list of pro-

7 gram responsibilities specified for the department of industry,

8 labor and human relations under section 15.221 (intro.) of the stat—

9 utes, insert reference to "subch. VI of ch. 218".

10 (2) In the list of procpram resnonsibilities specified for the

U department of health and social services in section 15.191 of the

12 statutes, insert reference to "101.93".

13 SBCnCN 8. Kt'i^lJC'riVE DRIE. This act shall take effect on the

14 121st day after piialication.

15 (End)

1198

Senator Proxmire [presiding]. Thank you.

I take it the nex't witness is Ms, Drury.

Dr. Drury. I am Maro;aret Dmry from the Urban Institute.

I think the Brock bill shows a great amount of understanding of the
problems involved in guaranteeing that the mobile homes produced by
industry are safe when they are delivered from the factory.

I basically agree with what is outlined in the bill. However. I do
not think the bill goes far enough to adequately protect the consumer.

The bill, as proposed, is focused on establishing national safety and
construction standards so that the mobile home unit is safe when the
consumer acquires it.

It is at least as important to insure that the consumer is protected
while he is living in his unit as it is to assure him that the unit he buys
is safe.

Therefore I strongly recommend that you add to the bill protection
for consumers once they are residing in mobile homes.

Long-term protection can be provided for the consumer by adding
three provisions to the bill. The first is warranties. The bill should re-
quire that the manufacturer and dealer are to provide warranties on
mobile homes. The manufacturer should issue a 1-year warranty which
covers all parts in every new mobile home. California and Wisconsin
already require that mobile homes have such a warranty. I also think
that manufacturers should be required to issue 5-year warranties on
all structural parts; and as well that the manufacturer should be re-
quired to be responsible, by warranty, for the safety and related de-
fects of a mobile home for the entire leng'th of its life.

In order to guarantee that the warranties are made good by the
manufacturer, even if the mnnufacturer should s:o out of business, the
manufacturer should be required to hold a bond worth a minimum of
one-half of its last year's gross sales.

I would also like to point out that the dealer should be required to
give the new mobile homeowner a written, signed certification that the
new mobile home, once located on its site, is installed and balanced
correctly. The manufacturer should be held responsible for the in-
stallation done by the dealer who is in essence the manufacturer's
agent. This would serve as a remedy for another problem in the in-
dustry, dealer-manufacturer runaround.

Many consumers wait weeks for repairs to be made while a manu-
facturer and dealer argue about who is responsible for the repairs.
Without such a certification, a warranty would be meaningless, be-
cause often poor site installation can cause many structural problems
in a mobile home.

For example, a mobile home is normally propped up on cinderblocks
when it is installed : if it is not leveled correctly, the doors mav not
stay closed, the walls mav separate from the ceiling, cabinets may
come off the walls, the roof mav leak, or the plumbing may not work.

Special protection in the bill should be given the manv consumers
who buv a warranted mobile home from a dealer who also provides
them with park space. This protection will allow mobile home resi-
dents to request compliance with the warranty without having to fear
being evicted from their park space.

Second, repair service responsibility.

The bill should require repair service responsibilities on the part
of the manufacturer. There is a dearth of mobile home servicemen

I

1199

because there are few manufacturers who offer specialized training in
the repair and maintenance of mobile homes.

Mobile home manufacturer authorized repair service companies
have been slow to develop across the country either through sales
dealers or other firms. Few. if any, mobile home manufacturers cur-
rently have a written franchise or even a legal contract with mobile
home dealers which sets out clearly the service responsibilities of both
parties.

There is also no requirement that dealers and manufacturers keep
an inventory of parts for current or older units. When mobile home-
owners don't have either the skills or materials needed to perform re-
pair and maintenance services themselves, they are often unable to
buy repair and maintenance services in the area where they live.

in this respect, the consumer with a defective mobile home is far
worse off than the owners of a car that is a "lemon." For with a defec-
tive car one can at least find mechanics at service centers who have had
manufacturer authorized training. Not only is the consumer with the
defective mobile home frustrated because of lack of service, he literally
has to live with his problem night and day. One can do without a car
for several days while it is being repaired, but it is difficult to do with-
out housing.

Sometimes mobile homeowners default on their financial commit-
ments for their unit and just move away out of pure frustration over
not being able to get their unit fixed.

Presently, there are no comprehensive service systems in existence
for mobile homes which can be called upon to inspect used mobile
homes, to warn the owner or renter about problems which appear to
be developing, and to suggest what needs to be done to prevent the
onset of more serious problems.

I think that dealers have not properly educated their customers in
the past about the preventative maintenance necessary on mobile
homes because they are entirely oriented to making sales and have
not had or wanted a service responsibility.

Throughout the history of the industry, dealers have come into and
gone out of business very easily without responsibilities to either the
manufacturer or the consumer. I think that the mobile home industry
has now matured and grown into a permanent American institution
and that by now they should have taken responsibility for consumer
service.

Since manufacturer-authorized repair service has not developed
after 25 years of a strong industry growth, I do not think it will de-
velop on its own.

In view of this situation, I think you should take the initiative in
this bill to set up a certification system for mobile home repair and
maintenance ser\dces.

Service dealers should be awarded certification based on Federal
guidelines for the training and experience of their employees and on
their past record of ethical consumer practices.

The new legislation should offer an incentive mechanism as well as
official certification to aid in the formation of comprehensive repair
and maintenance service dealers in States or regions which have a
large stock of mobile homes in use.

1200

Again, requiring an ongoing legal contract between dealers and
manufacturers which sets out each of their responsibilities for ser-
vicing will better assure that the consumer is served.

Third, consumer education and intervention. The manufacturers are
right, consumers are very uneducated about the things they need to
know. They tend to be interested only in floor plans and they don't ask
about maintenance. When they buy a unit, they don't know that the
roof has to be cold sealed every 2 years to keep the roof from leaking.
They don't know what is really required for installation, tiedowns,
and things like that.

I think that the Brock bill should also provide for an educational
component which can make information available to consumers.

It is very frustrating when a consumer has complaints and doesn't
know where to take them. When consumers have complained to their
dealers and manufacturers to no avail, they often don't know where to
go for help. If there were an intervention mechanism within HUD,
consumers would have a place that they could turn to, an official place,
so they would feel they were being served.

So in summary, I would like to repeat, I think that your bill. Sena-
tor Brock, is a real step forward in assuring that new mobile homes
are safe. However, I do not feel the bill goes far enough. It needs to be
strengthened to protect the mobile home resident during the life of
the unit. The bill should be amended to include three things : war-
ranties for safety and construction, repair service responsibility on
the part of manufacturers and dealers, and consumer education and
intervention on the part of the proposed bureau.

Thank you and the members of the committee for listening to my
comments on the proposed legislation.

[The complete statement of Dr. Drury follows :]

i

'4

1201

THE TESTIMONY OF DR. MARGARET J. DRURY OF THE URBAN INSTITUTE
BEI'ORE THE SENATE SUDCOM-IITTEE ON HOUSING AND URBAN
AFFAIRS OF THE SENATE BANKING, HOUSING AND URBAN
AFFAIRS COMMITTEE; ON JULY 24, 1973

Mr. Chairman, my name is Margaret J. Drury. I am on the senior
research staff of the Housing Studies Group at The Urban Institute, a
non-profit organization here in Washington. I would like to point out
from the beginning that I am not here to represent the The Urban Institute
or any other organization; my views are entirely my own. I hold a Masters
and a Ph.D. degree in Housing from Cornell University, I first started
doing research on mobile homes in 1965 while conducting a study of the
institutional factors contributing to the growth of the mobile home industry
for my master: thesis. I have written several reports on mobile homes; the
most resent is itled. Mobile Homes: The Unrecognized R olution in American
Housing and was published by Praeger in 1972.

I have worked at The Urban Institute for four years. The research I
havo been doing there is focused on finding way.s to improve apartment
residents' satisfaction with the housing services they receive by improving
housing services like heat, maintenance, repairs and security, and by
improving the quality of management.

Thank you for inviting mc to come to testify to this committee on
Senator Brock's bill. I hope that my knowledge of mobile homes and of
the needs of housing consumers will be helpful to this committee.

1202

The Broc'' bill shov;s a great amount of uir'arstanding of the problems
involved in guo.anteeing that the mobile homes which are produced by the
industry are safe when they are delivered from the factory. A great amount
of effort has been exerted in developing the bill. I think that Senator
Brock and the other senators who sporsored the bill should be commended for
their concern, efforts, and foresight. Establishing a Bureau within the
Department of Housing . id Urban Development which can issue gui .'lines for
states to use in establishing in-Iactory safety inspections of mobile home
units is a good idea which has long needed to be implemented. The Bureau
will also serve a valuable and much needed function of initiating new
research on mobile homes for establishing safety and construction standards.
The Bureau's record keeping function will also be valuable since presently the
only information on mobile homes and mobile home residents comes either from the
mobile home industry or every ten years from the U.S. Census. I basically agree
with evcrytliing outlined in Senator Block's bill though thi re are a number
of words and phrases which I think need to be clarified and modified; I
indicate them specifically in my written appendix. However, I do not think
the bill goes far enough in adequately protecting the consumer. The bill,
as proposed, is focused on establishing national safety and construction
standards so that the mobile home unit is safe when the consumer acquires
it. It is at least as important to insure tli.'^t the consumer is protected
while he is living in his unit as it is to assure him that the unit he
buys is safe. Therefore I strongly recOi lend that you add to the bill
protection for consumers once they are residing in mobile homes. Long
term protection can be provided for the consumer by adding three provisions
to the bill.

1203

First- -Warranties. The bill should require that the manufacturer and
dealer arc to provide warranties on mobile homes. The manufac-
turer should issue a one-year warranty which covers all parts in
every new mobile home. California and Wisconsin already require
that mobile homes have such a warranty. I also think that manu-
facturers should be required to issue 5-yL:ar warranties on all
structural parts; and as well that the manufacturer should be
required to be responsible, by warranty, for the safety and
related defects of a mobile hom^a for the entire length of its
life.

In order to guarantee that the warranties are made good by the
manufacturer, even if the manufacturer should go out of business,
the manufacturer should be required to hold a bond worth a minimum
of on. half of its last year's gross sales. I would also like
to point out that the dealer should be required to give the new
mouilc homoovmer a written, signed C' rtification that the new
mobile home, once lo :ated on its site, is installed and balanced
correctly. The manufacturer should be held responsible for the
installation done by the dealer who is in essence, the manufac-
turer's agent. This would serve as a remedy for another problem
in the industiy, dealer-manufacturer runaround. Many consumers
wait weeks for repairs to be made while a manufacturer and dealer
argue about who is responsible for the repairs. Without such a
certification, a warranty would be meaningless, because often poor
site installation can cause many structural problems in a mobile
home. For example, a mobile hc.nc is normally propped up on

99-855 O - 73 - pt. 1 -- 77

1204

cinder blocks when it is installed; if it is not leveled correctly
the doors may not stay closed, the walls may separate from the
ceiling,, cabinets may come off the walls, the roof may leak, or
the plumbing may not work. Special protection in the bill should
be given the many consumers who buy a warranted mobile home from
a dealer who also provides them with park space. This protection
will allow mobile hoi.e residents to request compliance with the
warranty without having to fear being evicted from their park
space.

Second--Repair Service Responsibility. The bill should require repair
service responsibilities on the part of the manufacturer. There
is a dearth of mobile home servicemen because there ar few manu-
facturers who offer specialized training in tlie repair and mainten-
ance of mobile homes. Mobile hom.e manufactuier authorized repair
service companies have been slow to develop across the country
either through sales dealers or other firm:-. Fevj, if any, mobile
home manufacturers currently have a written franchise or even
a legal contract h mobile home dealers which sets out the
service responsibilities of both parties. There is also no
requirement that dealers and manufacturers keep an inventory of
parts for current or older units. When mobile homeowners don't
have . ither the skills or materials needed to perform repair and
maintenance services themselves, they are often unable to buy
repair and maintenance services in the area where they live.

1205

In this respect, the consumer with a defective mobile home
is far worse off than the owner of a car that is a "lemon."
For with a defective car one can at least find mechanics at
service centers who have had manufacturer authorized training.
Not only is the consumer with the defective mobile home frustrated
because of lack of service, he literally has to live with his
problem night and day. One can do without a car for several days
while it is being repaired but it is difficult to do without
housing. Sometimes mobile homeowners default on their financial
commitments for their unit and just move away out of pure frustra-
tion over not being able to get their unit fixed. Presently,
there are no comprehensive service systems in existence for mobile
homes which can be called upon to inspect used mobile homes and
warn the owner or renter about problems which appear to be develop-
ing and suggest wh.,t needs to be don^ to prevent the onset of more
serious problems.

I think th;L dealers have not properly educated their cu'^'; _'rs in
the past about the preventative maintenance necessary on mobile
homes because they are entirely oriented to making sales and have
not had nor wanted a service responsibility. Throughout the
history of the industry, dealers have come into and gone out of
business very easily without responsibilities to either the
manufacturer or the consumer. I think that the mobile home
industry has now matured and grown into a permanent American
institution and that by now they should have taken responsibility
for consumer service. Since manufacturer authorized repair
service has not developed after twenty-five years of a strong

1206

industry growth, I do not think it will develop on its own. In
view of this sitvtic •, I thinV you should take the initiative
in this bill to set up a certification system for mobile home
repair and maintenance services. Service dealers should be a
awarded certification b ned on federal guidelines for the
training and experience of their employees and on their past '
record of ethical consumer practices. The new legislation should
offer an incentive mechanism as well as official certification to
aid in the formation of comprehensive repair aud maintenance
service dealers in states or regions which have a large stock of
mobile homes in use. Again, requiring an ongoing legal contract
between dealers and manufacturers which sets out each of their respon-
sibilities for sp'vicing, will better assure that the consumer is served.

Third- -Con -^er Education and Intervention. Many problems which

consur.iers ha o with mobile home maintenance and repair are the
result of their lack of access to the proper information. Most
of the repair manuals furnished by mobile home manufacturers arc
not only incomplete in their coverage of the working of
appliances, systems and materials in the units, but they also fail
to give proper guidelines for the normal preventative maintenance
that is required during the lifetime of their unit.
Preventative maintenance has often been overlooked by consumers
simply because they tire unaware it is necessary. Residents have
tendi to wait until a problem has occur/ed and then attempted
to repair it. But with mobile homes, once a problem like a
leaking roof has occurred, it is often a downhill battle, because

I

1207

other building systems arc quickly affected and a great number of
other irreversible problems seem to occur shortly after the first
problems are discovered.

The limitations of manufact irer provided manuals, coupled with the
lack of authorized repair and maintenance service dealers have
made it difficult for mobile homeowners to identify and thoroughly
understand their responsibilities for keeping the mobile home unit
in a state of repair which will prevent future problems. Therefore,
a mechouism is needed in the bill which can be used, not only to
edu ite mobile ".ome residents about how to repair their units
properly, but will insure that they understand the role that
preventative .aintenance plays in insuring that their unit, con-
tinue to be safe throughout the time they are living in th 'm.
Senator Brock's bill should require the manufacturer to supply
explicit written repair and maintenance information to the
cons, e at the tiim C sal.'. For example, wiring dingr.nns,
proper blocking and leveling set up, tie down information, hov/
to cle;" I the furnace, h.ow to cool-seal the roof, etc. I also
think the consumer needs another place to turn in addition to
the manufacturer for this information. Therefore, the Burc u
proposed in the bill should have a consumer educafon comp.-'nent.
This -omponcnt of the Bureau should provide information and
advise to consumers about what to look for when buying a mobile
home, and what to do to properly maintain it.
In order to assist mobile homeov/nors who are getting dealer-
manufacturer runaround v;hcu the o\^7ner is trying to get them to
take action on a complain: , the Bureau should have an intervention

1208

component to whirh the mobile homeowner can turn for help before
he resorts to costly court action.

Thanlc you Mr. Chairman and members of the committee for listening
to my thoughts about the proposed legislation. Again, I want
to especially thank Sunator Brock for the effort he has put into
writing this bill. It is a real step forward for more than six
million Americans living in mobile homes. I am honored to have
been asked to appear here today. Thank you.

1209

Margaret J. Drury
July Ik, 1973

APPENDIX
PART I

In my statement to the Committcn, I pointed out that data on mobile
home confiuiners and the extent of their problems either by states or for the
country :x-i a whole docs not exist. However, looking through some studies
which do exist either on individual mobile homeoxjners' experiences or on
comparisons of a number of o\mers' problems has produced some backup
information which may be of interest to the Committee.

An Owcns-Co'ning Fiberglas Corporation study in four northern cities
(Flint, Michigan; Harrisburg, Pennsylvania; Lincoln, Nebraska; and Columbus,
Ohio) and four southern cities (Achcville, North Carolina; Little Rock,
Arkansas; Atlanta, Georgia; and Saa Antonio, Te- as) of 1,280 owners of
relatively new mo'iile homes was done in 1970.

Maintenance seemed to be a problem for about half of the owners.
Response time of dealers to f xing the initial maintenance problems seemed
to be a persistent complaint.

Although 44 percent of the owners reported their homes
to have been delivered in excellent or very good condition,
and another 34 percent said theirs had been delivered in
good or fair condition, 51 percent said they had had
maintenance problems right after moving into the ncx-J
mobile home. Most often, the problems V7ere with plumbing
(38 percent) and with furnace/heating (25 percent). In
more than half of the cases it took more than a week to
get the problem fixed. Seventeen percent said it took
more than a month to get the pro'.lem fixed and another
17 percent said the problem still had not been taken
care of at the time of the interview. ^

A mobile home resident who has resided in a mobile home for over two
years has written about his views of mobile home living:

"The Mobile Home Oxwer and the Home Ke Lives In," Urban Land,
Volume 29, No. 8, September 1970, p. 6.

1210

Our principal tro«blcs stemmed from inability to obtain
good service. Although our mobile Hottio. was not an ex-
pensive one, its price vas the typical one for the year in
which it was purchased. Most mobile homes requlr'; some
kind of servicing from time to time. There is a definite
need for more and better equipped, as V7cll as better dis-
tributed, service centers than are presently available.
Trainirg progv;'r;is for servicemen would also improve the
situation.

Obtaining numbers on mobile home dealers is diffirult. One estimate
of dealers by a dealers association was that there are around 11,000 dealers.
Yet, 800 de.'. lers account for about 65 percent of all mobile home sales.
There is no estimate of the percentage of the almost 14,000 mobile home
parks in this country which are owned and operated by dealers who only
sell mobile hr os to be used in their own parks. There is also no
indication about how many dealers offer repair ." J maintenance service, or
how r.iany dealers are trained or certified by the manufacturers v/hosc units
they sell.

2
Stephen E. Andrachek, "Two Years and Eiglit Months in a Mobile Home:

A Personal Case Study," in Housing Crisis and Response: The Place of Mobile

Homes in American Life, eds. Earl W. Morris and Margaret Woods (Ithac ,

New York, Dei'.;, tmeirt of Consumer Economics and Public Policy, Cornell

University, 1970, pp. 27 - 32.

i

I

1211

Margaret J. Drury
July 24, 1973

APPENDIX
PART II

Since time did not permit that I could cover all of my remarks about the
Brock bill in my verbal statement to the Committee, I am attaching the rest of
my coinments in this written appendix. These comments are divided into two
parts. First, general co ents and second specific notes on deletions and
clarification of words in the bill.

Title I of The Brock Bill emphasizes "safety" standards, but never
explicitly states x-zhetlier these "safety" standards include construction
standards. The bill definitely should be strengthened to include construction
standards. It does not cost a great deal more to add 2-by-4's to interior
walls so that when there is a fire or heavy wind th residents would not
have the roof cavii 3 in on them before they escape.

The bill also needs to be clarified as to whet] er it intends that all
mobile homos will have safety and constru ion standards or just those
whose loans arc guaranteed by the Federal Government. There have only been
15,000 mobile home loans guaranteed by the Federal Government since the
federal loan guarantee program for mobile homes began. This is primarily
because it takes so much time to get an application approved. Most potential
mobile home buyers are in need of immediate housing and cannot wait for the
paperwork to go through. The great m.ajority of new buyers get other
financing through the mobile home dealer.

Sectior 102(6). "I'obile homo" is defined in such a way that it is dis-
tinguished from a travel trailer or recreational vehicle on the smallest
side, but it is net distinguished from a modular unit on the largest side.

1212

The crucial difference between modular units and larger mobile home multi-
wide units seems to be wheels. This should be clarified or it will cause
trouble.

Section 103(c) and (g' . Establishing a specified date for cstablighing
new safety and construction standards is very important and the Brock Bill
wisely provides for this. I think it is important to make sure that now
research is conducted independent of the industry on its affiliates and
that the new standards are basrd on the finding of that research. It would
be too easy and certainly not wise as far as consumer safety goes to
simply adopt tho standards already established by the American Nati.-aal
Standards Institute for tht Mobile Home Industry. The reason for making
this very clear in the bill is that their standards were Oeveloped through
a lone histroy of compromise in the industry and are very poor minimums at
best.

Section 103(d). States should have minimum safety and construction
standards t .t are not lower than the federal standard, but I do not think
the Brock Bill should limit states from having minimum standards which are
higher than the federal standard. Considering the increased standards
needed because of hurricanes in the south eastern statos and the heavy snows in
the northern statts, I think that state standards for safety and construction
should be allowed to vary upward from the federal standards to take weather
conditions into consideration.

Section 103(f)(4). The issue is not "whether any standard will place
an undue financial burden upon manufacturers and distri' utors of mobile
homes" because they ultiui'tely pass increased prices on to the consumer.
Tlie issue is, can new standards make mobile homes safer than they are now
for the people x>;ho will be living in them without increasing the retail

1213

price so much that consumers in the same income brackets cannot afford them.
The distributor of new mobile home units has been profiting very well
considering the high percentage he realizes over the wholesale price of the
mobile home he sells, and the very limited service he supplies to the cus-
tomer in return. I think that distributors could stand to have their cut
reduced by 20 percent without having an undue financial burden placed on them.
If manufacturers changed their marketing practices and developed more
sophisticated marketing and management skills they could absorb 10 percent
incrcas i in cost without being hurt or raising the wholesale price of units .

If new buyers were not required or coerced by the distributor to buy
seven years of insurance at c e time when they purchase their unit and thus
have to fi'.ance this insurance, they could pay about $600 more for a better
quality and safer unit in the first place. Insurance would cos lees ovir the
lifetime of a safer, better constructed unit anyway, and there is no reason
why the consv;- r could not buy insurance on a yearly basis.

Section 104(a). It should be made very clear who constitutes "the
general public" st. no o.ie who directly or indirectly has interests in the
mobile home industr> should be considered. I think this Council should be
limited to twelve members, having si:: persons representing the general
public, three persons representing government and three persons representing
industry.

Section 106(a)(1). The Secretary should collect data from existing
sources and conduct original research for the purpose of determining the
relationship between r. ile home performance characteristics for safety
and construction as defined by the Secretary. In addition to accidents
and deaths, it could also include (C.) maintenance and (D.) durability.

1214

Section 106(a)(2). This should ir.'.;liic]o: use of existing mobile homes
for research and testing purposes; and developing cxperir.Kntal models for
developing and testinjj, new standards. New standards which are developed
ought to be tested in experimental models before they are implemented.

Secti m 107, Lines S, 9, 10, and 11 should be omitted. Tliese are not
government agencies and are too closely connected to the mobile h: le industry
to be entirely "objective." Tlie word private agencies is enough. It does
not seem fair to mention too particular agencies.

Section 108(4) (d). More exacting guidelintt; need to be stated for state
inspection of used mobile homes. States should be encouraged to inspect a
used mobile homes every y ar, for example. Or they should require resale
inspection as part of the legal transfer. No matter what the exact guide-
lines are, the Secretary should try to encourage consistency across states,
so that standards will be fairly uniform.

Section 109 (a) (b) . The maximum civil penalty for mobile home manu-
facturers suggested in the Brock Bill is far too low. It should be five
times that amount for eac: violation. A scries of violations should have a
maximum penalty of at least one million dollars and a time limit of a year
shoulci be placed on ti c maximum for a scries of penalties so that no one
manufacturer can reach the maximum and then consider itself able to do
anything without fear of penalty. The mobile home manufacturer should be
required to have a bond to insure that he pays for these violations.

Section III (a) (b) . The section on noncompliance wiLh standards as it
is set up now only deals with protecting the distributor or deal'iir when
the manufacturer sells him a mcbile home unit which is determiiied not to
conform to standards, or contains a defect which relates to mobile
safety. It does not protect the consumer who h. bought a mobile home which

1215

does not conform to standards or contains a defect which relates to safety.
The bill does not give the Secretary authority to order the mobile home
manuf.-.cturer to n air or recall, at the manufacturer's expense, mobile homes
which have been fo 'nd to not comply with the standards or contains a defect
which relates to mobile home safety. The bill should contain this authority.

Section 113. It is not enough to simply notify the mobile home owner of
a defect, the manu "" :turer should be required to send out an authorized
serviceman to repair tlie defect, and if the defect cannot be fixed, then
the mobile home should be replaced at the manufacturer's expense.

Section 115. Add the following to the bill on Line 13. The Assistant
Secretary in charge of the Bureau shall be responsible for developing guide-
lines for states to follow in setting up local agencies, as well as offering
guidance and assistance to state agencies. The Assistant Secretary shall
be responsible for doing studies to evaluate the progrcis made by the
state ag^ ;cies .

Section 119(a)(1). A statistical compilation of the number of repairs
and recalls authorized and the numl ■ of complaints handled by the Bu; can
should also be kept.

Following is a list of words that are vague and indefinite which I
think need to be strengthened and/or defined more precisely in the bill.

1216

Pap.o No.
II
II
2

line

Present Words

;u£.rx£-t£d ClianrA.

4
4
5
5

10
II

18
19

19

29
29
32

6 substantial increase
8 practical

17 substantial

12 unreason lb le risk

14 unreasonable risk

7 appropriate

10 objective temis

15 consider relevant

16 results of the
research

15 making grants

13 testing to

8 dealer and

8,9 reasonable diligence

13 dealer

13 satisfactory assuranc

14 adequate funds

22 objective criteria

15 percent increase or more

vague; omit

vague; define in tonns of both
seriousness and cost

vague and arbitrary; define
more precisely

vaf,ue and arbitrary; define
more precisely

vague; omit

vague; define more precisely

add; consider all relevant

add; results of the new
research

add; making grants and cont: nets

add; testing new or used mobile
homes to

add; dealer or consumer and

vafjue; dctine in terms of days,
suggest lO working days

add ; or ■ onsumer

vague; define more precisely

vague; define more precisely

vague; define more precisely

1217

Senator Proxmiee. Let me ask Dr. Fosdick, in what way does the
Wisconsin law fail to be as tough as yon would like it to be?

Senator Brock said this morning that he wants a good strong law
and I agree with him. And we wouldn't want a law that would be so
strong that conformity would not be clear. In other words, we don't
want a situation where we discourage something that would protect
mobile home buyers and owners.

Mr. Fosdick. Well, a couple of things.

First of all, I think in our original draft of the bill, we did not in
fact make reference to ANSI. We would, given our experience with
our department of industry, labor, and human relations

Senator Proxmire. You are talking about the American National
Standards Institute ?

Mr. Fosdick. That is right.

We would probably prefer that the department examine the mobile
home problem and develop its own code, as it has with other build-
ing codes, because we felt this might very well be a better code than
the one developed by ANSI.

The second thing was raised by one of the other witnesses and that
is with regard to bonding.

Our original proposal included bonding to cover potential claims
should the manufacturer collapse, and also to guarantee any fines
ultimately assessed against the manufacturer, and that was negotiated
out of the compromise.

The other changes that were made were not as important to us.

Senator Proxmire. Then will you indicate in what way the Wis-
consin law is stronger than S. 1348 ?

Mr. Fosdick. Well, I think it is stronger, for one, because it has
a very strong warranty provision. It is stronger, secondly, because
it provides for revocation of the license of the manufacturer to sell
mobile homes in the State of Wisconsin, which is a very strong kind
of action that the State could take.

And I think that the manner in which the standards are to be de-
veloped will ultimately be stronger, because we specifically refer in
the Wisconsin law to the department developing standards in addi-
tion to those contained in ANSI A 119.1.

Senator Proxmire. Were you here this morning when the North
Carolina experts testified ?

Mr. Fosdick. Yes.

Senator Proxmire. Do you require the same kind of inspection in
Wisconsin, and the inspection would not be, I take it, with written
notice in advance ?

Mr. Fosdick. We require the inspection, and there is no written
notice and in fact we specify unannounced inspections in the language
of the law.

A second thing we do in that regard is tighten up third-party
regulation. We recognize that particularly with regard to mobile
homes that are manufactured in other States for sale in Wisconsin
there may be third parties. And we have provided for unannounced
inspections by State inspectors of those third-party covered plants.

Senator Proxmire. Did the Wisconsin law cover problems other
than safety problems ? Does it cover quality and so on ?

1218

Mr. FosDiCK. It is really directed at construction standards. We in-
clude therein problems of fire and other hazards to safety. But it is
directed at construction standards as a general term.

Senator Proxmire. So it would not be limited to safety
considerations ?

Mr. FosDiCK. No.

Senator Proxmire. And who pays the cost of the inspection ?

Mr. FosDiGK. The manufacturer. In fact, the program that will be
set up in Wisconsin with passage of this law is totally funded by pro-
gram revenue, with no sfeneral purpose State revenue appropriation.

Senator Proxmire. What is the likelihood of the bill which I under-
stand passed the Senate passing the State assembly ?

Mr. FosDiCK. It has passed the assembly and is currently in the
Senate.

Senator Proxmire. I beg your pardon. That is a tougher problem
then. The Senate might be a little tougher.

Mr. FosDiCK. Yes, except we have bipartisan support for the meas-
ure. The indicator we have is that when the bill came over from the
assembly, the majority leader of the Senate, who is of the opposition
party, asked that the matter be laid on the table as, in essence, a
special order of business, which means that as soon as they haA^e passed
the budget, they can take it up, rather than waiting for the normal
calendar to come up.

Senator Proxmire. When would it be expected to pass ?

Mr. FosDiCK. The budget was supposed to pass last Fridav. If it
passes todav or tomorrow, it should pass within the next 3 or 4 days.

Senator Proxmire. Good.

I have just one question for Ms. Dniry. What is the makeup of the
American National Standards Institute?

Some have charged that this is an industry-dominated body. What
are your views ?

Ms. McDonnell. I think I have worked a little more closely with
that than Ms. Drury.

There is a rather ambiguous way of setting up the ANSI Committee.
It actually started as a committee that was set up by the National Fire
Protection Association in 1937 and

Senator Proxmire. 1937 ?

Ms. McDonnell. 1937, ves. But the industry did not become inter-
ested in this committee and its code until the early 1960's.

Many of the national associations of plumbers, mechanics, and so
forth have been on that committee since 1937. About half of the com-
mittee represents industry, manufacturers, suppliers; and there are
also several insurance companies, several State officials, State enforce-
ment officials, and one representative of HUD. Then there are two
consumer representatives.

The problem with the committee that we have seen in reviewing the
minutes of these meetings is that most of the people who attend these
meetings are the industry representatives. The committee has a terrible
problem getting the two consumers there, principally because the con-
sumers, unlike industry representatives, don't have the financial
resources.

Senator Proxmire. Would it be fair or unfair to say it is industry
dominated ?

1219

Ms. McDonnell. I think it would be fair to say it is industry
dominated.

Senator Proxmire. S. 1348 requires consultation with that organi-
zation, but says nothing about other groups, such as the Center for
Auto Safety.

Do you think this approach will lead to effective standards ?

Ms. McDonnell. No. I mentioned that in the testimony, I object
to that because we think there are weak sections of the ANSI code
which must be upgraded. ANSI is not likely to be critical of its
own product. Many sources other than ANSI should be consulted
in the development of a national code. Several of the experts we talked
to, fire experts, people working on tiedown regulations, and so forth,
have been very critical of certain sections of the ANSI regulation.

In our opinion, the present bill places far too much emphasis on
input from the ANSI Committee.

Senator Proxmire. Mrs. Drury, have you proposed specific amend-
ments to provide for greater education of mobile-home buyers that
we could use to modify the language 'I It is interesting that you sug-
gested that here is one group that has not had experience in many
cases, first-home buyers. And this is different from a permanent home,
which most people have lived in before.

So it is something that does require at least some rudimentary
limited training. Do you have specific proposals ?

Dr. Drury. Yes. They are in the written testimony. ^Vhen the
manufacturers issue manuals on mobile homes when you buy a unit,
the manuals are very limited. These manuals do not have detailed
electrical wiring charts ; for example, if you call an electrician, he is
hesitant to come because he does not feel that this is his normal place
of work — he is afraid that if he cuts through a wall at a certain place,
he will hit pipes or wires he did not expect. The mobile home is not a
normal kind of a home; and without an electrical wiring plan, the
electrician is hesitant to work on it.

I think that there should be very detailed material in the manuals
about things like the plumbing system, how to clean the furnace, how
to cold-seal the roof, how to close in underneath — skirt the unit, how
to save on heat, for example.

You see, the new mobile-home owner, about half of them, are young
marrieds, and this is their first home. This is a new experience for
them. They are beginning to learn ; this is their first experience with
maintenance. They are apprentices in homeownership. They will
eventually use their mobile home experience and become owners of
conventional homes. They want to do things right in their mobile
home; they have good intentions. It is just very hard for them to find
out what to do. There is no place they can ^o to get free advice, real-
ly. The dealer is in the business to sell units, not in the business to
service them.

One of the things I think is important is there should be some way —
I know in rural areas through Agricultural Extension you get a lot of
free information — but there should be some way that any mobile-home
owner could get some one to come out to his unit and say, "Look, these
seem to be the places you will have trouble in the next 2 years ; these
are the things you should do to prevent them." Because mobile-home
units are built using different methods and different materials than

99-855 O - 73 - pt. 1 -- 78

1220

conventional construction, these residents need this special assistance.
If you treat mobile-home units well, the units might last for 15 years.
But if you do not know what to do to maintain them, they won't last
half as long. The real problem, I think, is the problem of understand-
ing how important preventative maintenance is on mobile homes. The
first time you get a leak in the roof then you have an avalanche of
serious problems that follow.

You saw in the film that the entire floor of a mobile-home unit is
often rolled out in one sheet. If there is a leak in the kitchen, it can
spread to the living room, and the floor may warp throughout the whole
unit. Because you often have this avalanche of maintenance problems,
it is very hard to stop a series of problems once they occur. But, if the
consumer knows in advance the things which might happen, or what
to do to keep them from happening, I think the units would last
longer and be of greater service to the consumer.

Senator Proxmire. Senator Brock.

Senator Brock. I have been fascinated by some of the testimony.
First, I wish to apologize for having to leave some time earlier to
testify before the Senate Appropriations Committee. You have raised
some valid points of concern, and I would like to consider them. I do
not recall in the 10 years I have been here that I have ever introduced
perfect legislation at the outset. I think I can speak for 100 Senators
in that regard. We all have some pride of authorship, but also recog-
nize there are a lot of improvements that can be made, and the purpose
of the hearing is to try to achieve the improvements before we enact
the statute. Some of your suggestions are valid and will be seriously
considered by the committee.

There are a couple of points that maybe should be mentioned. First
of all, we do try in the bill, and maybe it is not adequate, to make
provision for the educational factor, and do require a good deal more
information than is currently available in most cases with regard to
specifications and related elements.

Secondly, with regard to the inspection program in Wisconsin that
was mentioned in questioning of Mr. Fosdick, you charge the manu-
facturer $25, and my bill provided for a Federal inspection to be paid
for by the Government, of course. If the State operates out under
section 120, having met all of the required criteria, then we have
a provision for sharing 90 percent of the development costs with
the State as they design tneir own program, of inspection and
implementation.

So perhaps we are comparing apples and oranges. I am not sure
that the $25 manufacturers' fee would be applicable under my bill, but,
rather, what I am saying is, it is going to become a Federal responsi-
bility to insure that the consumer gets a quality product that is safe
and that he can live in, in security and comfort.

There are no particular questions I have of this panel. I was not
present when the group testified from North Carolina, and I was
unable to respond to their inquiries. I gather they are not here now.
Is that true ?

A Voice From the Audience. They just left. Senator.

Senator Promxire. Mr. Bono is still liere. I believe.

Senator Brock. Mr. Bono, you will have to suffer some abuse then.
I suffered some in absentia. But I would like to respond to some oi
the points raised in the paper presented. I think it represents

1221

Senator Proxmire. "Would you like, Senator Brock, to have Mr. Bono
come forward?

Senator Brock. Yes, if he wants to come forward and reply to my
critique of his testimony.

Mr. Bono. Maybe I should first point out that I was put on the
panel with two gentlemen from North Carolina, but I am from
Underwriters Laboratories, and my association with the State of
North Carolina is as one of the independent third-party agencies.

Senator Brock. It is a contractual relationship, as I gather. You
are the contractor in terms of inspection ?

Mr. Bono. We were designated and accredited by the State, yes.

Senator Brock. Then I will not be so harsh in my criticism of you.
But I think the testimony as presented, as I read it — as I said, I did
not hear it — is misleading at best. It represents at least a misunder-
standing of the clear language of the bill and perhaps worse, a some-
what demagogic approach to it.

Let me read you some statements. They say the bill, if enacted,
would circumvent North Carolina's inspection program which has led
the way in fairness in protecting the public. And they point out that
this is documented by the fact that North Carolina's program has been
duplicated in other States.

That has nothing to do with the statement, and the statement is
ridiculous on its face, and is false. Wliat we are trying to do is to pass
Federal legislation that would be at least as tough, if not tougher, than
North Carolina's but, in no way, reduce the implementation of the
North Carolina program.

"In its place, the Senate bill 1348 would allow mobile home manu-
facturers to self-certify that their homes would meet Federal
standards."

I assume they are referring to section 114. They failed to read sec-
tion 103 and section 112 and section 120. There is no self -certification
in this bill, nor will there be in any future bill we get out.

They say it is not in the public interest ; it does not provide for ap-
proval of plans by a regulatory agency. That is garbage. They did not
read section 112, 120 A, B, and C, where we clearly establish and re-
quire approval by a regulatory agency.

If the State opts out, the State agency has to meet the Federal agency
standards. In either case, it is a governmental agency that is created
by law.

"Two, there is no requirement for factory inspections to see that
construction standards are being met."

They did not read section 120 (c) and (b) because that section is
rather clear and rather specific in not only allowing but requiring
factory inspection, either by the Federal Government, if there is no
State inspection, or if the State again opts out under 120, then the in
spection must be met up to the Federal standards.

We would allow, incidentally, a continuation of the contractual
relationship with U.L., provided that the contract met the Federal
standards. That would have to be approved by the regulatory author-
ity established under HUD. They say there is* no requirement that the
State must have competent personnel. Well, that is just not so. I might
just read you the relevant section on that, section 120 (c) (4), and the
provisions as it "contains satisfactory assurance that such agency has

1222

or will have the legal authority and qualified personnel necessary for
enforcement of such standards."

That is rather clear and specific. If you want to add a word or two,
I would be delighted. But I think it is somewhat deleterious to the
legislation I have proposed to have testimony which is not factual and
not based upon clear legislative language as stated.

The whole thrust of our approach here is to pass legislation that
does what the States have not done, with one or two exceptions. And
that is, in order to have good total comprehensive 50-State safety
standards for the people who buy mobile homes, wherever they hap-
pen to live and from whomever they happen to buy. We are trying to
deal with what I call the "shade-tree"' manufacturer that exists in
some communities, that puts a stigma on the whole industry by pro-
ducing a lousy product, with inadequate wiring, no fire egress or in-
gress. That is the problem we have to deal with, and it is no further-
ance of that objective to come in with testimony that is not founded
on fact or an intelligent understanding of the bill as written.

So, without any criticism of you. Mr. Bono, you may pass that on
to jour colleagues and I would be delighted for them to respond and
their response will be considered a matter of public record and we will
have it printed in full and. if they can document or change any of the
language to improve it, despite my temporary irritation with this, I
would be more than delighted to have constructive suggestions for im-
provements and I hope that will be part of the record as well.

If you want to add anything, you have a full right to do so.

Mr. Bono. Thank you. Senator.

In the interest of public safety. Underwriters Laboratory has
served in many roles and I guess in this case we will serve as a meS'
senger for your comments to the State of North Carolina.

I do think, sir, that the intention of the gentlemen, despite the harsh
and perhaps vague language in some instances in their testimony—
and I have not read it — the intention in talking about "self -certifica-
tion" probably has to do with that phase which we normally call the
initial engineering investigation, rather than the followup inspection.

We have two distinct activities in the whole process of regulating
mobile homes, and the concern was that your bill depends upon a self-
certification by the manufacturer, solely for this engineering investi-
gation phase, not the followup inspection. I believe the followup in-
spection is very clearly stated in the bill.

Senator Brock. Well, perhaps we are engaged in a semantic mis-
understanding rather than a qualitative or substantive disagreement,
because it is my intent with the factory inspection, which goes from
its first 2 by 4 coming in the door at the front end until it comes out
as the finished product that the process be subject to inspection.

The mobile home manufacturer's have taken the lead in this partic-
ular area, they have asked for national standards and they have said
they would be more than delighted to have this kind of inspection in
an engineering sense as well as in a final output sense or inspection
if you will, if you want to call it that. And I think it is important to
note the cooperative attitude that the really fine manufacturers have
adopted in this area.

I think they have been saying, look, we do not benefit by the fly-by-
night outfits, either, we do nor benefit by being impugned by the ac-

1223

tivities of a shade-tree operator in somB backlot in some State in nearby
Maryland, perhaps, obviously not in Tennessee. 1 think what we are
saying: is we all are in agreement that we need Federal standards, and
they must be not only firm and adequate, but they must be thoroughly
enforced, with full provisions for enforcing inspection rights from
the start.

And if we do that, Ave have gone a long way toward reducing the
problem.

Mr, Bono, Yes, I heartily ajrree with both of those statements, Sen-
ator, with respect to the needs for enforcement, and certainly with the
statement that manufacturers as a whole have cooperated a great deal
in asking for that form of legislation.

During my testimony, I pointed out that Underwriters Laboratories
has established an inspection ser\ice in 226 mobile home plants. Many
of those plants produce mobile homes for shipment into areas where
there is no requirement for regulation.

These manufacturei-s have voluntarily asked for an independent
third-party audit in their plant.

Senator Brock, I think that demonstrates an integrity on their part
that is not only forthcoming Ijut is very important to all of us,

I have one question for Mr. Fosdick, and I think it is something
we talked about several times, but the chairman asked me to ask you,
on the question of Federal preemption of State law has been raised
several times this moniing and he would like, as would I, your view
on the matter. Should State biAv prevail over Federal or should there
be a single standard ?

I have my own answer- that 1 have previously stated, but I would
like yours,

Mr, Fosdick, I think I recognize some of the problems that would
result from developments of a Federal minimum, or floor, and then
allowing the States to have stronger standards.

At the same time, I think the effects of the alternative are to the
advantage of the Federal Government and to the people of the country
as a whole. Wliat would happen if the Federal Government passed
a law, setting certain minimum standards and then permitted the
States to develop more stringent standards, there would be an impetus
for stronger and stronger standards in the industry.

For example, if Wisconsin has a stronger standard than the Federal
minimum, there would be some inclination on the part of some manu-
facturers in ]Minnesota, for example, to build to Wisconsin standards,
and they will have both Federal certification and certification for sale
in Wisconsin,

So we feel a stronger standard would be advantageous. It would also
permit States to explore stronger standards that might subsequently
be adopted by HUD.

So, I think we are in favor of it.

Senator Brock. As a longtime advocate of States rights and respon-
sibilities, I am sympathetic with what you say. I think there are a
couple of problems I see and one is the fact that the standard for Wis-
consin, obviously would be different from the standard for Florida.

You do not have any roof load to carry in terms of snow in Florida.
So that might pose some difficulty. I am not quite sure that I have an
ultimate answer to the question. My own personal feeling is that we

1224

should write a bill that is adequate to the need of the 50 States and
that means tliat we might write a bill that is tougher than the Wis-
consin law,

Mr. FosDiCK. That Avould be fine with us.

Senator Brock. But I do not think it would bother the manufac-
turers that much, as long as they had one standard to build by.

You run into very high manufacturing costs when you have to
change the design of the product for each market.

Frankly, I think it is in the interest of the consumer to have one
standard that is so good that it would be perfectly adequate to Wiscon-
sin, perhaps a little more than adequate for Florida, but in total terms
you have something that is adequate for all.

Mr. FosDiCK. I think it is worth noting in that regard that the manu-
facturers are currently building to more than one standard in some
States. Some States have what is referred to as "dumping legislation,'"
which permits the manufacturers in that State to build to one standard
for sale of mobile homes in that particular State and to another stand-
ard for manufacture of homes that are going to be sold in another
State. So, for example. Iowa builds, that is, some of their manufac-
turers build, homes to one standard for sale in Iowa and to another
standard for sale in Wisconsin. One of the provisions of the Wisconsin
law is that homes manufactured or sold in the State are subject to the
standards, so that we are not going to be exporting, hopefully, any
substandard homes either.

Ms. McDonnell. I wanted to make a comment. Senator Brock.

I do not think that having this diversity of standards would be as
difficult for the manufacturers to comply with as has been implied
today. There are 800 plants. 800 mobile home plants and most of them
do not ship their homes any more than 250 miles from the factory to
the dealer. I think you find, even with large manufacturers, who have
many plants around the country, that individual plants are fairly
autonomous. They have different models that they produce although
often the difference between models is just a difference in floor plans.
I think diverse State standards might be easier to implement than
has been suggested, since there is so much diversity and localization
of the industry itself.

Senator Brock. I can understand that. But I see the problem as a
little different. Let us look at a manufacturer with eight plants in
say eight regions of the coimtry, all manufactured under one brand
name.

Ms. INIcDoNNELL. That would be hard to find, I think.

Senator Brock. As the industry grows, I think that it is quite pos-
sible, as a matter of fact, predictable that you will have manufacturers
in these circumstances. It is not today, but it will get more so. Now,
if that manufacturer is building a unit to one standard in Tennessee
and another in Nebraska, another in Wisconsin, another in Florida,
what happens when his Wisconsin purchaser, to take an extreme
example, sells his unit in Wisconsin and goes to Florida and says :

Say, you have given me a shoddy product down here, it is not the same unit
as I bought in Wisconsin, it is made to entirely different standards. I have not
got enough structural support in the roof, I do not like that. You know, all kinds
of things. It looks to me like you are just asking for trouble.

1225

Ms. McDoxxELL. Supposedly, the Federal standard would establish
satisfactory minimums for such things as the structural stren^h of
the roof and so forth. Also I doubt that the consumer would be aware
that the roof of his Florida home is not as strong as the one he left
in Wisconsin.

Senator Brock. I think we underestimate the sophistication of some
consumers. There are some that will come drooling all over your back
if you have not done a decent job and I don't blame them. I think
it is a matter of some debate. It is just something that is of interest to
me. I have not quite resolved in my own mind — I would tend to
think that I would rather see tougher national legislation that goes
somewhat above the minimum standards that you objected to in a
heok of a lot of States in order to have more uniformity and a guaran-
tee that wherever a person buys his home, wherever he happens to
take it and wherever he happens to buy a second one, he has some
confidence that he is buying a product that he can live with.

We will debate that in the committee process. I do not have any
further questions.

We will conclude this session. The Subcommittee on Housing will
recess until Friday at 10 a.m. and the full committee wil convene
tomorrow morning at 10 a.m.

We thank you very much for your testimony.

[Whereupon, at 1 : 25 p.m. the subcommittee adjourned until Fri-
day, July 27, 1973.]

1973 HOUSING AND URBAN DEVELOPMENT

LEGISLATION

FRIDAY, JULY 27, 1973

U.S. Senate,
Subcommittee on Housing and Urban Affairs,
Committee on Banking, Housing and Urban Affairs,

Washmgton, D.C.

The subcommittee met at 10 :15 a.m., pursuant to call, in room 5302,
Dirksen Senate OfSce Building, Senator John Sparkman, chairman
of the subcommittee, presiding.

Present : Senators Sparkman, Cranston, Stevenson, and Brock.

The Chairman. Let the committee, come to order, please. We have
quite a long schedule today, so we will move right along on it. Our
first witness this morning is our colleague on this committee, the
Honorable William E. Brock, Senator from Tennessee. Senator Brock,
we are very glad to have you. And may I say for the benefit of Senator
Cranston and other members of the committee, we promised to really
put him on the griddle. He does it, as you know.

Senator Cranston. All right, I have some good tough questions.

Senator Brock. I will be delighted to be put on the griddle for
this, Mr. Chairman. With your permission I will submit a full state-
ment for the record.

The Chairman. Very well.

[The complete statement follows as though read:]

STATEMENT OF BILL BROCK, U.S. SENATOR FROM
THE STATE OF TENNESSEE

Senator Brock. Mr. Chairman, thank you for the opportunity to dis-
cuss S. 1604, my bill the "Fair Housing Opportunity Act" to prevent
discrimination on the basis of sex in housing by amending the 1968
Fair Housing Act. S. 1604 is a companion measure to my bill originally
introduced as S. 1605 and incorporated as title III of S. 2101 which
passed this week.

A number of cases have come to my attention in which a wife's in-
come has not counted toward purchase of a home. In other cases, a
woman's income has not been counted toward home improvement
loans. I have even seen examples where a family could not rent a
suitable dwelling, because the wife was the chief wage earner, for
example, and the husband was in school.

In addition, difficulties in the mortgage lending area, women do face
a problem with regard to access to housing. This legislation is needed
not only to assure that women have access to mortgage credit, but that
women are not subtly denied opportunities to purchase homes or rent

(1227)

1228

dwellings. For example, a real estate agent knowing that a credit-
worthy woman will face difficulty in obtaining a mortgage on account
of her sex will tend not to view women as viable potential customers
and will discourage an active search for a home purchase.

In the area of rentals, the denial of access has been more evident.
There has often been an informal practice of failure to rent to single
women (and single men, for that matter) on the basis of assumptions
about their reliability in performance of their duties under their leases.

Five years ago when the Fair Housing Act was passed, what prob-
lems that were recognized in this area were seen as individual rather
than systematic. In the years since the passage of the act, it has become
increasingly evident that prohibition against discrimination on account
of sex should have been included in the act, and I now seek to remedy
this omission. For example, the Department of Housing and Urban
Development's (HUD) Fair Housing Office took an informal survey
during several months of 1971 and the early part of 1972. This study
from June 28, 1971, through February 22, 1972, included a total of 709
calls. As HUD has pointed out this is by no means a complete study
because letters alleging this type of discrimination have also been
received at the central office, and both letters and telephone calls are
also received at HUD's regional and area offices. (See appendix A.)

Recognizing these problems, a number of States now have provisions
similar to the one I am proposing in their laws prohibiting discrimina-
tion in housing on account of sex. These States include Alaska, Colo-
rado, Deleware, Hawaii, Idaho, Indiana, Maryland, Illinois, Massa-
chusetts, New Jersey, New Mexico, New York, Pennsylvania and
South Dakota.

DISCRIMINATION IN MORTGAGE LENDING

While the line of distinction between denial of access to housing and
denial of mortgage credit is a subtle one, the two types of discrimina-
tion serve to reinforce one another. Let me turn to some of the cases
that have come to my attention. In testimony before the National Com-
mission on Consumer Finance, we particularly noted that single
women have trouble obtaining mortgage credit. A variety of lender
prejudices have resulted in single women traditionally being unable to
obtain mortgages to buy real estate. Lenders have gone to such lengths
as to worry that single women could not perform the necessary repairs
to maintain a property. Yet, how many otherwise creditworthy single
men, when applying for a home loan, have ever been questioned about
their carpentry, plumbing, or electrical ability? The assumption that
men could perform these tasks while women could not is just the sort
of discrimination based on sex that we are talking about. A judgment
based on the ability of the applicant of either sex to pay for necessary
maintenance would be much more to the point, but women are fre-
quently denied even the most cursory examination of their means.

This exchange between a bank and potential customer is typical :

Saturday morning, August 28, I spoke to a loan officer, Mr. Frank Cash, about
obtaining a liome mortgage loan. He gave me the current interest rate along with
closing costs, etc., and he inquired about my husband. I told Mr. Cash that I
had no husband. He then informed me that home loans were not granted to single
persons without a co-signer. I told him that a co-signer was not necessary as my
income was suflBcient to cover the loan I was asking for. He told me this was a re-

1229

quirement of the "loan committee" and there was no loan available to me as a
single person without a co-signer.

I find it very diflScult to believe that I was denied a loan with absolutely no
information about my ability to pay. Mr. Cash didn't ask me my age, about my
work record, my salary — nothing at all pertinent to the credit information
needed to obtain a loan. I was turned dovvTi solely because I am a single woman.
This is an assumption on my part. I am now asking you, formally to supply me
with the reason I was denied credit by your bank.

After sending this letter to the bank, the woman received a form
letter from the bank's president which said :

In conducting any well-organized business today, situations may arise due to
the possible absence of complete information.

Please feel free to visit my ofiice personally, at your convenience, should you
feel further discussion is in order.

When the woman called the President for an appointment, he told
her that a personal visit really was not necessary as it was a "policy''
of the loan committee and there "really wasn't anything more he
could tell her." As far as I can determine, single males have not en-
countered any such refusals, at least to determine whether or not they
might be eligible for credit.

On the other hand, mortgages may be granted if a male cosignature
is obtainable no matter what the financial status of the male may be.
The Wall Street Journal reported that a woman in her forties who,
as head of her household, wanted to buy a house for herself and her
children could not get a mortgage without the signature of her 70-
year-old father, Avho was living on a pension. There is no evidence
that single men in like situations have been required to obtain
cosigners.

The failure to grant mortgage credit affects not only women as a
group, but families as well.

For medium-income couples seeking mortgages, the failure to count
the wife's income means that many couples who would otherwise
qualify are denied the benefits of homeownership. Mortgage lenders
tend to discount the income of married women who are regularly
employed.

In testimony before the Commission on Consumer Finance and in
press reports, a lender's "rule of thumb" has been outlined. In recent
marriages — less than 5 years — or when the wife has been working only
a short time, no recognition is given to the wife's income. With young
married couples, no matter what their background, the wife's income
is not recognized. If the wife is classified as a "professional" and is
betw^een the ages of 26 and 35, a lender may give half credit to her
income. If she is over 35 years of age, it is customary to give full credit.
If the wife is in a nonprofessional occupation, usually no allowance
is made for her income up to age 35, half allowance between ages 35
and 42, and full credit beyond that age.

These customs in relation to wives' incomes seem to be motivated
by the presumption that women are likely to become pregnant, and
if they do, that they will necessaril}' terminate employment. The
specter of ]Dregnancy has governed much of the reactions of the bank-
ing industry in connection with counting a wife's income. In testi-
mony before the Commission on Consumer Finance, Sharyn Campbell,
an attorney representing the Women's Legal Defense Fund, presented
evidence that banks have required letters from doctors or affidavits

1230

concerning birth control methods employed, or doctors' letters attest-
ing to sterility, worse yet, in one case a couple \Yas asked to assure
that the wife would have an abortion before her income would be
able to be counted.

I regard inquiries along these lines a serious invasion of personal
privacy, and yet, in the past, couples needing loans have had little
choice. On the other hand, I have heard no evidence presented showing
that married couples tend to default on their loans when the wife
bears children.

Family planning is a widely recognized concept in our modem
society, and even when women do become pregnant there are many to
whom motherhood and employment are not mutually exclusive. As
a matter of fact, the lower- and middle-income families most need
to count the wife's income in order to enjoy the tax advantages and
benefits in community stability and community identification asso-
ciated with homeownership. In this sector of the society, according
to Labor Department statistics, married women are much more likely
to continue working, yet it is these families that are hurt most by the
idea that motherhood wdll terminate employment. Moreover, increas-
ingly many women are working out of preference after the birth of
their children. Today, more than 30 percent of the married women
with children under 6 work.

Although in the past, pregnancy was often a reason women dropped
out of the labor force, indications are that increasing numbers of
women are choosing to combine motherhood with outside employment.
In recognition of this fact, the EEOC guidelines issued under the
equal employment opportunity law required that childbirth be treated
as any other temporary disability, from the employer's standpoint.
Thus women will not necessarily be faced with loss of job due to preg-
nancy should they need or wish to continue working.

In reviewing the question of equal access to mortgage lending and
to housing, it has been brought to my attention that the several Fed-
eral agencies responsible for enforcement of the Fair Housing Amend-
ments of 1968 have not been clear about their authority to extend the
coverage of these provisions to prohibit discrimination in the basis of
sex. The Fair Housing Amendments of 1968 prohibit discrimination
in the sale and mortgage lending on the basis of race, color, religion,
or national origin, but not on the basis of sex. For example, the Fed-
eral Deposit Insurance Corporation held hearings on the issue in
December and has not yet reached a resolution of the question.

I have received letters of support for this legislation from some of
the agencies and organizations involved. In a letter of June 22, the
Federal National Mortgate Association stated :

The Federal National Mortgage Association has long followed the policy that
invidious discrimination in the availability of housing or housing finance on
the basis of any immaterial consideration is to be avoided. Among immaterial
considerations, of course, is the consideration of sex. We therefore have no
problem at all with, and fully support S. 1604, which adds sex as a proscribed
basis of discrimination under Title VIII and IX of the 1968 Civil Rights Act.
We likewise have no problem with, and fully support. S. 1605 insofar as it would
prohibit discrimination on account of sex in the granting of consumer credit

In addition, some agencies have taken steps to end discriminatory
policies. This week the Veteran's Association announced a new policy
of counting wive's incomes in full in mortgage loans.

1231

While it is my view that sufficient legal authority is probably avail-
able to the agencies to prohibit discrimination on the basis of sex,
the amendment I offer here should remove any remaining doubt on
this question. In testimony before hearings on this issue held by the
FDIC in December 1972, Mathew Hale, general counsel for the Amer-
ican Bankers Association, argued couA-incingly that if Congress wished
to insure that discrimination based on sex m these areas were pro-
hibited, that Congress should legislate specifically in these areas, I
seek here to remedy this legislative oversight by the proposed amend-
ment wliich adds prohibition against discrimination on the basis of
sex to the provisions of the 1968 Fair Housing Amendments.

TELEPHONE COMPLAINTS AND INQUIRIES BY WOMEN TO HUD'S FAIR HOUSING OFFICE

Subject of call

1.— District of

Columbia area and

long distance calls

received on HUD

"hotline" (special

toll-free line for fair

housing complaints)

June 28, 1971

through Feb. 22.

1972

II.— Calls received
from District of
Columbia area
w/omen on regular
HUD office tele-
phone (not part of
"hotline" cam-
paign) Aug. 10,
1971 through
Feb. 22, 1972

>8
3 35

M8

28

«11

M3

5

18

5

15

6

7

4

5

4

124

9

188

35

116

40

577

132

Discrimination because of sex

Discrimination because of marital status

Discrimination against children (including limitations on children of same

sex sleeping in same room)_ _

Discrimination agains w/elfare recipients

Age discrimination (primarily against those under 21)

Economic discrimination (including insufficient income, poor credit rating,

etc.)

Discrimination against students...

Discrimination because of pets

General information and assistance

General complaints (including evictions; rent increases; minority lease

problems; being over income for public housing; other)

Valid complaints under the Federal Fair Housing Law (title VIII, 1968 Civil

Rights Act) .-.

Total

Grand total of "hotline" and regular calls

709

' Includes: 1 complaint of discrimination because of sex plus age and marital status; 1 complaint of discrimination be
cause of sex plus age; 2 complaints of discrimination because of sex plus marital status (note that sex discrimination
was given as the major complaint in each case).

- Includes: 1 complaint of discrimination because of sex plus marital status (sex discrimination was given as primary
problem).

3 Includes: 5 complaints of discrimination because of marital status plus children; 1 complaint of discrimination be-
cause of marital status plus possession of pet; 1 inquiry about discrimination because of marital status and age (note
that marital status was given as the major complaint or problem in each case).

* Includes: 1 complaint of discrimination because of marital status plus welfare status; 1 complaint of discrimination
because of marital status plus possession of pet (marital status was given as major problem).

5 Includes: 1 complaint of discrimination because of children plus marital status; 4 complaints of discrimination be-
cause of children plus welfare status (note that children were given as the major problem in each case).

5 Includes: 1 complaint of discrimination because of children plus income problems (children were given as primary
reason).

' Includes: 1 complaint of discrimination because of welfare status plus marital status (welfare status was given as
primary problem).

Note: Not all callers could be identified by sex from HUD records— callers who didn't leave names. Also note that most
calls were from individual women, though some came from both couples.

Senator Brock. I am testifying on behalf of my bill, S. 1604, which
relates to discrimination against women with regard to housing, mort-
gage credit, and the like. And in effect, it is a companion bill to S. 1605,
which was incorporated in the recently passed bill that was, I think,
unanimously adopted by this committee, and

The Chairman. Adopted by unanimous vote, and passed the Senate
by unanimous vote.

1232

Senator Brock. That is what I meant.

The Chairman. You know, we had two bills within the last 2 days
passed unanimously. You are aware of that, I am sure.

Senator Brock. That shows the quality of the legislative output of
the Banking, Housing and Urban Affairs Committee, Mr. Chairman.

The Chairman. You may remember that last year we passed that
big housing bill with just one opposing vote.

Senator Brock. I remember that very well. If I can briefly summar-
ize what we are trying to do is to deal with discrimination on the basis
of sex in housing by amending the 1968 Fair Housing Act. And last
year when I served on the National Committee on Consumer Credit,
we had a number of cases, both before and subsequently, in which a
wife's income was not counted toward the purchase of a home, or a
woman's income has not been counted toward home improvement loans.
I have even seen examples where a family could not rent a siutable
dwelling, because the wife was the chief wage earner, for example, and
the husband was in school.

In addition, difficulties in the mortgage lending area, women do face
a problem with regard to access to housing. We have so many situations.
For example, a real estate agent, knowing that a creditworthy woman
will face difficulty in obtaining a mortgage on account of her sex, will
tend not to view women as viable potential customers and will dis-
courage an active search for a home purchase.

In the area of rentals, the denial of access has been more evident.
There has often been an informal practice of failure to rent to single
women on the basis of assumptions about their reliability in perform-
ance of their duties under their leases.

Five years ago when the Fair Housing Act was passed, what prob-
lems that were recognized in this area were seen as individual rather
than systematic. In the years since the passage of the act, it has become
increasingly evident that prohibition against discrimination on account
of sex should have been included in the act, and I now seek to remedy
this omission. The bill we have before us is very similar to provisions
of law made by a number of States, such as Alaska, Colorado, Dela-
ware, Hawaii, Idaho, Indiana, Maryland, Illinois, Massachusetts, New
Jersey, New Mexico, New York, Pennsylvania, and South Dakota.
Those are the ones I know of that have laws prohibiting the discrimi-
nation on account of sex in housing.

Now, in essence, that is the sum and substance of the bill. It is a very
simple amendment, but it does have other comprehensive effects, and I
would hope that in the next available opportunity of this committee,
that this matter will be considered and the amendment will be incorpo-
rated in the basic housing legislation that was voted out of this com-
mittee, at our earliest opportunity. And I think that is sufficient sum-
mary, Mr. Chairman.

If you have any questions, I would be delighted to respond.

The Chairman. I feel, certainly, we will have no difficulty with
this, because the Senate passed the other one, the committee passed
it out. Of course, it is just a part of another bill.

Senator Brock. That is right.

The Chairman. But I am very glad that you brought this up, and
I w^ill certainly be glad to support it. Senator Cranston ?

1233

Senator Cranston. The Senator's eloquent and forceful presenta-
tion answered all the tough questions I had. [Laughter.]

The Chairman. By the way, you referred to testimony before the
Consumer Credit Commission. We had testimony before this com-
mittee, you know.

Senator Brock. That is right.

Senator Sparkman. Along the same line.

Senator Brock. I appreciate your pointing that out, because the
problem is a continuing problem and I might say that if it appears
that housing legislation is going to be somewhat delayed in being
brought forth by the committee, I would hope that perhaps we could
report this out as a separate bill, if necessary. Because I think the
problem is sufficiently noteworthy and important to be deat with, and
at our earliest convenience. I know I have the support from the Sen-
ator from California on this, and similar measures. The Senator from
Alabama has well-stated his concern.

The Chairman. I would be in favor of pushing it right through to
get it on the calendar and pass it.

Senator Brock. I appreciate it, Mr. Chairman, and your support.

Senator Cranston. I cosponsor it, and I

Senator Brock. I should have mentioned that. I am sorry.

Senator Cranston. Very fine bill.

Senator Brock. Thank you very much.

The Chairman. The next witness on the list is delayed and will not
be here for a time, so we will call Mr. Charles Noon, director of
Neighborhood Development, Department of Housing and Community
Development, Baltimore, Md. We are very glad to have you, Mr.
Noon. We have your prepared statement. It will be printed in the
record. You may proceed as you see fit.

STATEMENT OF CHARLES NOON, DIRECTOR OF NEIGHBORHOOD
DEVELOPMENT, DEPARTMENT OF HOUSING AND COMMUNITY
DEVELOPMENT, BALTIMORE, MD.; ACCOMPANIED BY ROGER
WINDSOR, DIRECTOR OF THE HOMEOWNERSHIP PROGRAMS

[The complete statement of Mr. Noon may be found at p. 1243.]
Mr. Noon. Thank you. Senator. I have with me Roger Windsor,
director of the homeownership program in Baltimore. And I wanted
to thank you and the members of the Subcommittee on Housing and
Urban Affairs of the Senate Banking, Housing and Urban Affairs
Committee for the opportunity to testify on behalf of Senate bill 971,
the Home Preservation Act of 1973.

Baltimore is a city composed of many neighborhoods with fine, well-
kept homes and strong community ties. It is of vital importance to the
city's future that we preserve these neighborhoods and prevent them
from suffering the deterioration experienced by so many other urban
areas. This goal is desirable both for the welfare of the residents of
those areas who have most of their life's savings invested in their
homes and for the health of the city, which depends on the taxes from
these areas to survive. A minimal investment now of time and moneji
could prevent the major expenditure that will be necessary if we per-
mit blight to spread unabated.

1234

In Baltimore there are approximately 210,000 residential structures
and two-thirds of these were built prior to World War II. Some
116,000 of them exist beyond the central metropolitan core of the city.

Now of these residential structures, approximately 128,000 of them
are owner-occupied, and surprisingly enough — or maybe not so sur-
prising today — 1 of every 5 owners is elderly. Most Baltimore neigh-
borhoods contain substantially good residential structures marked by
isolated substandard properties. In many cases such properties are in
substandard condition either because the owners do not have access to
rehabilitation loan funds at terms compatible with their income, or
that the loan funds available at conventional rates and terms do not
provide a sufficient incentive for owners to rehabilitate housing — par-
ticularly vacant structures — in the city.

We feel strongly that the maintenance l)y owner-occupants of older
homes throughout the city has become a ciucial factor in the quality of
housing, the value of property, and the stability of neighborhoods in
our city.

While Baltimore traditionally has availed itself of all Federal pro-
grams to cope with this problem, we also recognize our responsibility
to develop and apply our own solutions.

We were the first major American city to develop a housing code and
to pioneer the use of housing courts and housing clinics as effective
tools for maintaining urban neighborhoods.

As a part of our citywide enforcement program, we have initiated a
system of patrol inspections to identify and check incipient blight.

Our homeownership development program, also unique within the
Nation, the program of which Roger is the director, has been estab-
lished to attract new owners into the city, to assist the transformation
of tenants into homeowners, and to encourage private investment in
the rehabilitation of older homes.

We have our own residential environmental assistance loan program
financed by city revenues to further spur property rehabilitation. We
originally designed this program to supplement the section 115 grant
and section 312 loan program by providing rehabilitation loans for
areas not falling within the Federal designation for rehabilitation
loans and grants.

Our efforts to control the problem of abandoned houses in Balti-
more can be gaged by the results of our yearly vacant house survey,
which monitors the number of vacant houses in the city.

In fact, Dr. George Sternlieb of the Center for Urban Social Sci-
ence Research of Rutgers University has said that Baltimore is prob-
ably coming to grips with this situation better than most cities, and
that this survey provides "harder" data than most cities can provide.

We in Baltimore have a little over 5,000 vacant homes, and this fig-
ure, he says, compares favorably with the totals listed in my state-
ment from other cities.

We are not here talking about something we are not familiar with.
Sternlieb said that people today are looking to Baltimore for leader-
ship in the solution of problems in housing. We feel that the care and
maintenance of residential structures and neighborhoods is a broad
and vital problem area. We firmly believe that the Home Preservation
Act of 1973 offers opportunities for solutions to people and property
problems not heretofore available.

1235

We recommend some minor changes to the bill, but we wholeheart-
edly support its enactment. Its major thrust and spirit addresses and
helps to correct many of the contemporary problems in this area.

Title I allows FHA insurance to be used to obtain refinancing neces-
sary to stretch out existing mortgages, and in this manner provide
money for home repairs without increasing the property owner's
monthly housing expense.

In Baltimore City during the past fiscal year, over 14,000 violation
notices were issued in an outer city inspection program and already
in over 10,000 of these cases the notices have been abated. We mean
what we are doing. We realized that it was causing a financial impact
in many cases, and we set up a special hardship committee to review
some of these. And already, although we have not gone through some
2,500 still remaining, we have isolated 141 instances where the effects
were so serious that enforcement of the notices has been suspended.
In those cases, because we are trying to find tools to assist these people,
we have stayed housing court enforcement.

Based on this experience, we feel that assistance such as that
offered by this title will be necessary for many homeowners to accom-
plish the interior and exterior home maintenance that is essential
to the stability of their neighborhoods and community as a whole.

We noted with interest, however, in section 101 of this bill, the
language proposed for section 244(g) of the National Housing Act:

In carrying out his functions under this section, the Secretary shall use his
best efforts to enlist the support and cooperation of State and local govern-
ments in establishing and maintaining programs * * *

We feel that consultation and coordination by the Secretary with
concerned State and local governments and/or agencies should be a
prerequisite to the implementation of any programs to be established
under this section. Such prior consultation and coordination we be-
lieve is essential to the full and effective utilization of the authority
contained in this bill.

Title II is specifically designed to assist the elderly or handicapped
homeowner. In Baltimore, as we stated earlier, 1 out of 5 homeownera
is elderly. Forty-two percent of the elderly homeowners in Baltimore
City represent households with a total income below $4,000 a year.
This represents over 10,000 households.

Further, it is estimated that almost 9 percent of all elderly Balti-
more homeowners occupy deficient housing, that is, structures in
deteriorated or dilapidated condition.

Consideration of their problems should also recognize that the
burden of home repairs and maintenance, property taxes, and illness
is much more significant for them than it is for the rest of the popu-
lation. So we would really welcome the type of assistance being
proposed.

In section 201(d) 2, we advocate a broadening of the powers of the
Secretary to include the authority under certain circumstances to
waive all or a percentage of the created lien, because we feel this
flexibility would be both valuable and justified in view of the pos-
sible downward fluctuation, over a period of several years, in the
market value of the improvements made to a property. There may be
a downward trend on some of these houses, and if you have a lien
against an elderly homeowner, in 5 years the lien could still be $4,000,

99-855 O - 73 - pt. 1 -- 79

1236

yet the property value could have deteriorated because the market
conditions changed. And if the Secretary does not have the ability
to reduce or waive this lien, we might even cause more trouble for the
homeowner.

We consider the periodic payment assistance provision of title III
a welcome new and direct approach to the problem of mortgage de-
faults. Unchecked this is going to go on until the Nation is going to
be in very serious shape.

We endorse the repair and improvement loans provision, because our
experience indicates that title I FHA rehabilitation loans are generally
unavailable in Baltimore at this time. We understand that there are
many reasons for this ; however, it is our belief that these could be best
explained by representatives of the lending industry- and thus we
would not speak to this matter.

Section 403 under title IV makes provision for the possible transfer
to mortgagees of the processing of mortgage insurance applications.
We favor this because our experience indicates that there lies within
the mortgage lending industry substantial expertise that the existing
procedure requires to be duplicated at Federal expense. Perhaps with
proper monitoring, such transfer would permit reduction of these
costs, while at the same time eliminating the processing delays which
have been a seiious longstanding objection to Federal housing pro-
grams. And any reduction of processing time could tend to curtail
losses which result from vandalism occurring during the period of
delayed processing.

We have not attempted to address in detail all the provisions of this
bill, but rather to share our reasons for endorsing its enactment based
on our experience of the housing situation in Baltimore city. That is
where we must speak. There we are experts. We urge you to strengthen
the provisions relating to the relationship between the Secretary of
Housing and Urban Development and those State and local agencies
concerned, because we feel that the utilization of these new resources
can be further enhanced if consultation and cooperation between the
Secretary and those city and State agencies can be accomplished both
prior to and during the implementation of flexible and coordinated
programs.

There are some technical revisions that probably would be necessary,
but the people in Baltimore, our staff in Baltimore would be glad to
work with any of the people on your staff to help on this. We thank
you very much.

The Chairman. Thank you, Mr. Noon. That is a very encouraging
statement on the things that you are doing in Baltimore, and it seems
you are setting a good pattern for the country.

Has the city developed any particular program to educate or con-
sult with homeowners to enable them to get adequate rehabilitation?

Mr. Noon. Yes, sir, as part of our own city loan program, we are
providing the same assistance we gave under the 312 Federal pro-
gram— financial advisers, housing estimators, even what we call spe-
cialists. They are housing specialists working in our inspection force
consulting with tenants and homeowners and Roger can speak to that.

Mr. Windsor. What we are doing throusrh our program we feel is
unique, because we are providing counseling services and advice to
persons who are either homeowners today or persons who are inter-

1237

ested in becoming homeowners in the city. We are working with them
not only in the acquisition phase of the house, but also working with
them with rehabilitation. We have available to us as part of the De-
partment Mr. Noon's stall'. We also are coordinating in many instances,
the relationship between the homeowner, the contractor, and the in-
spectional personnel of the Department. 1 might point out that we feel
that one of the most significant features of the bill is the provision of
rehabilitation funds because that has been one of the major problems
in Baltimore, the availability of rehabilitation financing.

The significance of a house that is in a deteriorating condition goes
far beyond the walls of that house, because of the lending practices
that generally prevail, I believe, in most areas of the country. One
poor house or several poor houses in a neighborhood have a tendency
to pull down the values of all houses and have an effect of suppressing
the market, which in turn has a negative effect on the availability of
funds for mortgage or rehabilitation.

So we feel the general thrust of this bill will have a multiplier
effect in respect to improvement in the general conditions in cities and
other areas of the country. Also, we feel that the refinancing aspect is
very good because many times the homeowner is faced with going out
and paying a higher cost for rehabilitation money or going out and
really having difficulty finding if there is a mechanism available for re-
financing. We feel that will go a long way toward solving the avail-
ability of money problems.

We also feel that the provision of the bill that will permit the de-
faults to be cured by direct loans of money on behalf of the mortgagor
is a very important feature. We have a great deal of experience in our
program with that problem. Many times it does cause the home buyer
or the mortgagor to ultimately let the house go because he just can-
not come up with the money at the time, due to prevailing unemploy-
ment or sickness or some other reason. And as ]\fr. Noon mentioned,
more times than not this is the elderly homeowner.

So we feel that with this provision we can work toward the solution
of this problem on a short range basis to give us time to work out the
long range solutions. If there is no forbearance on the part of the
lenders, we are in trouble, because there is not much else we can do.

The feature permitting processing by the lenders, we feel is a very
good one. I manage, in addition to the other activities of the program,
a 400-unit 235 rehabilitation project in Baltimore. One of our experi-
ences there is the drawn out time it takes to process a buyer from the
point of application to actual occupancy of the house. We have been
fortunate working with the Baltimore area office of HUD on a pro-
cedure whereby the lender or the mortgagee and our department and
the local area office can work toward a speedy processing of the
application.

But again, this is a special circumstance because of the nature of
this project. I feel that to encourage processing or additional process-
ing by the lender is good, because many times we go through the same
steps with the mortgagee, as with the local area office when they review
the application. So we do encourage that provision and endorse it.

The Chairman. We had experience with FHA mortgagees doing
the underwriting, but had to withdraw the authority because of the
failure of the mortgagee doing a good job. Have you had any experi-
ence of that kind ?

1238

Mr, Windsor. No, sir, I have not had any personal experience in
Baltimore with that. In fact, we have, on several projects in which
I am directly involved had the opposite experience. FHA has been
able to generally rely on the processing by the mortgagee. Many times
thp mortgagee is making the determination prior to submittal as to
whether or not the applicant is qualified for the loan. We have had
a very good experience with this approach.

Mr. Noon. I would like to say also that many times in the Govern-
ment and other areas, we are trapped. We get a good process or pro-
gram and it fails in the initial execution because of a lack of followup
or a lack of initial check, and then we throw the whole program out
and look for something new. I think some of these failures come about
because possibly we were not alert enough.

Perhaps if FHA had worked in concert with the local area, and we
had better monitoring of these things in the beginning, we would find
the shortcomings and get them corrected immediately and let them
move ahead with the problem, instead of throwing the whole thing
out.

The Chairman. We are going to move pretty fast on this. That is
rollcall. We have to go in just a few minutes to vote.

Senator Cranston. I would like to vote and then come right back,
and I will ask some questions.

The Chairman. I will stay on until five bells to recess until you get
back. If you have rehabilitated property that you are selling to home-
owners, have you had any trouble with defects in those homes?

Mr. Noon. We have not. Senator, because again in Baltimore we
ourselves, the city of Baltimore, inspect that property.

The Chairman. You have adequate inspection ?

Mr. Noon. That is correct, and I think that is the key.

The Chairman. And appraisal ?

Mr. Noon. Yes, we have inspection and in the program such as
Roger talked about, yes, we do the appraising. And we insist — we are
at the present time now inspecting all sales property for FHA prior
to the commitment by FHA.

The Chairman. We were out in Chicago sometime back dealing with
that problem and we found some miserable housing in which there had
been — to me it seemed — a complete failure on inspection and home
appraisal that the property was sold to these people. And then the
defects showed up. Nobody seemed to be responsible — I mean legally
responsible. The mortgagee, the real estate man, the FHA, everyone
disclaimed responsibility,

Mr, Noon. And those situations

The Chairman. We saw housing in unbelievable conditions.

Mr. Noon. I know that has occurred in several areas throughout the
country. But this is a situation where thei'e was not sufficient monitor-
ing and followthrough on the part of the local agency and possibly the
Federal people concerned. We feel it is our responsibility. We have
had less than one-half of 1 percent default.

The Chairman. What do you do in a case of that type ?

Mr. Noon, Where we find this sort of shoddy work ? In the work we
do in Baltimore we set up the draws for the contractor. Contractors
are screened by us when we are involved. We have a list of contractors
who are reliable, licensed, have no past record of shoddy work that

1239

we could find. We make this list available. If a contractor is on that list
and he does not perform, we removed him from our list. We are very
hardnosed about this. We are out inspecting and if the contractor
doesn't do the work, he doesn't get a draw until the work is done to our
satisfaction and to the homeowner's satisfaction.

We also make them guarantee that work for 1 year beyond the com-
pletion date. It is a question of being hardnosed with the contractors
and the people involved. Watching the program.

The Chairman. Watching its ahead of time and during the time
that it is being rehabilitated and each step involved in the transaction.
Xow how do you coordinate with the FHA in that regard? Do they
notify the city of a pending FHA commitment ?

Mr. Noon. Now they are coming to us and asking us — we make in-
spections for them prior to FHA commitments on any sales contract.
That is one of the reasons I said we need more liaison and coordination
with the local HI"D offices, because unless we are involved directly as
a city agency, such as in the 235 program, we had no authority or
control. FHA was dealing directly with the developer. The only way
we could exercise control was by going in and making inspections on
city authority, which we did, but of course, that is too late. We can
only inspect the property as it goes into occupancy and it is too late
for us at that time.

The Chairman. What do you do in the case of those you don't have
a chance to

Mr. Noon. Well, we will refuse to issue a certificate of occupancy
for that property, so the developer can sit with it until he fixes it, fixes
the deficiencies.

The Chairman. Then what happens to the property ?

Mr. Noon. If we refuse ?

The Chairman. It stays with FHA ?

Mr. Noon. With the developer or FHA until the property is fixed.

The Chairman. I feel very strongly that we need legislation that
will require — let me start this way — require a liability for anything
that goes wrong with the property that should have been discovered
through inspection or through appraisal. And that liability rests pri-
marily with FHA. And FHA should make certain that the real estate
man that is selling the house, the contractor that does the work all
have discharged properly their work as they move along. Would you
agree with that ?

Mr. Noon. I agree.

The Chairman. And we need it nationwide, not just in Baltimore.

Mr. Noon. That is right.

The Chairman. Thank you. I am sure Senator Cranston would
like to ask some questions. So if you will just remain until he gets
back. And I will take my leave now, because we have just a few
minutes to get over there.

Mr. Noon. Thank you for your courtesy, sir.

The Chairman. We stand in recess until Senator Cranston returns.

[Whereas, at 10:40 a.m. the hearing was recessed, to reconvene
upon the return of Senator Cranston.]

Senator Cranston. The committee will come to order. I appreciate
your testimony this morning and your great interest in this legisla-

1240

tion. I do have some questions. You believe that FHA insured pro-
grams would be used with refinanced mortgages in the inner city?

Mr. ]S ooN. Yes.

Senator Cranston. What has been your experience with FHA in
Baltimore?

Mr. Noon. I think Roger deals directly with them more than I do,
and I would prefer that he speak to that question.

Mr. Windsor. Heretofore, within that 6 months we have seen a
marked decline in FHA activity. I don't totally share. Mr. Noon's
feelings that lenders would work on refinance without the proper
incentives existing for the lenders. But we have found — we are in
the process in Baltimore of doing a comprehensive study of the
dynamics of the industry as it relates to the city — that most of the
FHA activity has been the result of the operations of mortgage
brokers as opposed to the institutional lender — the savings and loan
industry, or the savings banks that we have in Baltimore. I feel that
what has happened in recent months is due to the inability of the
mortgage broker to operate because of the interest rates prevailing
around this part of the country, the additional requirements placed
on the FHA mortgages, such as inspection provisions, and the process-
ing time involved. We have seen almost a dryup of the market for
FHA mortgages.

And yet this is clouded by the fact that the State of Maryland has
recently enacted and implemented its own insurance program that is
fashioned somewhat after the private insurance business, although
we did manage to get a hundred percent insurance provision for the
city of Baltimore. What is happening is the lenders are not even
using the local insurance provisions. So what we have seen happen in
the total marketplace in Baltimore and particularly in the inner
city areas is that mortgage money is almost unavailable at this
time.

Senator Cranston. I know that is repeated elsewhere around the
country.

Mr. Noon. I think Roger was speaking to the inner city area, and
of course, I know that in this bill we have major concern witli the
outer perimeters of the city, outside of the central core. This is an
area where there is a lot of activity going on at the moment and this
is the time that this housing needs assistance because if not it can
get like the housing in the inner city core.

Mr. Windsor. I might also mention that that whole problem is
further amplified or clouded by the fact that the State of Maryland
also recently began a direct loan program. So that the State is in the
position of mortgagee when a buyer demonstrates that he is unable
to secure mortgage financing reasonably in the marketplace. I under-
stand at the present time, that during the last 8 weeks of operation of
that program, the State has received approximately 400 applications,
and about 30 percent of those have come from the city of Baltimore.

Senator Cranston. Some observers have suggested to us that lenders
will be encouraged to reinvest in declining areas only if the area is
designated a neighborhood preservation area, or code enforcement
area or some other type that indicates that services will be really con-
centrated there. Do you think that to be successful a refinancing pro-
gram should be confined to a specific area or the lenders go on a spot-
by-spot basis, in your opinion ?

1241

Mr. Windsor. That is hard to say. I don't like the designated area
provisions too much, because, by its nature, it creates a certain stigma
on the neighborhood. And I would like to see it available on a broader
basis. It is hard to understand why the lending industry does not par-
ticipate, and my own personal feeling is that in many respects it is
because of the alternative investment that the industry has available.
One of the thrusts of our efforts is to understand what is happening
and then investigate the possibilities of either using existing regula-
tions or proposing new legislation to require the lender to participate
in the marketplace. Because when you look at certain segments of the
market, landers have been chartered to do these things and they are
not.

Senator Cranston. What role can agencies play to make the title I
work better ? Do you see a part for them in title III?

Mr. Noon. Yes. In the emergency loan situation, if there is a co-
ordination, a program would be established similar to the way we do
the 312 program, where the local agency would come in and analyze
that situation, see what has to be done and monitor the work that is
required to be done under that provision.

Senator Cranston. What about title I refinancing?

Mr. Noon. I think the same thing should occur there. I don't think
that every homeowner who wants it should get the thing refinanced.
Let the local agency come in and inspect the house and see the things
that should be done, because if you don't, some people would be build-
ing a club bar in the cellar instead of replacing wiring or plumbing.

Senator Cranston. How much are title I home improvement loans
being used in Baltimore?

Mr. Noon. Very little. There are only three institutions who are
even bothering to offer it and even though they offer it, they try to
encourage people to take out their bank home improvement loan,
rather than utilize the title I. They get a little more interest, but
there are also no checks on what the money is used for or what is done
with it. So they try to encourage that. We find very little activity in
title I.

Senator Cranston. Is it your opinion that a direct loan from the
Government for emergency repairs could be useful because first, title I
loans are not being made and also, because the assistance could pre-
vent mortgage default?

Mr. Noon. Absolutely; because at the present time, we have even
had to resort to desperate measures in Baltimore. Right now I have
the National Guard of the State of Maryland and several Reserve
units going into properties and making emergency repairs as part of
their community cooperation program, because we find homeowners
whom we can't in good conscience permit to continue to occupy their
own houses and we are having emergency repairs made.

This is very difficult, particularly for elderly people, who don't like
to have their neighbors see this had to be done.

Senator Cranston. "What minimum code standards do you think
should be required under title II, the elderly loan grant program?

Mr. Noon. In Baltimore we select the items that affect the health
and safety of the inhabitant, and they are the items that we go in and
insist upon. And I think that should be the standard, those items
that actually affect the health and safety of the occupants.

1242

Senator Cranstox. Senator Taft wanted to be here today for your
testimony and was unable to do so. And I have three questions to ask
for him. He says —

I note your comments on the mortgage extension provisions of title I. Do
you believe enough assistance can be provided in this manner or should there be
further subsidy in the battle to preserve our housing V

Mr. Windsor. Yes, I believe so; again, that is another very diffi-
cult subject to summarize in a few words. I think there must be, in
order to have it done, some greater or fuller participation by the
lending industry. I think the resources are there, and I think that
what needs to be done is to have an industry orientation for the long
term effects of making money available for refinancing, rehabilitation,
or anything else.

Mr. Noon. It has always puzzled me, and we are now beginning
to work with the industry, that the industry may carry the paper on
a great deal of housing in a particular area, and yet when we see one
house deteriorating in that area, we have to use the mechanisms that
we do to correct the situa tion of that one house.

Senator Cranston. Senator Taft's next question is:

What kind of area in your city do you think would benetit the most by this
kind of legislation? Would it mostly benefit the urban renewal areas or areas
that are less blighted?

Mr. NooN. Roger can give you his views, but I think that the areas
that are just outside the center core in Baltimore, most of them not
being urban renewal areas, would be the ones that would best be
served by this program. And these are the areas of which I spoke,
where we have 115,000 homeowners, and in which today are neighbor-
hoods that traditionally are mixed neighborhoods in our city. And
it would be — these are the areas where I would see it being the most
useful.

Senator Cranston. The final question is :

You comment in the provisions of the bill which provide Government loans
wuth deferred payments to those homeowners facing foreclosure, because their
incomes are temporarily reduced due to illness or unemployment could become
more important in the near future. Have you detected a need for it in the near
future? Would this provision be expensive or would it be more along the lines
of disaster relief, which would give absolutely vital assistance to a limited
number of people?

Mr. Windsor. I would think the latter. Senator, because many times
when counseling with home buyers that have, for whatever reason,
gotten into difficulty on their mortgage, to bring it current many
times requires them at the worst possible time in their economic life
to have to double up on payments. And this can become another
spiral where they can't do that so they let something else go and
run into credit difficulties in those other areas. Or, as in one instance,
it really meant the family was trying to maintain the house and
they were really using money that tliey would normally use for other
household operating expenses. So I feel this provision would be excel-
lent in terms of averting a disaster so to speak at a particular point
in time.

And as far as the cost of it, I don't see wliere the cost — I feel wlien
somebody is in a position where they really want to do whatever is
necessary to maintain their house, and to keep it, then loans like this,
I would feel very confident that they, in the long term, would be
repaid.

1243

[Complete statement of Mr. Noon follows:]

Statement of Chakles Noon, Director of Neighborhood Development, Depart-
ment OF Housing and Community Development, Baltimore, Md.

We certainly thank the members of the Sub-committee on Housing and Urban
Affairs of the Senate Banking, Housing and Urban Affairs Committee for the
opportunity to testify on behalf of Senate Bill 971, the "Home Preservation Act
of 1973".

Initially, we would like to convey to you that we in Baltimore feel this Act
is of great importance to the continuing vitality of American cities.

Baltimore is a city composed of many neighborhoods with fine, well kept homes
and strong community ties. It is of vital importance to tJie City's future that we
preserve these neighborhoods and prevent them from suffering the deterioration
experienced by so many urban areas. This goal is desirable for the welfare of
the residents of these areas who have most of their life's savings invested in
their homes, and for the health of the city which depends on the taxes from
these areas to survive. A minimal investment of time and money now could
prevent the major expenditure that will be necessary if we permit blight to
spread unahated.

There are approximately 210,000 residential structures in the City of Balti-
more, and two-thirds of these were built prior to World War II. Some 116,000
of them exist beyond the central metropolitan core of the City.

Of these residential structures, approximately 128,000 are owner occupied, and
one of every five owners is elderly.

Most Baltimore neighborhoods contain substantially good residential struc-
tures marked by isolated substandard properties. In many cases such properties
are in substandard condition either because the owners do not have access to re-
habilitation loan funds at terms compatible with their income, or the loan funds
available at conventional rates and terms do not provide a sufificient incentive
for owners to rehabilitate housing (particularly vacant structures) in the City.

We feel that the maintenance by owner occupants of older homes throughout
the City has become a crucial factor in the quality of housing, the value of
property and the stability of neighborhoods in Baltimore.

While Baltimore traditionally has availed itself of all Federal programs to
cope with this problem, we also recognize our responsibility to develop and
apply our own solutions.

Baltimore was the first major American city to develop a Housing Code and to
pioneer the use of Housing Courts and Housing Clinics as effective tools for
maintaining urban neighborhoods.

As a part of our city-wide enforcement program, we have initiated a system
of patrol inspections to identify and check incipient blight.

Our Home Ownership Development Program, also unique within the nation,
has been established to attract new owners into the city, assist the transforma-
tion of tenants into homeowners, and encourage private investment in the re-
habilitation of older homes.

We have a Residential Environmental Assistance Loan Program financed by
city revenues to further spur property rehabilitation. This program is a re-
habilitation loan program initially designed to supplement the Section 115 grant
and Section 312 loan programs by providing rehabilitation loans for areas not
falling within the Federal designation for rehabilitation loans and grants.

Our efforts to control the problem of abandoned houses can be gauged by the
results of our yearly Vacant House Survey, which monitors the number of vacant
houses in the city. Our most recent survey reveals that there are 5,507 vacant
houses in all categories as of the beginning of 1973.

Dr. George Sternlieb, of the Center for Urban Social Science Research of Rut-
gers University has said that Baltimore is probably coming to grips with this sit-
uation better than most cities, and that this survey provides "harder" data than
most cities can provide.

The Baltimore figures compare, he said, with 38,000 abandoned houses in Phila-
delphia, 50 to 100,000 in New York, at least 12,000 in Detroit. In Newark. 6,500
or more houses are vacant, and an additional 2,500 are being abandoned annually.
In Cleveland, about 30 percent of the homes in the Hough area are vacant.

"Baltimore it the first city to have computerized its data on the condition of
housing stock, as well as its housing inspection operations, "Dr. Sternlieb said.

1244

"This enables it to keep up with the situation day to day. People who are inter-
ested in housing problems are looking to Baltimore's leadership in this regard."
We feel that the care and maintenance of residential structures and neighbor-
hoods is a broad and vital problem area. We believe that the Home Preserva-
tion Act of 1973 offers opportunities for solutions to people and property problems
not heretofore available.

Although we recommend some minor changes to the Bill, we wholeheartedly
support its enactment. Its major thrust and spirit addresses and corrects many
of the contemporary problems in this area.

Title I allows FHA insurance to be used to obtain refinancing necessarj- to
stretch out existing mortgages, and in this manner provide money for home re-
pairs without increasing the property owner's monthly housing expense.

In Baltimore City during the past fiscal year, over 14,000 violation notices
were issued in a program directed at the exterior condition of properties lying
beyond the central urban core. In over 10,000 of these cases the notices have been
abated. Of the approximately 4.000 remaining cases, over 1.200 have been proc-
essed for Housing Court action. We realize that these notices have caused a
sharp financial impact on many owners, and as a result, certain of the remaining
cases have been reviewed by a special Hardship Committee. While only a small
number of cases involving varying degrees of financial difficulty have been re-
viewed, the committee has determined that in 141 instances the effects were so
serious that enforcement of the notices has been suspended. Based on this ex-
IRTience, we feel that assistance such as that offeretl by this Title will be neces-
sary for many homeowners to accomplish the interior and exterior home main-
tenance which is essential to the stai>ility of their neighborhoods and communty
as a whole.

We note with interest, however, in Section 101 of this Bill, the language pro-
posed for Section 244(g) of the National Housing Act : "In carrying out his func-
tions under this section, the Secretary shall use his best efforts to enlist the sup-
port and cooperation of state and local governments in establishing and maintain-
ing programs which contribute to the achievement of the pun>oses of this section".
We feel that consultation and coordination by the Secretary with concerned
state and local governments and/or agencies should be a prerequisite to the im-
plementation of any programs to be e.stablished under this section. Such prior
consultation and coordination we believe is essential to the full and effective utili-
zation (Jf the authority contained in this BilL

Title II is specifically designed to assist the elderly or handicapped home-
owner.

In Baltimore, as we stated earlier one out of five homeowners is elderly.
Forty-two percent of the elderly homeowners in Baltimore City represent
households with a total income below $4,000 a year. This represents over 10,000
households.

Further, it is estimated that almost 9% of all elderly Baltimore homeowners
occupy deficient housing, that is structures in deteriorated or dilapidated con-
dition.

A consideration of their problems should also recognize that home repairs and
maintenance, property taxes and the burden of illness all represent significantly
greater financial difficulties for the aged and the handicapped than for the gen-
eral population. In view of these facts, and bearing in mind that any homeowner's
inability to maintain his property will threaten the stability of his neighborhood
as a whole, we welcome the type of assistance being proposed.

It should be noted in regard to Section 201(d) 2, that we would advocate a
broadening of the powers of the Secretary to include the authority under cer-
tain circumstances to waive all or a percentage of the created lien. It is our belief
that such flexibility would be both valuable and justified in view of the possible
downward fluctuation, over a period of several years, in the market value of
the improvements made to a property. Waiver of the lien may well enhance
the marketability of the property at a future date.

We consider the Periodic Payment Assistance provision of Title III a wel-
come new and direct approach to the problem of mortgage defaults. Unchecked,
this problem could be an increasingly serious one in view of rapidly rising hous-
ing costs and the .skyrocketing expense entailed by prolonged illness or pro-
trated unemployment.

Further we endorse the Repair and Improvement Loans provision of this
Title. Our experience indicates that Title I FHA rehabilitation loans are gen-
erally unavailable in Baltimore at this time. We understand that there are

1245

many reasons for this, however, it is our belief that these could be best ex-
plained by representatives of the industry and thus we would not do more than
comment on this condition at this time.

Section 403 under Title IV makes provision for the possible transfer to mort-
gagees of the processing of mortgage insurance applications. We favor the au-
thority granted by this provision. Our experience indicates that there lies within
the mortgage lending industry substantial expertise that the exising procedure
requires to be duplicated at Federal expense. Perhaps, vdth proper monitoring,
such transfer would permit reduction of these costs while at the same time
eliminating the processing delays which have been a serious long standing ob-
jection to Federal housing programs. Furthermore, any reduction of the process-
ing time could tend to curtail losses which result from vandalism occuring during
the period of delayed processing.

In summation, we have not attempted to address in detail the provisions of this
Bill, but rather to share our reasons for endorsing its enactment based on our
experience of the housing situation in Baltimore City. We urge you to strengthen
the provisions relating to the relationship between the Secretary of Housing and
Urban Development and those state and bwal agencies concerned, because we
feel that the utilization of these new resources can be further enhanced if con-
sultation and cooperation between the Secretary and those agencies can be
accomplished both prior to and during the implementation of flexible and co-
ordinated programs.

The Act appears to require a few minor technical revisions and we would wel-
come the opportunity to work with your staff in any way and lend whatever
assistance we have to offer in the finalization of this legislation.

Senator Cranston. I thank you very much for your very helpful
testimony, and I congratulate you for the work you are carrying on.

Our next witness is Robert W. MafRn, executive director of the Na-
tional Association of Housing and Redevelopment Officials. We wel-
come you.

STATEMENT OF ROBERT W. MAFEIN, EXECUTIVE DIRECTOR,
NATIONAL ASSOCIATION OF HOUSING AND REDEVELOPMENT
OFFICIALS; ACCOMPANIED BY MARY K. KENNO AND JOHN R.
MAGUIRE

Mr. ]VL\FriN. Good morning.

Senator, we appreciate tlie opportunity to come before the commit-
tee and offer a few remarks regarding: the various housing and com-
munity development legislations pending before this committee. We
have a Statement, which I would like to have filed for the record, if
possible, along with one additional piece of material called "Future
Directions in Federal Housing Policy," which was submitted to the
Department of Housing and Urban Development.

[Mr. Maffin's statement and additional information may be found
at p. 1251.]

Mr. ]\Iaffin. Thank you, sir. I would like to touch on the community
tievelopment aspects of legislation pending before the committee first,
and indicate that on the whole we find nmch of the legislation pend-
ing before the connnittee to be very helpful; particularly in terms
of bringing together a variety of tools which have developed over the
years, making them more immediately and readily accessible, avail-
able and usable in a more flexible fashion for the cities, counties, and
States which have been involved in these programs. I will talk first
about the so-called block grant concept — the concept of folding to-
gether several kinds of urban relief and development aids into a block

1246

of funds to be made available to communities for community develop-
ment purposes.

We think first of all that those block grants if they are to be made
available must serve certain national priorities. These national priori-
( ies encompass the elimination of slums and blight ; of seeing to it that
the existing housing stock is served and rehabilitated as well as non-
i-esidential facilities that need that kind of attention ; providing for in-
creased housng opportimities, especially for low and moderate income
families, and the provision of related public facilities and services.

Secondly, that the community development program should include
the physical development activities consistent with those national
priorities and that the programs should not be predominantly a local
public works pi-ogram or a large-scale social services program. We
simply mean by this tliat there is an extraordinary amount of physi-
cal deterioration and disarray in many segments of the city and that
these areas require a composite of physical development activities that
ought to be carried out to bring these areas back, or to, in fact, change
them.

In the course of undertaking those kinds of activities, there should
be physical or local public works type activities, just as there should
be some kinds of social services related to helping the families, indi-
viduals, and businesses caught up in that process of change. But it is
important that the program should not become simply a public works
j)rogram nor a large-scale social service program.

Third, it is terribly important that the community development
activities assisted under the proposed legislation be linked with and,
if you will, coordinated with local public improvement programs. It
makes very little sense to sometimes see local capital improvement
programs going in one direction and community development activities
going in another.

The legislation, in short, ought to encourage that kind of coordina-
tion and linkage.

If national priorities are involved, as we believe they should be,
then the community ought to identify and serve those national priority
areas. The community ought to also identify its own local needs and
priorities. There ought to be a clearcut statement, as part of the appli-
cation process, as to what the community intends to do with the moneys
it has received under this block grant program — how those activities
relate not only to national priorities but to local needs and demands.

We believe that the local administrative structure for planning and
implementing community development programs is an issue that is
best resolved at the local level where the forces, interests, experience,
and governmental structure patterns are best interpreted and under-
stood. The issue of how community development should be structured
to be implemented ought to be decided at the local level, not pre-
scribed in law.

Let me make one comment in passing for consideration by the com-
mittee. It is becoming increasingly apparent that much of what needs
to be done in the community development context is going to require
a high level of private involvement. We believe that any community
development legislation should enable, if not encourage, the formation
of public development corporations which could undertake some large-
scale redevelopment activities. This is the direction which we believe

1247

effective implementation of national priorities in this area would be
facilitated.

Finally, we believe that the community development program ought
to draw upon the experience and performance of existing agencies in
communities in carrying out programs that are being folded into this
program. There should be a strong linkage between community de-
velopment programs and federally assisted housing programs and
other kinds of assisted housing programs provided in some cases by
State and local governments, including rehabilitation programs.

I suppose the most important single issue, of course, that we always
have to deal with is the assurance that these programs will be ade-
quately funded. It has not always been the case in the past, and cer-
tainly in most recent history, that the needs of communities have been
met either with their own resources or with the appropriations and
authorizations by this Congress. Those moneys simply have not been
enough to do the job and we would urge, in considering appropriations
and authorizations for this legislation, at least a level of $3 billion.
I know this is in excess of what is currently proposed in the language,
but in our judgment the folding in of the multitude of programs that
are being consolidated, the increasing demand and inordinate national
problems faced by cities, require a national investment of at least this
level in order to do the job.

Let me deal with a few more areas, Mr. Chairman. The first is
rehabilitation, preservation, and conservation. The bill that both Sena-
ators Taft and Cranston have introduced, the Home Preservation Act,
we believe, is an additional step in the right direction. But let me say
at the outset that one thing very salutary about the basic community
development legislation which you have introduced, is that, for one
of the few times in the history of community development legislation,
we are really making commitments to cities, which means in our judg-
ment, among other things, that there are tremendous assets and re-
sources invested in cities and we need to make a major attempt at con-
serving and rehabilitating and preserving those assets, the residential
and nonresidential stock, if you will.

We have a lot of programs which have dealt with these problems —
the urban renewal program, the 312 loan program — but in our judg-
ment there is a lot of knowledge that we need to assemble. We really
do not have a major policy direction in housing conservation and
rehabilitation or in preservation. We urge that this be done quickly,
as a separate major thrust, not in terms of a legislative package, but as
a separate effort urging that a very concerted effort be applied to
determining how we can best conserve and rehabilitate the housing
and nonresidential stock in the cities.

Let me make a couple comments about some of the specifics that
we believe ought to be looked at in terms of rehabilitation, conserva-
tion and preservation.

First of all, the 312 loan program. Because it is a loan program, as
distinct from a grant program like the proposed community develop-
ment block grants, we believe that there is considerable merit in main-
taining the separateness of the 312 loan program. This does not mean,
of course, that communities, if they desire to use community develop-
ment block grants under S. 1744, would not be permitted to utilize
those funds to generate loans from banks. But rather that the 312 loan

1248

program has lieen a very helpful tool which Mr. Noon and others be-
fore me have testified, and we think it ought to retain its separate
identity, if, for no other reason, than it is a different financing mech-
anism than the grant program.

We would ask that the committee in its report language, for ex-
ample, would encourage those using community development funds
to explore new ways and alternative ways of financing rehabilita-
tion. I think there is probably more ferment in the financing of re-
habilitation going on right now across the country than we have had,
in my memory at least, since we have been dealing with this problem.

One final conclusion with respect to rehabilitation : both in terms
of public housing rehabilitation, rehabilitation under 235 (j) and
222(h). •'vs well as 312 and urban renewal, is that all these programs
are consistent and we believe that the committee ought to be sure
that the concept of these programs continue.

For example, since 1962, between 5 and 7 percent of all public
housing units have been provided through the rehabilitation process.
We think that that process ought to be continued and supported. We
have already commented very favorably on the Home Preservation
Act of Senators Cranston and Taft, and others, which we believe
provides a very effective tool in dealing with moderate, as opposed
to very substantial rehabilitation. We believe the provisions in title
3 of that act dealing with assistance as a last resort for homeowners
is a very important and useful provision, and we second the kinds of
comments that Mr, Noon and his associate made earlier this morning.

Finally, turning to the basic housing programs, we are mindful, as
anyone else in this business is mindful, that we have 40 years of
history behind us in federally assisted and subsidized housing pro-
grams, and that we are now engaged in a process of evaluating what
we have done and where we ought to go from here.

I think we should not be under the impression, however, that that
40 years of history in the programs have been wasted efforts. Nor
should we fool ourselves into believing that 6 or 8 months of evalu-
ation of 40 years of experience can conceivably produce effective,
full-blown and fully responsible and responsive changes or replace-
ments for that 40 years of experience.

We have said so in delivering our comments to the Secretary on
the housing evaluation program that the Department is now under-
taking. We would advise a more extended review and analysis period.
Since many of those basic pieces of legislation have been introduced,
our standards of housing, our precepts of housing, our housing needs,
have changed. We don't really know what those changes in standards
and needs are in terms of the changes that have taken place. A great
deal of effort, for example, simply needs to be spent in identifying
w^hat the condition of our housing stock is today. It is sad to say
that the census data does not adequately reflect that condition and
we need more information. If we are to embark on major changes,
as has been the hallmark of recent comments, we think that those
changes ought to be carried out on a demonstration basis. If there
is one lesson we have learned over those 40 years it is: do not put
into full operational activity a major new thrust without, "debug-
ging" it ; and that takes a period of time.

1249

Let me make one final comment which we believe is terribly impor-
tant and this deals with the fiscal condition of public housing. For
many economic, social, and indeed legislative, public housing authori-
ties in this country today are in a very difficult fiscal condition. When
the decisions were made in 1969, 1970, and 1971 to place a limit on thei
rent-to-income ratio paid by t^-nants in public liousing. provide adjust-
ments in the definition of tenant income, adjust welfare rents, and
insure adequate operating services, they were coupled legislatively
with a commitment that the funds required to implement these con-
gressional mandates would be made available by the Congress and the
administration. That in fact has not happened.

We believe that it is terribly important for tliis country to recognize
the enormous public investment we have in the over 1 million units
of public housing and realize that in many communities public hous-
ing represents the only standard housing to which low-income people
can go to be housed. That housing has to be maintained, in some cases
modernized, in any event, maintained, suitable, and open for
occupancy.

Xow. that may mean, if the operating subsidy levels are not there
to meet the need, that adjustments may have to take place as are pro-
posed in this legislation. Under those terms and conditions we support
adjustments in rent. It is always difficult for an organization like ours
committed to seeing to it that low-income people are housed to sug-
gest the necessity perhaps of raises in rent, hut we do not know any
way out of the dilemma and we believe it is terribly important to keep
public housing open and in sound condition and available to low-in-
come people. If subsidy funds, are not going to be made available at a
level which will cover adequate operation of the units, then we sup-
port changes in rent requirements. I think that is the kind of position
the public housing is in today.

We would urge, of course, amon^g other things, that those kinds of
amendments be fairly considered and we applaud the committee for
the action it has taken in this area. We would trust that— we would
urge, by either legislative language or legislative history, that ade-
quate resources are devoted to maintaining and modernizing the 1 mil-
lion existing units of public housing. There are several specific
elements of the legislation which we cite in our written testimony. Mr.
Chairman, which I Avon't bother to go over now. but it seems to us
there are three major points: (1) That if you are going to do an
evaluation of 40 year's of history to change the course of the Federal
Government's involvement in housing, it is going to take more than 6
months to do it : (2) Any new proposals you make that are large-scale
or substantial departures from the programs we now have which by
and large have been very successful ought to be done on a demonstra-
tion basis and. if you will, debugged. Finally, the enormous investment
which this country and its citizens have in public housing needs to be
protected and made available and open for occupancy. If it means in-
creased operating subsidies or, that failing, some increases in rents
combined Avith operating subsidies, then this assocation supports it.

The Chairmax. Thank vou verv much.

1250

First of all, Senator Brooke — I am sorry he is unable to be here this
morning — if he were here he would want to ask you some questions re-
garding the public housing programs, questions which he has left with
me ; and what I would like to do is to give you these questions, instead
of asking you now, and ask you to give written answers for the record.
Would you do that ?

Mr. Matfin. Yes, sir. I would be most pleased to.

The Chairman. Fine. We certainly do appreciate your presenta-
tion. Thank you very much.

Mr. Maffin. Thank you.

[Material received from Mr. MafRn follows :]

I

0^

1251

national association of housing and redevelopment officials

STATEMENT
OF

ROBERT W. MAFFIN

FOR

THE NATIONAL ASSOCIATION OF HOUSING AND REDEVELOPMENT OFFICIALS

ON
PROPOSED 1973 HOUSING AND COMMUNITY DEVELOPMENT LEGISLATION

before the

Subcommittee on Housing and Urban Affairs

Committee on Banking, Housing and Urban Affairs

United States Senate

July 27, 1973

The Walcroate Buildino / 2600 Viroinia Avenue. Northwest / Washinoton. D C. 20037 / (202) 333-2020

99-855 O - 73 - pt. 1 -- 80

1252

Mr. Chairman, members of the Subcommittee, my name Is Robert Maffln, and I am
Executive Director of the National Association of Housing and Redevelopment
Officials (NAHRO) . On behalf of the local housing, urban renewal and code
enforcement officials who comprise NAHRO 's membership, I wish to thank you for
this opportunity to comment on legislation pending before you.

Community Development Block Grants

Let me begin by discussing community development block grants. NAHRO favors the
concept of block grants, but feels that such a program must meet certain critical
criteria to Insure the effective and efficient use of federal funds at the local
level.

First, community development block grants must embody national priorities. The
primary national objectives of this program should be related to the physical
development and redevelopment of the community: the elimination and prevention of
slums and blight; the conservation and rehabilitation of the existing housing stock
and non-residential facilities; the provision of increased housing opportunities,
especially for low and moderate income families; and, the provision of related
public facilities and services. In short, Mr. Chairman, community development block
grants should be related to achieving the goal of a "safe and decent home and suita-
ble living environment for every American family," first articulated in the Housing
Act of 1949,

Second , a local conmunlty development program should include the physical develop-
ment activities consistent with the national priorities discussed above; it should
not be predominately a local public works program or a large scale social services
program. It is NAHRO's position that any national block grant program must contain

1253

provisions to limit the unrestricted use of federal funds for public works and
social services programs. These activities should, of course, be eligible for
assistance when they meet the test of being directly related to the achievement
of those national goals just listed. Street repairs, water and sewer lines,
recreation facilities and job training programs, for example, should be integral
parts of an overall, comprehensive strategy aimed at revitalizing a decayed
neighborhood, and therefore eligible community development activities. These same
activities, when proposed in isolation and not related to national objectives,
should not be eligible.

Third, the coordination of federally assisted community development activities
with local public improvement programs is crucial. Most communities will find
themselves in a position where their needs far exceed what can be accomplished
through limited federal financial assistance. Thus, federal financial assistance
should be used to bolster local efforts. Incentive payments to encourage the
timely construction or location of a related public facility such as a school
should be permitted. The use of community development grants or loans to provide
interim financing and designing for schools and libraries and other similar
facilities, should likewise be eligible. Finally, if a local financial share is
required, the value of related local public investments for either public facility
improvements or services (Including schools, libraries, and hospitals) should be
credited toward meeting this requirement.

Fourth, the principal requirement for the receipt of block grants should be a
clear-cut statement of local mission, prepared with adequate citizen participation,
that addresses itself to the achievement of the national priority areas discussed
above. This application should be kept slinjile .to enable speedy federal approval,
but it should also contain adequate information on local objectives, set forth a

1254

local timetable, and outline how local resources will be used to supplement
federal efforts.

Fifth, the local administrative framework for planning and implementing community
development programs should not be mandated in federal statute. This decision
should be made by the local general purpose government and not preclude the use of
existing local public agencies. Mr. Chairman, it is becoming more apparent that
new vehicles may be necessary as an incentive for large scale development, re-
development and rehabilitation projects. Public resources alone cannot do the job
and some method must be developed to encourage the front end involvement of the
private sector to allocate their financial and managerial skills necessary for such
large scale projects as "new towns-in-town." A local, metropolitan, regional or
statewide public development corporation, which would work within the context of
a publicly-approved development plan but rely on private and public financing,
guaranteeing an eventual return of private investment might be the answer. Nothing
in the block grant legislation should preclude the use of. such a corporation and,
in fact, it may be desirable to include Incentives to encourage the formation of
these public development corporations.

Sixth, the allocation and distribution of federal funds should be based on local
need, capacity and capability to perform, and previous commitment to the national
objectives embodied in this program. If a formula is used for the distribution of
funds, it should take into account a community's past performance as reflected in
its use of existing federal community development programs. Likewise, all
communities — regardless of size — now participating in the major community development
programs should not be penalized by reduced federal funding if a formula approach is
adopted. They should be held-harmless at current levels until it is clearly demon-
strated that their community development needs have been met.

1255

Smaller communities, including those not now participating in federal programs
should be guaranteed direct access to a portion of the community development funds
and should not have to go through a state intermediary to obtain them. Urban
counties, when empowered to perform community development programs, should like-
wise have direct access to community development funds as should those states
which wish to establish programs to assist local community development efforts.

Seventh, there must be strong linkage between federal community development and
federal housing programs. Localities, as part of their community development
applications, should submit a statement of housing needs outlining the need and
timetable for use of federal housing assistance funds in conjunction with their
local community development program. These funds should then be reserved and dis-
tributed to the community according to this local timetable.

Eighth, and most important, atiequate funds must be authorized, appropriated, and
released to insure that this consolidation of existing programs does not result in
a lessening of federal cotmnitment in the community development field. A three-
billion-dollar annual commitment would, in NAHRO's mind, be an adequate initial
funding level. Likewise, there must be an orderly and smooth transition from current
categorical programs to the new community development framework, including assistance
to complete ongoing local programs. NAHRO supports a special additional authoriza-
tion to the urban renewal program of at least $300 million to assist in closing out
these projects. This was contained in last year's Senate-passed bill. Finally,
the existing provisions of federal loans or federal guarantees for local loans
contained in the urban renewal program must be carried forward into the new program
to provide localities with the necessary operating capital to implement community
development activities.

1256

Mr, Chairman, these criteria are absolutely necessary for effective community
development legislation. Pending before the Committee Is S. 17A4, a re-submission
of last year's Senate-passed community development block grant bill. NAHRO supports
the basic direction of this bill, since it embodies the criteria outlined above.

Rehabilitation and Conservation of the Existing Housing Stock

Mr. Chairman, the problems associated with the preservation of the existing
housing stock are both complex and increasing. The abandonment of buildings and
neighborhoods in increasing number in local communities throughout the country is
the sad end result of the neglect of our housing and neighborhood resources. For
these reasons, KAHRO's 1971-1973 Program Policy Resolution called for "a priority
effort to establish an effective program for housing and neighborhood improvement."
The fact remains, however, that we currently lack the tested knowledge necessary to
allow us to proceed with .the implementation of any broad-scale, new comprehensive
program in support of these priority goals. For this reason, NAHRO urges that
we move forward at the present time with selected large-scale demonstrations on
alternative approaches to preserving our existing housing resources. One of
these demonstrations should focus on a "Neighborhood Improvement Program" together
with innovative approaches to the management of existing housing outlined in the
NAHRO Resolution. In the near future, we would be pleased to present this Committee
with a more comprehensive statement on other demonstration possibilities.

For the purposes of this presentation today, however, I would like to make several

comments with respect to the legislative provisions already pending before you,

which are related to the need to preserve and maintain our existing housing resources.

1257

As you are well aware, both the Section 312 rehabilitation loan program and the
Section 115 rehabilitation grant program, despite funding irregularities, have been
immensely successful in preventing the further deterioration of our valuable,
existing housing inventory. NAHRO strongly favors the provision of S. 1774 which
retains Section 312 as a separate program from the block grant, yet linked to the
overall community development program by requiring that it be used only in those
areas designated as part of a community development plan. In addition, we strongly
support the provision of S. 1744 which permits "grants or loans for the rehabilita-
tion and conservation of properties" as an eligible use of block grant funds. We
have three major reasons for this position.

First, we envision difficulty in consolidating a loan program within the basic
framework of a grant approach because of the differences in financing requirements.

Next, many communities (particularly those of medium and small size) may be unable
or reluctant to undertake the long term responsibility for servicing these activities
which might mean that rehabilitation financing could receive* a lesser local priority.

Finally, there are problems resulting from State constitutional barriers against the
making of gifts and loans to individuals. A limited survey of our membership
indicates that in several states (e.g., Alabama, Florida, Ohio, and Washington),
constitutional barriers would prohibit a locality from providing rehabilitation
assistance to individuals directly from the community development block grant
allocation.

We would also ask the Committee to encourage, in report language, the experimentation
with alternative mechanisms for the provision of rehabilitation financing undertaken
with community development block grant funds. In this regard, we advocate specific
demonstrations with such concepts as a sliding interest rate, financing for activi-
ties short of full compliance with applicable codes, the use of escrow accounts for

1258

maintenance purposes, and the increased involvement of private and public
financial institutions. It is our hope that these demonstrations could proceed,
monitored by HUD, in an attempt to increase the flexibility of current approaches
to rehabilitation financing.

With respect to rehabilitation activities undertaken under the assisted housing
programs, NAHRO supports the elements of S. 2182 which recognize these activities
as an essential element for providing additional housing opportunities. We
strongly urge the Committee to continue, under the terms of present law [Sections
235 (j) and 221(h)], the eligibility of public agencies and nonprofit organizations
to engage in rehabilitation activities, if needed, for subsequent resale to
eligible purchasers.

In addition, we urge your support for the retention of the capacity to rehabilitate
units under the public housing program. To date, almost 50,000 dwelling units have
been rehabilitated through this program. This represents approximately 5-7 percent
of all public housing developed from 1962-1971, and is steadily increasing (26%
in 1972). Finally it is our hope that this Committee will reaffirm its support for
the continuation of the public housing modernization program, which protects the
existing inventory of over 1 million housing units.

Home Preservation Act of 1973

NAHRO wishes to commend Senators Taft and Cranston and their staffs, for their
continuing leadership in support of housing preservation, as evidenced by their
sponsorship of the Home Preservation Act of 1973 (S. 971). This legislation is
designed to make available a broad range of rehabilitation financing assistance.
NAHRO's understanding , however, is that it is not the intent of this bill to
substitute for some of the basic programs under which rehabilitation has been

1259

financed but is, rather, designed to fill in gaps not covered by the basic
programs.

NAHRO supports the refinancing provisions of S. 971 endorsing, in particular,
the notion that refinancing may be a very effective vehicle for under-
taking moderate, as opposed to substantial rehabilitation. In addition,
particular attention is drawn to Section 301(e), authorizing the Secretary to
delegate the administration of Title II loans, and to make reimbursement therefor.
NAHRO particularly supports this section, noting that the delegation of such powers
to local agencies was one of the factors leading to the success of the Section 312
program.

Further, NAHRO endorses the provisions designed to cure defaults on mortgages and
to provide in Title III direct loans as "assistance of last resort" for "homeowners
who are unable to finance on reasonable terms, by any other means other than the
assistance under this section, the full cost of repairs necessary to maintain their
homes in a suitable living condition."

1260

Future Directions In Federal HousinR Assistance

Mr. Chairman, we would now like to turn our attention to housing; and in particular,
to future directions in federal housing policy. This will Include some comments
on S. 2182, introduced on behalf of Chairman Sparkman on July 14, as well as some
of the other bills currently pending before the Committee.

On May 4, 1973, NAHRO responded to an invitation from HUD Secretary Lynn to make
recommendations on "Future Directions in Federal Housing Policy." We respectfully
request that this paper be included as part of the record of these hearings.

NAHRO indicated to Secretary Lynn that tVe present HUD re-examinatlon of federally-
assisted housing efforts contained both "Pitfalls" and "Opportunities". The
"Pitfalls" are related to the impracticality in the six-month evaluation period
of either objectively evaluating existing program efforts, or developing an
adequate analysis of our housing needs and requirements in 1973 terms.

In short, NAHRO recommends that, at this point in time, we by-pass the temptation
to come up with "full-blown" and "large scale" new housing "programs" and undertake
an evolutionary approach based on a program of "new directions".

A "New Directions" Approach

Such a "new directions" concept would include:

— formulation and adoption of immediate reforms In existing programs,
both legislative and administrative, which current experience
indicates would make them more effective. Continuation of
existing programs at meaningful program levels until new program

1261

approaches are tested and ready for implementation. Utilization
of existing program mechanisms as one vehicle for testing out
specific new approaches.

-development of meaningful standards for the evaluation of all phases
of federal housing program operations: financing, production,
management, administration. (The beginnings of such an approach, at
least in the management field, are now under development in public
housing, in the "Management Innovation" studies conducted by selected
housing authorities; and in studies being conducted by the Urban Institute
at the request of the Department of HUD, to measure the concepts and
costs of effective housing management.)

-selection of the most promising new ideas for federal housing assistance
for intensive demonstration and testing. The present demonstration
on "housing allowances" is an example of one such an approach. This
could be expanded in other areas, and with shorter time spans.

-development of basic research efforts to probe national housing needs
and requirements, particularly to explore the dimensions of what
national standard is implied in 1973 when we call for "a decent home
in a suitable living environment for every American family."

A further explanation of ways to implement such a "new directions" policy, including
essential roles for the Federal Government, are contained in the NAHRO paper.

The Need for Professional Management Capacity

Mr. Chairman, there is another urgent reason for preceding with an evolutionary

housing policy rather than 'full-blown" new housing programs. It relates to the Impact

1262

of still another new organization and re-orientation of our housing efforts on top

of the organizations and reorganizations, directions and re-directions, which have

surrounded the Federal administration of these programs over the last several years.

There is a need to take some time to re-build and re-inforce the professional

management capacity to administer and implement housing programs before placing still

further demands either on existing institutional capacities, or on new and untested

institutional capacities. Strengthening management capacity must precede the

initiation of broad new program efforts, or the best program approaches will not

succeed. The recent analysis by the Congressional Research Service of the Library

of Congress for this Subcommittee of the subsidized housing programs. (An Analysis

of the Section 235 arid 236 Programs) makes this point in one terse paragraph (P. 20):

"An Administration spokesman, Kenneth Cole, Jr. , Director of the
Domestic Council, has written to Senator Sparkman, with
reference to the subsidized housing programs, that, 'a series
of evaluations by the Congress, the Administration and others
has revealed a central theme — the program structure we now
have cannot possibly yield effective results even with the
most professional management. ' The brief preceding review
of program management raises a serious question whether the
programs were ever tested under acceptable professional
management."

As a professional Association, NAHRO believes that it is time to take steps to insure
feedback of adequate operating data, tested standards and yardsticks for evaluating
program performance, and skilled personnel to administer housing programs, whatever
the approaches and directions of our housing assistance programs. This applies to
Federal, State and local levels.
S. 2182 and Related Housing Bills

Mr. Chairman, S. 2182, introduced on July 14 and now pending before you, is an
excellent vehicle to pursue the "new directiond' in housing policies that NAHRO recom-
mends. It builds on the extensive work done by this Subcommittee in last year's bill
(S. 3248) encompassing not only the consolidation and simplification of existing
housing programs, but also significant program reforms, particularly relating to
an occupancy pattern for federally-assisted housing which prohibit segregation of

1263

residents Into assisted housing by Income class. NAHRO supported S. 32A8 as a strong
step forward in our national housing policies to make the existing housing programs
both more flexible and manageable.

NAHRO Endorsements

The bill, now before you makes some important additions which, for the most part,
strengthen further what was begun in S. 3248. NAHRO particularly commends the fol-
lowing additions:

— Section 402 (m) of Title IV which requires homeownership

counseling.
— Section 502 (m) of Title V which recognizes the need for a closer
monitoring of management experience by the development of new
local capability
— Chapter III which provides a major new effort to test out in

practical demonstrations how we can meet the housing needs of
special types of households more effectively.
— Section 6(d) of Chapter II which provides for a testing of the

payment of full taxes in selected new public housing developments,
to determine the potential affect on procuring adequate and well-
serviced site locations.
— Section 6(f) of Chapter II which recognizes the need for a program

to deal with obsolete housing developments; to undertake modifications,
or to close them out.
— Section 10 of Chapter II which provides important incentives to
strengthen the capacity of local housing authorities in both
large and small communities to respond to changing needs and
circumstances.

1264

Fiscal Position of Public Housing

NAHRO would also like to make some comments on the provisions in S. 2182 relative to
the fiscal position of local housing authorities. These provisions include (1) the
ceiling on operating subsidies [Section 9(c)], (2) the Sections establishing a
jninlmum rent , adjusting the definition of income, and establishing a rent for
residents receiving public assistance (Section 3) and (3) a proposed new procedure
for the determination of annual operating subsidy based on "base-level" operating
requirements. (Section 9-a) .

All of these provision must be viewed in the light of the present fiscal status of

local housing authorities: as of June 30, 1972, the Department of HUD estimates

that 181 local housing authorities were in "serious financial condition," housing about

43 percent of the 1 million tenant families in the program. The number of local

housing authorities in "serious financial condition" has grown from six in 1970 ,

largely as a result of the failure of the federal government

to make up the losses in rental revenue caused by congressionaly-mandated rent

restrictions. The "Interim Formula" for allocating federal operating subsidy,

adopted by HUD in November 1972 and currently the basis for the level of $280 million

proposed by the Administration for Fiscal Year 1974, has serious deficiencies. Under

this formula, most local housing authorities have reduced their reserves to minimal

levels to accomnodate operating deficits, have deferred maintenance, and have cut

back services which could not be absorbed under a 3% inflation limit. It is clear

they many local housing authorities cannot go through the current fiscal year under

these conditions without a major collapse of services, physical facilities and

living environment. The federal Investment in the inventory of almost 9,000 housing
developments across the Country is in danger.

The federal operating subsidy currently required to fund an adequate local housing

1265

operation is estimated at $500 million. In this context, the provisions of S. 2182
would provide a"balance of resources" to approach the estimated $500 million require-
ment: the $350 million in annual operating subsidies from the federal government
(this should be made mandatory, not subject to impounding or reserving); and some
$100 million in revenue generated from changes relative to rent payments. Important
questions of national policy revolve around the acceptance or rejection of this
"balance of resources" as currently set forth in S. 2182. A particularly important
policy issue concerns the rents to be paid by families receiving public assistance
and living in public housing. NAHRO believes that there is merit in considering
the provisions of S. 2182, as they are now set forth. The Association has long
endorsed a policy, also endorsed by this Subcommittee, that welfare departments
should provide their clients with rent allowances sufficient at least to meet the
operating costs in public housing. The need for public housing assistance is so
great that funds should not be diverted to meet the deficiencies of inadequate
welfare budgets.

But, in any event, it is NAHRO's position that either sufficient federal operating
subsidy in an amount necessary to meet the total requirement, or an adequate com-
bination of federal operating subsidy and revised rent requirements, must be enacted
in the 1973 Congressional year. The viability of the total public housing program
is at stake.

From a longer-term point of view, NAHRO strongly endorses the procedure set forth in
Section 9(a) of Title II, which would insure a "base level" of operating services.

Allocations of Housing Assistance

Finally, Mr. Chairman, I would like to make some preliminary observations relative to

1266

the proposed Title 9 of S. 2182, "Allocations of Housing Assistance Appropriations."
We are not prepared at this time to take a position, pending our exploration of
pertinent questions:

— What would the proposed formula produce in terms of housing

allocations for various geographic areas, relative to current
use of housing assistance funds?
— Should housing funds be allocated on a formula basis, or directly
on the basis of a local housing program, housing goals, and local
capacity to produce , manage and maintain housing?
— What are the advantages and disadvantages of taxable obligations vs.
tax exempt obligations. This also affects the public housing
program [Section 5(g)].
— How can a single block allocation of housing funds be related to
the long term debt service requirements of housing development?
— Does this approach really provide the incentives for State government

to perform its unique role in support of housing?
— What is the current capacity of general purpose local government to

administer block-grant housing funds?
— Should a housing sponsor have only indirect assess to federal
housing assistance?
These and other questions relative to Section 9, will be explored by NAHRO over the
next few weeks. We request permission to present our views more fully at a later date
on this subject, and other related housing subjects.

In the meantime, we believe there is merit for the Committee to consider the financing
mechanism of direct loans, proposed by Senator Proxmlre in S. 2169, for the 235 and
236 Programs, and in S. 2179 by Senator Williams, for housing for the elderly. We also
specifically endorse the concept that State and local public agencies should be eligible
recipients of housing assistance funds under the FHA Assistance Programs. Such action
would insure that some portion of this federally assisted housing would be available on
a continuing basis as public capital assets.

1267

Mr. Chairman, we commend you, the other members of the Committee, and the staff,
for your continuing dedication to the housing and community development needs of
the country. We are encouraged by your desire to maintain a strong and necessary
role for the Federal government in these areas. It is our hope that by building
on our previous successful program accomplishments, we can expeditiously move
forward with new and better program tools for the complex problems of the future.
We know you share this concern.

This concludes our formal remarks. As always, I will be pleased to answer any
questions of the Committee.

99-855 O - 73 - pt. 1 -- 81

1268

FUTURE DIRECTIONS IN FEDERAL HOUSING POLICY

TABLE OF CONTENTS

Page

SUMMARY OF NAHRO PAPER 1 '

PART I - 1973 HOUSING POLICY EVALUATION: PITFALLS AND OPPORTUNITIES 1

PART II - AN ASSESSMENT OF NATIONAL HOUSING NEEDS AND REQUIREMENTS: 1973 5

PART III - THE ROLE OF THE FEDERAL GOVERNMENT IN HOUSING 12
PART IV - FEDERAL HOUSING ASSISTANCE: EXISTING PROGRAMS;

A. An Analysis of Existing Housing Assistance Approaches 18

B. Evaluation of Existing Housing Programs 27
PART V - FEDERAL HOUSING ASSISTANCE: NEW APPROACHES:

A. A Checklist of Key Policy Issues for Federal Housing

Assistance 30

B. Recent Housing Reform Legislation: 1972 _ 32

-a single variable subsidy approach
-special public housing reform amendments
-other proposed housing amendments

C. Alternative Approaches to Assistance Mechanisms 35

1. a single variable subsidy approach

(described in B)

2. a households needs approach

3. a housing market approach

D. Rehabilitation and Preservation of the Existing

Housing Stock 37

E. Concepts of Ability to Pay for Housing 37

F. Administration and Management Considerations 37

G. A Delivery System for Federal Housing Assistance 38
APPENDIX;

A. "Myths and Realities in Public Housing: 1973" — NAHRO Statement to the Senate

Committee on Banking, Housing and Urban Affairs, April 12, 1973 (See reference
in paper, page 28).

B. 1972 Housing Reform Legislation; A Single Variable Subsidy Approach (See references

in paper, pages 32, 35).

C. NAHRO Study - HOUSING IN METROPOLITAN AREAS: ROLES AND RESPONSIBILITIES OF FIVE

KEY ACTORS (See references in paper, pages 7, 11, 18).

1269

SUMMARY OF NAHRO PAPER

PART I - 1973 HOUSING POLICY EVALUATION; PITFALLS AND OPPORTUNITIES

Part I states that the 1973 evaluation is subject to the pitfalls that (1) the six month -
evaluation time is too short to do an adequate job of assessing the needs and require-
ments of a revised national housing policy (2) that, based on past precedent, there is a
built in compulsion to propose a "bold new program" for immediate adoption and (3) that
because of lack of adequate data and evalution yardsticks, the 1973 study could become
a meaningless debate. The opportunities center on the acceptance of the proposition
to undertake "new directions" rather than immediate "new programs" providing time to
undertake the testing of a series of possible new approaches before any major new housing
program is adopted. A part of the "New Direction" program would be continuing efforts
to develop an adequate data base, program performance yardsticks, and a policy and
problem-oriented research program in housing.

PART II - AN ASSESSMENT OF NATIONAL HOUSING NEEDS AND REQUIREMENTS: 1973

Part II states that there is a need to define what we mean in terms of a "decent home
in a suitable living environment", based on 1973 standards of adequacy of housing.
Particularly, it sets forth the need to develop a larger federal assistance effort to
preserve the nation's existing housing stock. It proposes the re-examination of the
10-year housing goals, the development of a cohesive, coordinated national housing
policy. Finally, it makes seven specific recommendations designed to provide the basis
for assessing the nation's 1973 housing needs and requirements.

PART III - THE ROLE OF THE FEDERAL GOVERNMENT IN HOUSING

Part III cites the principle of past experience relative to the federal role: the need
for a national standard of "a decent home in a suitable living environment" which can
provide a national objective to which federal assistance can be directed. Seven basic
elements of the federal role in housing are proposed; and 12 specific functional areas
for federal action are cited under these roles. A NAHRO concept of the local and State
role in housing, relative to the Federal role, is developed.

PART IV - FEDERAL HOUSING ASSISTANCE: EXISTING PROGRAMS

The first section of Part IV, analyzes the existing federal housing assistance approaches
In terms of eleven major policy areas, pointing out the assets and the shortcomings of
the existing housing mechanisms, lue second section of this Part IV covers the evaluation
of existing housing programs, pointing out the impact of past ambitious goals, the lack
of adequate program data, and the lack of tested, objective yardsticks for program
evaluation. It cites APPENDIX A which lists recent NAHRO Testimony on the "Myths and
Realities in Public Housing" as an example of the misconceptions resulting from inadequate
program information. It cites some "problem areas" in the administration of current
programs .

PART V - FEDERAL HOUSING ASSISTANCE: NEW APPROACHES

Part V provides a checklist of key policy issues for consideration in the development of
any new program approaches. It summarizes recent housing reform legislation, particularly
the 1972 reform program of "A Single Variable Subsidy Approach." It recommends the
exploration of new housing assistance mechanisms geared to (1) a household needs approach
and (2) a housing market approach. It makes observations on four areas requiring attention
in any new program approaches: the existing housing stock, concepts of ability to pay for
housing, administration and management consideration, and a delivery system for federal
assistance.

1270

PART I

1973 HOUSING POLICY EVALUATION: PITFALLS AND OPPORTUNITIES

The study and evaluation of Federal Housing Policy being undertaken by
the Administration In the six-month period between March and September, 1973
comes at a critical time in the historical evolution of housing policies in
the United States, It is not taking place in a vacuum; it is influenced by
the policies and programs of the past. In fact, a major rationale for its
initiation is the contention that the existing policies and programs are
"not working", and that new directions are required. The 1973 study
not only presents an Important opportunity to review past and current
housing efforts, but also to re-assess national housing needs and require-
ments for 1973, and for the years immediately ahead.

More than most studies and evaluations, the 1973 effort has particular
pitfalls and opportunities.

In terms of pitfalls, the following are perhaps the most potentially danger-
ous:

A. A six-month period is not a sufficient time to assess all of
the requirements and complexities of national housing policies
and programs. There is the danger that the study will be super-
ficial. This is particularly true in terms of evaluating existing
housing programs, because:

— Statistics and operational facts are grossly inadequate

— Tested standards and yardsticks for evaluating program
performance are almost non-existent

1271

-2-

— Past evaluation of program performance, even with
inadequate standards, has been piecemeal and incomplete.

Six months is also too short a time to assess current and future
national housing requirements, because:

— There is a need for a completely new examination of
national housing needs and requirements, with particular
attention to (1) our housing standards in 1973 (2) the way

housing relates to national economic policy (3) the way

housing relates to the national pattern of growth and

urbanization, and (A) the way housing assistance relates to
federal income maintenance assistance (public welfare assistance),

B. Based on past precedent, there is a built-in compulsion to

come out of the 1973 study and evaluation with a "bold new
program " which will be proposed for immediate adoption
as national housing policy. There will be no opportunity for
testing. Only after several years of operation will we find
that it is not working, or that there is a better way to
structure it. Past experience should make us wary of "panaceas"
and "untested programs."

C. Because of the pitfalls represented in (A) and (B) above, there
is a danger that the 1973 study and evaluation will become a
meangless debate between those who "want to get rid of the
existing housing programs" and those who "want

to keep them." The 1973 study and the reaction to It may resolve
into a collection of selected data and experience to prove either

1272

-3-

that programs "have failed" or "have succeeded." It does not
have to be that way, If the 1973 study and evaluation recog-
nizes the pitfalls and responds to the opportunities.

In terms of opportunities, the 1973 study and evaluation has the following
prospects:

A. A Decision to make the six-month study, a turn to new 'tiirections"

rather than to immediate new 'tarograms" could make it workable

and meaningful.

"New directions" emerging out of the 1973 study and evaluation could include
the concept of an evolutionary housing policy and program with the following
components:

— Formulation and adoption of immediate reforms In existing programs,
both legislative and administrative, which current experience
indicates would make them more effective. Continuation of existing
programs at meaningful program levels until new program approaches are
tested and ready for Implementation. Utilization of existing program
mechanisms as one vehicle for testing out specific new approaches.

— Development of meaningful standards for the evaluation of all
phases of federal housing program operations: financing, produc-
tion, management, administration. (The beginnings of such an
approach are now under development in public housing, in the
"Management Innovation" studies conducted by selected housing
authorities; and in studies being conducted by the Urban Insti-
tute at the request of the Department of HUD, to measure the con-
cepts and costs of effective housing management.)

1273

-4-

— selection of the most promising new Ideas for federal housing
assistance for intensive demonstration and testing. The
present demonstration on "housing allowances" is an example
of one such program approach . This could be expanded In
other areas, ^nd with shorter time spans.

— development of basic research efforts to probe the housing
needs and requirements, along the lines already noted

above. Other parts of this paper present further recom-
mendations which could be a part of this research effort.

' The 1973 Study and Evaluation of Federal housing policy could move the
nation to a new level of maturity and responsiveness, by by-passing the temp-
tation to promote immediate and ready-made solutions, and by carefully scheduling
an evolutionary housing policy and program.

1274

- 5 -

PART II

AN ASSESSMENT OF NATIi^MAL HOUSING NEEDS AND REOUIRDIENTS: 1973

The objective of our national housing effort, to which everyone sub-
scribes, comes from the Declaration of Purpose of the Housing Act of
19A9 — "a decent home in a suitable living environment for every American
family." The major Instrument of our national housing effort is the
statement of 10-year housing goals adopted by the Congress in the Housing
and Urban Development Act of 1968. Since the mid-1930' s, the National
Housing Acts have pledged the use of national resources: to the support
of the housing Industry as a key component of the national economy; to
the eradication of blighted housing; and to the provision of housing
assistance for those who cannot afford the housing available on the pri-
vate market.

In 1973 there are a number of new dimensions in these national com-

mitment^ which should be explored and adjusted:

A. A "Decent Home: American Housing Standards in 1973. The Housing
Census was first taken in 1940, and the criteria for housing in-
adequacy (substandard) was housing "needing major repairs or lack-
ing plumbing facilities." In 1970, there has been a dramatic
improvement in housing conditions, based on this 1940 definition —
largely an improvement due to addition of plumbing facilities.
There is serious question, however, as to whether the criteria of
"plumbing facilities" is an adequate one in 1970. There are
other aspects to "decent housing', including overcrowding, condition
of housing structure, and excessive housing payment requirements.
Based only on the factors of lack of plumbing facilities, over-
crowding, and excessive housing payments (more than 25 percent of
income for rent), at least 15 million American households were

1275

- 6 -
Inadequately housed in 1970 — one-quarter of all American house-
holds.

This assessment of housing needs is exclusive of condition of housing
structure, v;hich was not directly enumerated in the 1970 Housing Census.
At the present time, there is no national mechanism to determine the con-
dition of the nation's housing stock, despite the fact that it represents
an impressive proportion of the nation's wealth. Lack of a method to measure
the condition of housing under nationally-recognized standards exists at the
same time that there are many signals that our existing housing stock is in
grave danger. Widespread abandonment of existing housing in large urban
neighborhoods is causing the loss of thousands of units of existing housing
every year, many in standard or renewable condition. Further, the Fourth .Annual
Report of National Housing Goals sent by the President to the Congress on
June 29, 1972, points out a "possible danger of under maintenance of the
nation's housing stock". The warning is based on a review of the eight year
trend (1962-1970) in the volume of expenditures by residential property owners
for maintenance, repairs and improvements of their property. While the total
of such expenditures increased almost 30 percent in the eight-year period,
from $6.6 billion to $8.5 billion, if the increasing number of housing units
and the rising costs of maintenance are taken into account, it appears that
these expenditures (in constant dollars) have dropped from $127 to $102 per
housing unit. Based on generally accepted norms of annual expenditures for
maintenance, repairs and major replacements, the recent average of $12-^ per
unit (before adjustment for changes in dollar value) would be appropriate for
a housing unit valued at about $7,400 or slightly more than half of the average
value of occupied housing unit in the 1970 census. This is not encouraging news
about the trend in quality in our housing stock.

1276

There are also inadequate mechanisms to assess the status of the nation's
housing markets, represented in particular by the large metropolitan areas
and their marketing territories. A 10-year census does not adequately reflect
these changing markets, and the degree to which they are responding to housing
requirements of the population.

Immediate steps should be taken to remedy these shortcomings, and some'
NAHRO recommendations are noted at the end of this Part II,

B. A "Suitable Living Environment"; Neighborhood Environment^ Facilities.
and Services.

It is of little comfort to an American family in 1970 to be counted in
the Census as having a "standard dwelling with all plumbing facilities"
if that housing is located in an abandoned urban neighborhood, in a
suburban neighborhood characterized by pollution and congestion, or in
a rural area remote from bacic facilities and services. Environment,
facilities, and services are essential components of American housing
standards in 1973. This means that Federal housing assistance efforts
must be directly linked with community development activities, including
renewal of blighted areas, as well as new gro^jth and development.

The study recently published by NAHRO under a HUD grant (Metropolitan
Housing: Roles and Responsibilities of Five Key Actors, NAHRO. 1973) cites
(on pages 25-30) the supporting facilities and services essential to housing,
including the fiscal capacity of local political jurisdictions to provide
continuing municipal services related to housing and neighborhoods. It also
spells out (page 14) the important relationships of housing to the compre-
hensive planning process (The Comprehensive Development Guide) and the Com-

1277

- 8

munity Development process (The Community Development Program). Recom-
mendations are made in the NAHRO study to link housing to these important
processes and are cited at the end of this Part II.

C. Rational Housing Goals: Housing and National Economic Policy.

The emphasis on our national housing goals effort to date has been
primarily on the degree to which housing production, both private
and federally-assisted, is meeting the numerical targets of 26 million
housing units, with 6 million units of low and moderate income housing,
over the ten-year period of 1968-1978. Impressive production records
were set in the first four years of this effort (through fiscal year
1972) in the assisted housing programs. Since then, the volume of
assisted housing commitments has declined (for a variety of reasons)
while the volume of unassisted private housing is equaling or sur-
passing its goals. Througti 1972, there were, however, significant
shifts among the program activities in terms of the original goals,
with new elements added (mobile homes, rural housing); and emphasis
changed (to home o^mership away from rental housing; to moderate rental
housing away from low-income housing) . All of these factors have stimulated
a desire for a new assessment of the housing goals as a tool of
our national housing effort, including the question as to whether
numercial goal-setting on a ten-year basis is the way to achieve
housing progress.

1278

Less attention has been directed to the housing goals as a tool of na-
tional economic policy, strongly implicit in the purposes set forth in the
1968 Housing and Urban Development Act. There has been little evidence that
national housing goals have been integrated with decisions on national eco-
nomic and fiscal policy. The timing of the report on housing goals alone
(February of each year) would appear to mitigate against such a relationship
with economic policy; in practice, the goals report has not usually been sub-
mitted to the Congress until late Spring.

There is need to reappraise the concept of 10-year numerical housing
goals, and particularly evaluate the reasons why they have not been more
closely linked with national economic and fiscal policy.

D. A Cohesive and Coordinated National Housing Policy

The pieces of Congressional intent relating to housing policy are
disbursed among the various federal housing Acts enacted over the
years; they are not assembled into a cohesive, coordinated,
national housing policy; some of the individual elements are con-
tradictory. There is need for the formulation of such a cohesive
and coordinatadpolicy. Including the elimination of conflicting policies
and requirements in current legislation and administrative regulations
pertaining to the location, occupancy and amenities of Federally-
assisted housing. Such a policy must respond to the needs of various
types of households. It should also be designed to relate
the housing needs and requirements of the inner core areas of cities.

1279

- 10 -

the outlying sections of cities, and the suburban, metro-
politan and rural areas beyond the central cities. It must
also provide a workable system for linking housing to national
economic and fiscal policy, so that housing progress can be
over changing periods in the economic cycle.

E. KAHRO Recommendations:

1. Anew definition of adequate housing standards for the
United States should be developed reflecting not only
plumbing facilities, but condition of structure,
crowding, ability to pay for housing, neighborhood en-
vironment, access to facilities and services.

2. To compensate for the lack of a mechanism to
determine the condition of the national housing supply,
federal assistance and a uniform (national) survey in-
strument should be developed, to enable States and lo-
calities to maintain on-going surveys of the condition of
housing. Such state and local surveys should be assembled
into a national picture of housing conditions.

3. The Annual Housing Survey, to be conducted for the first
time in 1973 by the Bureau of Census for the Department of
IIUD, should be expanded to cover at least 20 of the largest
standard metropolitan areas, so that current market data
can be collected to show what the gaps are in meeting
housing requirements. Additional areas could be covered

on a rotating basis.

1280
- n -

A. The 1968 national housing goals should be evaluated in
terms of 1973 standards of housing adequacy; in terms
of 10-year numerical goals as a mechanism; and in terms
of how housing goals can be related to national economic
and fiscal policy.

5. To provide for the establishment of national housing goals,
federal assistance should be provided so that States and
localities can develop housing goals in direct relationship
to their particular needs and circumstances. Such local
and State goals should be assembled into a national picture.

6. A cohesive and coordinated National Housing Policy should
be developed: eliminating conflicting policies and require-,
ments; insuring that housing policies among all political
and geographic areas are related; linking housing policy
to economic and fiscal policy; and responding to housing
needs of particular types of households.

7. To insure progress toward the achievement of the goal of
housing "in a suitable living environment," federal assistance
and initiatives should be made to link housing more closely

to tlie comprehensive planning and community development
processes. Explicit recominendations in this regard are contained
in the recently-published NAHRO study — Housing in Metropolitan
Areas: Roles and Responsibilities of Kive Key Actors (see
especially, pages 3, lA, 3'!i-36, and i40 of tliis attached
report).

1281

- 12 -
PART III

THE ROLE OF THE FEDERAL COVERNMENT IN HOUSING

The federal government Is coonnlcted to the achievement of"a decent

home In a suitable living environment for every Aaerlcan family." It exercises

the Federal role In moving toward this objective In a variety of ways; some are

national In scope, such as the support of housing as a major component of the

economy through fiscal and tax policies. Others Involve sub-national areas

such as providing housing assistance to localities and States to meet the needs

of those families who cannot afford housing on the private market; a number

of Federal roles have benefits and Impacts which apply to both national and

sub-national areas.

A. Some Principles of Past Experience

Experience gained over the past 40 years with the federal housing role

has established some Important principles:

— If the nation as a whole is to move toward the achievement of
national housing goals (such as those set forth in the 1949
Housing Act) then federal actions and resources must be tied
to the achievement of these goals. Clear concepts of what is meant
by a "decent home" and "a suitable living environment" should be
devised and should have consistency on a national basis. "Clear
concepts" and "consistency" do not imply national "uniformity,"
but there should be recognized national criteria defining what is
meant by an adequate housing and a suitable living environment.
For each locality and State to completely set its own standards
would result in major inequities In housing opportunities across the na-
tion; such a procedure would make it impossible to achieve national
housing goals.

1282

13 -

~ If the Individual localities and states are to relate effectively
to their own needs and circumstances, then they need flexibility
to use federal assistance in ways that respond to their needs, with-
out excessive federal direction and approval. They also need access to
infonnation and knowledge about housing and housing problems; access to
tested techniques in housing administration, development and manage-
ment; and access to general and specialized personnel skills.

B. NAHRO Concept: The Federal Housing Role

In general, the role of the Federal government in housing can be summarized
under the following seven areas:

1. To Provide a Base of Information and Knowledge about Housing
and Housing Problems.

2. To Establish and Implement National Housing Goals

3. To Support Housing as an Integral Part of the National Economy
Through Fiscal and Tax Policies.

A. To Remedy The Imperfections of Housing Supply and Distribution
Through The Management of Federal Credit Resources.

5. To Stimulate The Activity of Localities and States Toward the
Achievement of National Housing Goals particularly through Federal
Assistance Designed to Provide Housing Opportunities for Families
Who Cannot Afford Housing on the Private Market.

6. To Establish Standards and Yardsticks to livaluate: the Quality
of Housing Development and Construction; the Impact of Fiscal and
Tax Policies; the Effectiveness of Housing Production, Administra-
tion and Management; Progress toward Achieving the National Housing
Goals.

1283

- 14 -

7. To Support the Development of Career Training Oppor-
tunities in housing to insure a supply of skilled housing
personnel at all levels of the housing effort, both private
and public.
C. NAHRO Recommendations; Soae Specifics of the Federal Housing Role

These are some specific federal activities of the federal housing role:
(not a complete listing):

— Development of an adequate Information base on the nation's
housing role and requirements (see Part II of this report).

— Development of national standards for adequate housing, based

on changing circumstances and needs (see Part II of this report) .

— Development of national housing goals, linked to national housing
economic and fiscal policy (see Part II of this report) .

— Development of national housing goals, including providing assis-
tance to States and localities to develop goals (see Part II of
this report) .

— Development of a cohesive and coordinated national housing policy
(see Part II of this report).

Execution of all federal government activities so as to support

national housing goals and policies; such as adequate housing for

those employed by Federal government.

— Development of a mechanism to insure a continuing financial commit-
ment of federal resources to housing, sufficient to achieve housing
goals overa reasonable time period, and on a continuing basis.

99-855 O - 73 - pt. 1 -- 82

1284

- 15 -

Development of delivery systems for federal housing assistance that
will Insure progress toward national goals, while providing flexi-
bility to respond to local needs, without excessive federal direction
and review. A post-audit system deserves special attention as a possi-
ble device.

Development of a program of federal housing research designed to probe
the answers to difficult housing problems; one of the basic areas
requiring new knowledge Is the complex cycle of "growth, maturity,
decline, and decay" of our housing stock in the various development
stages of urbanization.

Development of a program to establish criteria and performance yard-
sticks for housing production, management and administration.

Development of programs by the federal government aimed at training
of skilled specialists in the housing functions of production, manage-
ment and administration, who can staff HUD offices in strategic locations,
providing technical assistance to localities and states, until adequate
skilled personnel is available in localities and States.

Development of an assistance program by the federal government aimed
at training skilled specialists and administrators to increasingly
assume the responsibilities of publicly- assisted housing at the
local and State levels, as well as private housing.

1285

- 16

D. The NAHRO Concept of the Federal Housing Role; In Retrospect

Looking at the history and current practice of the federal role in housing in
the light of the NAHRO concept of the Federal role just outlined provides
some useful insights:

— The federal government has carried out activities under all of

the seven basic categories defined on pages 13 and 14, as the federal
role, but there has been no attempt to relate the various activities
under a cohesive national housing policy or strategy to achieve national
housing goals.

— While there has been Federal activity under all categories, some roles
have beem implemented In only a minimal way. The Federal activities
in housing information and research, development of performance
standards, and training professional personnel, have been minor related
to the importance of housing in the economic sector, and to the Federal
investment in housing assistance.

— The neglect of the Federal role in such key areas as development of
tested performance standards and training of personnel has had a
direct impact on the limited capacity of the Federal government and
local governments to carry out consistent program efforts.

E. The NAHRO Concept of the Local and State Housing Role

NAHRO believes that the maximum amount of imitiative and flexibility
should be placed at the local and State levels, to devise and carry out
the programs and strategies to achieve local and State housing goals —
with the help of federal housing assistance keyed to the achievement of
well-defined national housing goals and objectives. In order to assume
this responsibility, localities and States need to move beyond the present

1286

17 -

"project" approach to housing assistance, to • longer term "housing
program" approach related to comprehensive planning and community
development activities. In developing the capacity to carry out this
Increased responsibility, It Is essential that they have access to
federal support not only In housing assistance funds, but In Federally-
supported efforts: to develop new knowledge about housing and housing
problems; to establish tested performance yardsticks for housing
administration, development, and management; to recruit and train pro-
fessional housing personnel.

•

1287

- 18 -

PART IV
FEDERAL HOUSING ASSISTANCE: EXISTING PROGRAMS

A. An Analysis of Existing Housing Assistance Approaches

1. Scope of Existing Programs In Terms of Total Housing Need — While there are differences
In estimates of what the total housing requirements are In the United States, It Is

clear that that volume of the existing programs falls considerable short of the
housing need. There Is a related question of equity since not all potentially-
eligible families are receiving housing assistance.

2. Relationship of Federally-assisted, State-assisted, and Locally-assisted

Housing — In recent years, there has been a growth In the number of States under-
taking housing programs, particularly State Housing Finance Agencies. Thus, there
has also been an Increase in the number of States, who are combining State and
Federal housing assistance. This usually takes the form of combining Federal below-
market Interest mortgages, rent supplements, or public housing leasing contri-
butions on the top of State -financed below-market Interest obligations.

3. Relationship of Federally-assisted housing to Federal Planning and Community
Development Assistance— At the present time, the relationships of Federal housing

assistance programs to comprehensive planning program and community development
programs are fragmented. They are based or a series of individual procedures
and arrangements. Thus, there are separate housing clearances for comprehensive
planning (The A-95 process), environmental Impact, and site selection criteria.
There is an Informal priority for federally-assisted housing related to urban
renewal but no firm linkage between the two. The recently-published NAHRO study
on Housing in Metropolitan Areas: Roles and Responsibilities (already cited)
contains detailed observations on both planning and community development
relationship to housing, as well as recommendations for future federal action.

1288

19 -

Assistance Related to the Housing Unit, to the Family', and Combinations Involving
Both;
Basically, federal housing assistance over the past 40 years has been focused on the
housing unit, with a major emphasis on housing production. The major Instruments
of federal assistance have been such financial mechanisms as the federally-guaranteed
mortgage, the tax-exempt bond, and the below-market Interest rate mortgage or loan.

The federally-assisted housing programs have utilized contributions to the family .
rather than to the housing unit only to a limited extent and then usually tied in
some way to a housing unit. The Section 23 public housing leasing program contalnes
the largest reservoir of experience relative to housing assistance contributions
related to the family; In this case, however, the total contribution is
restricted to the equivalent contribution for newly-developed public housing in the
community. There Is a limited amount of experience with direct housing contributions
to families under relocation housing payments for families displaced by federal and
federally-assisted programs. The largest volume of experience with direct housing
contributions to families has been under the public assistance programs rather than
the housing programs. Housing Allowance Demonstration Program, authorized by the
Congress in 1970, will provide the first systematic analysis of the housing allowance
to the family as a technique for assistance.

A few federally-assisted housing progams utilize a combination of assistance to the
structure and to the family. The rent supplement program provides for a federal
contribution to be used in conjunction with FHA-below market interest rate housing.

1289

- 20 -

with the payment going to the sponsor to reduce rents for families In rent supplement
units. Since 1961, the public housing program has moved in the direction of expanding
family-related contrlbutions/lrst through special allowances for elderly and other
types of low-income families; and after 1969, through an expansion of housing
operating subsidies combined with a ceiling on the rents of public housing residents.
The payments in both rent supplements and public housing go to the housing sponsor to
assist in reducing rents, rather than to the family itself.

5^ Assistance for Rehabilitation and Conservation of Existing Housing
While existing federal housing assistance can generally be utilized for existing
housing as well as for new construction, there has been no coordinated or focused
direction toward the preservation and rehabilitation of the existing housing stock,
comparable to that in new construction. Federal assistance for housing rehabilitation
has been approached through a variety of separate program approaches.

The earliest approach to federally-assisted housing rehabilitation (the FHA Title I
Home Improvement Loans, adopted in 1934) as well as the complementary extension of
the program (the Section 302 (k) program adopted in 1961) deal largely with improve-
ments and modernization of single family homes utilizing loan amounts and credit terms
not usually applicable to changing urban neighborhoods. A further extension of this
approach, the 220(h) loan insurance program adopted in 1961 for urban renewal areas,
has seen only minimal use since it has generally been more advantageous to refinance
existing mortgages to cover the cost of major repairs.

Another basic approach to the rehabilitation of housing has been tested under the
basic federally-assisted housing programs for low and moderate Income families. How-
ever, the total volume of activity has been comparatively small; in the year ending

1290

21

June 30, 1972, rehabilitation under all of the HUD and Agriculture Housing programs
Is estimated to total 31,700 housing units, only a minimal proportion (seven percent)
of the total of 436,300 housing units estimated to be assisted under these program In
in this year.

Significantly, the proportion of units to be rehabilitated under the assisted housing
programs as part of the 10-year national housing goals adopted by the Congress in 1968
was reduced as a result of the Administrative revision in these goals made in 1969:
the original 1968 goal had called for 2 million substandard housing units to be
rehabilitated under the subsidized housing programs over the ten-year span VThile
the revised 1969 goal reduced this estimate of need to 1 million units, representing
less than four percent of the 10-year production goals. An additional factor which
may well reduce the future number of rehabilitations under the homeownership assisted
housing programs Is the difficulty experienced by lower income purchasers of existing
housing — some of the units purchased Involved units of inadequate quality which low
income families were unable to maintain and defaulted back to the federal government.

A major point to be made about the rehabilitation of housing under subsidized housing
programs, particularly relevant to the question of housing abandonment, is that they
were individual transactions; it is unlikely that any significant number of housing
units rehabilitated under these programs were part of an organized neighborhood
rehabilitation effort.

Beginning in the mid 1960's a new series of federally-assisted approaches to housing
rehabilitation involving a neighborhood dimension were adopted. These programs
included the Section 117 Concentrated Code Enforcement program adopted in 1965, en-
compassing not only intensive neighborhood enforcement of the housing code related to
individual structures, but also provision of essential public facilities such as

1291

- 22 -

street improvement, lighting, tree planting, sidewalks, curbs and gutters. Compan-
ion tools often utilized in conjunction with the 117 program were the 312 rehabil-
itation loan program, a direct federal loan at 3 percent interest for individual
property owners, adopted by the Congress in 1964; and Section 115 direct rehabili-
tation grants for low-income home owners. The combination of these three resources
has gradually evolved into a popular and potential rehabilitation approach in local
communities .

Another neighborhood-wide rehabilitation approach was adopted by the Congress in
1966 — Section 221(h) — a program of FHA-insured 3% interest-rate mortgages to
permit non-profit organizations to finance the purchase and rehabilitation of
deteriorating or substandard housing for resale to low-income purchasers. While
successful in some local experiences, this approach has not been stimulated by
federal encouragement nor has it generated a significant volume of rehabilitation
activity; in fiscal 1972 only 14 dwelling units were rehabilitated under this pro-

The federally-assisted effort with the broadest capacity to deal with the elements
of changes in a neighborhood's physical environment — including the capacity to
demolish adverse uses, to spot clear buildings, to work with non-residential as well
as residential properties and to make shifts in use of property to accommodate new
needs — is the urban renewal program. The Housing Act of 1954 expanded Title I of
the 1949 Housing Act to cover actions designed to prevent the spread of slums and
blight through the rehabilitation and conservation of blight and deteriorating areas.
There has been significant accomplishment, and an increasing number of communities

1292

23

undertaking urban renewal rehabilitation, particularly since 1961. Through fiscal 1972,
a cumulative total of 832 urban renewalprojects have involved major rehabilitation
of properties, Including some 264,000 rehabilitated dwelling units.

6. Housing Assistance Programs Structured By Income Range

Traditionally, Federal housing assistance programs have been geared to serving
certain income ranges of housing need. Thus, the public housing program, although
utilized to direct its resources toward those "unable to afford housing on the private
market" also was restricted by statute to admission limits 20 percent below available
private housing. Under the pressures of program changes in the 1960 's it has come
increasingly to serve only the lowest income range. The 202 Direct Loan Program
of 1959, and the various interest subsidy programs were primarily designed to
serve the "moderate-income" range; just above the public housing range; rent
supplements added to these units reduced some rents to the lower Income category.

The structuring of housing assistance programs by narrow Income ranges, and in
particularly the restrictions placed on income eligibility, have tended to create
"gaps" in coverage; some families unable to meet private housing costs are
ineligible for housing assistance. At the same time, there Is over-
lapping of income eliglbllty under the various programs. In some localities, in
particular, families eligible for public housing, have been drawn away by competing
housing assistance programs.

Structuring housing assistance programs based on income ranges has also tended to
obscure the varying housing requirements of various types of households.

7. Lack of Uniformity Among Housing Assistance Programs In Terms of Definition of
Income and Rent Paynent Rijquirements

Federal housing assistance programs have also been characterized by a variety of

1293

24

varying requirements relative to deductions of Income relative to eligibility
for assistance and for rent; and varying rent payment requirements.

8. Changing Standards and Lack of Uniformity in Terms of the Quality of Design

and Construction Among Federally-Assisted Programs.
Over the history of federally-assisted housing programs> there has been varying
concepts of the level of design and construction quality that should be
supported with federal assistance. Particularly in public housing and rent
supplements, there has been a tendency to think in terms of "housing construction
for the poor". without amenities. On the other hand, public housing has tended to
be more durable in construction than some other housing assistance programs since
it has an amortization period of AG years, and has more occupancy by larger
families. In a major breakthrough in the 1960's, public housing pioneered in
development of well-designed housing for the elderly. There are still a variety
of methods, among the assistance programs, used to determine cost limits for housing
development; public housing now operates on a "prototype system"; FHA programs
have limits based on maximum mortgage costs.

9. Diversity of Assistance Approaches

For the most part, Federal housing assistance programs are geared to dealing

with one specific assistance technique; — ie.

utilizing one financing vehicle, generally to a limited range of structure

types, particularly, one family houses and apartment developments. Only

the public housing program, over the decade of the 1960's has developed any

significant diversity in assistance vehicles and techniques. The Public Housing

program now can utilize both new development and existing housing in a variety

of structure types, for short as well as long periods of time. Through the "flexible

formula", it can use federal annual contributions both in connection with financing

1294

of long-term bonds, as well as short term payments to private landlords under a
leasing program. It can develop new housing, or acquire existing housing (with
or without rehabilitation), under a "conventional" Authority — oriented develop-
ment process, or under agreement with a private developer under the "Turnkey"
method. This diversity provides opportunities to serve a wide range of household
sizes and types, not possible in other federal assistance programs.

10. Geographic Coverage of Housing Assistance

FHA mortgage guarantees have been used in every State; every State now has enabling
legislation to undertake public housing and has some public housing development. In terms of
utilization of FHA-moderate income programs, which are newef there is not such a
dispersal among the States; they tend to be concentrated in areas

where their financing provisions most clearly meet the housing market circum-
stances and are economically feasible. Public Housing serves a wide range of
communities of all sizes; its program units are also widely distributed with as
many located in the smallest communities under 25,000 population, as in the largest
cities over 500,000 population. A main gap in coverage for HUD-assisted housing
programs is in rural areas, where housing needs are only partically met by the
farra-oriented housing programs of the Department of Agriculture, and where even the
Farmer's Home Administration programs cannot serve the lowest income families.

11. Social Services Related to Federally-Assisted Housing

Traditionally, social services related to federally-assisted housing have been
considered an obligation of the community social service structure in which the
housing was located. It was not until the early 1960's that the federal agency
authorized large local housing authorities to liave "social service coordinators"
on their staffs. Management personnel, at the project level, both in public housing
and in other federally-assisted housing programs have traditionally provided some
housingr related services such as instruction in use of equipment. Often,

1295

- 26 -

housing sponsors provide space In housing structures for community service agencies.
As the characteristics of occupants, particularly in public housing, shifted to
low-income families with multiple problems, and to specialized household types
requiring special services such as the elderly, there was an increasing demand
for social services during the period of the 1960's. Various cooperative experiments
were undertaken by HUD with the Department of HEW to bring social services to
federally-assisted housing. Special grant programs for social services related
to assisted housing were passed by the Congress, but appropriations to implement
these grants were minimal or non-existent. In 1970, the public housing law was
amended to provide that certain housing-related tenant services were eligible
costs in a local housing authority budget; however, the severe restrictions on
LHA budgets made such funding difficult, if not impossible. A potential break-
through had begun to develop in the early 1970' s when it became possible to match
a 1/4 local housing authority contribution with 3/4 funding under social services
authorized under the Department of HEW. A growing number of housing authorized
began to utilize this arrangement, until 1972, when reductions in the HEW Social
Service fund, by Congressional action, virtually eliminated access to matching
funds for LHA's. While this action, and the subsequent administrative regulations,
are being appealed, the prospect is not promising. In addition, assisted housing
developments located in changing urban neighborhoods have been increasingly concerned
about the problem of "security" in housing developments, opening the need for
a further dimension of tenant services.

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- 27

B. Evaluation of Existing Housing Programs

1. A Perspective of Program Evaluation
In March, 1971, the NAHRO Board of Governors Issued a policy statement on recent develop-
ments in housing and urban development, with the following comment about the evaluation
of existing programs:

"Past efforts should be viewed in the realistic light not of
how close we came to meeting ambitious goals, but what was
accomplished under prevailing conditions with the resources
provided — and how much was learned about how to do the
job better in the future."

If the "goal" of federal housing assistance programs is to place every American in good
housing — and lift every family receiving housing assistance out of poverty — then
existing programs have failed On both counts. Part of the problem with goals is that
we have endorsed ambitious ones and then failed to deliver the resources to engage
them.

In carrying out federally-assisted housing efforts over the past four decades, local
communities have had to react and adjust to a constantly changing physical, economic
and social environment. They have also had to live with limited, and often "stop
and go" federal funding. Viewed In this light, the existing housing programs have made
significant achievements. Local communities across the Nation have developed more
than a million new dwellings for low and moderate income families, cleared acres of
slum properties, and rehabilitated liundreds of thousands of existing dwelling units.

Have the "achievements" of individual communities utilizing existing housing programs
been significant enough to place a tag of "succpss" on the programs as a whole? The
answer is unclear becuase the programs, as they proceeded, did not have the performance
and evaluation guidelines "built in" to make objective appraisals. There was no on-

1297

- 28 -

going effort to determine what was working and not working — and which particular
method yielded the most for the program dollar. This lack of an objective, on-going
evaluation process, makes it easy for "claims" and "counter claims" about the programs
to thrive. It has also made it easy for every "bright new idea" to be sprung as
"a new solution", or a "panacea" on the Washington scene. Sometimes, these ideas
were adopted as national policy without adequate testing.

Lacking an on-going evaluation process for existing housing and community development
programs, the most valuable evidence about "successes" and "failures" come from a
close examination of the local program results; and from the tested experience of the
cadre of local professionals who have learned the hard facts about land assembly and
disposition, family relocation, developing and managing housing for low and moderate
income fa-^ilies. The knowledge and expertise of these professionals is one of the
most valuable residual benefits of existing program experience.

There is still time for a useful and honest appraisal of what we have learned from our
past efforts. This assessment process will be far more rewarding and far less costly
than throwing out all of our past experience, and starting over again. A great deal
has been learned. We should not have to repeat the lessons over again. New program
proposals shouMbe subject to the tests of past experience.

2. Some "Myths and Realities" about Public Housing

The lack of detailed and consistent information on operations of existing housing
programs in many areas, plus the lack of objective standards and yardsticks for
evaluation of program performance, has led to many unsubstantiated opinions about the
operations of existing liousing programs. Attached is a copy of the NAHRO
testimony of April 11 before the Senate Committee on Banking, Housing and Urban
Affairs on "Myths and Realities in Public Housing."

1298

29 -

3. Current "Problem - Areas" in Program Administration

While beyond the scope this present paper, there are obviously a wide reange of admin-
istrative policies which represent problem areas. Some of these are related to legis-
lative policy; others are administrative only. They Include such questions as:

— operating subsidy in public housing

— welfare rent policy In public housing

— higli rent-income ratios in Section 236

— inadequancy of mortgage limit ceilings for Section 235 and 236

in many higher cost areas

— the quality of JEederal administration, relative to processing

and approval of housing assistance applications

— the quality of local administration, relative to the misuse of

federal assistance

— the degree of effectiveness of IIUD national organization — should

Housing Production and Housing Management be separate?

— should the same procedures apply to small as well as to large

housing authorities?

— how should the FHA guaranteed insurance program be related to the

HUD structure?

— the degree of effectiveness of the HUD decentralization: are tlie

KUD Area Offices really working?

— and many others.

All of these ares need to be identified and evaluated against objective criteria.

1299

- 30 -

PART V

FEDERAL HOUSING ASSISTANCE: NEW APPROACHES
A. A Checklist of Key Policy Issues for Federal Housing Legislation

The analysis of the existing programs in Part IVnot only describes the approaches of the
existing programs, but also their inconsistencies and shortcomings. Any major proposals
for reform of existing programs must deal with these key elements:

— How comprehensive shall the national housing effort be? Shall it be geared
to serve all families who require housing assistance? What is the level of
the Federal commitment?

— What type of Federal financing method should be used, particularly in rela-
tionship to the Federal budget?

— What should be the relationship between conventionally-financed housing,

federally-guaranteed housing, and federally-subsidized housing? Between publicly-
assisted housing and the private housing market?

— To what degree is rehabilitation and preservation of the existing housing

stock to be addressed?

— What special housing requirements are necessary in new growth areas, and in
new communities?

— What shall be the relationship of federal housing assistance programs to
federal planning and community development assistance programs?

— Miat financing and development techniques should be involved? One method?
A few selected methods? A diversity of methods to be used at the option
of State and local areas?

— What should be the relationship of federal housing assistance programs to
State and local housing assistance programs?

— How shall Federal housing assistance be delivered to the State and local
level? What will be the role of tlie federal government?

99-855 O - 73 - pt. 1 -- 83

1300

31

— Who shall receive housing assistance — the housing sponsor, the family, or both?

— How shall the housing assistance be structured — by income range, by type of
household, by housing market inadequacies?

— What eligibility requirements are necessary? Should there be deductions
from income? What is the concept of ability to pay?

— What shall be the quality of design and construction in federally assisted
housing programs?

— How shall social or tenant services be provided for federally-assisted housing?

1301

- 32 -

B. Recent Housing Reform Legislation; A Single Variable Subsidy Approach

Over the past three years, major legislative changes in existing housing programs

have been considered in the Congress. Basically, these proposals were:

— The Administration's proposal for "Consolidation and Simplification"
of housing programs introduced In 1971 (S. 2049, HR. 9331).

— The "Housing Reform Amendments", to this Administration Bill (Nos.
788 and 789) by Senator Edward W. Brooke and Walter F. Mondale; based
on proposals by NAHRO.

— The Housing Titles of the omnibus Housing and Urban Development
bill of the Committee on Banking and Currency (HR. 9688),

In March 1972, the Senate passed an omnibus Housing and Urban Development Act incor-
porating major portions of the Administration's Consolidation and Simplification bill
and the Brooke-Mondale Housing Reform Amendments. However, the House bill was not
cleared for action in the House of Representatives in 1972, and no legislation was
enacted.

1. A Single Variable Subsidy Approach: 1972

The Administration's bill did not propose any major "reforms" of existing programs,

beyond reducing the number and complexity of existing program. However, the NAHRO
proposal (which became the Brooke-Mondale Housing Reform Amendments, incorporated in
many respects in the Senate-passed bill S. 3248) would have substantially altered the
existing housing assistance programs under what can be described as a fully-consol-
idated housing assistance program designed to serve all families who cannot afford
housing on the private market — a single variable subsidy approach.

1302

33

These Housing Reform Amendments were basically designed to respond to some of the
shortcomings and inequities just described in Part IV: the gaps
in coverage and overlapping created by the fact that existing housing assistance
programs are structured by narrow income ranges (No. 6); the lack of uniformity
among existing programs in terms of income deductions and rent payment requirements
(No. 7); changing standards and lack of uniformity in terms of the quality of design
and construction (No. 8); and the problems resulting from the fact that most of the
very lowest income families receiving housing assistance were concentrated in public
housing (a result of the income structure, No. 6).

The major unifying element in the proposal was the concept of a single variable subsidy
payment to the housing sponsor from the federal government to make up the difference
between the cost of housing produced under various financing mechanisms (tax-exempt
bonds, below market interest rate mortgages), and the ability to pay of the family
to be housed. The reform legislation also provided for uniform income limits,
deductions from income, rent payment requirements and quality of design and con-
struction without regard to sponsorship (public agency, non-profit, limited profit),
or financing mechanism. A complete description of the original NAHRO proposal, as well
as the Brooke-Mondale Reform Amendments, and the version adapted in S. 3248 by the
Senate are attached to this statement.

Basically, the 1971 NAHRO Proposal represents one method for reforming existing housing
assistance proRrams into a more uniform and internally-consistent housing mechanism.
It provides for a federal housing payment to be built on below-market interest financing
mechanisms, to the degree necessary to neet the gap in ability to pay of the individual
family. The reform proposal also incorporates the concept of a cross-section of

1303

- 34 -

income In Individual housing developments, by requiring that all housing sponsors
serve 20 percent of very low Income families; this is to avoid the concentrations
of very low income families in any project or program.

2. Special Public Housing Reform Amendments: 1972

Among the significant reforms embodied in S. 3248, relative to public housing was
the requirement for a minimum rent (equal to utility costs); report language
accompanying this bill calling for a payment by welfare agencies to housing authori-
ties of a rent equal to operating costs on behalf of welfare residents. The House
bill (HR. 9688) also contained a minimum rent proposal, and a requirement for direct
vendor payments by welfare agencies to housing authorities to cover rents of public
assistance recipients. The NAHRO recommendation on welfare rents is that the
public assistance recipients living in public housing should pay up to 25 percent
of their public assistance allocation for rent, (depending on the regular LHA rent
schedule); with the welfare agency making a direct payment to the housing authority
to make up the difference between this family payment and operating cost rent.

3. Other Proposed Housing Amendments: 1972

The Brooke-Mondale Housing Refonn Amendments, also contained recommendations: (a) to
provide incentive grants to any local government jurisdiction to offset a portion
of the cost of increased public services, due to the housing development; (b) full
tax payments for all new public housing; (c) incentives to local housing authori-
ties to combine into metropolitan and regional agencies; and (d) an expanded
national housing goal requirement, incorporating the preparation of local and state
housing goals.

The House Bill (HR. 9688) also included provisions for incentive grants for public

services related to housing, and expanded housing goals requirements. The House

bill also contained a major new title on Housing Reliabilitation . Although not emerging
in the final draft, a proposal to provide a new housing delivery system for liouslng
assistance jTroraptcd discussion and debate.

1304

- 35-

C. Alternative Approaches to Assistance Mechanisms

The analysis of existing programs, and the checklist of major policy Issues relative to
federal housing assistance provide an important base for consideration of new approaches.

In addition, the 1972 NAHRO Housing Reform Proposals described in Section B
represents one way in which some of these policy issues could be resolved — by the
adoption of a single variable subsidy program applying to all families who require
housing assistance.

There are other alternative approaches which might be considered. Two approaches that
NAHRO believes merit exploration are:

— a household needs approach

— a housing market approach

1. A Household Needs Approach:

Housing assistance needs of individual households appear to break down into three

general areas :

a. Households who require assistance only to meet the cost requirement of
housing available on the private market.

b. Households who require special housing arrangements, support facilities, and
services in housing not generally produced in the private market, ie.
elderly, handicapped, single non-elderly persons, etc.

c. Households with income deficiencies beyond housing, ie. require general
Income support to meet minimum family needs, as well as special services.

It is not probable that any single housing assistance mechanism can meet the
requirements of all of these groups, although a single variable subsidy system

1305

- 36 -

would provide one possible approach. However, a useful ejcploration would be to
consider appropriate separate housing assistance mechanisms which might be tailored
to the specific needs of each general household group. This would also permit more
specific comprehensive assistance programs to be developed for the second and third
household groups, involving sources of services and support beyond housing assistance.
In particular, needs of the third group might well be approached through developing
housing assistance on top of a program of federal Income support. A condition to be
avoided in the household needs approach is the separation of the second and third
types of households by themselves, Isolated from the main stream of the housing
market and community life.

2. A Housing Market Approach

In addition to the diverse needs of particular households, there is a need to provide
specific responses to a diversity of local housing markets in both urban and rural
areas. The opportunities for servicing particular household needs in a local situation
will vary considerably in terms of the availability, type and cost of housing on the
private market, and these opportunities may fluctuate over time. Thus, a federal
housing assistance approach could be devised to provide a range of assistance options
geared to meet the shortfalls of local housing market; such as, a production
assistance mechanism to meet gaps in housing supply; an existing housing acquisition
mechanism to permit purchase of housing in over supply; a housing rehabilitation assis-
tance mechanism to bring housing back into use; a housing allowance or leasing
mechanism to take advantage of vacancies in the existing supply; and other such circum-
stances. Such a range of assistance options would permit a locality to select those
best suited to its local situation. The public housing program, among the existing
programs, perhaps best represents this approach, in the range of ^assistance options
available.

1306

37

D. Rehabilitation and Preservation of the Existing Housing Stock

The information previously given in this report relative to the dangers to our existing
housing s'tock (Part II — National Housing Needs and Requirements); and the experience
with our existing housing rehabilitation (Part IV — Assistance for Rehabilitation
and Conservation of Existing Housing) supports a far stronger emphasis for this effort
in our national housing assistance efforts. Again, however, these needs should be
overlaid with the particular needs of individual households and

to the particular characteristics of the local housing stock. A program for
housing rehabilitation must obviously contain both assistance to the individual pro-
perty or property owner, and to neighborhood and community-wide preservation programs.

£, Concepts of Ability to Pay For Housing

A common element applying to all of the considerations for federal housing assistance,
is an equitable standard for determining the ability to pay for housing by a particular
household in a particular local housing market. Such a standard is not fulfilled by
a single rent to income (or pa/ment to income) requirement in the Federal Statute. It
is clear that we need much more knowledge about housing payments relative to household
ability to pay. Our operating experience demonstrates that high rent-to income ratios
for federally-assisted housing in comparison with private housing market patterns,
causes families to leave (or not apply for assisted housing) , even though their private housi'g
situation is inadequate. We also know from experience that housing expenses as part of
a minimum family budget must stay wltliln a certain range or other family needs suffer. In
determining an equitable standard, we must also take into consideration all of the
federal housing benefits occuring to a household, such as income tax deductions for
interest payments on mortgages. This subject requires extensive exploration.

Y. Administration and Mnnap.cnent Consideration
Whatever llie housing assistance approaches, there are important considerations relative

1307

- 38

to the appropriate roles of federal, local and state government, as well as the long-
term managerial aspects of the assistance. Too often, there has been a lack of clear
federal objectives and guidelines, and a lack of flexibility for localities and states
to develop their own program to meet these guidelines. Too often also, the focus on
housing assistance has been solely on getting housing produced, to the neglect of the
implications of long-term management.

G. A Delivery System For Federal Housing Assistance

The nature of the most effective delivery system (or systems) to distribute federal
housing assistance to local and state levels depends to a considerable extent on the
options developed for federal housing assistance.

It is quite possible that different housing assistance options can be
handled most effectively under different delivery mechanicms, ie. there may be no
one best delivery system. Further, at the present tine there is considerable activity
testing out the capacity of new institutions in the housing and community develop-
ment field. This can be seen in such mechanisms as the "Greater Hartford Development
Process", combining public and private interests in joint ventures. There is a con-
siderable growth in the number of quasi-public housing development corporations.
There is a trend to consolidate local housing autliorities into metropolitan and regional
agencies. It would seem untimely for a single delivery system mechanism, particularly
one which would tend to cut-off the experimentation with new institutional development,
to be mandated under federal statute or regulation. In any event, there is a question as
to whether federal legislation or policy should unduly limit the option of localities
or States to se]ect their own institutional devices suited to their needs.

1308

Questions for Robert Maffin, Executive Director, MHRO, submitted by-
Senator Brooke

1.) What is the current inventory of public housing units and their value?
2.) S. 2182 makes certain changes in the rent requirements for

public housing units. Most importantly, it requires a minimum
rental for any dwelling unit equal to h<yjo of the operating costs
attributed to the dwelling unit.

a.) Could you outline for the Subcommittee the impact of this minimum
rent provision on the rent limitations imposed under the Brooke
Amendments^
b.) Do you think the minimum rent requirements in S. 2l82 are necessary?
c.) Will the minimum rent requirements provide sufficient additional
rental income to put public housing authorities on a sound
financial basis?
d.) Have you any information on how much additional rental income

will be generated by the adoption of the minimum rent requirements
contained in S. 2l82?
3.) In addition to establishing a minimum rent for public housing units,
S. 2182 defines income for the purpose of determining rent in such
a way as to deny families the deduction of 5?^ from gross income
which they are permitted under present law and to deny elderly families
the 10/0 deduction they are permitted under present laws .
a.) Do you think this p-ovis ion is necessary?

b.) Do you have any information on how much additional rental income
will be generated for public housing authorities by the
removing of the ^"Jo and IC^ deductions from the income definition?

1309

Page 2 (of Maffin questions)

k.) a.) Do you have any information regarding the effect on non-welfare,
elderly, public housing tenants of simultaneously (l) imposing
a minimum rent requirement and (2) denying the 10^ deduction in
defining income?
b.) Could the adoption of the minimum rent and income definitions

contained in S. 2l82 have the effect of forcing elderly tenants
living on social security to move out of public housing?
5.) Do you have information regarding the number and type of public housing
authorities which are experiencing financial crises?

b.) Do you have any information regarding the causes of the deterioration
in the financial status of public housing authorities other than
loss of rental income?
c.) How many public housing authorities will be unable to meet their
financial obligations by the end of Fiscal Year 197^+ if rent
rent requirements are not changed?
d.) Will any public housing authorities go bankrupt in 197^ if rent
requirements are not changed?

1310

August. 1973

RESPONSES TO QUESTIONS SUBMITTED BY
SENATOR BROOKE TO ROBERT MAFFIN
EXECUTIVE DIRECTOR, NAHRO, follovd.ng
Testimony Before the Senate Committee
on Banking Housing and Urban Affairs,
July 27, 1973

1. What is the current inventory of public units and their value?

At the end of Fiscal Year 1973 (June 30), the Department of HUD estimates
that there were 1,111,500 housing units under management in 8,700 separate
housing developments. The market value of this investment has not been
precisely determined, but based on original development costs would
probably be from 30 to 40 billion dollars.

2., 3., 4. These three questions relating to the impact, the necessity, and
the potential rental revenue which might be generated by the pro-
visions in S. 2182 relating to a minimum rent requirement, and
adjustment in the definition of income must be considered together
since they inter-relate.

a. The impact of the minimum rent and income definition adjustments, as set
forth in S. 2182, on non-welfare tenants (largely elderly households)
from the individual project data which we have analyzed, would result
in rent increases averaging about $5 per month. After the increases

1311

- 2

in rent, the rent- to- income ratios of over three fourths of those
affected would be 25 percent of gross income. Studies by the National
Urban League in June, 1971, concluded that the ratio of sheltarcosts to
income for elderly in subsidized housing should be around 30 percent.
The proposed minimum rent and adjustments in income definition should
not cause moveouts by elderly tenants on social security.

These estimates appear to be slightly higher than the information
supplied to the Senate Subcommittee by the Department of HUD in July,
1973, which projected a minimum rent of $26 on a national basis, (based
on 40 percent of operating cost, including project-supplied utilities)
and an average rent increase of $4 per month (including a $2 increase
as a result of changes in the income definition).

b. The minimum rent and income definition adjustments proposed in S. 2182
have three advantages:

-they would insure that all families in public housing would
pay some rent, without requiring a rent-to-income payment
beyond the means of non-welfare households.

-they would assist in generating some rental revenue for local
housing authorities.

-they would set a limit on the operating subsidy required from
the federal government, (together with the provision for a
20% average rent to income ratio in Section 9(b) of S. 2182),
by requiring a specified rent contribution at the minimum rent

1312

3 -

lev^l. This should assist In gaining approval of Federal
operating subsidies.

c. The provisions on welfare rent in S. 2128, If amended slightly so
that they would apply to welfare systems in all States, could be
a major factor In Improving the fiscal capacity of local
housing authorities. This could produce additional rental revenue
of at least $77 million (which was the amount of revenue lost to
LHA's as a result of the 1971 welfare amendment). It would also
insure that housing subsidies would not be used to make up non-
housing items in inadequate welfare budgets, but solely to meet
housing requirements.

d. The Department of HUD estimates for the Senate Subcommittee in
July, 1973 indicated that a minimum rent based on 40% operating
cost including project-supplied utilities, and the change in
income definition, would produce an annual Increase in rental
income of about $54 million. This would not, in Itself, put

local housing authorities on a sound financial basis, but coupled with
changes in welfare rents, (estimated to produce additional revenue
of at least $77 million) it could meet a significant part of the
gap between currently-available federal operating subsidies and
total LHA requirements.

5. Information on the Financial Status of Public Housing Authorities

The Department of HUD has indicated that as of June 30, 1972, there

1313

- 4 -

were 181 housing authorities in "serious financial condition"
housing more than 43 percent of all public housing tenants, and
that the number of authorities in such condition has probably risen
since that date. To be recorded as in "serious financial condition"
means that there is a gap of over $10 per unit per month between
operating receipts and routine expenses. The number of housing
authorities in this status has risen from about six authorities in
1970 to the present number. The causes of the deterioration of the
financial status of public housing, other than the loss of rental
income because of Congressionally-mandated rent reductions, are
increasing occupancy by the lowest income groups, particuarly elderly,
who pay lower rents at the same time as the cost of operations is
rising due to inflation in the general economy.

The current financial status of public housing is also related to the
inadequacy of the "Interim Formula" adopted by HUD in November, 1972
to allocate operating subsidy. There are three basic defects in
this formula:

(1) The formula uses the fiscal year 1972 as a base year to
calculate local housing authority expenses; in this year
many housing authorities had already deferred maintenance
and made cutbacks in services; so that FY 1972 is not a
realistic expense year.

(2) The interim formula uses an Inflation factor of only 3 percent
as the basis for increased federal assistance; the more accurate
factor would be at least 5.5 percent.

1314

- 5

(3) The interim formula required housing authorities to reduce
their reserve back to minimal amounts (to 40% of normal
maximum) using reserves to offset operating deficits before,
receiving any federal operating subsidy. This reserve
reduction took place in fiscal year 1973 and cannot be
repeated again. This leaves a "short-fall" in resources
for the 1974 fiscal year.

We have no present information as to which local housing authorities might
not be able to meet their financial obligation during fiscal year 1974,
but it is clear that a number of local housing authorities are reaching a
point where a major collapse of services, physical facilities and living
environment could occurr within the year. As the Department of HUD
stated in its 1973 appropriations testimony, "the term 'bankrupt' has no
meaning in a publicly-aided program. If an LHA were totally unable to
operate, provision exists for that LHA to go under Federal ownership
and operation."

1315

The Chairman. Now, Mr. J. C. Miller, executive director of the
Housing Authority of the city of Montgomery, Ala. Mr. Miller, I have
this very comprehensive presentation that you have prepared. That
represents your statement in effect, doesn't it 'i

Mr. ]MiLLER. Yes, sir, it does.

The Chairman. All right. I suppose we will have to do some— do
you have a prepared statement ?

Mr. Miller. Yes, sir. We have a short, three-page statement.

The Chairman. Fine. I was just going to say we would have to do
some selection on that to get it into the record, but your typed state-
ment will be printed in its entirety in the record. You may present
it as you see fit — read it, discuss it or summarize it, however you want
to present it, and for the benefit of the record, will you give the reporter
the name of the young lady with you ?

Mr. Miller. Very happy to. This is Mrs. Pat ]\lorgan, administra-
tive assistant, and also in charge of all new projects for the housing
authority.

STATEMENT OF J. C. MILLER, EXECUTIVE DIRECTOR, HOUSING
AUTHORITY OF THE CITY OF MONTGOMERY, ALA.; ACCOMPA-
NIED BY PAT MORGAN, ADMINISTRATIVE ASSISTANT

Mr. Miller. Senator, to you and the committee, we do appreciate,
on behalf of the authority employees, this privilege of appearing
before you to submit our program to you. We hope in this booklet there
is information that will show what we are trying to do toward provid-
ing housing for the low-income residents of our city.

The Chairman. Well, it will be part of our committee's files and
various members of the committee will be very glad to look through it.
I will urge them all to go through it because you have done a tre-
mendous job in preparing it.

Mr. Miller. We appreciate that and we appreciate the interest and
concern that this committee shows in the housing f)roblems.

The employees of the Montgomery Housing Authority are a very
dedicated group of people, dedicated not only to furnishing hous-
ing, but to act as a means to foster richer human development and
upward mobility and growth to the residents. This involves estab-
lishing an effective communication with resident councils and com-
munity leaders, explaining future plans, listening and sincerely eval-
uating resident criticism and complaints, working and making plans
together rather than dictating to them. We try to act as an agent
through which local services are made available to authority resi-
dents, including employment opportunities and other amenities or
improvements which are not within our jurisdiction. We realize that
with each application for admission to an authority unit there is an
opportunity not only to provide housing, but to help someone achieve
or regain his self-dependence, pride and personal growth, and to
make him aware of his rights and privileges and to respect the same
of others.

An efficiently managed housing program for low-income people is
rather hard to define, but a report was recently compiled indicating
that the Montgomery Housing Authority has helped 263 families in

99-855 O - 73 - pt. 1 -- 84

1316

the last 2 years to become homeowners, working and paying their
own way in our society.

The Chairman. I believe I would like for you to give that state-
ment again and say it loud and clear.

Mr. Miller. Thank you, sir; ^ve are rather proud of that statement,
too. In the past 2 years, we have helped 263 families to move on out of
the housing projects and to become homeowners themselves.

The Chairman. You mean move out of public housing ?

Mr. Miller. Yes, sir, out of public housing.

The Chairman. We used to refer to that as graduating.

Mr. Miller. Well, that is a good term. That's very good. We did
that by counseling and various methods and spending a lot of time
with the people, and we feel like that is part of the program, rather
than just letting maybe the housing projects become housing of last
resort — just getting there and staying there. So we think that is
progress.

The Chairman. Well, other housing authorities may have done as
well, but I thing that is a first — certainly the most encouraging state-
ment I have heard. I can remember back many years ago when pub-
lic housing was not as popular as it later grew to be. We used to argue
that for public housing really to serve its purpose that efforts should
be made to move those people up, and, as I said, help them to become
able to graduate from public housing and go into homeownership.

Mr. Miller. We were going to continue in saying that we find it
very hard to maybe evaluate the progress such as this in a dollar and
cent, profit and loss figure. In fact, we hadn't learned yet how to do
that. But we do feel like in helping someone do this that we have
achieved part of our responsibility in providing housing. Of course,
we don't want to give the impression that we are not dollar-conscious.
We are aware of that. We know that without money we cannot continue
to function in any capacity. We can't do any of these things. In fact,
we can't even exist.

The Chairman. By the way, at this point let me ask you, who is
chairman of the Housing Authority now ?

Mr. Miller. That's another thing we are very proud of. We were
going to mention that in the latter part of this statement.

The Chairman, Well, I want to get it in the record before you got
too far.

Mr. Miller. Mr. Lewis Odom is sei'ving as chairman of our board
of commissioners now and doing a very good job. We wanted to recog-
nize him and he is certainly an asset to the entire authority.

The Chairman. You know he had considerable service in the Sen-
ate. He first came up in 1955 and served as a staff member on the Small
Business Committee of which I at that time was chairman, and then
later he moved over to my office as my administrative assistant, and
then still later, when I became chairman of this committee, he became
the staff director of this committee and contiiuied in that position
until he decided to go back home to practice law. So he has had long
experience in housing.

Mr. Miller. Well, we are indebted to you and this committee in
more ways than one, because he is certainly an asset to us in the Mont-
gomery Housing Authority.

1317

We have some charts and also a few pictures that we hope will re-
flect the type of operation that we have in Montgomery, We borrowed
a phrase from one of our residents that I'd just like to repeat for the
record. Mr. Samuel Moore, one of our residents, came up with a slo-
gan, and we try to abide by this every day. It is : Coming together is
a beginning, keeping together is progress, and working together is suc-
cess. We asked our residents — in fact, we had a little competitive con-
test going on to see who could come up with the best slogan, and Mr,
Moore did. We thought it was very good.

We would like to call your attention to pages 4 and 5, if -we may,
We will run through it rather hui-riedly. This reflects the financial
condition of the Montgomery Housing Authority for the last 10
years.

In 1964, we had a total income of receipt per unit per month of
$31.47; and in the budgeted year 1974, $83.57; with total expenditure
of $47.50 per unit-month. So you can see that's our problem there. In
1970, we had a rent income of $41.54, with an operating expenditure of
$32.21, with a higher reserve figure. Then with a decrease in rents
and an inci-ease in operating expense, utilizing our reserve, this
brought tlie figure over to the budgeted 1974 figures. So that's the
financial picture in a nutshell right there.

Now, we would like to show you the rent range which affects our
entire program. We have broken down there the percentage of people
that are paying zero rent. If you will notice, in 1973, 10 percent of our
residents, or 262 families, were paying zero rent^ — no income at all
from them. And 22 percent of them were paying between $10 and $20
a month, or 576 families ; 36 percent, or 943 families, were paying be-
tween $20 and $40. That's a total of 1,781, or approximately two-thirds
of our conventional programs, that are paying less than our operating
costs of $47.50 per unit-month.

The Chairman. You gave us the percentages there, but on the total,
what would that be — the composite figure ?

Mr. Miller. About two-thirds are paying less than operating costs.
Is that what you have reference to? About two-thirds of all of our
residents are paying less than the operating costs per unit-month.

The Chairman. AVell, how do you stand on the operation from a
profit-and-loss basis ?

Mr, Miller. We have been using our reserves. Wlien the rent in-
come went down, we had to dig into our reserve. Because of having a
real tight operation over the period of years, we were able to build
up and maintain a high maximum reserve figure.

The Chairman. Let me ask you, is this the effect of the Brooke
amendments ?

Mr. Miller. Yes, sir.

The Chairman. There is another rollcall, and I am going to have
to go to it, so I will ask the committee to stand in recess until I get
back or until Senator Stevenson gets here. He is coming soon and he
may get back before I do. I would like for you to discuss the Brooke
amendment, and Senator Brooke himself has proposed some questions.
He can't be here today, and he has proposed some questions be pro-
pounded. They are very brief, and I may just ask you to comment on
them. If not, or if you prefer, you can take them and give us answers
in writing for the record.

1318

Mr. Miller. Whatever your pleasure is.

The Chairman, You might be lookmg: at these while I'm gone. The
committee will stand in recess until one of us gets back.

[Recess.]

Senator Stevenson. The hearing will come to order. I will preside
until the chairman returns.

May we continue, Mr. Miller. I believe before we recessed, the chair-
man had propounded certain questions to you. Would you continue
with your answers to those questions, please ?

Mr. Miller. Thank you, sir. We were discussing the percentage of
the rent range, and we were giving percentage figures on page 7,
wherein we were giving percentages there of our rent range, and we
had just said that out of 2,622 families, 1,781 of them, or two-thirds,
were paying less than operating costs per unit-month, which results
in a deficit of $438,000 pei- year. Of course, the reason for that is the
rent decrease, the dwelling rent income. This was on the conventional
program that we are talking about now and

Senator Stevenson. What would be generated for the Montgomery
Housing Authority if we were to adopt provisions in S, 2182 requir-
ing a minimum rental for any dewelling unit equal to 40 percent of
the operating cost attributable to the unit ?

Mr. Miller. We did some mast calculations on that in an attempt
to have an answer for that, and as we have just repeated, 10 per-
cent of our families are paying a zero rent, or 262 families; 22 per-
cent, or 576 families, are paying an average of $15 a month; and with
an operating cost of $47.50 per unit-month, by increasing this up to
40 percent of these 800-some families, we feel it would give us an
annual increase of $87,000 per year, which would not, of course, get
us out of the deficit, but it would certainly help.

Also, one other thought behind that, ^\e are of the opinion that
everybody ought to be paying something, and 40 percent or some per-
cent of the operating cost per unit-month seems to us a very fair way
that everybody would be paying something. We feel like with some-
thing coming out of our pocket and paying it does away with the
feeling that somebody is giving us something and might make us
take better care of what we are living in, thereby reducing the cost
of upkeep of the apartment.

Senator Stevenson. We have one further question which you might
prefer to answer for the record after this hearing. What additional
rental income would be generated for the Montgomery Housing Au-
thority if you were to adopt income definitions contained in S. 2182
which in effect abolishes the 5-percent deduction from gross income
from families, and the 10-percent deduction from gross income for
elderly families?

Mr. Miller, We just saw that question, and we would like to reply
to that in writing, sir.

Senator Stevenson. We would appreciate it if you would.
Thank you very much, Mr, Miller, for your helpful testimony,
Mr, Miller, Thank you, sir,
[Complete statement and additional information follow :]

1319

THE HOUSIBG AUTHORITY OF THE CITY OF MONTGOMERY, ALABAMA

Mr. Chairman and other members of this Committee, we appreciate
this opportunity to appear before you in an attempt to show what the
Housing Authority in Montgomery, Alabama, is doing in trying to provide
decent, safe and sanitary housing for the low income residents of our
city. We deeply appreciate your interest and concern in this very
important responsibility.

The employees of the Montgomery Housing Authority are a very
dedicated group of people, dedicated not only to furnishing housing,
but to act as a means to foster richer human development and upward mobility
and growth to the residents. This involves establishing an effective
communication with resident ccaxncils suid comnaunity leaders, explaining
future plans, listening and sincerely evaluating resident criticism and
complaints, working and making plans together rather than dictating to
them. We try to act as an agent through which local services are made
available to Authority residents, including employment opportunities and
other amenities or improvements which are not within our jurisdiction.
We realize that with each application for admission to an Authority unit,
there is an opportunity not only to provide housing, but to help someone
achieve or regain his self-dependence, pride and personal growth, and to
make him aware of his rights and privileges and to respect the same of
others . ^

An efficiently managed housing program for low- income people is
rather hard to define, but a report was recently compiled indicating that
the Montgomery Housing Authority has helped 263 faMlies in the last two

1320

years to become home owners, working and paying their own way in our
society. We feel very strongly that results such as this lead to
goals being reached, and public housing being something other than
"Housing of Last Resort." We have not yet learned how to measure the
degree of success in providing housing and a human development program
in a profit or loss dollar figure. We do not feel that we are in
existence to make a profit, but for an even more important reason -
that of improving the social and economic condition of the less fortunate
families. Yet we do not want to give the impression that we are not
money conscious, because we realize that without money, we cannot
continue to function in ajiy capacity. With rising operating costs far
exceeding rental income, some adjustments need to be made. In regard
to rent income and operating expense, in fiscal year ending March, 1970,
our rental income was $35 •'^S and operating cost per unit month was $32.21.
We were at a maximum reserve fugure. We would appreciate your reviewing
the following charts which will reflect how the implementation of the
Housing Act of I969 affected these figures, seriously threatening our
program. We are sympathetic with the Brooke sjnendments, but because we
did not receive the intended subsidy, we are forced to overlook some of
the most needy families in an attempt to remain financially solvent.
In so doing, we are not sure we are housing the people for whom the
program was intended. Also, while looking for this type of income,
our vacancies increase, thereby encouraging vandalism on the vacajit unit.

It is our belief that a minimum rent or a rent based on the unit
size would not only help the financial situation, but would actually help
the residents by instilling some sort of self-reliance and feeling that

1321

they are not being given something, but are paying their own v;ay.
Ti.is feeling of self-respect and appreciation is a common need to
all of us everywhere.

We hope the following charts will reflect the past, present
and projected financial condition of the Montgomery Housing Authority,
and remembering that someone once coined the phrase, "One picture
is worth a thousand words," we hope the pictures will exemplify the
interest and activities involving the community, as well as that of
the residents and employees, toward making the Montgomery Housing
Authority communities a pleasant place in which to live. We have
adopted a slogan at our Authority submitted by a good friend and
resident, Mr. Samuel Moore:

"Coming together is a beginning.
Keeping together is progress.
Working together is success."
We try to abide by this daily as we go about our assigned duties.

In conclusion, we would like to express our appreciation to the
members of our Housing Authority Board of Commissioners for their
guidance and help in implementing our program, particularly our
Chairman, Lewis G. Odom, Jr., who has served this Committee as Staff
Director and General Counsel. Mr. Odcm was elected Chairman immediately
upon his appointment to the Board in August, 1971. His knowledge of and
experience in the housing field has been invaluable to our program, and
we want to express our appreciation to him publicly.

Respectfully submitted,

J. C. MILLER, JR.
Executive Director

1322

THE HOUSING AUTHORITY OF THE CITY OF MONTGOMERY, ALABAMA

CONVENTIONAL HOUSING

YEAR

1964

1965

1966

1967

1968

PROJECTS

9

.9

9

9

9

UNITS

1,624

1,624

1,624

1,624

1,624

UNIT MONTHS

19.488

19.488

19,488

19.488

19.488

DWELLING RENT

TOTAL RECEIPTS
TOTAL EXPENDITURES
DIFFERENCE

PER UNIT MONTH
$28.38 $28.47

$31.47
$27.12

ADDITIONAL FEDERAL
OPERATING

RESIDUAL RECEIPTS
FOR FISCAL YEAR

$6.75

$32.76
$25.16

$4.35 $7.60
PROVISION FOR RESERVE ($2.40) $2.07

$5.53

$28.99

$33.28
$25.76

$7.52
$.23

$7.29

$30.37

$34.89
$27.13

$7.76
$2.00

$31.04

$35.51

$28.20

$7.31
$2.40

$5.76 $4.91

1323

THE HOUSING AUTHORITY OF THE CITY OF MONTGOMERY, ALABAMA
CONVENTIONAL HOUSING

19^9

1970

1971

1972

1973

BUDGET

1974

THREE MONTH
ACTUAL
1974

9

10

11

12

12

12

1,624

2,122

2,222

2,622

2,622

2,622

19.488

25.464

26.364

31.464

31,464

31^464

PER UNIT MONTH

$32.48

$35.42

$32.75

$27.98

$23.27

$30.00

$30.35

$37.35

$41.54

$40.12

$33.64

$28.34

$33.57

$31.37

$32.21

$39.24

$35.13

$35.20

$47.50

$5.98

$9.33

$.87

($1.49)

($6.86)

($13.93)

None

$9.33

$.72

($1.49)

($6.86)

($4.59)

NOT

ELIGIBLE

$9.34

$5.98

None

$.15

None

None

None

1324

THE HOUSING AUTHORITY OF THE CITY OF MONTGOMERY, ALABAMA

LEASED HOUSING PROGRAM

YEAR

1971

1972

1973

1974
(Budget)

UNITS

598

598

598

598

UNIT M(WTHS

6,187
(86%)

7,176

7,176

7,176

DWELLING RENT _____
TOTAL INCOME

TOTAL EXPENSE

DEFICIT

PROVISKM FOR RESERVE

SUB- TOTAL

ANNUAL CONTRIBUTION

ADDITIONAL FEDERAL
OPERATING SUBSIDY

$27.06 $21.66

$88.44
$12,97

$101.68

$101.41

$101.41

$101.68

$101.68

$12.37

$112.32
(8-94)

$.49

$18.00

$31.05 $24.84 $15.17 $20.81
$119.49 $126.52 $127.50 $134.54

$113.54
1.12

$11.96

1325

COMVENTIONAL FAOGRAM
I>H«llln« Rant

The Housing Authority
Olty of NoDtgouzy

Far unit
■onth

/r

1 .r I ., i ,. i .. i ,n i .. I > 1 ^ 1

/

/

6^ ' (* • 4(. • « * 48 * 49 7o 7/ «, -73 "BottatT

1^

ACTUAL

Dwalllng

Rant (PUH)* jj^jg ^.^.J ^cfy 3o.ii 3J.04 31.48 jy.n Ji.iff ai.tlg ja.Z<jI

f

30.3^1

I

1326

Parcant

CONVSNTIONAL FRXRAN
Rent Rang*

The Housing Authority
City of Montgomaxy

75*

40

-W

3o

/s-

k

uJ

ui

VA*' V'l^f I f/l/7i>\ *tjl/75 I 7///7J

Ui

I

• -^ I

.--4

Legend

Rent Range

Monthly rent

1

0 & l3elow«

—

/o-yo

/o7o '

/o^

10-20 ^^'^

—

zj% :

2<r%

n'^o ■

22.^

20-JK)

63%

^<.7o '

J7%

3^7o i

J^%

•60

;l9<z»

28 ?o

za%

22*% '

22.%

60-80-'^'^

8 7o

5-7o ;

6% ,

// %

/o 7o

Average Rent par dirallljig unit

% 33.25 % 33.09

1327

per unit
Bonth

^ro

H^

*io

3^

3o

IJS

Zjo

coNvsarriONAL program

Operating Inooae va Sxpendltures

I The Housing Authority

{ . City of Hontcomecy

I . .

1

M

' (^- U. M fcS 69 lo '7/ '?Z ' 73

//

/•/

''^^<'^

7** "Bi

ACmJAL

Operating ^^ ! , 1 .

Income < i\M1 Ji.Ol, 03.16 i%i<=i 35,5) ! SraS" . '*/.4»f .. ^.a„, ij3.<^. -W.3HI .. 33.<J7 :

Routine

Expenditures 2P.3 1 TXVt 21.01 2(..i> jLt.^ i3ii 3(V«3 33i^ 33.3*) 35'.2«

Total
Expenditures

^ : - . !

KLil Z%iO JI47 3ZM 3<}JUi

7^.83

I -I

jua j»-.ao v?.-*"© I

1328

Parcant

c

I :

sHo
Uo

tec

90%
So

40

+

CONVENTIONAL PROGRAM
Ratio of Routine oparatlne expans*
to Local oparatlng Incoaa

t8 UH

tfi" r-1 • n

+

nC

SOUND MARGIN

It 11

73

8*/

Th« Hoiieinc Authority
City of Hontsouiry

1

/zV

«

/a*? .

1 -1
I

•f«

;i

> i ^ '•♦ ),

ACTUAL: • .'

1329

CONVEirriONAL PBXRAH

Actual Reaervd as to

percentage pexmlsslttle

I The Houfllng Authority
City of Mont«oaccy I

PHi UNIT

Actual ^ .ffj
Reserve -

Reserve 4{ ;
P laslUe HI

01 /VV 1^2. 3J0 \. ZBi . ^zn zsfi isri

itL /W /9V Z3H rt3 Jil Zd'i ZH

I.J. . ) ; .. _J ,..i : J-— J -

233

no.

28/

1330

Par unit
■onth

T/0

-r

-lO

riNAMOUL ANALYSIS

'4'i)M tiutfultttt AtUltu^.H/
Olty of Montgonary

b4

I

Residual Reclepts (Retuzned to U.S. Govt.
<..7<r ^a'S 7.M ;f.7l, 4.'»l i j:<?8 -o

- alaoBt $ 750.000)

--; . :.'f ;,-'o-^:_ - o-

..-o-. ,

Reserve
- 2.40 Z.07

." '2*90 ZMo -o- 9.3i [ .n -/.vy -t-9<^' -V.a7

:Addltlonal Federal Operating Subsidy Required

-I -.-I. .-I-.;

III!

I I '

Not Eligible

I I

$9.34

1331

Dollars
per unl

■onth *30i

I

^.

XO"

//--

/«..

>r--

Legend

CONVENTIONAL FROGBAM
EXFEKSSS

(»4 1 (t^ I UW 1 (.7 I CS I ;i9 1 To I 7/ \ 7Z I 73

I !

! i

i !'

The Housing Authority
City of Montgonery

I

I r

I i .

. - I -

Malnt — —

LUt

S.UI

8.3*y

Ut y^^^

^3:,Z3

j:/(;

S.I3

Admin

*,^

S.-S4

iM

Non-Routine ^.7? ^^o TJlo

ACTUAL i

Dollars per \mlt aonth
lO.iC /&.9I //-'^ t'-^^ H-'il

9-^(* /o.3e' ix>m /isz /iM
.9s ,n ^7«/ /.7e ,5:^9

A

I I

//.34. /A6rj ; /-ii^VO !

<?.!>. /O.M /3.00 1

/,76 ^_ ,67 !

Total operating

expense i?.li 2d''<«, iJS.?U

Xl.iy 7S,.1J) 31.37 ^^M

; .;. - i .i. ; LLi.,.„...-:..

99-855 O - 73 - pt. 1 -- 85

1332

LEASED HOUSING PROGRAM
Dwelling Roni

Per unit
Bonth.

ao

zr

Zo

/A'

/•>

Dwelling
Rent (pun)

3 month average
/ft dV
/e.oo

The Housing Authority
j City of Montgomery |

•^1

1333

LEASED HOUSING PROGRAM The Housing Authority

City of Montgonary
Ratio of Routine Operating Escpense to Local Operating Incoae

/ei>

iLo

fiO

/zo

/ad

S6

FY ending

/

/ "

1

/??/ 1172. {113

'Sot>asT

^A(VG«(^ !

If

l<»7q

ACTUAL

1334

LEASED HOUSING PROGRAM The Housing Authority

Actual Reserve ae to percentage permiasl'bile City of Montgonexy

Percent

I

foo

80

Uo

40

Zo

Legend

Actual

/97/

/97Z \ /973

-*#ft

i

i

1
■

■
\

i

1
- ■ ■

Softc«r I
/974 ,

ACTUAL

Per Unit

Reserve ^ /SZ.oo /Sl.oo \ -^oo \ .Se.OO

Reserve ;

Permissible /Sk.oo : /SZ.oo \ /9'?,oo ZcSiosl

I.--

1335

I.EASEI) HOUSING PROGRAM
Rant Ran£«

Poroent

Rent Range
Monthly Rent

Th» Housing Authority
City of MontgoBwry

1

;-~^

. ...

- ' ■

0 4 below —
10-20 -'^^
20-40 ^^.^-^

40-60

60-80 -A-A

LoV.

3S-7o

1 ^% ;

40^0

lo % :

ZZTo
31%
UUlo

28% i
23 ?o 1

/7% 1

2&%

/e7c
9%

Average

rent per dwelling unit

$22.20 ,

$20.61

1336

LSiASSD HOUSING PROGRAM Xh« HouslJig Authority

Opoxfttlng InoOB« vb Routln* fficpandlturea , City of Montgoaaiy

Routine —

Expenditures ZO.ZO i 2(>.n 2U.1(« ' JV, //

(does not ; 1

Include rent ! ' ' '.

to owners)

\

1337

Per unit
month I

"4

Xo

lb

LEASED HOUSING PROGRAM

Additional Federal Operating Sutoidy Beq^ulred

//.9c:

The Houalng Authority
City of Montgomery

1338

LEASED HOUSING PROGRAM
Ejcpenses

The Housing Authority
City of Mantgoaairy

Per unit
nonth

/OO

90

SO

%o

JO

Legend

Malnt. — 7.^8

UtU. -^*- ^-31

Adjiila. ->vu S.^a"

Non-Routine ,30

Rent to Owners

^-^^ 98.9i

9.1U

8.7Z.

L9ir

/O.lh

11.09

! — ^

,3/

i

/flo,3<r

Total operating j

/0O,'43

/A7i«^

tt.sH

1

■ •

1

. 7.70

■ '

; ' , i ;,

/3.&q

i i i

i ; i '

1 ; '.

1 i ; 1

i ' ! '

'

! ; 1

i ■ 1

t

/OO.M3

1 1 . • ■

1 ; ' ! : :

/^Vi*¥

. : 1 i

II''

i 1 '

...1...: ,

i i

1

; ■ ■ 1

1339

Ilr. E. D. nixon
Community Service Advisor
Young Forte Village
3594 Young Drive
Ilontgomery, Alabama 36108

June 23, 1973

rir. J. C. Miller, Jr.
Executive Director
Ilontgomery Housing Authority
1020 Bell Street
Montgomery, Alabama

Dear Mr, Miller:

This is a follov;-up of our conversation in agreement with
Mr. '*Jalter G. Hoolce, National Personnel Director, United -
Parcel Service, 643 VJest 43rd Street, llev; York , ITev York
and Mr. Uill Mann, Alabama District Personnel Director,
United Parcel Service in Birmingham, Alabama, vrith reference
to t^70 trainees that vrill be placed in Young Forte Village
beginning July 9, 1973 through August 31, 1973.

It is our understanding that this is customary vrith the
United Parcel Service to place a number of their employees
across the country in places like Young Forte Village so
that their men can get a closer look at the community and
broaden their experience in dealing vrith the lovrer-payed
element of people, this I think is very good.

Mr. '..'ill Mann, Mr. Arthur Hill and I talked to Mr. Wiley Thomas,
Assistant Manager, and he to vras informed about the coming
of our first man.

I bring this to your attention because v^e are expecting
one of the men here on July 9, 1973.

Please advise me if there is anything in addition to our
agreement that you vrish me to raise in meeting with
Mr. Uill Mann or whoever accompanies the man here.

Yours truly,

E. D. Nixon '^
Community Service Advisor

EDK/n\s

1340

SOME OF THE ACTIVITIES AND SERVICES THAT ARE AVAILABLE
TO RESIDENTS OF THE MONTGOMERY HOUSING AUTHORITY

1. DRUG ABUSE

A drug use and abuse program has recently been initiated in
several of the projects. Members of the Narcotics Division of
the Montgomery Police Department, along with the State Depart-
ment of Dangerous Drugs and some local doctors, have made
themselves available for informal sessions with both the
youth and adults. These discussions are held in the community
centers, on the lawns or in the apartments. The interest and
results are gratifying.

2. COMMUNITY LIVING

A retired professional teacher and very learned person, Mrs.
Betty Fitz-Gerald, is donating her talents and time in con-
ducting a course that covers many aspects of daily living.
Subjects such as personal hygiene, housekeeping, meal planning,
how to get along with each other, care of equipment and apartments,
getting the proper medical attention are a few that are discussed.

3. HEART ASSOCIATION

This, organization makes regularly planned trips to the communities
with a mobile unit. A check-up of one's heart condition can be had
for the asking.

4. TB AND BLOOD DISEASES

This is another mobile unit that comes to our areas on a pre-
arranged basis. Blood tests are made with the residents immedi-
ately knowing the results.

5. ALCOHOLISM

Films are shown in our community centers on the effect of over-
use of alcohol. These films are shown on youth night as well as
to adults.

6. ADULT EDUCATION

Professional people has responded to the request to visit our
community centers and conduct classes on reading, writing,
communicating with others, and many other types of education.

1341

7. PROBATION OFFICERS

Family Court of Montgomery was recently funded for the second
year for probation officers to be assigned to four of our
communities. These men are carefully chosen, and are inter-
viewed by both the court administrator and the Executive
Director of the Housing Authority. Office space is provided,
including desk and phone. Many hours are. spent counseling
with youthful offenders and parents. These men do not carry
guns. They help with such matters of organizing baseball and
football teams, wrestling teams and compete with other
projects. Field trips are planned and chaperoned by the pro-
bation officers. This has proven to be a very effective pro-
gram.

8. SCOUT PROGRAM

Most of all Authority communities have active, fully uniformed
Girl and Boy Scout programs. Parades are often held in the
connnunities by the Scouts.

9. SUMMER OLYMPICS

Plans are being finalized for the first "E. D. Nixon Summer
Olympics" ever to be held in our city. Organized track,
hurdling, relay and high jumping events are planned. This
competitive sport event is being named in honor of one of
Montgomery's finest and well knoi^n black citizens. Mr. E. D.
Nixon came out of retirement after spending 44 years with the
Pullman Company to serve as community service advisor of Young
Forte Village. Approval has been granted for the use of local
school gyms and track facilities. Trophies will be awarded to
the winning teams.

10. FLAG CEREMONY

After a recent flag presentation and pole setting ceremony at
Richardson Terrace, other Authority communities have begun
fund raising projects for the purpose of purchasing their own
poles after having been promised a flag by the local V.F.W. Club.

11. HOME NURSING COURSE - AMERICAN RED CROSS

Sixteen persons from our housing communities, including our three
social workers, participated in a pilot program of outreach by the
American Red Cross to teach Home Nursing to our low- income families.
The courses were held at St. Margaret's Hospital, and out of the
sixteen, five persons were certified as Home Nursing Instructors.
As a follow-up of this pilot program. Home Nursing Courses are
being taught in our housing communities by our staff and residents
who were certified as instructors. Plans are now being made for
classes in Mother-Baby Care and Mother's Aide to be taught

1342

in our housing communities. This program is being coordinated
by Mrs. Belle Bigger, Director of Nursing Programs for the
Montgomery Area Chapter of the American Red Cross, and Mrs.
Pat Morgan, Authority Administrative Assistant in charge of
Special Programs and Projects.

12. VACATION BIBLE SCHOOL

For the first time, Vacation Bible School was held for the
children in some of the projects. Adult Bible study is con-
ducted regularly for those who are interested.

13. WORK RELEASE PROGRAM

The Housing Authority is working very closely with the State
Pardon and Parole Board on a work release program wherein
juveniles, prior to being paroled, would be released to us
during the day, and would work with our maintenance crews
thereby being exposed to many trades, such as plumbing,
carpentry, electrical work and others.

14. ALABAMA STATE COLLEGE

This school arranges for their classes on social studies to
receive their field work with the Authority. Students are
assigned according to size of project, and are under super-
vision of the project manager. Studies have been made, and
some very good recommendations have been suggested by these
students.

15. FAMILY GUIDANCE CENTER

Feeling that they were not reaching persons from the low- income
communities, the Family Guidance Center has made available to
the Housing Authority the services of a professionally trained
guidance counsellor one day each week. Office space is provided
at Young Forte Village, and assistance is given the residents
with problems which threaten the family, its function, etc. to
enable development of a healthy personality and social adjustment.
Where necessary, referrals are made to other agencies. The Family
Guidance Center has also offered social services, training and
other assistance in the Young Forte Child Development and Day
Care Program.

1343

Pen,

WILLIAM P. THETFORO BINJAMIN P. FRANKLIN

JUDOK DCTUmOH OIRKCTOR

FAMILY COURT OF MONTGOMERY COUNTY YOUTH FACILITY

TELEPHONE 2S2-3SSI
111! AIR BASE BOULEVARD

MONTGOMERY. ALABAMA 36108

July 23, 1973

Mr. J. C. Miller, Executive Director
Montgomery Housing Authority
1020 Bell Street
Montgomery, Alabama

Dear Mr. Miller:

I should like to take this opportunity to thank you and
the Montgomery Housing Authority for your contribution to the
success of our community-based probation services program.

As you know, our existing LEPA grant has been approved
for a second year and plans are being made to expand the pro-
gram to include community -based probation services in Victor
Tulane Court. V/e are convinced that much of our success is
due to your cooperation and assistance. By your furnishing
office space so readily, our program was able to go into effect
very soon after grant approval thus saving us much time and
trouble. Your continued support and coimsel has been invalua-
ble to us in community project development.

We feel that Montgomery is fortunate to have the benefit
of your enthusiasm toward community-based treatment and reha-
bilitation, making the Montgomery Housing Authority an integral
part of all of our efforts toward comm\mity betterment.

Sincerely,

Qereiy, /

(Mi8^->0eggy Goodwyn6/
Chief Probation Officer

PG:bJt

1344

MONTQOMERY PUBLIC 8CHOOLB

CITY AND COUNTY

■OX l*»l

HOMTaoMmv. AUkSAMA taioa

I

July 20, 1973

Mr. J. C. Miller, Jr.
Montgomery Housing Authority
1020 Bell Street
Montgomery, Alabama

Dear Mr. Miller:

You are to be commended for your efforts toward better utilization of the
various community resources in improving the general environment of the
many housing projects under your direction. As Director of Vocational
Education for the Montgomery Public School System, I am looking forward
to working more closely with you in your efforts to beautify the grounds
in these many projects. We have a unit in horticulture where we train
young men from age 14 up in the many jobs found in the horticultural ,
cluster. Many of these students come to us from your housing projects. It
is believed that a well structured training program will not only enhance
their appreciation of their surroundings in your projects but will lead
toward saleable skills at the time they leave our public schools.

I shall be looking forward to working with you very closely In the future.

Very truly yours,

J. E^WYROSDICK

1345

LeRoy Brown
State Superintendent

State of Alabama

Department of Education

DIVISION OF

VOCATIONAL-TECHNICAL AND HIGHER EDUCATION

State Office Building

Montgomery, Alabama 36104

July 23, 1973

T. L. Faulkner
State Director

Mr. J. C. Miller, Jr.
Executive Director
The Housing Authority of the
City of Montgomery, Alabama
1020 Bell Street
Montgomery, Alabama 36104

Dear Mr. Miller:

As Director of the Vocational-Technical and Higher Education
Division, Alabama Department of Education, I am well aware, as
are many of our citizens, that Child Development and Day Care
Programs will prove invaluable in preparing those fortunate
enough to avail themselves of such opportunities for a better
way of life. It will also strengthen our public school program
by allowing actual teaching in kindergarten and first grade
which begins at the age of three.

The great potential of this program will be motivated in
our higher education institutions in training teachers and
developing empathy for all types of students. It is our opinion
that the potential for learning must begin as early as possible
in a child's life.

This program was discussed with Mrs. Pat Morgan, Administra-
tive Assistant for the Housing Authority, in our State Department
office in a most rewarding visit. We, of course, will be happy
to cooperate in any way possible with this innovative program
of child development and day care for which we feel there is a
widespread need in our city, state, and country.

Please feel free to use this letter as my endorsement of
your progreun and as ein indication of our willingness to cooperate
in cuiy way possible.

yours I

><^^>ty^/L^:..d^j^

Faulkner, State Director
Vocational-Technical and Higher Education

TLF : no

1346

THE HOUSING AUTHORITY OF THE CITY OF MONTGOMERY, ALABAA\A

1020 BELL STIieET
MONTGOMERY. ALABAMA 36104

August 9, 1973

EXECUTIVE DIRECTOR

J. C. Miller, Jr.

MEMBERS OF AUTHORITY

Lewis G. Odom, Jr. , chaikman
C. T. Donaldson , vicc-chmn.
Dr. Moses W. Jones
W. F. Hamner
Mariah F. McWhorter

Honorable John Sparkman
Chairman, Committee on Banking,

Housing and Urban Affairs
Room 5300, Dirksen Building
Washington, D. C. 20510

Dear Senator Sparkman:

SEN. JOiif! SPARKMAN

AUG 1 3 1973

D.C. 20S10

We want to thank you again for the opportunity to appear before the Subcommittee
on Housing to present information on the Housing Authority of the City of
Montgomery and to give our views of the effects of S. 2182 on this Authority's
rental income.

During my testimony before the Subcommittee on July 27, 1973, I was asked to
answer certain questions in writing for the record.

In reference to the question, "What would be generated for the Montgomery
Housing Authority if we were to adopt the provision in S. 2182 requiring a
minimum rental for any dwelling unit equal to 407o of the operating costs
attributable to the unit?", a more careful analysis was made upon our return
to Montgomery and we would like to supplement our remarks on Page 638, Lines
10-18, to include the additional income which would be generated from our
leased housing program. The remarks contained on Page 638, Lines 10-18
pertain only to our conventional housing program. Attached is a breakdown
of the effect the adoption of the above provision would have on both the
conventional and leased housing programs. As you can see, it would mean an
additional annual income of $87,942 for our conventional projects and an
additional $49,398 for our leased projects for a total of $137,340 additional
annual income. However, our projected deficit for fiscal year ending March 31,
1974, is $515,860, which means that adoption of this provision alone would not
solve our problem. However, as stated on page 638, Lines 19-25, everyone would
be paying something which we wholeheartedly support.

I
In reference to the next question, "What additional rental income would be
generated for the Montgomery Housing Authority if we were to adopt the income
definitions contained in S. 2182, which in effect abolishes the 5% deduction
from gross income for families and the 10% deduction from gross income for
elderly families?", we are attaching a breakdown of the effect this provision
would have on our annual income. Again, as you can see, this will result in an

1347

Honorable John Sparkman Page Two August 9, 1973

additional annual income of $71,184, which together with the income derived
from the 407, of operating costs will amount to an annual increase to this
Authority of $208,524.

We would like to point out that for the fiscal year ending March 31, 1974,
our total operating receipts for the conventional program are projected to
be $1,056,250 while our total operating expenditures for the same period
are projected to be $1,494,320, leaving a deficit of $438,070. For the
leased projects the income is projected to be $887,710 including HUD contri-
butions and the expenses are projected to be $965,500 leaving a deficit of
$77,790, for a total deficit for both programs of $515,860.

As you can see, even with the additional income generated from the two
provisions of S. 2182 mentioned above, we would still be faced with a total
deficit for our leased and conventional programs of $307,336 for Fiscal
Year ending March 31, 1974, necessitating an operating subsidy in this
amount to carry out what we feel is a minimum program of housing our less
fortunate citizens.

The recommendation of our Tenant Selection Department is that minimum rents
be established and that it would be good to take a look at the $300 exclusion
for secondary wage earners and minors with a view of eliminating or reducing
the amount of this exclusion. If the $300 exclusion were reduced to $200,
this would result in an additional income of $4,844 per month or an annual
increase of $58,128 for the 1618 families who are presently on "Brooke Rent"
If you would like any further information on this, we would be glad to furnish
it.

We have reviewed the copy of my remarks forwarded to us by Mr. Edward C. Dicks
and have made corrections on Page 635, Line 9, Page 637, Line 24, and Page 638,
Line 3. We are returning a copy of the corrected remarks with this letter.

Again, let me thank you for allowing us to tell the story of the Montgomery
Housing Authority and to make comments on S. 2182. If there is any further
information needed on the above narrative or the attachments, please do not
hesitate to contact us.

Sincerely,

C i>>,^-^^<»jfA^

T

C, MILLER, JR.
Executive Director

JCMJr/pcm
Enclosures

99-855 O - 73 - pt. 1 -- 86

1348

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1349

THE HOUSING AUTHORITY OF THE CITY OF
MONTGOMERY, ALABAMA

The following in&rmation was derived from approximately 407
Elderly Families and 1,211 "Other" Families on Brooke rents:

Of the approximately 407 Elderly Families,
one-third (136) of these would increase an
average of $3.00 per month. Two-thirds (271)
of these families would increase an average
of $4.00 per month.

136 @ $3.00 = $408.00
271 @ $4.00 = $1,084.00

Of the approximately 1,211 "Other Families",
one-third (404) of these would increase an
average of $3.00 per month. Two-thirds (807)
of these families would increase an average
of $4.00 per month.

$1212
3228

404 @ $3.00 »
807 @ $4.00 =

TOTALS

$ 408.00

1,084.00
1,212.00

3.228.00

$5,932,00

X 12

$71,184.00 Annually

Monthly

1350

Senator Stevenson. Our next witness is Mr. Archibald Rogers, the

first vice president of the American Institute of Architects. Mr. Rogers,

you are welcome to proceed as you see fit. Your statement is fairly

lengthy. If you would be willing to summarize, I would be glad to

enter the full statement in the record.

Mr. Rogers. We have a summary statement which I would like to
read. It is fairly brief. We also have some slides to show, which will
also be quite short.

Senator Stevenson. Please proceed.

STATEMENT OF ARCHIBALD C. ROGERS, FAIA, FIRST VICE PRESI-
DENT, THE AMERICAN INSTITUTE OF ARCHITECTS; ACCOMPA-
NIED BY, MICHAEL B. BARKER, ADMINISTRATOR, DEPARTMENT
OF ENVIRONMENT AND DESIGN; AND DAVID E. OSTERHOUT,
DIRECTOR OF CONGRESSIONAL LIAISON

Mr. Rogers. Senator Stevens, I am Archibald C. Rogers, first vice
president of the American Institute of Architects, and chairman of
the institute's national policy task force, I am also a practicing archi-
tect in Baltimore, Md. Accompanying me are Michael B. Barker,
administrator of the institute's department of environment and design ;
and David E. Osterhout, the institute's director of congressional
liaison.

We have divided our formal statement into three sections. The first
section covers five major points that we would like to make regarding
the pending legislation. The second section outlines specific provisions
to back up the recommendations contained in section 1. The third sec-
tion is a brief slide presentation on community development at the
neighborhood scale in what we call "growth units."

Senator Stevenson, I would like to submit my full statement and
several supporting documents for the hearing record and then briefly
outline its major points in my oral testimony and slide presentation.

Senator Stevenson. Without objection, they will be entered in the
record.

[Statement and documents can be found at p. 1402.]

Mr. Rogers. Before discussing the issue of community development,
however, I would also like to submit a separate statement for the
record regarding the establishment of a National Institute of Building
Sciences. This statement is submitted on behalf of the AIA, the
American Society of Civil Engineers, the American Consulting Engi-
neers Coimcil, and the National Society of Professional Engineers,
and we request that it be printed at the conclusion of my testimony on
the pending community development legislation.

Senator Stevenson. The statement will be entered in the record.

[The information follows :]

1351

ESTABLISHMENT OF A

NATIONAL INSTITUTE OF BUILDING SCIENCES

A STATEMENT BY

THE AMERICAN INSTITUTE OF ARCHITECTS

AMERICAN SOCIETY OF CIVIL ENGINEERS

CONSULTING ENGINEERS COUNCIL OF THE U.S.

NATIONAL SOCIETY OF PROFESSIONAL ENGINEERS

The design professions recognize the need for the establishment of a
single national coordinating agency in the building sciences field and support the
basic concept embodied in S. 2103 to fulfill this need.

When Congressman William Moorhead and Senator Jacob Javits initially
introduced legislation in 1969 to establish a National Institute of Building Sciences,
their proposal was generally well received by the design professions, as witnessed
by the following resolution adopted by The American Institute of Architects at its
1969 National Convention.

"Building Codes and Standards Resolution Number Five.
Building codes and standards are solely for the protection of the
public interest. Therefore, they should be based solely upon
criteria proven by test to be fundamental to that interest.

"Further, inasmuch as the public interest is universal,
a high degree of consistency should be exhibited amongst
codes adopted in the public interest.

"Under prevailing conditions, however, public agencies
formulate and administer codes too frequently based upon
capricious, untested criteria. The result: a proliferation
of divergent requirements often denying innovation by the
building industry and sacrificing its performance to administrative
dictate or convenience .

1352

"As building technology advances and volume demands
increase, it is increasingly difficult for the Industry to
interpret, objectively, the public interest as phrased in
such codes.

"Therefore, be it

"RESOLVED, That the AIA offer its support to bills
introduced in Congress by Senator Javits of New York and
Representative Moorhead of Pennsylvania , both of which
call for Federal sponsorship of a National Institute of
Building Sciences authorized to develop rationally conceived
criteria upon which to test and evaluate the performance
of building materials and techniques, and which further
authorize the Institute to promote and encourage consistency
in the formulation and administration of building codes and
standards based upon such criteria."

Design professionals participating in the planning and the building
process are prime users of building standards and codes. In their work, they
are constantly concerned in the public interest, with public safety, health,
and welfare. The state laws regulating the practice of the design professions
are based on this concern. The design professional recognizes that the building
regulatory process is an essential ingredient in the protection of the public interest,
and many design professionals contribute their talents to the formulation of the
criteria upon which building regulations are based. A Codes and Regulations Center
recently established by The American Institute of Architects has as a primary
objective the formulation of criteria on a rational basis and the development of
techniques for the evaluation of technology responsive to the criteria . It is
hoped that the center will soon be expanded to include the participation of the
other design professions.

1353

The design professions recognize the imperfect nature of the traditional
scattered process of developing building standards, criteria, and regulations.
The proposed National Institute of Building Sciences offers an opportunity
for the modernization and unification of this process. Interpreting the
proposed legislation, we visualize the Institute as:

1. A single national coordinating agency to focus on and bring a unified
direction to the diverse public and private efforts to provide for the
promulgation of national standards and performance criteria which can
be referenced in local building codes and which can provide guidance
for the segmented building industry in the non-regulatory area.

2 . An authoritative non-governmental source to provide for the evaluation
of and subsequent dissemination of information on new and emerging
building technology and innovations in the building construction
process. An example of such new technology is the so-called
"building system", which is frequently a complex assembly of
several building products in combination, requiring the development
of new evaluative techniques.

3. A center to provide for the development of rational non-product
standards relating to the safety of occupants of buildings. An example
is the determination of emergency egress requirements for buildings

of various occupancy types and construction types based on other
than arbitrary or intuitive considerations. This again would require
the development of new evaluative techniques.

1354

As the design professions can bring considerable expertise to the
functioning of the Institute without bias toward specific building products,
we are especially pleased that architects and professional engineers will
be Included in the membership of the Institute's Board of Directors as proposed
by S. 2103 , We also believe that time should be allowed for the Institute
to fully establish Itself and to function effectively before considering the
mandatory use of its findings in Federal construction programs or projects
of State and local governments involving Federal assistance. We therefore
support the present language in S. 2103 which encourages the use of the
Institute's findings by Federal agencies and in Federally-assisted programs.

1355

Mr. Rogers. The desigfn professions support the provisions of S. 2103,
Senator Jacob Javits" bill to create such a National Institute of Build-
ing Sciencies, and urge the committee to approve the bill on an indi-
vidual basis or as a separate title to the pending community develop-
ment legislation, whichever route will expedite the proposal.

Today, the American Institute of Architects, the national society
for the architectural profession representing 24,000 licensed archi-
tects, wishes to express its views on the community development legis-
lation currently pending before this committee.

Over the past 10 years, the American Institute of Architects has
directed a great deal of thought to the process of community devel-
opment. The report of our national policy task force, titled "America
at the Growing Edge : A Strategy for Building a Better America,"
sets forth a policy and strategy that have been adopted by the insti-
tute's board of directors and by the national AIA convention in May
1972.

In brief, the new policies recommended in this report would change
the ground rules that now shape, and distort the shape, of American
communities ; create a new and useful scale for planning and building
in urban areas; and commit the Nation to a major land acquisition
policy to guide development in and around key urban centers.

This report is now being refined with the assistance and coopera-
tion of over -30 professional and other organizations. This working
group of individuals and organizations, listed in an appendix to this
statement, has agreed on the need for a national growth policy and is
now working on the specific details of such a policy, and this appendix
2, 1 would like to be entered in the record.

Senator Stevenson. It will be entered in the record.

Mr. Rogers. This year, the institute is preparing special detailed re-
ports on re-creating the innercity, creative economics, and housing,
which essentially expand on the concepts contained in the first report.
We believe that the work of our housing policy task force will be of
special interest and assistance to this committee when their report is
completed by the end of this year.

Since our comments today are largely based upon our national
policy task force report, we request that the report be included in the
hearing record.

Senator Steat:nson. It will be entered in the record.
[The report follows :]

1356

1357

The plan for national urban growth ottered in the following re-
port was formally adopted by The American Institute of Archi-
tects at its 1972 convention. Recommendations contained in
the report are summarized below.

SUMMARY OF TASK FORCE RECOMMENDATIONS

A. Scale and Form: The building and rebuilding of American
communities should be planned and earned out at neighborhood
scale (ca. 500-3,000 residential units along with a full range of
essential facilities and services) and in a form appropnately
called a "Growth Unit."

B. Priorities: The value most to be respected is free choice.
First concern should be given the condition of those trapped in
the poverty and deterioration of older neighborhoods, especially
of the central cities.

C. Changes in the Ground Rules of Community Develop-
ment:

Free choice should be expanded;

(1) by ensuring open occupancy throughout the entire housing
market affected by governmental subsidies and insurance.

(2) by directing needed housing subsidies to people rather
than to structures.

(3) by providing locational options, especially by linl(ing devel-
opment in central and peripheral areas of the metropolis.

(4) by providing for diverse living styles, through Growth Units
of varying densities, housing types, and sen/ice patterns; also,
less restrictive building and zoning codes.

(5) by expanding the possibilities and scope of citizen partici-
pation in the design and governance of neighborhoods.

Financing patterns should be revised;

(1) Less reliance should be placed on the local property tax.

(2) Slate and federal governments should assume a greater
share of;

a. infrastructure costs, and

b. costs of social services, especially health, education, and
welfare.

(3) The appreciating value of land benefited by public invest-
ment should be recaptured and recycled into community facilities
and services.

(4) Categorical aids should be broadened — especially the
Highway Trust Fund which should be expanded into a more gen-
eral fund in support of community development.

Government structures should be reshaped and adapted:

(1) Private-public ventures should be encouraged.

(2) Development corporations should be created by federal,
state, and local governments.

(3) Metropolitan planning and development agencies should
be encouraged.

(4) State governments should participate more directly in plan-
ning and regulating the use of land, especially in areas defined as
"critical" (e.g , Hood plains, coastal regions, areas of acute hous-
ing shortages, and areas in the path of rapid development).

Capacity to build at neighborhood scale — both public and private
— should be strengthened;

(1) Financial, legal, and other constraints should be reviewed
and eased.

a. A steady flow of mortgage money at low and stable rat&-~N
should be ensured. _J

b. "Front money" lor Grovirth Unit development should be made
available.

c. Public investments in infrastructure should be properly
phased and coordinated.

(2) State governments and metropolitan agencies should tal<e
a more assertive role in acquiring and preparing land for devel-
opment— and in building a network of utility corridors to accom-
modate and give shape to Grov4h Units.

(3) Tax and other incentives and disincentives should be re-
vised to encourage high quality urban development.

(4) Environmental controls and design standards should be
strengthened.

(5) New patterns for the delivery of critical services should be
encouraged.

(6) Industrialized building processes should be encouraged.

D. Special Program for Areas Impacted by Rapid Growth
and Deterioration:

Priority should be given to the 65 metropoliian areas over
500,000 population.

Within these areas, the public should acquire and prepare one
million acres for Growth Unit development.

This development should be explicitly designed to benefit, not
detract from, the improvement of the quality of life of those now
residing in the older and deteriorating sections. (~\

At average densities of 25 per acre, this special program shouv^
accommodate one-third of the expected growth of the U.S. popu-
lation between 1970-2000.

1358

Newsletter of The American Institute of Architects January 1972/Special Issue

THE FIRST REPORT OF THE NATIONAL POLICY TASK FORCE

CREATING A NEW
NATIONAL POLICY

A Statement by Max 0^ Urbahn, FAIA
President

The American Institute of Architects has taken a major step into
the future, it is an historic step for our professional society and.
to the extent that we persuade our political leaders and fellow
citizens to join with us, it will have a major impact on the quality
of life in urban America.
J refer to the report of the AIA National Policy Task Force, whose

jlings and recommendations are set forth in the following pages.
.r(e report follows a year's intensive study by a group of dis-
tinguished architects with the help of expert consultants. The
policies proposed in the report have been unanimously approved
by the AIA Board of Directors, including representatives from all
geographic regions of the country. They were formally accepted
by AlA's Executive Committee on January 3, 1972, and are subject
to revision and elaboration at the Annual Convention of the
Institute in Ivlay.

In brief, the new policies recommended in this report would
change the "ground rules" that now shape, and distort the shape,
of American communities; create a new and useful scale for
planning and building in urban areas; and commit the nation to a
major land acquisition policy to guide development in and around
key urban centers. These are new policies, but. in the best tradi-
tion of American progress, they are built upon the values and
precedents of the past.

I am proud to be the president of your Institute at the moment
when this new program — the natural culmination of many years
of grappling with public policy — comes to fruition. The formal
study was begun in the administration of President Robert F.
Hastings. FAIA. Yet elements of it have been discussed by AIA
boards and presidents over a period of many years.

I urge you to read this report, to communicate with me and with
other officers of the institute, to express your opinions — and, we
hope, your dedication to its goals — at the Houston convention. I
( J you also to join me in thanking the National Policy Task Force
v^airman. Archibald C. Rogers, FAIA; members leoh tvling Pei,
FAIA, and Jaquelin Robertson, AIA, and the body's two distin-
guished non-architects, William L. Slayton, Hon. AIA, executive
vice president of the Institute, and Paul Ylvisaker, professor of
public affairs and urban planning, Princeton University. We are
grateful for their far-sighted leadership.

Task Force Chairman Archibald C. Rogers, FAIA, right, and
Paul N. Ylvisaker, prolessior)al adviser.

AMERICA AT THE
GROWING EDGE:
A STRATEGY FOR BUILDING
A BETTER AMERICA

This report is about America at its growing edge. It outlines a set
of policies that can enable this nation — as a responsible member
of a threatened world of nations — to shape its growrth and im-
prove the quality of its community life.

The strategic objective of these policies is a national mosaic of
community architecture designed to be in equilibrium with its
natural setting and in sympathetic relationship with its using
society.

In brief, the report urges:

A. That changes be made in a number of the "ground rules"
(e.g.. tax policy, governmental organization, etc.) which presently
shape the development of American communities;

B. that the nation develop the capacity to build and rebuild at
neighborhood scale (the "Growth Unit") ensuring open occu-
pancy, environmental integrity, and a full range of essential
facilities and services;

C. that federal, state, and local governments — in partnership —
set the pace and standards for growth policy through a special
impact program affecting 60 of the nation's urban regions and a
third of the nation's expected growth between 1970-2000.

1359

Task Force members

I. M. Pei, FAIA. leil.

William L Slayton, Hon. AIA.

certter, and Rogers.

THE CIRCUMSTANCES WE
ARE DEALING WITH

The nation's population has grown and urbanized dramatically
over the last generation. By conventional measures, most of us
have prospered. Personal and family incomes have generally in-
creased. Housing conditions have improved. National opinion polls
consistently find that most of us feel the quality of our personal
lives is better. And amid the flurry of sudden grovrth. we have
staked out a substantial range of free choice.

But a lot of things have us worried and dissatisfied — and
properly so.

I^^illions of Americans have not had this range of free choice.
Machines have pushed men off the land and into deteriorating
cities where they have been imprisoned by rising prejudice and
dwindling opportunity. Others have been left behind, trapped in
the forgotten hamlets and hollows of rural Amenca.

The nation has been polarizing into richer and poorer, black and
white, growing suburbs and declining cities, neighborhoods of
higher and lower status and some with no status at all.

Giant urban regions have sprawled into being without the
armature of public utilities and services that make the difference
between raw development and livable communities.

Jobs have been separated from housing, forcing families to
spend more money on highway transportation than on homes and
more time on the road than with each other.

Land, money, and building costs have priced more and more
Americans out of the conventional housing market, not just the
poor, but middle class as well Construction has lagged for the
lower income groups and larger families. Abandonment of existing
stock in the older cities has picked up at a threatening rate.
Mobile homes have "saved the day" for growing numbers of
Americans (though not the minorities), but they have scattered
their residents out past the range of regular community life and
services.

The technics of our growth have broken loose from the regenerat-
ing cycle of nature The accumulating wastes of this growth —
phosphates, plastics, pesticides, heat, hydrocarbons — contam-
inate our soil, our air, and our water, and cast a growing cloud
over our nation and future.

Land has become a negotiable commodity and tossed care-
lessly into the game of speculation for profit Once in the market,
not only its use but its very existence is subordinated to the
highest bidder and shortest-term gain.

The comforts and the hardships, the benefits and the costs of
national growth have not been equitably shared. Our tax structure
has frequently dumped some of the highest costs on those least
able to pay. The education of the nation's children and the general
level of community services have been left to the happenstance of
local tax ratables and the small politics that exploit them They
breed fiscal zoning, and fiscal zoning has put a damper on the
social and economic mobility of the poor and working class.

The social distortions in the development of our communities
are reflected in our built environment For much of what we have
built, largely since World War II, is inhuman and potentially lethal.
We have created a community architecture which, in its lack of
efficiency, its inattention to human scale and values, and its con-
tribution to chaos, adds up to a physical arena adverse to that
"pursuit of happiness" which is one of the fundamental rights that
stirred us to create a nation Surely it is as important to bring our
physical fabric into conformity with this goal as it is to do so with
our social fabric. We cannot long endure an environment which
pollutes air, water, food, and our senses and sensibilities.

At the same time that our growrth has created an environmental
crisis, the governmental process for dealing with growth has been
scissored into bits and pieces. Whatever energies and resolves
Americans can muster to shape their growth and salvage their
environment are dissipated in an almost infinite chain of separate
and conflicting consents which have to be negotiated in order to
do the public's business. Just when the nation most needs its
enterprise, creativity, and an overriding sense of communi,<-~N
stymie and cynicism become the order of the day. V ^

Now another generation of dramatic growth is about to begin.
The numbers of Americans in the 25 to 44 age group — traditionally
those who create new households — are increasing at a rate
nearly nine times that of the past decade. These new households
will not likely beget children at the bulging rate of postwar, but
they inevitably will touch off a new burst of community formation
and urban growth. It is doubtful that these new householders will
fit easily into old patterns; many of them will not want to. Families
will be smaller; wives will be working; their tolerance of environ-
mental pollution and bureaucratic incompetence will be lower; they
will be demanding more for their money and especially the money
they are asked to pay in taxes.

And young adults are not the only Americans pressing for places
to live — to live better and in many respects to live differently.
More and more Americans are living longer; during the seventies
an ever growing proportion of our population will have raised their
families, retired from their jobs, and started looking for com-
munities that will serve their changing needs. There will be an-
other round of kids with mothers asking for day care, new waves
of migrants and immigrants searching for something better than
ghettoes to live in, and alumni of the ghetto — increasing millions
of them — who have learned from tragic experience not to let even
poverty trap them in bad neighborhoods forever and again.

o

TOWARD A NATIONAL
GROWTH STRATEGY: THE
POLITICS AND PROMISE
OF DIVERSITY

Sharpening awareness of the flaws in the way we've grown
accounts for the rising demand for a national growth policy. Our

1360

nation's search for such a policy is a welcome sign of a maturing
society, a more civilized and humane America, But just because
so many seem to be asking for a national growth policy, doesn't
mean that they all want the same policy. And just toting up
everybody's unhappinesses about how we've grown — and maybe
goofed — doesn't necessarily add up to a policy that's better or
more consistent or more salable to the American public.

Not until these differences in need and life style are admitted
and understood will we really be on our way toward more produc-
tive policies for national growth. These diversities are the facts of
life that politicians — especially the President and the Congress —
have to deal with if the nation is to have governing policy and
not just years of fruitless debate.

In fact, it well may be that a diverslfled nation which values
free choice above all may have to live with a national growth
policy which is less than coherent, which contains more In-
consistencies than it resolves, which turns the power of con-
flicting forces into creative energy — and which succeeds be-

^^^use it strives toward unity but does not mutilate its freedoms

' an all-out effort to achieve It.

"~ We submit this report in that spirit. We are a single profession
with our own creative diversities. We have spoken assertively, but
only to enrich the national debate, not dominate it. We have tried
to convert what we think are legitimate discontents into construc-
tive ideas of how to make America better. And we have taken the
risk of translating generalities (this is easy) into specifics (which
is tough).

THE BELIEFS AND
PREMISES WE START WITH

A. A national growth policy Is first of all an expression of
national values.

B. The values we most cherish are the worth of the Individ-
ual and his freedom of choice. These values have been con-
stantly slated in national legislation but not so regularly honored

C. We believe, therefore, that national growth policy should
actually commit the nation to these values, not merely restate
them. What has been missing is the public competence that
makes both our values and our policies credible; laws with teeth;
programs with money behind them; public officials with the power
.•"-act, and a willingness to fulfill a leadership role Private freedom
( public competence are not incompatible; one needs the other,

'~D. The goals of national growth policy and the problems it
should be concerned with have more to do with quality of life
than with numbers. We do not share two of the usual fears:
(1) that the American population is too large; and (2) that not
enough houses will be built to meet our growing demand. During
the past decade, Americans have spontaneously and freely limited
reproduction — the birth rate is now at an all-time low. Earlier
estimates of how much America will grow in the next 30 years now
seem too high — the total may well be as low as 60 million, a

number we can certainly care and provide for. Meanwhile, housing
starts have picked up; the prospects are that the nation's staled
housing goals (2,6 million annually during the 1970s) may be met;
and these goals actually may turn out to be too high.

It is not the numbers we should be concerned about but the
quality of living and the choice of life style that are opened to
Americans whoever they are and however many there may be.
This is what we believe Americans mean when public opinion
polls regularly report that a majority of them say they would prefer
to live in smaller communities. Not that they won't abide living in
large metropolitan areas — (despite what they say, most of them
have chosen to move and stay there). But they are searching for
communities that are more livable Neighborhoods that are safe,
neighborhoods that are within easier reach of jobs and a richer
mix of community life and services, neighborhoods small enough
to have some identity of their own, where no one need be
anonymous while attaining the privacy Americans always have
yearned for,

E. It follows, we think, that the measuring rod of national growth
should be the quality of our neighborhoods, and the assurance
that neighborhoods — even when they change — will not deteriorate.
The neighborhood should be America's Growth Unit We have
made il the theme of this report.

F. By concentrating on the neighborhood as a Growth Unit,
national policy can relate to growth and regrowth wherever it
may occur — in rural areas. In smaller towns and outlying
growth centers. In metropolitan areas and their central cltiea.
In free-standing new communities. No national policy would be
politically salable that did not speak to every condition of America;
no national policy would be comprehensive if it did not,

G. Our own guess is that most of America's expected growth
from now until the end of the century will occur within existing
metropolitan areas — whether all of us would like that to happen
or not The economics and the politics of radically changing that
pattern are too difficult; they well may be impossible. Marginal
changes, yes; and since we, too, have a general prejudice in favor
of "more balanced grovirth" and against overloading the environ-
ment (as we have done, possibly, in some of the Great Lakes and
coastal regions) we should be of a mind to encourage these
changes.

But realities force us to be realistic. We therefore conclude tfiat
American growth policy should concentrate on Improving the
present and future conditions of our existing metropolitan
areas.

H. Within these areas, we believe the first priority stwuld go
toward Improving the condition of the older core cities, more
especially the condition of those trapped In poverty and Uw
squalor of declining neighborhoods. Until we deal with the deep-
seated factors in American life that give rise to such conditions,
all growth in America is vulnerable, no matter how much concern
and money are lavished on it, no matter how carefully it may be
segregated from those neighborhoods where the contagion of
decline is more evident.

I. Growth and regrowtli — building new communities and re-
storing old ones — must go together. We think it folly to try urban

1361

Archibald C. Rogers. FAIA,
discusses Ihe report
before Ihe December 1971
Board ol Directors meeting
in Washington, D.C.

renewal in the older, denser neighborhoods before moving and
relocation room is made ready elsewhere. That means, we think,
a deliberate policy of building new neighborhoods on vacant land
before renewal of older neighborhoods is begun

J. We believe that no national growth policy will work unleu
there Is a broader base lor financing the facilities and services
that are necessary (or more livable communities. The local prop-
erty tax is no longer enough. We have exhausted it, and now it is
crippling us.

There are many possible ways of achieving this broader base of
financing. Our own preference is for the federal government to
assume far more of the costs of social services such as health
and welfare, and more of the costs of utilities. We believe the
states also should assume a greater share of local costs, espe-
cially of schools, and should do so through a combination of
broad-based taxes whose impact is less regressive and its yield
more responsive to changes in the general level of the economy.

K. Similarly, we are convinced that an eflective national
growth policy will require broader perspectives and, in many
cases, larger governmental jurisdictions. We welcome signs that
the states are readying themselves to participate more actively in
community development — even when, as in the case of zoning,
taxation, and other matters, they have to be prodded into action
by the courts. The states are essential to the development of a
national growth policy precisely because their jurisdictions (and
hopefully their views) are broader, and because they constitu-
tionally control the ground rules of local government and com-
munity development.

We also welcome the signs of new life at the metropolitan level.
A promising example is Ihe emergence of regional planning, de-
velopment, and financing in Ihe Minneapolis-St. Paul area. If in-
deed most of America's growth is to occur in these areas, some
form of regional control must evolve — and soon.

L And while these broader capacities are developing, we
also see the need for more citizen control and participation at
the neighborhood level. Neighborhoods have been swallowed up
in the growth and change of urbanizing America. The exact forms
and functions of neighborhood government can vary; but national
growth policy cannot do without the sturdiness and savvy of grass-
roots support. We see no contradiction in simultaneous transfer
of power upward to broader-based levels of government and
downward to Ihe neighborhoods. It is not power which is being
subtracted — it is capability which is being added.

M. it also follows from our concern with the neighborhood
Growth Unit that the architects who design it, the developers
who pacltage and build It, the doctors end teachers and law-
yers and merchants who serve It, should be given every hon-
orable encouragement to work at this scale. Urban America may
be massive, but it has accumulated in a formless way from a
myriad of actions and designs that were of less than neighbor-
hood scale. Thought and habit patterns will have to change if we
are to build more livable neighborhoods — neighborhoods that fit
as building blocks into metropolitan, regional, and national so-
cieties.

N. We wonder whether the time has come to consider less
affluent standards of housing In favor of higher standards of
neighborhood environment, facilities, and services — if Indeed
the choice must be made. "Less affluent," at least, than is ex-
plicit in the spiraling requirements of floor space and lot sizes and
building codes that are being written defensively into suburban
and other exclusionary legislation. The rising cost of exclusion is
even higher than Ihe rising cost of building. The product may well
be more luxurious houses but less desirable, certainly less open
communities.

O. Finally, we are convinced that an effective national growth
policy requires that land development increasingly be brought
under public control. This is true particularly of land which lies in
the path of growth or that otherwise is crucial to the community's
well-being — open space, flood plains, coasts and shores, etc.

We favor public acquisition and preparation of land in ad-
vance of development. We believe that Ihe appreciating value of
urbanizing land should be recycled into the costs of developing,
serving, and maintaining it. We believe that, in many cases, leasip>av,
rather than outright sale would be desirable for land acquired i
assembled by public action.

BUILDING AT
NEIGHBORHOOD
COMMUNITY SCALE:
THE "GROWTH UNIT"

The Growth Unit is first of all a concept — a general way of say-
ing that America's growth and renewal should be designed and
executed not as individual buildings and projects, but as human
communities with Ihe full range of physical facilities and human
services that ensure an urban life of quality.

The Growth Unit does not have fixed dimensions. Its size in
residential terms normally would range from 500 to 3,000 units —
enough in any case to require an elementary school, day care,
community center, convenience shopping, open space, and rec-
reation. Enough, too, to aggregate a market for housing that will
encourage the use of new technology and building systems. Also
enough to stimulate innovations in building maintenance, health
care, cable TV. data processing, security systems, and new
methods of waste collection and disposal. Large enough, finajJu,
to realize the economies of unified planning, land purchase
preparation, and the coordinated design of public spaces. faCiK
ities, and transportation.

This general scale is consistent with likely trends during Ihe
1970s which will encourage Ihe filling in of open land and the
renewal of older neighborhoods within existing metropolitan areas
— as well as the expansion of outlying communities (Growth
Centers) within the population range of 25,000 to 250,000. It also
coincides with Ihe trend toward "miniaturization" which seems to

1362

characterize emerging patterns of consumer behavior and demand
and which is producing a new range of facilities such as com-
munity health centers, neighborhood city halls, and convenience
shopping centers.

Life styles, housing types, and residential densities could vary
according to local markets and circumstances.

Larger communities — up to and including free-standing new
towns — should be built as multiples of these Growth Units — allow-
ing, of course, for an emerging hierarchy of additional sen/ices
and facilities such as high schools, community colleges, hospitals,
regional shopping centers, mass transit, and utility systems.

The neighborhood Growth Unit relates just as much to the re-
building of America's older cities as it does to new growth on
open land. We have learned the hard way that urban renewal and
the rehabilitation of older neighborhoods cannot succeed when
done piecemeal, house by house, problem by problem. The job
is much bigger than that, and the Growth Unit is a more appro-
priate scale and way of doing it.

-^ The Growth Unit is based firmly on the principle of open occu-
ancy and equal access to facilities and services. Moreover, by
linking growth and regrowith both outside the central cities and
within them, the nation can find an orderly way out of its segre-
gated living patterns and the haunting tragedy of its older cities.

Finally, the Growth Unit offers a valid measuring point for en-
vironmental performance. It can be planned and judged as a
"package" rather than a disjointed accumulation of activities,
some of which do and some of which do not meet going standards
of ecological innocence.

USING THE GROWTH UNIT
IN A NATIONAL GROWTH
STRATEGY

Concentrating on the Growth Unit is a practical and incremental
way of approaching a national growth policy. But it is not a retreat
from major and even radical changes — as those who recently have
ventured into large scale development painfully can attest. Archi-
tect after architect, developer after developer, large company atter
large company have tried their hands at building new commu-
nities at larger scale. Only a few have survived — and even for them
the experience has been bloody. Listed below are some of the
constraints and hazards and some of the changes and reforms we
jink are necessary if this nation is to achieve the capacity to pro-
duce livable neighborhoods without all the traumas (and mischief)
that presently are involved

A. Housing and Land Use Policy: Growth Units of the sort we
propose will not be built at the rate and scale we propose unless:

1) there is an assured flow of credit at stabilized rales of inter-
est over a sustained period of time;

2) low- and moderate-income families are directly subsidized
(through income supplements, housing allowances. "235" and

"236" type interest reductions, etc.) at levels equivalent to the
housing subsidies now provided higher income homeowners in the
form of tax deductions of mortgage interest and local property
tax payments (plus what economists call "imputed rents");

3) state governments retrieve sufficient control over local build-
ing, zoning, and health regulations to insure an adequate supply
of land for large site development — and also land permanently
reserved for open space, ecological balance, and communal use.

B. Front Loading: Building at neighborhood scale requires front
money equal at least to 40 per cent of the total investment, with no
appreciable return on that early investment coming until the fifth
to the 15th year. Few are in a position to advance that kind of
money and wait so long for a return Public money and guarantees
are still scanty and hard to come by Except for New York State,
they are available only through one limited program of the federal
government. These public supports will tiave to be expanded
greatly, both at federal and at state levels.

C. Aggregating Sites: The assemblage of large sites is a prob-
lem, but probably less so than obtaining the many consents neces-
sary to develop them — zoning, building codes, etc. For the private
developer, time is money; one major developer is reported to have
incurred interest costs of $5,000 per day over a year while await-
ing the necessary consents Too many developers have been led
into dubious practices in an effort to offset these costs and find
ways around these constraints.

The passage of legislation which authorizes planned community
development promises some relief. Probably more important will
be an arrangement that allows for someone other than the de-
veloper to hold the land until the consents have been negotiated
and the developer can move immediately to build.

D. The Public Infrastructure: Another barrier is the shortage of
public funds for the necessary infrastructure and community ser-
vices. We propose that the federal and state governments plan
and construct networks of utility corridors, including transit, water,
sewage, electricity. These would constitute the skeleton of utilities
on which Growth Units could be fastened.

At the level of a single proiecl, the scale of development that
we propose requires a long-term and disciplined schedule of pub-
lic spending geared closely to the efforts of the builder.

E. Removing Tax Disincentives: Both federal and state tax sys-
tems are replete with impediments and disincentives to building
and rebuilding at neighborhood scale The Internal Revenue Code
encourages a quick-build-and-sell posture for the developer; it
discourages his staying around to make certain that the costs and
concerns of management and upkeep are given equal attention as
the cost of construction.

F. Tax Incentives: Building communities is far more complex
than the single missions which become manageable profit centers
for a business enterprise Congress might declare the building of
Growth Units to be in the national interest, and make special tax
and other provisions to enable American enterprise — under tight
performance standards — to make the long and broad commit-
ments that the job requires.

1363

G. Property Tax: America's dependence on the local property
tax is especially hurtful By tying practically all costs ot community
development to local ralables. it causes undue hardships to the
builder and the citizen alike. The apparent answer is to move
toward broad-based taxation at stale and federal levels. It also
suggests moving certain costs from local to slate and federal
governments.

H. Revenue Sharing: Any sharing of revenue by the federal
government with the stales should be conditioned on certain re-
forms, including a restructuring of the property tax system, zoning
and building codes, and reallocation of infrastructure costs.

I. Governmental Structures and Proceu: Governments in
America — federal, slate, and local — are not organized to facilitate
the kind and scale of development we propose. Major changes
and innovations are in order:

1) at the federal level, some analog of a national development
corporation capable of negotiating the necessary bundle of federal
grants and consents, dealing with counterpart state, local, and
private development agencies; and tapping national money mar-
kets;

2) at the state level, development corporations emulating and
going beyond the pioneering example of New York State;

3) at the metropolitan level, public and public/private corpora-
tions subject to regionwide planning and participation, and
oriented both to redevelopment of the inner city and to new
development on open land.

J. Categorical Grant Programs: The tradition of categorical
funding that long has been followed in American government
needs to be modified. Above all. the Highway Trust Fund, we
think, must be converted into a general fund for community de-
velopment and greatly expanded. If this self-regenerating fund is
not refashioned to serve our highest priority needs, the nation
will place itself in bondage to the automobile and superhighway.

USING THE GROWTH UNIT
IN COMMUNITY DESIGN

A national strategy based on the Growth Unit requires the use of
tactical stepping stones in the design of communities which will
be in ha'rr^ony with human needs and the natural environment.
Such a strategy must be a long-term commitment. Its integrity
must be maintained consistently, although it may require con-
tinuous updating to accommodate changes we cannot foresee.
Commitment to a long-term strategy based on such fundamental
principles as freedom of choice and the worth of the individual
demands tactics that emphasize flexibility and diversity.

Community design based on the Grovrth Unit should embrace
the following principles:

A. Equilibrium: The design should be economical in its con-
sumption of natural resources. It should minimize the emission of
harmful effluents and encourage emissions that tend to replenish
natural resources. The need for transportation should be reduced

by intermingling of residential and other uses. Community services
(health care, education, security, etc.) should be consciously de-
signed as systems and subsystems

B. Symbiosis: The design should provide a beneficient and
nourishing relationship between the physical environment and its
using society The surest means of attaining this relationship is to
encourage community participation in the design process.

C. Satisfaction of Spiritual Needs: The design must satisfy the
individual user's need for reassuring symbols that speak to him
from the natural setting and from architecture within this setting.
II must satisfy his need for symbols of place and personality
which distinguish one person and one community from another —
his need for an environmental order that denotes purpose in life.

D. Expansion ot Locallonal Options: Just as the national
strategy emphasizes freedom of choice of location, design of
Growth Units should reduce barriers based on economics or race
or age This means that transportation, industry, and commerce
must be placed with attention to their social consequences.

E. Expansion of Qualltallve Options: The design mosaic mus*^
provide a rich variety of living environment matching the varie(.

of life styles within our society.

F. Open Space Preservation: Community design must preserve
open space at all geographic scales from the national to the local.
Certain areas should be precluded from development either be-
cause ot natural features that are hazardous to residents or where
development would threaten ecological balance or recreational
values.

G. Historic Preservation: Our historic heritage must be pre-
sen/ed from destruction or erosion if a sense of individual and
community identity is to survive. Preservation of historic buildings
and communities will require the discovery of new uses as orig-
inal uses become obsolete. Some historic structures may have
to be altered and modernized to accommodate contemporary
functions. We also must look to the values in contemporary
architecture that may in lime have historic significance.

H. Public Investment as a Key to Development: Public utilities
and facilities can be used to determine settlement patterns, both
nationally and at the level of the single Growth Unit. The network
of transportation and communications corridors should be the
essential basis for comprehensive planning within the proposed
communities and for their external connection with the existing
community fabric. It should be designed and put in place incre-
mentally in accordance with the largely private development of
housing, commerce, and industry. Since this infrastructure is rela-
tively permanent, it should be generous in its dimensions in orde'^

to permit accommodation of future technological developments. \ )

should be seen as the opportunity for expression of great civic
art and architecture.

I. Amendable Architecture: The design should provide a phys-
ical fabric that is amendable by its occupants to accommodate
changes in life styles, technology, and economic circumstance.

J. Reduced Cost of Shelter: Design should seek to reduce the
cost of housing Off-site manufacture is one method of pursuing
this goal, but care must be taken to produce a kit of parts that

99-855 O - 73 - pt. 1

87

1364

o

Member Jaquelin Robertson

(right) raises a key

point at Tasif Force

meeting in Princeton

can be assembled in many differing ways to provide environ-
mental variety. The design sfiould take maximum advantage of ttie
reduction in governmental constraints which must be a part of a
national growth strategy. Better quality and workmanship can be
attained once such constraints are removed. The unearned incre-
ment in the value of the land should be recaptured by the public,
instead of becoming part of the inflated cost of shelter, as it does
now.

K. Experiment with Change: We must deliberately experiment
with change. This, in turn, will require that public funds be avail-
able to finance experimentation. Each Growth Unit can be a
laboratory for new applications of technology and design. Pro-
cedural experimentation could involve the using community and
public/private and multidisciplinary development teams in an
open "Trialogue." The behavioral sciences can be involved in the
development of a more sophisticated basis for establishing user
needs. New ways of determining costs and benefits could take
into greater account intangible factors and qualitative benefits.

o

THE GROWTH UNIT AND
THE URBAN CRISIS*

The neighborhood Growth Unit applies to all America. But some
parts of the nation's society and landscape have been, and will
continue to be, especially impacted by growth. We believe a more
specific and concentrated response should be made to the prob-
lems of the nation's declining central cities and their fast-growing
metropolitan areas.

There are approximately 65 metropolitan areas in this country
with 1970 populations of 500,000 or more. These 65 urban re-
gions accounted for half the nation's total population, over half of
the nation's black population, and 60 per cent of the nation's
total growth during the decade 1960-70

Currently, 80 per cent of America's growth is taking place within
existing metropolitan areas. In all probability, the metropolitan
areas cited above will continue to absorb the lion's share of na-
tional grovrth and the problems that go with it.

Without foreclosing (actually it could be planned as part of) a
national strategy that might attempt to shift growth from these
urban regions, we propose that the federal government join im-
-^diately with the affected state and local governments in devel-
( Jing growth plans for these cntical areas.
" These plans should include the following elements:

A. Governments involved immediately should assemble one mil-
lion acres of land for community development within the core
cities and in the metropolitan periphery (We would estimate the
cost of acquiring this at $5 billion.) The appreciating value of this
land — realized by lease and sale over the next 30 years — would be

• This builds upon a forthcoming paper by Bernard Weissbourd.

enough to cover its original cost plus a large proportion of the
costs of preparing the land for development.

B A third of the nation's grovrth (20 million) during the next
30 years could be accommodated on these one million acres at
average densities of 25 persons per acre — far under the present
densities of troubled core cities, and within range of current con-
sumer choice and economic feasibility.

C. The building block of this development would be the neigh-
borhood Growth Unit— 500 to 3,000 dwellings. 2.000 to 10,000
persons — built either singly or in multiples which over time would
be fitted together into larger satellite communities.

D. The development of these Growth Units should be staged to
provide relocation and elbow room for the restoration of older
neighborhoods in the core area. Open occupancy would be en-
sured— with the end result that no one sector of the metropolitan
area would be — or feel — overwhelmed.

E- The social mix of these neighborhoods would be further en-
sured by housing subsidies and allowances covering housing
rental costs exceeding 25 per cent of family income. These sub-
sidies also would be available to families filtering into existing
housing throughout the metropolitan area.

F. The federal, slate, and local governments would join in
planning and paying for the necessary infrastructure — particularly
transportation and utility corridors which would weave these
Growth Units into the existing fabric of metropolitan life: lobs,
education, health care. etc.

G The economics (and for that matter, the politics) of these
selected metropolitan areas should be pooled — benefits (such as
new ralables) as well as costs. As a matter of first pnnciple. new
growth should not be allowed to occur as an escape from, or at
the cost of, the revitalization of older neighborhoods.

H Zoning and building codes for these Growth Units should
be developed jointly by the three levels of government, with the
states taking a strong initiative.

NATIONAL GROWTH
STRATEGY AS AN
INVITATION TO CREATIVITY

Community building of the sort we propose is a many-sided
challenge.

A A challenge to developers, planners, and architects to antic-
ipate and give creative expression to the emerging life styles of a
richly diversified American people The trends clearly are moving
in the direction of smaller families with working mothers The trends
seem also to be moving toward residential densities lighter than
those of the central city but heavier than those of existing suburbs.
They also are moving toward the requirements, certainly an ex-
pectation, of a rich array of critical services, such as day care.

1365

health, and continuing education. They also are pointing toward a
greater degree of privacy and security. The art will be to put all
these together into a working and livable community; the Growth
Unit invites that art,

B. A challenge to those committed to the integrity of the en-
vironment; to produce increments of growth that are less hostile
to man and nature, which continuously reduce the pollution of
land. air. and water; and maintain open spaces and green belts
for recreation and tranquility,

C, A challenge to all of us who must exact more and more re-
sources which — at least relatively — are dwindling. Multiple pur-
pose space and reusable resources will be the order of the day
and will require all the inventiveness and ingenuity we can com-
mand.

D. A challenge to restructure the financing and delivery of
critical sen/ices, especially health, education, and security in the
face of escalating costs and consumer dissatisfaction. We believe
strongly, for instance, that electronic information systems should
be incorporated routinely as part of the community's infrastructure
There is also the prospect that imaginative use of cable television
can reshape public education.

E, A challenge to each of the special skills, disciplines, and
professions which historically have worked in isolation and are
now being forced by the logic of complexity to meld their activities,

F- A challenge to develop new forms of joint enterprise, both
within the private sector and between business and government,

G. A challenge to find new ways of resolving the dilemma of
dividing trends, on the one hand, toward more distant government
of greater resources and scope and, on the other, toward neigh-
borhood control.

It is not easy to develop governing policy for a diverse nation in
the full cry of its existence. It would be much easier to let the cup
pass and continue to build the world's first throw-away civilization

But if we are to achieve some coherence and not let freedom
vanish into chaos, we have no alternative but to deal with all the
tumbling forces and facts of the here and now. and then find levers
that have the power not only to move but to win majority consent

We have chosen the neighborhood Growth Unit as one such
lever. It is within the grasp and values of every American, What
we urge that the nation see and grasp it as pari of a national
strategy — to make of this country what it can and must be — a
society confident and united enough to enjoy the richness of its
diversity, Livability of that kind does not come by accident; even
free choice requires design.

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TASK FORCE MEMBERS

fvlembers of the Task Force on National Policy are:

— Archibald C, Rogers, FAIA. chairman; Chairman of the Board
of RTKL. Inc. Baltimore, He developed planning guidelines for
a team approach to highway planning, which led to establishment
of the Urban Design Concept Team assembled to plan Baltimore's
expressway system.

— leoh l\/ling Pel, FAIA; principal, l,M, Pel and Partners, New
York, His firm was responsible for planning and design of Phila-
delphia's Society Hill redevelopment; a renewal plan for Okla-
homa City's central business district; t^^ontreal's Place Ville l^arie,
and a master plan for redevelopment of downtown Boston,

— ^aquelin Robertson. AIA; currently director of the Office of
Midtown Planning for New York City; formerly head of the urban
design group within the city's planning commission, ' N

— William L Slayton. Hon AIA; executive vice president of t, /
Institute; formerly Commissioner of the Urban Renewal Admin-
istration, Housing and Home Finance Agency; later president of
Urban America,

— Paul N Ylvisaker. professional adviser: Dean of the School of
Education. Harvard University; formerly commissioner of commu-
nity affairs for the state of New Jersey, and later professor of
public affairs and urban planning. Princeton University.

1366

AIA IMPLEMENTATION

-Jc

A major task of AIA is to see that the recommendations of the
report are actually put into effect This will take considerable ef-
fort, but the report sen/es no purpose if AIA is not committed to,
and geared up for. the report's implementation. This will take
several forms.

The first effort is in the field of legislation. AIA, with technical
assistance, will draft proposed federal legislation, establishing
incentives and process for seeing that the Growth Unit becomes
the concept whereby rebuilding and new growth are given form
and direction. AIA will testify before Congress on its proposals
as embodied in the Task Force report, and it will lobby for adop-
tion of the legislation it proposes. It will work through its Minute-
man Program for lobbying of individual members of Congress by
individual members of AIA.

AIA will also work closely with those federal agencies in-
'olved in programs of urban development to persuade them to
react favorably to AlA's proposals.

At the state level, AIA, again with technical assistance, will
draft several pieces of alternative state legislation to enable the
state to put the urban growth concept into practice. AIA will
work closely with its state organizations to assist them in lobby-
ing for, and advocacy of, the proposed model state legislation.
AIA will also work with the Council of State Governments to have
Its proposed model legislation included in their model legislation
publication.

At the political level, AIA will appear before the Republican
and Democratic platform committees to urge inclusion in party
platforms of the AIA proposal. AIA will ask its chapters to quiz
Senatorial and Congressional candidates on their position on the
AIA Growth Unit proposal

AIA is requesting appearances at the conventions of other
organizations and groups so that it can present the Growth Unit
concept and encourage these other organizations and groups to
adopt the AIA proposal.

AIA will be adding to the substance of the Growth Unit con-
cept by undertaking additional studies that will go into the tech-
nical aspects of its recommendations. For example, AIA will hold

a small seminar of people eminent in the field to discuss the
subject of constraints, and to see how such constraints can be
removed to make the building process simpler and more eco-
nomical, and assist the building of growth units.

Similarly, AIA will be preparing a national housing policy out-
lining the specifics of a national housing program aimed at pro-
viding subsidies to the user rather than to the housing unit. AIA,
with technical assistance, will examine the question of tax in-
centives and disincentives to see how they might be modified to
encourage the development of Growth Units as outlined in the
Task Force Report.

AIA hopes, with foundation or governmental support, to en-
courage a local government or state to establish a program as
soon as possible to make the building of Growth Units possible
to "test" the recommendations of the report, including the build-
ing of Growth Units,

On the public relations side, AIA will provide information to
newspapers and magazines about the urban growth report and
will publicize additional material as it is produced. AIA may place
ads in newspapers or magazines urging citizen approval and
support of the Growth Unit concept. AIA hopes to prepare a
packet for its components, including visual aids, so that the com-
ponents may make presentations to local governmental ollicials
and local civic leaders explaining the report and urging its sup-
port. AIA will work to obtain time on national television for
presentation of the concepts embodied in the report, and would
like to prepare TV and radio spots so that the message can
reach the widest possible audience.

In all of this, the aim of AIA is to encourage the greatest
debate possible on the basic question of giving direction to. and
controlling the character of. urban growth and urban rebuilding.
AIA will be espousing its own particular and specific recom-
mendations, but AlA's major objective is to see that this question
receives widespread discussion and that legislation and mecha-
nisms to permit America to control its urban growth future are
established. This will never be done unless the debate gets un-
der way: AIA intends to see that the debate does get under way.

1367

GROWTH UNIT

^ 20 PERSONS/ACRE
C3 VARIABLE DENSmES
• COMMUNITY FADLmES

SSOPENSRACE
O RECREATION

MECHANISMS

Execution of the Growth Unit concept requires governmental
mechanisms or institutions. Their creation requires federal-in-
centive legislation and state-enabling or institution-creating legis-
lation These mechanisms can be in several forms. Those dis-
cussed below are examples.

At the metropolitan scale, one needs a metropolitan planning
and development agency to deal with the rebuilding of the worn-
out portions of the metropolitan area, with control over the direc-
tion and form of peripheral growth, and with building of the
interstices, in-filling those areas leapfrogged by development.

The metropolitan planning and development agency should be
responsive, in an electoral way. to the residents of the metropoli-
tan area. Methods of election and representation would be deter-
mined by the interests of the individual state.

Although such a metropolitan planning and development
agency should exercise the metropolitan planning function, it
must also have authority, with teeth, to see that its development
plan is actually carried out. Development follows urban umbilical
cords — transportation, communications, and utilities. To direct
growth, one must control the infrastructure Thus, this agency
must have authority over the location and timing of major infra-
structure development — major roads, mass transit, major water
and sewer lines, airports, open space, state and federal office
buildings, publicly owned or financed hospitals, and any other
public investment that influences economic development and
determines the pattern and character of future urbanization.

The metropolitan planning and development agency must
also have the authority of eminent domain to do the following;

(1) acquire vacant, or quasi-vacant, land in the urbanized por-
tion of the metropolitan area to encourage the building of growth
units in these areas. This is the in-filling process.

(2) acquire land in the deteriorated portions of the metropolitan
area at a scale to enable the building of Growth Units redevel-
opment

(3) acquire land in the path of development to at least diminish
speculation in land and to establish the character of future devel-
opment.

(4) acquire raw land on the somewhat removed periphery of
the urbanized area in order to build Growth Units or multiples of
Growth Units.

Once such land is acquired, the planning and development
agency should prepare broad-based plans for its development,
install the necessary utilities and public facilities, and then lease
or sell the land to those developers who agree to build in ac-
cordance with the prescribed plan and who also agree to pro-
vide housing for a specified spectrum of economic groups. The
rate of land disposition should be geared to the rale of urban
growth for the metropolitan area; and the metropolitan planning
and development agency would, by this method of land acquisi-

tion and disposition, determine the pattern and character of
future growth.

A metropolitan planning and development agency should be
able through this process to acquire sufficient land so that the
prices of its offerings keep in line the speculative land values of
private holdings in other portions of the metropolitan area.

The metropolitan planning and development agency should
also be given the authority over the location of housing for low-
and moderate-income families. Real freedom of choice requires
not only that there be housing for all races and income groups
throughout the metropolitan area, but that it be in sufficient quan-
tity to assure the actual availability of housing units.

Within the inner city, the metropolitan planning and develop-
ment agency should concentrate on relatively long-range (15-2^ — .
years) Growth Unit development plans, recognizing that tf>,
transformation of inner-city areas takes time and that housin^~^
must be available prior to displacement if large-scale land acqui-
sition and development are to take place. Emphasis should be
on early installation of good public facilities, particularly schools,
to improve the area's public investment character. When rebuild-
ing takes place, it must be for all income groups and all races.
Replication of the socio-economic character of the area before
clearance is not the objective Although Fort Lincoln in Washing-
ton. D C. is not a clearance area, it is a good example of this
approach. Such areas must be rebuilt to attract middle- and
upper-middle-income families as well as low: white as well as
minority families.

In order to maintain control over development, the metropoli-
tan planning and development agency should have control over
all major (relatively large and large-scale) zoning decisions in
the metropolitan area. There should also be a uniform building
code for the metropolitan area.

Such a metropolitan planning and development agency would
not serve as a municipal government, carrying out normal
municipal services such as police, fire, street repair, library serv-
ices, etc Existing political jurisdictions would continue their mu-
nicipal, governmental functions, but they would be relieved of
the functions previously itemized. In fact, one would hope for the
establishment of some form of neighborhood, quasi-governmental
institutions, within the central city, to deal with neighborhood — ,
municipal functions on a neighborhood (Growth Unit) scale. \

And finally, but still most important, is the necessity of equaliz^^^
ing the property tax throughout the metropolitan area so as to
remove locational bias for economic development.

At the stale level, it might well be desirable to create a state
urban development corporation, much like the New York State
Urban Development Corporation, with the authority to acquire
raw land for the construction of new towns, but not within the
jurisdiction of metropolitan planning and development agencies

10

1368

where such agencies exist.

Also, it is important thai the stale, with federal assistance,
assume the cost of financing public education so as to relieve
the cities of this considerable burden Each slate will deter-
mine its means of financing.

The states also ought to adopt enabling legislation encourag-
ing the creation of PUDs (Planned Unit Developments) to assist
private holders of substantial acreages to develop such areas
along the guidelines of the Growth Unit.

The state should also adopt statewide performance-oriented
building and other codes relating to the construction, mainte-
nance, and safety of structures

At the federal level, the government should lake over the costs
of welfare, thus relieving the stale and many local governments
of the welfare burden. Here again, there is no prescription as to
the means of financing.

In order to encourage the slates and localities (metropolitan
areas) to undertake these kinds of development programs, the
I ~>deral government should provide incentive grant legislation. As-
>stance in the financing of major infrastructure should be given
to those metropolitan areas where an adequate governmental
mechanism has been established to carry out a development
plan.

In addition, as a means of encouraging metropolitan areas to
proceed with such action as quickly as possible, the federal gov-
ernment should provide financing for the acquisition of one mil-
lion acres in the 65 metropolitan areas where the population is in
excess of a quarter of a million. The location of this acreage
should be determined by the metropolitan area agency (or the
state, in the absence of such an agency) and some of it, of
course, will consist of present federal holdings.

In the field of housing, the federal government should intensify
its experiments with the subsidy of the family, rather than the
housing unit, and try to transform housing sut^sidy programs so
as to remove the stigma of housing built specifically for the poor
or lower-middle-income groups

The federal government should also provide incentives, similar
to the Title Vll incentives for new towns, to encourage metropoli-
tan planning and development agencies and statewide urban de-
velopment corporations to acquire land by eminent domain or
direct purchase to provide for the building of Growth Units and
new communities. These incentives could provide assistance in
financing land acquisition and in subsidizing the installation of
the necessary public utilities and facilities
'\Title Vll of the present Housing and Urban Development legis-
^ Jion leaves location and timing of new town developments to
the happenstance of private developer land holdings rather than
to public decision Federal legislation should emphasize, in fact
require, that the incentives be granted to only those develop-
ments that are in accord with the metropolitan development plan
— a development plan created by an agency with the authority
to see that the plan is actually carried out.

A possible additional mechanism at the federal level is a na-
tional urban development corporation, working with a national

development bank, to undertake the building of several experi-
mental Growth Units or new towns to learn first-hand the difficul-
ties and potentials of various kinds of development. The Min-
nesota Experimental City is a good example of this possibility.

These mechanisms must also be geared to making the proc-
ess of private development a simpler operation than it frequently
is with the constraints now established by local government. The
role of the planning and development agency will provide the
private developer with the assurance of being able to acquire
land at nonspeculative prices. He will also have the assurance
that he will be building in a planned development; he need not
fear the impact of uncontrolled adjacent development. But in
addition, the private developer should be free, within the con-
straints of the Growth Unit's overall plan, to build as he sees fit.
An aim of the metropolitan planning and development agency
should be to establish the simplest process possible for the
processing of the necessary plans and building permits.

Within this mechanism, some special financial incentives
should be included to encourage experimental Growth Unit de-
velopments. Such incentives might be in the form of govern-
mental assumption of some of the financial risks plus adequate
funds for substantial research in this area.

In some instances, slates may feel it more desirable to retain
for themselves greater authority over urban development in the
urbanized areas within the state and may wish to establish cen-
tralized authority over zoning, land development, review of plans,
etc.

There is no one specific mechanism for controlling and direct-
ing urban growth and rebuilding, but the principle of public
determination of where such development takes place is essen-
tial. It is also essential that there be public control over the dis-
tribution of housing for a spectrum of economic groups through-
out the metropolitan area, for otherwise there would be no as-
surance that actual freedom of choice as to housing location and
style would be provided

li^echanisms should also be established to deal with the ex-
pansion of smaller communities Here it is probably necessary
to use a state urban development corporation and the state's
planning capacity to create development plans for smaller com-
munities, and then actually undertake the acquisition of land
and the development of Growth Units

And finally, there needs to be a more careful examination of
the existing mechanisms of rebuilding inner-city areas. We have
reached the point where the constraints for rebuilding are so
great that it is virtually impossible to rebuild inner-city areas at
a scale sufficiently adequate to change their character. We have
seen examples of relatively small-scale redevelopment in inner-
city areas fail because the character of the entire neighborhood
was not changed. The principle of citizen participation is very
important, but citizen participation should not be translated into
veto power by the local citizens. The sample principle applies,
of course, to those suburban communities which, through the
zoning ordinance, have vetoed housing for minorities and the
poor in their communities.

11

1369

There should be a mechanism that provides technical assist-
ance to an area's residents to aid them in evaluating and propos-
ing plans for the development and redevelopment of their area.
But, such plans must also be reviewed in light ol the develop-
ment program for the entire metropolitan area. Adequate con-
sultation and consideration ol the views of the residents of any
area that is to be redeveloped, or where development is to take
place, must be given. The process should be one of full con-
sideration and review, but the governmental agency must have
the clear authority to carry out the development program. This

probably will be the most difficult mechanism to establish, and
yet our cities will continue to disintegrate unless we find a
mechanism that permits their rebuilding at a scale that creates
entire new neighborhoods (Growth Units) that are open and at-
tractive to all races and all income groups.

This sketches out the mechanisms needed for implementation
of the concept of the growth unit. The details will vary among
the stales, but these are the essential principles. If America is
to be effective in controlling the character and direction of its
urban growth and rebuilding, then it must have such mechanisms.

METROPOLITAN AREAS

• 500.000 TO 1,000,000

• 1,000,000 TO 2,000,000

2,000,000 TO 5,000,000
1 5.000,000 AND OVER

12

1370

DOCUMENTATION

Page 2. column 2: "The numbers of Americans in the 25-44 age
group ... are increasing at a rate nearly nine limes that of the past
decade."

Source: US. Census Bureau
1960 Data: 1960 Detailed Characteristics

Vol.1, Part D. Table 161
1970-80 Data: Current Population Reports, Estimates and Projec-
tions Series p. 25, No. 470, Nov. 1971

1960

Age

Actual

(In Thousandst

% Change

1970
Actual

% Change

1980
Projection

o^:

22,822
24,076

10.8
—3.9

25,278
23,126

45.9
10.1

36,900
25,457

Total

46,898

3.2

48,404

28.8

62,357

Page 3, column 1: ". . . The birth rate is at an all-time low . . ."
Source: National Center for Health Statistics, Provisional Report for
1971 (reported in the N.V. Times, March 2, 1972). The 1971 crude
birth rate of 1 7.3 is the lowest corrected birth rate on record.

Page 3, columns 1 and 2: ". . . the total (Growth in Population by
the Year 2000) may well be as low as 60 million ..."

The following estimates of population growth show a range of
61.5 to 83.5 million additional people by the year 2000, depending
upon fertility levels and timing patterns. Immigration (currently
about 400,000 per year) and mortality rales are assumed to remain
constant in these projections. The tertilily level is the average num-
ber of children per woman upon completion of child bearing. The
timing pattern of fertility relates to the median age of the mother.

Assumptions

Fertility
Level

Projected
Fertility Population
Timing by 2000
Pattern (in Miinons)

Increase
over 1970

1. Census Bureau 2.110

aeries E rale*
leplacemeni" rale
ding over time to
Zero population growth)

2. Approximate 2.284
fertility rate for 1971"

3. Census Bureau 2.45
Series D rale

Old
Young

Old
Young
Old
Young

266.3
271.1

273.3
279.4
280.7
2883

61.5
66.3

68.5
74.6
75.9
83.5

' Census Bureau, Current Population
" National Center for Health Statistics,

Reports, p. 25, No. 470, Nov. 1971
Provisional Report tor 1971

Page 3, column 2: "Ivleanwhile, housing starts have picked up . . ."
Source: 92nd Congress, 1st session: T/i/rd Annual Report on
National Housing Goals, June 1971, p. 4

Housing Goals and Production

(Thousands o( Units)

1969

2,001.0

1,997.2

1970

1 ,850.0

1,791.9

1971

2,040.0

ca. 2,100.0*

1972

2,330.0

Est

2,295.0-2,765.0

'(President's

Report

on National Growth, 1972; p. 60)

Page 7, column 1 : There are 65 metropolitan areas in the United
States with populations of 500,000 or more. These 65 metropolitan
areas accounted for 50.4% of the nation's population, 58.9% of
the nation's black population, and 60.4% of the nation's total
growth from 1960-1970.
Source: U.S. Census

1371

Mr. Rogers. Mr. Chairman, I should now like to make some general
comments on five major areas in community development legislation.

GRANT CONSOLIDATION

The American Institute of Architects wholeheartedly supports the
idea of grant consolidation. For too long the Nation has been strug-
gling in a quagmire of redtape in our community development pro-
grams. ITrban renewal, neighborhood facilities, open space, basic water
and sewer facilities, section 312 rehabilitation loans, public facility
loans, and Model Cities are each programs whose objectives we fully
support, but whose operational characteristics leave much to be de-
sired. Conseq^uently, the institute welcomes the initiatives by Congress
and the administration to consolidate the present patchwork of cate-
gorical grant programs for community development into a revenue
sharing or a block grant format.

GUARANTEED FUNDING AND PROGRAM CONDITIONS

One of the most frustrating characteristics of the existing com-
munity development programs, particularly to local agencies, is the
inconsistent and unpredictable nature of program funding. We believe
that community development should be supported at the local level by
relatively constant Federal funding programs. A second and equally
frustrating characteristic of the present programs for local govern-
mental officials is the continually changing and often conflicting pro-
gram requirements. We support the establishment of uniform require-
ments as well as simplification and continuity in the funding of com-
munity development programs.

FEDERAL GOALS STILL ESSENTIAL

The administration's bill almost totally ignores the prosecution of
national community development goals in its proposed Better Com-
munities Act. This is unacceptable. State and local governments enact
budgets which commit close to $200 billion a year of locally generated
revenues. The record of these governments in achieving national hous-
ing and community development goals using their own funds, partic-
ularly in metropolitan areas, has been bleak. Indeed, the categorical
programs which would be terminated by the pending legislation, were
enacted to overcome these deficiencies. We conclude that any com-
munity development legislation must insure continued pursuit of na-
tional goals, including housing, renewing the wornout sections of cities,
sound metropolitan development patterns, and the building of new
neighborhoods and communities.

INCENTIVES FOR LARGE-SCALE DEVELOPMENT

After many years of study and close involvement in the community
development process, we have come to the conclusion that the Nation
can best achieve its physical, economic, and social objectives in the com-
munity development field through an increase in the scale of develop-
ment. We call this new scale of development the ''growth unit." A
growth unit can range in size from 500 to 3,000 dwelling units and

1372

would provide a complete package of physical and social facilities at
the neighborhood scale. We believe that an increase of scale of develop-
ment is the most productive technique to achieve national connnunity
development goals. Our national policy task force report documents
in detail our analysis which leads to this conclusion.

THE INTERNATIONx^L BASE FOR COMMUNITY DEVELOPMENT

In Title VII of the Housing and Urban Development Act of 1970,
Congress declared that national urban growth policy should ''strength-
en the capacity of general governmental institutions to contribute to
the balanced urban growth and stabilization." For the next 30 years
some li8 million acres of land will be urbanized. Effective govern-
mental controls are desperately needed to guide the conversion of this
land from rural to urban use. The 228 metropolitan areas which cen-
sus data suggest will accommodate the bulk of growth for the next 30
years will include 406 counties, which are governed by 20,755 separate
governmental units. The Chicago metropolitan area has 1,113 local
governments ; Philadelphia, 871 ; and Pittsburgh, 704.

None of the community development block grant bills adequately
support the need for institutional change, particularly at the metro-
politan level. Unless substantial incentives are provided in this com-
munity development legislation for institutional change, w^e will mere-
ly continue the present piecemeal, inefficient, and inequitable commu-
nity development processes which have led to unattractive, socially
imbalanced, and often ill-conceived and mislocated urbanization.

The American Institute of Architects believes that steps should be
taken to eliminate the present f i-agmentary Federal effort toward com-
munity development and implement a coor-diuated, comprehensive ap-
proach that deals effectively with all the interrelated elements.

The comprehensive apjiroach we are advocating should address it-
self to the five points which were just outlined. In the second section
of our formal written statement for the record we offer some specific
provisions to back up our recommendations in these five areas.

We would be pleased to work with you and your staff further on
this legislation and trust that the committee will review our recommen-
dations closely and act favorably on them.

Now, Senator Stevenson, with your permission, we would like to
present a brief slide presentation on oui' ideas for growth at the neigh-
borhood scale. In the second section of our formal statement for the
record, making specific legislative suggestions, as well as in the pre-
ceding general comments, our emphasis is on the importance of plan-
ning and development at the metropolitan scale.

At the other end of the spectrum, however, we are also emphasizing
the importance of planning and development at the neighborhood
scale. Here we are speaking of growth units, by which we mean new
and renewed neighborhoods, perhaps as small as 500 housino; units or
as large as 3,000: in any case, sufficiently large to provide a full range
of community facilities, both physical and nonj^hysical — housing,
shopping, recreation, employment, public services, et cetera. These
units could be placed within the interstices of existing urbanized areas
in metropolitan areas.

1373

I Avill now depart from the text in order to save time.

[Slide.]

The first slide shows where we think the problem is, the 65 largest
metropolitan areas in this country, those of over 500,000 in population
as of the last census. We think that the focus of the legislation you are
considering should be on these areas and that the vacant land in these
metropolitan areas should be assembled and converted to the use of
growth units; that is, new neighborhoods, as a condition precedent to
the renewing of old neighborhoods.

[Slide.]

We examined one such metropolitan area as shown in this slide. It
is theoretically anonymous but looks suspiciously like the metropoli-
tan area of Baltimore. Here we discovered some 10 to 15,000 acres
of appropriate cleared land, ranging from the small white dots right
in the core of the city — here T think due to a misguess on an urban
freeway system — to potentially large new towns adjacent to the ur-
banized area outside the city. In all, we discovered that Baltimore
could accommodate a large share of new neighborhoods without (1)
going beyond the present urbanized area; without (2) having these
all in one part of the city, either the inner city or the suburbs; and
without (3) taking any parklands which exist or should be commit-
ted to park use.

[Slide.]

The growth unit we envision therefore is a new neighborhood phy-
sically, functioning, socially. It could be put into an existing cleared
site at the core of an urban area.

[Slide.]

As residents move out of dilapidated and unsound and unsafe units,
perhaps with the help of rent supplement programs, it would then be
possible, on a gradual voluntary relocation basis, to go into these
dilipadiated communities and gradually upgrade these to the stand-
ards of new growth units or neighborhoods.

[Slide.]

At the same time, we woidd be seeking opportunities in the subur-
ban areas to put in growth units as. for example, over a large regional
shopping center which is shown in this slide. This shopping center
has as many as 60 acres devoted to parking and capable of being
platformed and then developed as a high density suburban growth
unit. We believe the movements might be partly in the inner city
to the new city and partly from the inner city to the suburbs.

[Slide.]

We are not opposed to the larger scale new towns, but we believe
it is more realistic for these to be developed by a gradual addition and
insertion over a period of time of these new neighborhoods. We be-
lieve further that these will tend to be more successful adjacent to
existing large metropolitan areas than out in the boondocks.
[Slide.]

Nor are we unaware of the problems of smalltown America. We be-
lieve the principles that we are talking about of new and renewed
neighborhoods could be used to gradually expand the smaller cities,
perhaps those at the scale of 50,000 in population, thereby creating

1374

opportunities for redoing their older sections physically and
economically.

[Slide.]

And finally, the growth unit is also conceptually applicable to the
problems of rural America, and to the suggestion of perhaps using
these as small activity centers.

The goal of our recommendations is this : To expand the options of
where our people live; and to expand the options of how they live.
The prior six slides have dealt with the options of where our people
may live. The next two simply show comparable stylistic alternatives
suggesting options of how our people may live. We should be designing
in many varied ways to fit the true kaleidoscope that is our society.
We must recognize the differences in lifestyles and provide the physical
arena in which these lifestyles could be properly expressed.

[Slide.]

First, we might see at one end of the stylistic spectrum a fairly con-
ventional low density suburb-type community and at the other end a
high density and urbane community, with many alternatives in be-
tween. These two slides therefore focus on expanding society's options
for how it wishes to live.

[Slide.]

The strategy for all of these 65 metropolitan areas, in this case again
illustrated by Baltimore, would be to simultaneously develop a new
growth unit at the core of the city

[Slide.]

A new growth unit by infilling an opportunity area, a gap in the
suburban area

[Slide.]

And to make the first start on a large new town such as Columbia
or Rest on, in this case at the northern edge of the urbanized area.

As the movement of people begins toward these hopefully better
communities on a voluntary basis, and not on a forced relocation basis,
it would simultaneously create opportunties to go back into the core
and to upgrade an existing dilapidated community- — perhaps with
better public facilities such as a playground.

[Slide.]

To give some focus to our chaotic and faceless suburbia we could
create activities centers or additional downtowns around, for example,
a depot station — ^this slide shows how this happened near Stockholm
in the suburbs — and put in the first neighborhood unit of what would
ultimately be a large new city adjunct to the metropolitan area.

[Slide.]

The tool for carrying this out this community development is the
public armature. The public armature is the skelton on which all urban
form depends. It is the focus of the public investment and is com-
posed of all modes of transportation and pathways, utilities and serv-
ices. Too often, this public skeleton sim[)ly responds in a chaotic and
unplanned way to other initiatives, both private and public. Instead,
it should be planned deliberately and programed so that the public
ffets the maximum reward for the dollai-s invested. First of all we

1375

should create a quality environment, and then perhaps beyond that
and recapture the private values created by the public investment.

[Slide.]

Concluding with this slide, Senator Stevenson, we want to indicate
to you that the American Institute of Architects is really committed to
these recommendations. We have held press seminars and conferences
throughout the country. We have also held a special conference at
Harvard. I would like the report of this conference also included in
the record, the "report of the constraints conference," which was
funded by the Ford Foundation.

[The report follows :]

1376

1377

The Constraints Conference was sponsored by the National
Policy Task Force ol the American Inslilule of Architects with
t support ol the Ford Foundation. This conference report
w»a prepared by Richard C. Leone, Clifford A. Goldman, and
Lee Enfield. January 10, 1973.

PREFACE

The first report of the National Policy Task Force of the American
Institute of Architects was approved by the AIA Board of Directors
December. 1971 and by the annual AIA Convention in Houston
May, 1972. The report has become the subject of serious discus-
sion and debate among many with a stake or an interest in urban
affairs. The Task Force members have played a leading part in
this discussion and have sought to refine and sharpen their recom-
mendations, and to develop plans for the implementation of their
report. As a part of this process they conceived of a working
conference involving a small but representative group of experts
on various aspects of urban policy, development, and economics
The gathering was intended to focus particularly on ways to over-
come the constraints relevant to the various national policy pro-
posals. A grant from the Ford Foundation was secured to finance
\ meeting and the Graduate School of Design at Harvard Uni-
.-/sity agreed to serve as host. The conference was held on
October 30. 31, and November 1. 1972.

CONTENTS

Summary of AIA National Policy Task Force Report

Summary of Recommendations 2

Basic Beliefs and Premises 2

Building at Neighborhood Community Scale: The "Growth
Unit" 3

The Constraints Conference

Introduction 4

Critique of the Task Force Report 4

Changing the Ground Rules: Overcoming Constraints 7

Short-Term Follow-Up 11

Conclusion 12

Appendices

Conference Participants 13

Harold C. Fleming "The Folklore of Social Constraints on
Urban Growth Policy" — Summary 13

Anthony Downs; "Economic Constraints Against Widespread
Acceptance and Use of the 'Growth Unit' Concept" —
Summary 14

Harold B Finger: 'One lylan's System is Another Man's Com-
ponent"— Summary 16

William Wheaton: "Governmental Constraints on the Imple-
mentation ol the AIA Development Plan" — Summary 17

Frederick O'R Hayes: An Overview ol the Government Work-
shop 18

1378

SUMMARY OF AIA NATIONAL POLICY TASK FORCE REPORT

SUMMARY OF RECOMMENDATIONS

A. Scale and Form: The building and rebuilding of American
communities should be planned and carried out at neighborhood
scale (ca. 500-3,000 residential units along with a full range of
essential facilities and services) and in a form appropriately called
a "Growth Unit."

B. Priorities: The value most to be respected is free choice.
First concern should be given the condition of those trapped in
the poverty and deterioration of older neighborhoods, especially
of the central cities.

C. Changes In the Ground Rules of Community Development:

Free choice should be expanded:

(1) by ensuring open occupancy throughout the entire housing
market affected by governmental subsidies and insurance.

(2) by directing needed housing subsidies to people rather
than to structures.

(3) by providing locational options, especially by linking devel-
opment in central and peripheral areas of the metropolis.

(4) by providing for diverse living styles, through Growth Units
of varying densities, housing types, and sen/ice patterns; and also,
through less restrictive building and zoning codes.

(5) by expanding the possibilities and scope of citizen partici-
pation in the design and governance of neighborhoods.

Financing patterns should be revised:

(1) Less reliance should be placed on the local property tax.

(2) Stale and federal governments should assume a greater
share of:

a. infrastructure costs, and

b. costs of social services, especially health, education, and
welfare.

(3) The appreciating value of land benefited by public invest-
ment should be recaptured and recycled into community facilities
and services.

(4) Categorical aids should be broadened — especially the
Highway Trust Fund which should be expanded into a more gen-
eral fund in support of community development

Government structures should be reshaped and adapted;

(1) Private-public ventures should be encouraged.

(2) Public development corporations should be created by fed-
eral, state, and local governments.

(3) fvletropolitan planning and development agencies should be
encouraged.

(4) State governments should participate more directly in plan-
ning and regulating the use of land, especially in areas defined as

"critical" {e.g., flood plains, coastal regions, areas of acute hous-
ing shortages, and areas in the path of rapid development).

Capacity to build at neighborhood scale — both public and phvate
— should be strengthened:

(1) Financial, legal, and other constraints should be reviewed
and eased.

a. A steady flow of mortgage money at low and stable rates
should be ensured.

b. "Front money" for Growth Unit development should be made
available.

c. Public investments in infrastructure should be properly
phased and coordinated.

(2) State governments and metropolitan agencies should take

a more assertive role in acquiring and preparing land for develop — v
ment — and in building a network of utility corridors to accommll
date and give shape to Growth Units

(3) Tax and other incentives and disincentives should be re-
vised to encourage high quality urban development.

(4) Environmental controls and design standards should be
encouraged.

(5) New patterns for the delivery of critical services should be
encouraged.

(6) Industrialized building processes should be encouraged.

D. Special Program for Areas Impacted by Rapid Growth
and Deterioration:

Priority should be given to the 65 metropolitan areas over
500.000 population.

Within these areas, the public should acquire and prepare one
million acres for Growth Unit development.

This development should be explicitly designed to benefit, not
detract from, the improvement of the quality of life of those now
residing in the older and deteriorating sections.

At average densities of 25 persons per acre, this special pro-
gram should accommodate one-third of the expected growth of
the U.S. population between 1970-2000.

BASIC BELIEFS AND PREMISES

A. A national growth policy is first of all an expression of nation
values. The values we most cherish are the worth of the individual
and his freedom of choice.

B. The goals of national growth policy and the problems it should
be concerned with have more to do with quality of life than with
numbers.

C. The measuring rod of national growth should be the quality of
our neighborhoods The neighborhoods should be America's
Growth Units.

D. By concentrating on the neighborhood, national policy can

o

1379

relate to growth and regrowth wherever it may occur — in rural
areas, in smaller towns and outlying growth centers, in metropoli-
tan areas and their central cities, in free-standing new communi-
ties.

E Whether we like it or not. it is probable that most of America's
expected growth from now until the end of the century will occur
within existing metropolitan areas. We therefore conclude that
Amencan growth policy should concentrate on improving the
present and future conditions of our existing metropolitan areas.
F Within these areas, we believe the first priority should go to-
ward improving the condition of the older core cities, more espe-
cially the condition of those trapped in poverty and the squalor
of declining neighborhoods.

G. Growth and regrowth — building new communities and restor-
ing old ones — must go together.

H. No national growth policy will work unless there is a broader
base for financing the facilities and services that are necessary
for more livable communities.
■Similarly, an effective national growth policy will require broader
.^speclives and. in many cases, larger governmental jurisdic-
tions.

J. And while these broader capacities are developing, we also see
the need for more citizen control and participation at the neighbor-
hood level.

K. We wonder whether the time has come to consider less afflu-
ent standards of housing in favor of higher standards of neighbor-
hood environment, facilities, and services — if indeed the choice
must be made.

L. We favor public acquisition and preparation of land in advance
of development.

BUILDING AT NEIGHBORHOOD
COMMUNITY SCALE:
THE "GROWTH UNIT"

The Growth Unit is first of all a concept — a general way of saying
that Amenca's growth and renewal should be designed and
executed not as individual buildings and projects but as human
communities with the full range of physical facilities and human
services that ensure an urban life of equality.
~<rhe Growth Unit does not have fixed dimensions. Its size in
Jidential terms normally would range from 500 to 3.000 units.
This general scale is consistent with likely trends during the
1970s which will encourage the filling in of open land and the
renewal of older neighborhoods within existing metropolitan areas
— as well as the expansion of outlying communities within the
population range of 25.000 to 250.000

Life-styles, housing types, and residential densities could vary
according to local markets and circumstances

Larger communities — up to and including free-standing new
towns — should be built as multiples of these Growth Units — al-

lowing, of course, for an emerging hierarchy of additional services
and facilities such as high schools, community colleges, hospitals,
regional shopping centers, mass transit, and utility systems.

The neighborhood Growth Unit relates just as much to the re-
building of America's older cities as it does to new grovrth on
open land We have learned the hard way that urban renewal and
the rehabilitation of older neighborhoods cannot succeed when
done piecemeal, house by house, problem by problem The job
IS much bigger than that, and the Growth Unit is a more appropri-
ate scale and way of doing il

The Growth Unit is based firmly on the principle of open occu-
pancy and equal access to facilities and services. Moreover, by
linking growth and regrowth both outside the central cities and
within them, the nation can find an orderly way out of its segre-
gated living pattern and the haunting tragedy of its older cities.

Finally, the Growth Unit offers a valid measunng point for envi-
ronmental performance. It can be planned and judged as a "pack-
age" rather than a disjointed accumulation of activities, some of
which do and some of which do not meet going standards of
ecological innocence.

Membership of the Task Force: Archibald C Rogers, FAIA,
Chairman, leoh l^ing Pei, FAIA, Jaquelin Robertson, AIA, Van B.
Bruner Jr.. AIA. William L, Slayton. Hon. AIA. Paul N. Ylvisaker.

99-855 O - 73 - pt. 1

1380

THE CONSTRAINTS CONFERENCE

INTRODUCTION

For a long lime Americans sought and valued growth. The nation's
restless energy seemed to require excesses; to celebrate going
all out.

Strangely, for we still are young as nations are measured, all
that is changing. Growth and its consequences now are viewed
ambivalently by most Americans and with hostility by an increas-
ing minority. Yet the nation continues to grow, albeit at a slowing
rate in terms of population And the nation's leaders, however
much they share the general uneasiness, must respond to the
problems associated with growth, with its uneven impact and
benefits, and with ils undesired consequences and costs. Neither
the AIA Task Force nor the participants in ils constraints confer-
ence minimize the difficulties future growth poses for policy mak-
ers. They simply refuse to accept the complexity of the problem
or its novelty in the American context as compelling reasons
for passivity.

There was substantial agreement at the conference that devel-
opment of a national growth oolicy should be a priority federal
objective. Such a policy obviously would have many components,
but as a minimum, it should permit opportunities for small-scale
development in the interests of variety, encourage the establish-
ment of new towns, and. most importantly, assert that the major
form of development — encompassing perhaps one-third of total
growth — should take the form of neighborhood scale (about 500-
3.000 units) projects. One of the primary justificalions for the em-
phasis on this last approach is the need to make an impact on
the overall character of the area to be developed.'

Indeed, this desire to shape future redevelopment is a prime
justification for organizing the conference around the operational
concept of the "Growth Unit." The discussion of this concept (out-
lined below) was intermingled with other, more specific subject
matter throughout the conference.

This report of the conference proceedings has three sections:
(1) A critique of the Task Force Report; (2) A discussion of the
current "ground rules" for development and of the constraints to
implementation of the report; and (3) Recommendations for short-
term follow-up by the AIA.

•Thus, for example, a "neighbofhood scale" pfoiect in the Bedlord Sluyvesant area o(
New York City might have to include 5.000 Of more units to etiect an improved physi-
cal envifonmenl lor residents. A suburban Growth Unit might be .iiuch smaller

CRITIQUE OF THE TASK FORCE
REPORT

Clarifying the Growtii Unit Concept: Since the conference
agreed that a national policy was necessary, the Growth Unit con-
cept was reviewed largely in terms of its efficacy as the central or
organizing idea in such a policy In other words, the conference
addressed the question: Does the Growth Unit give us the vehicle
we need to implement a sensible national growth policy? The
question is a fair one since the Task Force Report identifies the
Growth Unit (GU) as its central concept.

The GU concept was criticized on several grounds. Interesting' ^
Ihough, the most common negative reaction was not to the cd> _/
cept but to Its name. In fact the disapproval of the term "Growth
Unit" was so general as to require serious response, rather than
dismissal as a quibble. Since public education and political mobi-
lization are critical to the process of implementation of the Task
Force Report, consideration must be given to the burden imposed
by an unpopular or confusing name. No alternative term, however,
satisfied everyone at the conference and the matter eventually was
put aside. The Task Force, however, agreed to consider alterna-
tives.

Although the semantic problem was difficult to put to rest, the
conference produced more substantive criticisms of the Growth
Unit concept. There was considerable debate about the size (or
more precisely the range of sizes) selected for the GU. It was the
view of several participants that the GU as described in the report
was simply loo small (at least one participant, however, felt that
it was loo large) If, for example, the unit was conceived of as a
free-standing entity, then it would be unlikely lo provide sulficieni
base for a full range of community services and benefits. II. on the
other hand, it was proposed only in terms of linkages with other
development in a given melropolilan area, including other GUs as
the Task Force members emphasized, then these relationships are
not made clear in the report More importantly, the Task Force
approach emphasized comprehensive planning to shape growth
in whole metropolitan areas — and lo shape it by the development
of a mix of GUs. \

The general response to this line of argument was thai the k^.. /
elements of the GU concept are not the specific number of
dwellings involved, but rather the neighborhood scale, the charac-
ter of the development, and the effect of the Growth Units on
metropolitan development patterns The GU is an attempt to turn
the trend of new growth from sprawl and spread to planned inter-
related developments Seen in this sense, the GU is more than a
module for growth (and not a "cookie cutter" pattern to be used
in varying locales), but rather an approach lo development and
redevelopment which builds at a relatively large scale in order to

1381

Jaquelin Robertson, second
from right, raises a key issue
during a task force meeting at
Princeton.

achieve certain goals and realize certain benefits. As the report
puts 11:

"The Growth Unit does not have fixed dimensions Its size in
residential terms normally would range from 500 to 3,000 units —
enough in any case to require an elementary school, day care,
community center, convenience shopping, open space, and rec-
reation. Enough, too. to aggregate a market for housing that will
encourage the use of new technology and building systems. Also
enough to stimulate innovations in building maintenance, health
care, cable TV. data processing, security systems, and new
methods of waste collection and disposal Large enough, finally,
to realize the economies of unified planning, land purchase and
preparation, and the coordinated design of public spaces, facili-
ties, and transportation"*

The conference conceived the essence of the Growth Unit

strategy as "opening the opportunities for superior development

patterns and designs rather ihan as a recommendation of a

specific physical format of growth " The Growth Unit is adaptable

\the requirements of the particular place and region The Growth

lit strategy is not, however, a means for expediting growth, in
the sense that it would brush aside the checks and balances that
have stymied undesirable developments. Rather, it substitutes a
rational review for the hit-and-miss conflict that sometimes fails
to stop undesirable projects and sometimes stops good ones.

According to Task Force members, the Growth Unit concept
does not inherently lean to the suburbs or to the city. It applies
to both. The form of the Growth Units and their locations will vary,
what IS essential is to change the ground rules of development to
make such development possible.

Task Force members conceded that clarification of the GU
term was essential to avoid further variance in its interpretation.
Some problems of this type will be inevitable, however, for one of
the characteristics of the approach is its flexibility — the desire to
employ a concept, namely the GU. which is a useful way of think-
ing about a major portion of national grovirth in the next 30 years
Such a concept must be general enough to suggest goals and
themes, even if this means that it is not specific enough to sup-
port a precise operational definition.

The Growth Unit and the Urban Crisis: Like any term, the GU
gathers meaning and connotation largely from the contexts in
which it IS used. And it is this fact which gave rise to another and
perhaps — in terms of time spent — the most important criticism of
the report raised at the conference. There was common agree-
"lent that the Task Force Report and the GU concept as presented

"Ithe AIA document focused predominantly on suburban or pe-
iipheral growth. The report accepts that this is where most of the
new population will work and live and that. thus, this area is where
most of the Growth Units will be built. There is. to be sure, ex-
plicit mention of the need to redevelop the central cities:

"The neighborhood Growth Unit applies to all America, But some

•See page A of the repon (green-cove' edition) tor a more elaborate summafY of the
Task Force Reports discussion of the Growth Unit

parts of the nation's society and landscape have been, and will
continue to be. especially impacted by growth. We believe a more
specific and concentrated response should be made to the prob-
lems of the nation's declining central cities and their fast-growing
metropolitan areas."

There is likewise emphasis on the need to integrate both racial-
ly and economically the GUs built in the suburban rings Indeed
this requisite is one of the justifications for the emphasis on large-
scale development — that is. only large-scale developments (and
not all of them) offer the possibility of including subsidized hous-
ing in outlying areas. Nonetheless, since no one seriously argued
that the central cities would be places of substantial grovirth. the
Task Force emphasis on the periphery and thus its small attention
to central cities was understandable At the conference, however,
this rationale was considered insufficient to lustify a national pol-
icy which emphasized the problems of any part of the metropoli-
tan area at the expense of the central city Underpinning this
judgment was the conviction, widely shared among participants,
that perhaps the major domestic problems of the country are those
associated with race and poverty, and that any national policy
must deal directly with ways to reverse the trends that divide and
in effect segregate those who are non-white and/or non-affluent.

The achievement of real gains m overcoming this special segre-
gation and economic disparity depends to some extent on finding
ways to connect center city residents and poorer Americans
(usually the same people in a metropolitan area) to the growth
areas for jobs and expanding housing supply Going with the
trends — accepting that growth will take place in the suburbs —
is not an acceplable strategy. The conference paper on this sub-
ject, prepared by Harold Fleming, in fact defines as a major prob-
lem the "convenlional wisdom which shapes much of suburban
growth and reinforces existing disparities in income and services
between the central cities and the surrounding areas"

Any national policy which appears to emphasize suburban de-
velopment is sure to be greeted with skepticism from minority and
poor groups. Several conference participants pointed out that it
required a leap of faith to imagine that the Growth Units would not
turn out to be predominantly suburban, white, and middle class —
not because of the intent of the Task Force but because of
American political realities. Any program, they suggested, which
actually emerged from the Congress would be unlikely to mandate
integrated housing in the suburbs. Carrying this line of argument
further, it was argued that the growth policy approach would dis-
tract attention, talent, and resources from the central cities —
which, while they are not growing, still are the loci of most of our
domestic difficulties.

The critics of the Growth Unit also predicted that making more
units available in growing areas would draw off higher-income
residents from the older housing slock of the central city, which
would, in effect, reinforce the "trickle-down theory" whereby once
upper- or middle-class housing shifts to the poor. This prospect
did at least offer the hope of some expansion in the urban hous-
ing stock, but as a total national response to the urban crisis it
was considered inadequate.

1382

Task torce members discuss
the report during a Washington,
DC. meeting in April. 1972.

The conference drew a distinction between racial and economic
integration although to some extent the two overlap. Racial in-
tegration in Growth Units might be anainable only with affirmative
marketing programs which might raise sales costs. Otherwise, the
objective of racial integration was seen as having no adverse
effect on the economics of development. Racial integration is
more likely to result from a greater choice in housing rather than
from fixed quotas. It follows that Grovrth Units in-city would be
part of the strategy.

Economic integration may well be the more difficult issue. It
could set city and suburb in competition for limited subsidies; it
could raise the costs of developing and marketing, it is almost
certain to meet political opposition in suburban areas: and it
would increase the cost of housmg low-income families (since
most Growth Units would be composed predominantly of new
housing). There was general agreement, however, that eco-
nomic integration was necessary to correct existing imbalances
and housing deficiencies which, by definition and in practical
terms, call for lower income housing in the suburbs. And, from
the viewpoint of development economics, racial, as opposed to
economic, integration was seen to pose no particular problem.
There was some question, however, of the desirability of attracting
higher income minority families from the central cities and even
of the feasibility of doing so. Some conferees feared that empow-
ering the government to expedite suburban GUs in the nature of
the case, might worsen the plight of the central city. If the sub-
urban Growth Units are economically integrated, the limited hous-
ing subsidies, too small even now for central city needs, would be
diverted to suburban GUs. The suburbs, conversely, might fear
that they would end up with all of the city's problems.

Yet whether or not, by some grand scheme, it should be doing
so, suburban growth has proceeded apace and will continue to
do so; jobs are fast moving to suburban areas, and subsidies
also are moving to the suburbs. The problem, therefore, is to
direct suburban growth and to incluoe within it provision for all
classes of society. The constraint to a balanced metropolitan
growth strategy identified in this discussion is a shortage of sub-
sidies for public services and housing. The conflict between city
and suburb is based mainly on the competition for inadequate
levels of subsidy. The number of new units needed to replace
substandard dwellings, to accommodate growth, and to offer free
choice is too large to be provided either in the city or in the
suburbs alone.' These questions were resolved by concluding

•with regard to total liousing needs, tiowever. trie Growtit Unit policy can have only
a limited impact on patterns of economic separation and on accommodating the needs
for subsidized housing in the suburbs At best, only a percentage of expected growth
can be feasibly directed into Growth Units, and only a percentage of each GU can tje
subsidized.

To Illustrate. Bergen County. New Jersey, has 900,000 residents and will have t 1
million by 1985 If one-third of the 200,000 growth is accommodated in GUs (65.000)
and 20 per cent of the GU population is subsidized (13.000). there will not be enough
units even to replace substandard housing in the County, which has one of the best
housing stocirs and highest income mixes m the region The GU will not do a great
deal to bring workers closer to their jobs or to relieve the housing squeeze In nearby
Paterson. Hudson County, or New York.

Thus, the GU policy cannot be viewed as a substitute for inner city redevelopment,
but as a complemeni to it In Bergen County, the GU could ease the housing pressure
on middle-income residents, tor whom little or no new housing has been built in
10 years From this, the lower income families might benefit, but only Indirectly

that the Growth Unit would offer a choice and the freedom to de-
cide where to live so long as development occurred simulta-
neously in the city and suburb and did not merely drain develop-
ment resources from the former to the latter.

Since the problem then is more with the practicalities of imple-
menting the report than with its substance, the solution seems to
lie in tying suburban development (Growth Units) to parallel devel-
opment in central cities. It might even be possible, for example,
to mandate that any federal aids to GU development be contingent
in a given metropolitan area on a particular mix of locations, in-
comes, and races. In short, the Task Force recommendations need
to be more explicit in tying the general approach to shaping
growth to specific policies for attacking the problems of the cen-
tral cities. As one participant put it, "the report must be a better
political document."

The Growth Unit and the Environment: Another issue raised
by the apparent policy of expediting suburban growth is the envi^-N^
ronmental impact. The environmental resources of many metr' )
politan areas are already strained. In the absence of a rational
policy of directed growth, environmentalists have taken a position
against any growth at all. The first victim of such a policy is the
large project with government involvement. The Grovrth Unit pol-
icy will have to be reconciled with the environmental requisites of
development, even if it cannot be reconciled with the "no growth"
wing of the environmental movement.

The conference sought common ground for environmentalists
and the Growth Unit advocates. Both would favor broader plan-
ning of land use, even if they differed on the content of the plans.
The main requirement for the Growth Unit policy is to show that
living patterns, including the environmental impact, would be bet-
ter with it than without it. No matter how well designed, a Growth
Unit cannot be more acceptable to the environmentalist than the
open land on which it would be built The answer, of course, as
the Task Force Report shows, is that growth is unavoidable and
must be accommodated with the least environmental damage.
The Growth Unit, in contrast to the extravagant land consumption
and highway dependency of suburban sprawl, is an environmental
advance.

Each metropolitan area has projections of expected population
growth. The expected growth, accommodated in higher density
Growth Units rather than expensive subdivisions, and placed along
utility corridors of high efficiency rather than spliced with un-
planned roads and utilities, can show a savings of open land ar-S.
other environmental resources. But, to register the potential en )
ronmental gains, the land thus saved from development must in
fact be set aside. If higher density Growth Units are expedited
while sprawling development is permitted on other land, the re-
sult will be to increase total population and total development
with no offsetting environmental gains. Therefore, the land acqui-
sition program should include the banking of open space land as
well as the assembly of land for the development of Growth Units.
This does not require that all open land be tied up; the Task Force
calls for one million acres of the projected growth to occur in

1383

Growth Units, although public acceptance of the approach could
lead to even wider application.

The conference clarified the rationale for cooperation between
the advocates of directed growth and the advocates of environ-
mental conservation. Any grovirth policy would be opposed by the
extreme "no growth" wing of the environmental movement. But
directed growth through Growth Units could be the common
ground for environmentalists who face the inevitability of growth
and developers who face the uncertainty in any specific case of
whether they can proceed. Directed growth can save environ-
mental resources by improved planning and by less extravagant
consumption of land. As an alternative to suburban sprawl, the
Grovifth Unit is an environmental advantage, especially if the land
saving that is made possible is actually registered by public
acquisition.

One of the missions for the AIA. then, is to make clear that it is
not advocating a specific level of grovirth, or even in favor of
growth in general. For regardless of the individual attitudes of
^Jask Force members, it is not necessary to the substance of
ir arguments that one have any particular opinion about the
"atflount of growth which is desirable. The Task Force is respond-
ing to predictions of growth levels from other sources. Indeed
given ttie need for redevelopment, the thrust of the recommenda-
tions would be valid even if there were no growth. As a nation,
after all, we ought to seek to improve the existing physical envi-
ronment as well as prepare for the future. Its members share the
concerns of many Americans regarding the unwanted conse-
quences of previous growth. They seek ways to minimize the
social, economic, and environmental costs of future growth, what-
ever its level The Task Force proposals are more than a defensive
reaction — they push at the limits of current development practices
and public policy Future growth seen in this sense offers an
opportunity to improve the nation.

Clifford Goldman pointed out that most policies to limit growth
actually result in spreading it And such policies usually are dis-
proportionately successful in diminishing development of low-
income housing, thus increasing the exclusivity of new develop-
ment.

These early criticisms of the report set a tone for the entire
conference Participants frequently returned to the basic question,
"What IS the impact of the Growth Unit concept on the central city
and on the environment'" By the close of the sessions, there
seemed to be a consensus that the Task Force recommendations
could and would be tied more closely to strategies for meeting
Jhe problems of metropolitan disparities in services, economic

jregation, low-cost housing needs, and environmental concerns.

CHANGING THE GROUND RULES:
OVERCOMING CONSTRAINTS

Economic Constraints: Conferees discussed at length whether,
as suggested by Anthony Downss paper, the GU would add to

the costs of development. He argued that more time is needed to
assemble extensive parcels of land and that larger staff and plan-
ning inputs per unit built are also necessary. If development costs
are higher, then the subsidies needed for economic integration of
the GUs also would have to be higher. The history of urban
renewal shows that Growth Unit size developments in the cities
are more expensive and more time consuming to plan and
process. From the viewpoint of the developer, however, higher
costs might be more than offset by higher sales prices and faster
sales schedules, especially if his well-designed GU was compet-
ing only with traditional forms of development.

A further counter argument is Ihat the development team, once
accustomed to thinking and working at larger scales, would de-
velop expeditious formats for planning large developments just
as it new nas for traditional subdivisions The preparatory steps
to a iarge development would become transferable from one
development to another. This process of skill and "know-how"
formation was offered as an important byproduct of the GU
policy.

Conferees distinguished between planning costs and process-
ing costs, the latter including the costs of securing multiple con-
sents and commitments prerequisite to the development. They
agreed that the planning costs were rather unimportant in the
total development cost. And they suggested that the planning costs
could be reduced with experience Ivloreover. the architects argued
strongly that given the opportunity to plan on a larger scale they
could lower the development costs through superior design.

The principal burdens on development were perceived as the
delays and costs of processing rather than the costs of planning.
In development economics, time translates into money. Bernard
Weissbourd felt that it would be less expensive on the whole to
plan and process one large development of. say. 500 acres than
10 traditional developments of 50 acres, primarily because of the
time involved in securing separate consents and commitments,
possibly from several governmental jurisdictions.

Large-scale development sometimes is subjected to more delay
than small developments because of the opposition of environ-
mentalists. If government decisions are required, the opposition
has opportunities at several points in the process to hold up and
even block it. One opinion expressed at the conference was that
these opportunities are desirable for society, because ill-
conceived projects will be stopped. In any case, the costs of
development will be higher and so will the risks of losing front-
end monies in an unsuccessful project. The Growth Units will at-
tract opposition, as noted above, not because they are inherently
more damaging to the environment than the aggregation of tradi-
tional smaller developments Indeed, in opposition to suburban
sprawl. Grov^h Units are environmentally superior. They will at-
tract environmental opposition primanly because they are larger
and thus present a better target.

The social components of the Growth Unit would raise costs. As
Anthony Downs points out:

"fvlore negotiation with various local government and community

1384

Archibald C. Rogers. FAI A. pre-
sents teslimor)y in Washington,
DC.

agencies is required since the GU includes not only residential
property but also a school, day care center, recreational land, etc.
Economically integrated developments require federal subsidies,
which involves more red tape and longer pre-construction periods
than non-subsidized housing Economically integrated develop-
ments also require more intensive marketing programs than those
containing no low- and moderate-income housing. Such programs
take longer to carry out, and may require longer absorption
periods than developments containing no subsidized units."

Another issue which impinges on development costs, and which
has political overtones, is the effect of the Grovrth Unit policy on
small builders The homebuilders at the conference argued that
the small builder is more efficient and less likely to fail than the
builder of large projects. They were dubious of efforts to broaden
the small builder or to agglomerate him, large enterprises and
large undertakings, they argued, are inherently more prone to
looser administration, lesser flexibility of operation, and risk. At
the least, the Growth Unit, divided by the large developer among
small builders would involve an extra round of negotiations and
supervision and thereby added costs.

Thus far, the discussion of Growth Unit economics has cen-
tered, in the abstract, on the development of a single Growth Unit,
more difficult issues are raised in the discussion of channeling a
substantial portion of growth into a number of Growth Units. The
costs of large-scale development, if they are in fact higher per
unit, are not so high as to make Growth Units totally infeasible.
"After all," as Downs points out, "a great many residential devel-
opments are already being built on sites of more than 200 acres,
with more than a minimum of 500 units, and a mixture of the types
of amenities called for by the definition of a GU. Each of these
developments also has a single comprehensive plan."

But the GU policy also implies increased costs through raising
the standard of housing and living environment and the addition
of amenities as standard rather than special optional features of
housing development. These costs may be "real" economic con-
straints. As Downs says;

"On the one hand, by raising housing costs they [GUs] shift
society to the left along the demand curve to a point of higher
average unit cost and fewer units consumed for any given level of
total income in society On the other hand, by making housing
more attractive than it was in the past, GUs might increase the
total demand for housing relative to other goods and sen/ices —
thereby shifting the entire demand curve to the right It is impos-
sible to determine a priori which of these two conflicting impacts
of GUs would dominate, since we know little about Ihe'shapes of
housing demand and supply curves, and even less about how GUs
would affect them."

In other words, the GU policy would set architects and design-
ers competing for excellence and their abilities would determine
whether the excellence could be attained within cost limits that
would enable more people to live in better environments. Thus, a
key variable rests with the architects.

The architects were anxious for the opportunity and confident
of their ability to apply their skills in this competition for excel-

lence. As Task Force Chairman Archibald Rogers stated in open-
ing the conference, the motivation of the architects in committing
their energies to the principles of the report was the chance for
the creative satisfaction of )ust such an assignment, as well as a
desire to support general reforms in urban development.'

Experience with larger, mixed developments thus seems to
demonstrate the basic economic practicality of GUs, but it raises
the question of why a wholly new policy of GUs is needed. Why
not simply support the planned unit developments already taking
place?

The discussion of this question focused attention on the dif-
ference between building some large developments and instituting
a national policy based on GUs. In this discussion, formidable
constraints surfaced and strong measures to overcome them were
proposed.

The most common problems with large-scale developments are
that they are "too few and far between," that they are located by
hit-and-miss circumstances instead of by design, and that they
fail to provide for economic integration The government actip**.
that were suggested to expedite the building of individual ( )
become essential prerequisites for a policy to direct metropolil3n
growth. One such governmental action is the acquisition and as-
sembly of land. Government acquisition would lower the cost to
the developer of the time-consuming assembly process and, in
the context of metropolitan development, would open the possi-
bility for GUs where they are needed and where they would other-
wise be impossible to build In fact, comparisons of the economics
of units built in traditional forms with units built in a GU may be
misleading For without easing the way for GUs, there may be
no basis for comparison because there may be no chance to build
the required number of unils in the face of locally imposed devel-
opment obstacles.

If, on Ihe other hand, planned GUs are fostered as the means to
provide for a large proportion of expected growth, the competitive
advantages that large-scale developers now enjoy would be
diluted. In the past, Ihe higher costs of large developments have
been more than offset in some cases by the outstanding environ-
ment created by comprehensive planning on a large site. This
advantage, in turn, increases Ihe relative market appeal of the
development, raises its share of the existing market, and reduces
the development lime required The developer thus is compensated
for his higher initial costs But, as Downs points out, "If the use ol
Growth Units became very widespread, it would be impossible
for each developer using a GU to en|Oy a relative advantage over
most other developers." ,^->

Some of the conferees were skeptical of the ability of the t)
ernment to judge Ihe right locations for viable developments.^tJtit
it is also clear that desirable locations are foregone because the
developer, on his own, cannot get possession and clearance to
use them. By acquiring land and clearing away locally imposed

•The reliance on p'openy lanes lor example which underlies Ihe lesistaoce lo housing
has 10 be eased The archiiecis can recognize Ihe truin ot this assertion without
ollering a detailed plan tor accomplishing it although workable plans tor ].^K relorm
have been prepared in various lunsdiclions

6

1385

obstacles to growth, the government would be creating a develop-
ment opportunity and enhancing land values. At the same time,
the government would shoulder ihe costs that would normally be
borne by the developer in gaming clearances By the time the
developer acts, much of the preliminary work would be done. In
return for creating development opportunities and values and for
assuming the costs of land acquisition and development clear-
ances, the government could be compensated from the increased
land values it creates. The compensation could come from the
higher land price charged to the developer or in the form of added
costs required of the developer, such as for the inclusion of
public facilities. In development economics, there are traditionally
accepted rewards for the functions here assigned to the govern-
ment By placing the rewards in this traditional context, the con-
troversial issue of taxing the unearned incremental land values is
side-stepped, but the desired end still is attained.

This role, and others, for governments are discussed below

>ublic Actions to Reduce Costs and Shape Development:

Throughout the conference, federal action to change the ground
rules of development was described as a prerequisite for neces-
sary state and local changes A national land use policy, for
example, could require wider planning at the state and metropoli-
tan levels And. even thougtn many of the elements of public
infrastructure required for new development — water, sewer,
schools, roads, etc — are not direct federal responsibilities, na-
tional programming can and does affect such programs. The in-
tent of the Task Force is not the creation of a policy which forces
migration to certain areas Yet, a policy which involves govern-
mental decisions in advance of development about where to sup-
port infrastructure is clearly a powerful tool in shaping growth,
William Slayton stressed that local governments routinely make
decisions of this kind when they, for example, decide where to
extend the water lines (often with federal subsidy). And while
infrastructure is not the key everywhere (in the cities, for example,
Ralph Taylor pointed out that other services are crucial), high-
ways and other public physical facilities frequently provide the
underpinning for development in the most rapidly growing areas
of the metropolis

One difficulty in dealing with the infrastructure problem is that,
as Nat Rogg indicated, it is an unresolved question as to whether
the American system of public decision-making (and given po-
litical realities) can install advance infrastructure on a rational
>'>sis Are we better off allowing economic forces, that is the
/ate sector, to do so. hopefully in a way which will minimize
fSal costs? Harold Finger suggested one aspect of the answer
when he noted that according to the design and testing group in
the Office of Research and Technology of HUD. Ihe construction
of integrated utility systems could result in a savings of $2 7 billion
annually — a strong argument that utility systems ought to receive
more national attention. If this approach makes sense, then such
elements of public infrastructure should be in tune with develop-
ment phasing. This conclusion in turn implies that there should be
a national land use policy which is coordinated with infrastruc-

ture development. But how could such development be funded?
Participants discussed several methods. Direct federal grants in
the form of community development funds have been suggested
as a source in AIA testimony before the Congress. As noted, the
Task Force Report proposes capturing for public use the "un-
earned increment" in land value brought about through public
investment. The discussion of this possible source raised two
potential difficulties: the funds available from the sources sug-
gested may not be large enough, and the effect of some recom-
mendations might be to discourage entrepreneurial activity, (vlost
conferees agreed that this area, and two others — alterations in
the property tax to direct receipts into land improvements and
corporate-issued, federally guaranteed, taxable bonds — needed
more study.

Other questions not fully resolved at the conference included
how to deal with the fact that the flow of credit at the needed
levels would pose a constraint to Ihe widespread implementation
of the strategy Other groups, more experienced in such matters,
such as Ihe homebuilders. could be consulted about this potential
problem.

Another important issue which was not settled by discussion
was whether in fact the Growth Unit could be built with the stand-
ards of excellence and amenities within reasonable cost limita-
tions or whether Growth Units could be built at high standards
only by making their units more expensive and thereby more ex-
clusive. One of the presumed potential benefits of widespread
development at larger scale is that the professions would become
skilled in such developments and able to handle them with in-
creasing proficiency. But. in the meantime, the best way to find
out what results can be achieved would be to build Growth Units
of varied types on a demonstration basis and in a design compe-
tition

These plans, however, will not be easy to implement without a
public commitment to Ihe GU idea.

The Need (or Public Innovation: The participants generally,
and especially those in Ihe government workshop, stressed the
necessity of fiaving a fortunate coniunclion of political forces in
order to achieve substantial changes in Ihe ground rules for de-
velopment Edward Logue. President of Ihe New York Stale Urban
Development Corporation (NYSUDC). descnbed in some detail
the circumstances of that agency's birth. Other participants added
evidence that unusual leadership in both executive and legislative
branches is required to create powerful special purpose agencies,
eg. NYSUDC. or change traditional allocations of power among
levels of government, e.g.. state override of local zoning ordi-
nances. Even after there is movement in the form of legislation
and/or executive action, according to most participants, extraordi-
nary entrepreneurial skills, both public and private, are necessary
to pass through Ihe thicket of obstacles in the path of planned
and integrated neighborhood-scale development — either in the
urban core or on Ihe periphery The necessity for special condi-
tions and unusual talents to overcome constraints to neighbor-
hood-scale development has troubling implications. For this prog-

1386

JLSJ^

Jaquelin Robertson, far right,
raises a point with task lores
members Archibald C. Rogers,
FAIA, Van B Bruner Jr., and
William L Slaylon, Hon. MA, at
House testimony.

o

nosis suggests that there is little likelihood of such an approach
to growth becoming routine in the near future, Paul Ylvisaker
argued that those convinced of the wisdom of the Task Force ap-
proach or even persuaded only that current development patterns
must be altered, should find in this pessimistic assessment a
stimulus to action, rather than excuse for cynicism Action to
solve these problems requires national leadership and national
policy. Strategy initiatives at this level might encourage, stimu-
late, or even mandate specific initiatives at the state and local
levels.

Many participants were convinced that the key to encouraging
GU construction will be incentives which make it profitable and
easy for private developers to adopt this scale of development.
As William Wheaton puts it in his paper on governmental con-
straints:

"It seems that most of the development units built in the next few
years will be privately built rather than publicly. In 1964, Ned
Eichler suggested that public enterprise was unlikely to be able to
build new towns more efficiently than private business. No one
has even attempted to refute that judgment. Although there is a
precedent in the history of Amehcan government for agencies
with initiative and drive, even on multiple purpose programs those
examples are rare indeed."

The discussion led by Anthony Downs, descnbed above, cov-
ered many topics which are relevant here. The key. again, to the
problem — and this holds true lor private and public developers —
is assembling and processing the land for development. Unless
these operations can be simplified to cut time and cost, and modi-
fied to reward large-scale, socially progressive, and ecologically
"innocent" projects, widespread adoption of the GU concept will
not occur. As one participant noted, 'That, my friend, is a tall
order"

Yet many of the innovations discussed at the conference are
being tested by various state and local governments * The variety
of these experiments is impressive evidence that slate and local
governments, under the right conditions, can play a vital role in
moving public policy in this area. The lesson of this creativity is
that any national policy must allow considerable local flexibility.

Because many of the perceived constraints, even for private
developers, are in the public sector, most of the relatively specific
suggestions for changes in the ground rules emerged from the
discussions of the government workshop Any implementation of
the GU concept, for example, implies a more comprehensive level
of metropolitan planning than is now ordinarily the case. Incen-
tives for such development likewise require public action, at the
federal, state, county, and/or municipal levels. Not surprisingly.

*ln Monlgomery Counly, Maryland, a chartei levision ptoposes. lor example, that all
new projects be required lo include at least 15 per cent low-income housing It a
developer exceeds mis minimum, tie is given a ponus in the torm ol an increase in
the allowable densities Fairfax County, Virginia, has a smaller mandated minimum,
through use ol the zoning power The Dayton. Ohio, area is experimenting with a
tair share" formula for distribution ol low-income housing among communities
Powerful public agencies like New York State's Urban Development Corporation and
New Jersey's Hackensack Meadowlands Commission also have a mandate lo mix hous-
ing costs A private developer, the Hartford Process, is attempting to rncorporate
similar social goals in its projects.

the need for a specific public instrumentality to encourage or im-
plement the GU strategy was a focal point of the government
workshop's discussion — a discussion influenced substantially by
the character and experiences of NYSUDC.

This state agency has an impressive array of powers, including
the right to override local zoning Participants were familiar with
the recent difficulties of UDC in attempting to exercise those
powers to construct relatively modest quantities of subsidized
housing in Westchester County, New York. This case was con-
sidered especially significant In view of the consensus that many
GUs must include subsidized housing but that projects which
contain all subsidized housing are counter productive, since they
isolate the poor and increase economic segregation (The UDC,
for example, uses a 70-20-10 percentage formula in its projects —
70 per cent working middle class, 20 per cent poor, and 10 per
cent elderly. The mix is based on a judgment about feasibility
and community character rather than on an extrapolation of hous-
ing needs.) Edward Logue contended that the Westchester case.,^
had been misinterpreted as a sign of the limits of the possibilitii )
in this field He noted that successful integrated developmertrr'
particularly by a public agency, required a certain confluence of
favorable factors, including courageous political leadership, sup-
port from industry, thoughtful treatment by local media, and ex-
treme flexibility in dealing with the day-to-day aspects of the prob-
lem In Amherst and Rochester. New York, Logue contended that
these factors, in combination with other unique local characteris-
tics, had made development possible on a much larger scale than
had ever been contemplated for Westchester. In Monroe County
(Rochester), with a population of less than 700.000. lor example.
UDC has local approvals from individual towns to construct a
total of about 15,000 units.

The discussion of the New York State experience highlighted
the need for statewide political leadership which is committed to
organizing growth around integrated communities. Participants
agreed that the one promising factor — in terms of building a po-
litical constituency — was the increasing commonality of interest
among large numbers of families who cannot afford new housing
at market rates Their numbers are such that there is great po-
tential for political support for more subsidized housing. Against
this possible coalition, however, is the deeply held belief, on the
part of many Americans, that where people live is a matter of
personal preference, not something to be dictated by public pol-
icy Like so many discussions of urban policy, the participants
came back to "ttie creation of options" as the only acceptafeJ^
public rationale for mixing incomes in new developments. '^^ )

The imposing obstacles to neighborhood-scale projects whicti
include different income levels are the primary reasons for the
emphasis on the need for a public agency Incentives for the
private sector, to be sure, are essential if there are to be numerous
adoptions of the GU concept of development But before one can
expect sweeping changes in the investment decisions of the
builders, public agencies probably will have to set precedents
and enhance feasibility The federal government could encourage
the creation of such agencies by providing support and guaran-

10

1387

tees for state or regional bodies which set out to construct neigh-
borhood-scale projects.

Mel Mister aigued that, to be successful, such agencies would
need federal guarantees of loans, the ability to build other than
public housing, and the ability to operate without regard to inner
city blight requirements He contended further that private de-
velopers, subject 10 proper public review, could be given similar
powers in order to stimulate inner city development. Without these
authorities, he pointed out, development will continue to follow
the path of least risk — to go with the trends, rather than to shape
new ones "We do not have the luxury of waiting until, in the
natural course of events, there is a sufficient drop in the value of
land in the city to encourage private developers to move in,"
Finally, public support, direct or indirect, for such developments
must be paralleled by an increase in the level and quality of pub-
lic sen/ices available to residents. In the suburbs, this implies
movement away from the local properly tax in order to eliminate
the disincentive of higher service costs implied by higher densi-
' ies and lower incomes In the cities, it means that such key ser-
— i/ices as schools and security must be perceived as good enough
to reinforce the appeal of new housing

The emphasis of these discussions, then, was on giving govern-
ment new powers, or. more precisely, reallocating and regrouping
public powers in order to encourage neighborhood-scale develop-
ment. (Mister went so tar as to suggest that governments become
the general developers of last resort.) Fred Hayes pointed out the
extent to which this conclusion reflected a lack of confidence in
existing public institutions, as well as the need to counter the
current pnvate economic forces in metropolitan areas The key
public functions obviously involved land assemblage, or "pass
through," to prepare land (zoning changes, etc.) for GU develop-
ment. The representatives of the building industry present at the
conference thought that private interests would support such an
extension of governmental activity if, in fact, it provided a path
through the existing maze of negotiations and consents which con-
fronts developers

At the close of the day-long government workshop (and al-
most simultaneously but independently in the economics work-
shop), the group, led by Congressman Thomas Ashley, examined
existing federal legislation designed to stimulate well-planned
development Several participants proposed an addition to the
Title VII legislation which now provides incentives for new town
development They felt that an extension of this favorable treat-
""•nenl to neighborhood-scale projects would be desirable and
^would enhance prospects for the GU concept In a related de-
velopment, Harold Finger's systems and technology workshop
proposed that the federal government support experiments at
GU scale, as a mechanism for testing practicality and building
support for the idea

The final plenary session of the conference focused on ways
to build public, professional, and ultimately political support for
the concept of shaping growth through neighborhood-scale de-
velopment. These deliberations provided the substance for the

immediate, post-conference agenda of the Task Force.

Thus, the conference was a step towards further AIA activity.
Some important issues were clanlied. providing a stronger ra-
tionale for potential allies and, incidentally, helping to establish
lines of communication for follow-up cooperation with such
groups Secondly, the meeting pointed the way toward provi-
sions which now can be written in legislative form. And finally, it
established the basis for further research and for the pilot devel-
opment of Growth Units.

SHORT-TERM FOLLOW-UP

The Task Force met immediately following the close of the con-
ference The desire to accelerate and broaden the process of
constituency and coalition building was at the top of its agenda.
As an essential part of this process members felt that potential
allies in the effort to achieve a national growth policy should be
involved in the revision of the AlA's own version of that policy. In
other words, the Task Force committed itself to involve non-
architectural groups in a thorough review and reworking of its
report in the light of the conference critique. While the Task
Force, of course, will retain ultimate responsibility tor the sub-
stance of the document, the need to gain outside support and
special competence outweighs any cumbersomeness caused by
additional participation. William Slayton noted that action and
"hard" proposals were the goal of the conference and to obtain
either the AIA needed strong and committed allies Van Bruner
stressed that a key component of the revision process must be
to satisfy the real concerns of many participants about the re-
port's apparent focus on suburban development as against cen-
tral city problems.

The plans to work with other groups also imply an intensifica-
tion of existing relationships with a number of urban and metro-
politan associations. AIA staff member Michael Barker has been
cooperating with these groups in preparation of legislative pro-
posals which embody aspects of the Task Force recommenda-
tions

Some conference participants felt, for example, that the Growth
Unit concept was sharpened to the point that legislation could
be drafted which would embody the principles of the strategy.
The legislation would include federal subsidies to a lower level
governmental unit for land acquisition, both for land develop-
ment and land preservation. The governmental arrangements
should be left flexible, but, whichever level of government is se-
lected, it should have the power to choose the size and location
of Growrth Units and their mix between city and penphery. It
should be empowered to clear the way for expeditious develop-
ment once selected sites have passed a thorough review. The
actual development would be left to private entrepreneurs, but the
government agency, as discussed above, would be compensated
for the functions it performs out of the values it creates.

Individual participants in the conference also plan further in-
volvement Harold Finger's suggestion of a research and demon-

11

1388

stration program related to the Growlti Unit concept, for example,
was made a high prionty.

Task Force members also agreed to select a number of com-
ponents of their report for additional study and analysis. The non-
architects at the conference urged that the Task Force concen-
trate on those issues that were clearly in the realm of the archi-
tectural profession, and on the key issue of the ability of the pro-
fession to produce a superior environment within realistic cost
limitations. The report's authors, however, are not prepared to
limit sharply the scope of the report. They reiterated their re-
sponsibility to attempt to configure a policy and institutional en-
vironment which would be congenial to Growth Unit scale de-
velopment. They recognize that this breadth led to some recom-
mendations described only at a high level of generality. The
criticism of a lack of supporting data and rationale was accepted.
But few questioned that implementing these proposals would aid
in neighborhood-scale development They simply noted that many
of them were controversial and far-reaching, thus needing thor-
ough substantive backing. The Task Force will attempt to provide
this supporting evidence.

Summary of Next Steps:

(1) Produce a revised statement of the GU strategy incorporat-
ing the refinements made at the conference.

(2) Choose a better term than Growth Unit to describe the main
idea of the strategy.

(3) Separate those recommendations which can be elaborated
by architects and those which call for consultation with other
groups.

(4) A series of working sessions with other groups, such as
the homebuilders, both to improve sections of the report and to
enlarge the base of support for the policy

(5) Development of a research and demonstration program for
discussion with HUD, including:

a. The preparation of a plan for accommodating growth
through Growth Units in a specific metropolitan area(s) to show
the impact on urban-suburban patterns and the environment;

b- A design contest for the design of particular GUs of varying
sizes and locales, with particular attention to cost control;

c. Drafting of model federal and state legislation for the imple-
mentation of GU policy;

d. Actual construction of a sample GU.

(6) A program of public education through meetings of local
AIA chapters and mass media using materials prepared by the
Institute.

CONCLUSION

The conferees, despite their varied backgrounds, shared a com-
mon starting point for discussion They agreed that a national
growth policy was both desirable and possible. In this sense, the
principal constraint identified at the conference was the "ab-
sence" of federal policy development of and commitment to a
grovirth strategy. The conferees stressed the need for leadership

on this issue from the highest levels of government. Without such
leadership, discussion of many aspects of the growth policy in-
evitably is speculative and relatively general.

Implementation of the report of the National Policy Task Force
or of any similar statement about national growth, for example,
obviously requires major changes in public and private develop-
ment practices (and perhaps most importantly, in public atti-
tudes) These changes are necessary not so much because the
Grovi/th Unit (neighborhood scale) concept is revolutionary — it is
not — but because widespread adoption of such a concept im-
plies elimination of many existing impediments to large-scale de-
velopment and the creation of new incentives for such develop-
ment, fvlore generally, there are few precedents for the sort of
comprehensive approach to future growth or redevelopment out-
lined in the Task Force Report In the past, grovirth and its conse-
quences have always been accommodated within the framework
of existing institutions and practices, through a process of incre-
mental adaptation. Most conference participants feel, however,
that we need to experiment with new approaches to problems o|'~
the scale and complexity of those posed by modern America. ^.

Viewed in this intellectual context, the Task Force Report is
yet another attempt to alter the way we think about and cope with
the future. In a sense, it is also a reaction to the oven/vhelming
evidence that current land use and development policies are in-
adequate.

The conference than asked two related questions: 1) Is the
Growth Unit approach sound and feasible? and 2) if so, (or as
modified) can the obstacles to its implementation be overcome?

Despite criticisms of the Growth Unit concept, the ovenwhelm-
ing majority of participants found it a useful way to think about
and organize future development. In other words, modifications of
the Task Force Report which satisfy most of the objections
raised at the conference are achievable without doing violence to
the basic approach. This is a conclusion that is especially sig-
nificant given the very wide variety of perspectives and interests
represented at the conference.

Any conclusions on the question of implementation must be
more cautious. Solid proposals for study and action were put for-
ward, including a strong emphasis on the need for both new pub-
lic instrumentalities and new mechanisms to facilitate private
land assembly. Other suggestions must be viewed as more tenta-
tive and even theoretical, some simply recognize the desirability
of certain altered circumstances for development, such as a
steady flow of mortgage money and a broader coalition of sup-,^~
port for subsidized housing I,

The experience of most participants, as related at the confer-
ence, indicated just how formidable are the constraints to neigh-
borhood-scale development. Although the Task Force finds itself
with a rather full agenda of immediate projects, its membership
recognizes that this is a very early stage in the effort to al'er the
pattern of growth in the nation In this sense, then, the conference
must be viewed as part of the beginning rather than a final formu-
lation of solutions to our problems li^uch research, analysis, and
argument lies ahead A major commitment to public education

12

1389

Van e. Bruner Jr.. William L
Slaylon. Hon. AIA. Jaquelin Rob-
ertson, and Archibald C. Rogers.
FAIA. alter presenting National
Policy Task Force testimony be-
tore the House Banking and
Currency subcommittee on
housing in June, 1972.

and constituency building is essential. So are powerful and con-
vinced allies And there can be no substitute for eventual leader-
sfiip on these questions from the highest levels of government.

The conference, in a sense, was a test of whether or not the
AIA should continue this approach to the problems of grovirth in
an urban society. The clear answer from the conference is "yes"
— not because the constraints conference found ways to elimi-

nate the constraints to neighborhood-scale development; with few
exceptions, it did not. The answer is "yes" because the confer-
ence confirmed that the ideas in the Task Force Report are im-
portant and worthy of public debate, Paul Ylvisaker said it best,
perhaps, when he called on participants to overcome the deep
cynicism acquired in the 60s and to open their minds to the pos-
sibilities of a new decade and a new approach to urban problems.

APPENDICES

CONFERENCE PARTICIPANTS

Thomas L Ashley
Richard F Babcock
Michael B Barker
"Seymour Baskin
-Gorman Beckman
Van B, Bruner Jr,
Anthony Downs
Marian Wright Edelman
Gordon Edwards
Harold B Finger
Harold Fleming
Herbert M, Franklin
Charles E Eraser
Clifford Goldman
W, Wilson Goode
Frederick O'R, Hayes
Maunce Kilbridge
Arthur T, Kornblut
Richard C, Leone
Peter Libassi
Edward J Logue
Louis R Lundgren
M Carter McFarland
Floyd B, McKissick

Melvin A, Mister
Roberf Nash
Raymond D, Nasher
Grace Olivarez
Nathaniel A, Owings
leoh Ming Pel
William K Reilly
Jaquelin T, Robertson
Jack Robin
Archibald Rogers
Nathaniel Rogg
Thomas Seessell
William L. Slayton
Stanley Surrey
H, Ralph Taylor
Dempsey J, Travis
Max 0- Urbahn
Stanley Waranch
Bernard Weissbourd
Louis Winnick
Robert C, Wood
Paul N, Ylvisaker
Hugh M Zimmers

"THE FOLKLORE OF SOCIAL
CONSTRAINTS ON URBAN
GROWTH POLICV'-SUMMARY

Harold C. Fleming

President

Potomac Institute Inc.

"The Task Force Report starts from the sound premise that 'a
national growth policy is first of all an expression of national
values.' It would seem to follow that the present pattern of growth
— however haphazard and incoherent — is itself an expression of
national values. Many of the values so expressed are strongly
antagonistic of the strategy proposed by the Task Force. When
we speak of 'social constraints' in this context, therefore, we
mean those values — embodied in popular attitudes and assump-
tions— that undergird present patterns of physical sprawl and
social stratification"

A. Social Constraints: The success or failure of the Task
Force proposals will depend upon how effectively we are able
to bypass or override constraining attitudes by appeals to more
congenial values Assuming as the Task Force Report does that
we can accomplish this favorable shift in the balance of social
values, the key question for AIA. then, is how to proceed.

The social constraints which must be confronted may be lumped
into the following five broad categories:

(1) The Cull ol Homogeneity "American folklore holds that
homogeneity is squarely in the national tradition and is an essen-
tial condition of neighborhood stability." Yet our present growth
pattern, by which we are becoming increasingly segregated,
racially and economically, reflects not so much a desire for
homogeneity but rather fear — fear ol the "changing neighbor-
hood" where property values decline as soon as racial and eco-
nomic integration sets in, and fear of inundation by the problems
associated with the poor.

13

1390

(2) The Work Elhic "In the context of urban growth, the
(work ethic) argunnent is that residents of the most affluent
suburbs have earned the right to be there and are therefore justi-
fied in defending their life-slyle against what they see as en-
croachments." The reality is, of course, that housing subsidies are
not presently limited to the poor. However, such government as-
sistance as VA and FHA guarantees and tax deductability of
mortgage interest and property taxes is not perceived as govern-
ment "handouts." as is public housing The Task Force proposal
for housing allowances directly to persons rather than to buildings
will not remove the basic problem posed by the work ethic,
though it may make the public subsidy less conspicuous.

(3) Private Enterprise as the Government of First Resort "The
appeal to the sanctity of free enterprise is a powerful deterrent
to a planned and balanced urban grovirth policy . . . Ironically, no
sector of the economy is more dependent than housing and de-
velopment on the subsidies and facilitations of government."

(4) Governr77er7( Best by Governing Least Suspicion of the
federal government is as old as the country. The problem in con-
fronting this particular attitude is twofold: (a) If we are to ap-
proach anything resembling a national growth policy, it clearly
will be necessary for local land-use decisions to be reviewed at
higher levels; and (b) Decentralization in and of itself is not bad.
The problem lies in the way in which such decentralized authority
has been used in the past. The Supreme Court of Pennsylvania
recently invalidated a "no growth" regulation in a community on
the grounds that this regulation involved a decision affecting
other communities in the area and as such was not a decision
which one community alone should make. "Meanwhile, federal
policy continues to insist that the local jurisdiction is the unchal-
lengeable decision maker in its own domain . . ,"

(5) Race "No catalogue of social constraints can fail to reg-
ister the durability of racial prejudice and discrimination. Resi-
dence, more than any other aspect of life in the United States, is
adversely affected by racial attitudes." The problem has been
complicated in recent years by the blurring of class and race dis-
tinctions which make racial motives less identifiable.

B. Countervailing Values: In opposition to the above social
constraints, there is a tradition in the United States of humane
and egalitarian values which are responsive to leadership that
can link the public interest with self-interest; a growing na-
tional commitment to racial equality, a long tradition of support
for the underdog and for a classless, upwardly mobile society,
and a growing disenchantment with unregulated free enterprise.
In summary, "the deeply rooted values and attitudes that we have
called social constraints are neither immutably nor consistently
held; in any given situation, they may be attenuated, modified, or
completely overridden by conflicting values and attitudes . . .
Attempts to influence attitudes are usually thought of in terms of
moral preachments or rational argument. Yet these techniques, in
and of themselves, have notoriously little effect on attitudes and
even less on behavior . . . unless the attitudes invoked are as-

sociated with a goal that is seen as desirable, or at any rate neces-
sary. In other words, perceived self-interest (in the broadest
sense) largely determines which set of contending values will
predominate in a given situation."

C. Toward a Growth Strategy: The proposals set forth by
the Task Force will be doomed to failure without the careful
cultivation of a constituency which is assembled on the basis of
the convergence of values and interests of different sectors of the
society. One such possible constituency, foreseeable in the
future, is the improbable alliance between developers and en-
vironmentalists, tjoth of whom have a stake in an orderly growth
plan. Another possible element of this constituency can be found
among the proliferating public interest groups representing a
citizenry growingly discontent with governnient as usual.

Study by the Potomac Institute some years ago of "apparently
stable integrated housing developments" found that white resi-
dents located in such housing not because of liberal attitudes, but
because attractions such as price, design, and quality outweighed
racially related reservations. Such findings are not definitive. Th/^
do indicate, however, that there is hope for the basic Task Forcb—
assumption that social constraints are not totally impassable.

"ECONOMIC CONSTRAINTS
AGAINST WIDESPREAD
ACCEPTANCE AND USE OF THE
'GROWTH UNIT' CONCEPT"
-SUMMARY

Anthony Downs

Senior Vice President

Real Estate Research Corporation, Chicago

The purpose of this paper is to explore the economic constraints
likely to inhibit widespread acceptance of the growth unit in the
near future, and possible means to overcome them. The paper
concentrates upon those portions of the overall urban develop-
ment process involving the creation of new structures and neigh-
borhoods at the outer edges of metro areas, but ignores theit_

eventual "trickling down" into slum conditions.

A. How the Growth Unit Differs from Prevailing Development
Practices: The growth unit differs from most present residential
development in three basic ways:

(1) The size of parcel developed under single ownership or co-
ordinated control would be considerably enlarged.

(2) As a result, comprehensive planning of land uses would ex-
tend over larger parcels than at present.

(3) Each growth unit would contain a broad spectrum of income

14

1391

groups, including at least some low- and moderate-income house-
holds.

B. Costs of GU Adoption to Urban Development Process:

One of the major constraints to acceptance of the above type of
development would be the additional real social costs to the
urban development process. These costs can be laid to two prin-
cipal factors: an increase in development time of the growth unit
over presently normal development, and an increase in staff and
planning input per growrth unit built There is no way to avoid
these costs and still achieve the benefits of growrth units. Hope-
fully, however, they would result in higher quality urban develop-
ment than presently prevailing methods, and the net benefits
would be positive.

Though it is not possible to estimate the size of these costs, it
is clear that they will cause a significant rise in the hsk of devel-
opment at the GU scale. It may be difficult for developers to re-
'-oup these costs through higher housing prices, unless they can
yiit the area impacted by these benefits to the GU itself and con-
trol access to the GU. When there are very few GUs in a metro
area, the greater market attraction of the GUs may speed up
overall development which will compensate the developer for his
higher initial costs. On the other hand, if the use of GUs became
widespread, the developer of the GU would not enjoy this relative
advantage over other developers Thus, adoption of the GU con-
cept may have two opposite impacts: (1) higher average unit
cost and therefore fewer units consumed for any given level of
total income in society; and (2) greater attractiveness of housing
than in the past, and thus an increased total demand for housing
relative to other goods and sen/ices It is impossible to determine
at this point which of these two impacts would dominate.

A second major constraint on widespread adoption of the GU
concept would be the redistributional impacts relevant to the de-
velopment process. These impacts, while they would not result
in any clear-cut net gain or loss to society as a whole, would be
perceived as higher costs for some "actors" in the development
process and as lower costs by others. They include:

(1) Market value of relatively small parcels of land would be
reduced as compared to relatively large parcels.

(2) Shifting most development to GUs would benefit large-scale
developers at the expense of small-scale ones.

(3) Insofar as the use of GUs was associated with a greater
degree of public control over where future development occurs,
«>nd in what sequence, highei land values would be focused on

W selected tor early high-intensity development, while the
values of sites not so selected would be reduced.

(4) By raising the required quality standard of residential living
and the costs associated with achieving that standard, the use of
GUs would increase the number and percentage of low-income
households unable to achieve that standard and also raise the
subsidy cost of helping such households reach it.

The fact that widespread adoption of GUs would cause the two
types of costs described above does not in itself constitute a
constraint against such adoption. However, serious opposition to

bearing these added costs would undoubtedly arise from many
quarters, among them owners of small parcels of land, small-
scale developers, local governments opposed to economic inte-
gration, or taxpayers opposed to increasing federal housing
subsidies.

C. Elfect of Present Tax Laws on Large-Scale, Long-Range
Development: In the opinion of the writer, the pressure to retrieve
initial investments and profits quickly is not a result of tax laws.
Rather, it stems from the high discount rates investors assign to
very nsky operations, such as large-scale, long-range develop-
ment tvlost investors will invest in such a venture only if there is a
very high rate of return on the equity capital involved. The result
is a discouraging of investment in projects requiring many years
for the return of profits against the initial investment.

Existing tax rules which provide relatively rapid capital recovery
and high rales of return on equity investment were created as a
result of the inherent riskiness of long-range land development
projects. Without such incentives, most investors would not put
much equity money into certain types of real estate at all.

In concept, many GUs need not be much larger than the typical
scale of urban development today Hence, investor resistance to
undertaking high-risk, long-range, large-scale development proj-
ects need not be a major constraint against widespread adoption
of GUs, except for the very largest type.

D. Basic Strategies for Coping wltl< Tliese Constraints:

Strategy No. 1: Reducing the additional real social costs of devel-
opment required by the GU concept, or reducing other real social
costs of development to compensate for those added costs.

This might be accomplished by public assembly and prepara-
tion of land, thereby reducing the time and risks involved in private
development.

In considering this strategy, it is necessary to distinguish be-
tween reductions in real social cost and redistributions of develop-
ment costs that would not involve reductions in their totals. Sub-
stituting federal financing for private financing would in itself
reduce the risk of failure associated with each individual project
only by reducing its annual financing charge. The real riskiness of
individual protects could be reduced if the government funding
agencies used their collateral powers to limit future competition
from other privately financed projects

Large-scale development might reduce real social costs if it
provided important economies of scale because of better land-use
planning than is typical of smaller scale development, fvlosl stud-
ies have shown that the possible economies resulting from such
tighter coordination are not very large, however, and result mainly
from larger benefits per unit of cost input rather than smaller cost
inputs per dwelling unit.

Elimination of entrepreneurial profits through more direct public
action does not result in a saving of real social costs. On the con-
trary, it probably raises the total social costs of development in
the long run by shifting responsibility for its completion to people
far less motivated to act energetically and rapidly.

15

1392

strategy No, 2: Prohibiting all small-scale development below
the GU scale, or attaching relatively high costs to such develop-
ment to discourage it.

This might be accomplished by passage of slate laws requiring
that no nevK development below the size of a small GU be under-
tal<en and superceding all local regulations to the contrary.

Strategy No. 3; Providing strong positive economic incentives
encouraging larger scale development compared to that below
the GU scale.

Title VII has shown that positive incentives can work in produc-
ing candidates for success, if not success itself. The existing Title
VII aids could be expanded to cover the GU scale and could in-
clude; guarantees of bonds underwriting land acquisition and
infrastructure costs: grants for planning and development of infra-
structure; special marketing assistance; long-term low-interest
loans for initial period; high priority access to existing housing
subsidies; special community impact grants to local government,
and payment of all or some of local property taxes at outset.

To provide this kind of assistance, it may be necessary to
delegate overview powers to regional planning agencies.

Strategy No. 4: Helping small-scale developers enlarge their
capacities, through several types of aids such as financial and
management counseling and advice and assistance in organizing
cooperative ventures

Strategy No. 5 Reducing present governmental obstacles to
larger scale development by:

(1) adoption of statewide building and housing codes.

(2) adoption of statewide planned-unit development ordinances
imposing uniform criteria throughout state

(3) creation of statewide GU-foslering organizations in state
government.

(4) creation of zoning review agencies at metropolitan-area or
state levels, with powers to modify local zoning codes.

(5) alteration of present reliance upon local property taxes to
finance schools.

Strategy No. 6: Having government agencies directly undertake
one or more stages of development.

The form of direct public development activity most strongly
emphasized by the AIA Task Force Report is acquisition and
preparation of land. Either through this method, or through less
direct exercise of eminent domain powers, the risks to private
developers would be transferred to public agencies, and thus the
risk to the developer of the entire project could be substantially
reduced.

Public agencies could also carry out other stages of the devel-
opment process, such as planning, financing, and creating struc-
tures.

The biggest difficulty with the public agency approach is its
political vulnerability to either (1) never being created at all or
(2) once created, being dominated by forces hostile to the basic
objectives embodied in the GU concept In contrast, private entre-
preneurs who believe they can profit from the GU development
will do so in the face of strong local opposition. The writer favors
leaving the major initiative for GU development in the hands of

private developers, with public agencies providing assistance
through incentives, removal of certain obstacles, etc.

Strategy No. 7: Providing public subsidies for economically in-
tegrated development.

The economic integration objective linked to GUs in the AIA
Task Force Report cannot be attained without large public sub-
sidies for low- and moderate-income housing. This means that at
least some new construction-oriented housing subsidies will be
required. It may also be desirable to provide "community impact
grants" to local governments to counteract "extra" costs if a sig-
nificant number of low- and moderate-income households move
into their jurisdiction as a result of the creation of a GU.

E. Conclusions: The biggest economic constraints to adoption
of the GU are likely to arise from resistance to bearing additional
costs (discussed above) by those who would have to pay them.
Reducing such constraints could be done partly by reducing the
real social costs involved and partly by creating offsetting redis-
tributional devices that counteract the impacts of the GUs them,^-
selves. '

"ONE MAN'S SYSTEM IS
ANOTHER MAN'S COMPONENT"
-SUMMARY

Harold B. Finger

Assistant Secretary for Research and Technology

Department of Housing and Urban Development

The term "growth" refers not only to the total increase in popula-
tion, economic levels, and consumption of natural resources, but
also to local or regional changes in those factors that can be
generated from mobility or changes in public and private invest-
ment In designing ways by which we can encourage or discourage
certain directions of growth, we must look at both levels: on the
national scale, we must concern ourselves with migration patterns
and population distribution between rural and urban areas; at the
local or regional level, we must be concerned with racial and eco-
nomic isolation in the central city and with migration patterns
within the metropolitan area In both cases, our basic policy must
be founded on the principle of freedom of choice. Providing the
broadest possible opportunities for choice is an acceptable goa^-
of a growth policy Any more specific policy will necessarily ii(
volve restrictions upon growth and opportunity.

An examination of the Task Force Report prior to workshop dis-
cussion raises the following questions:

(1) Does the growth unit represent a full system composed of
components forming a complex but unitary whole, or is it still only
a number of components? The latter appears to be the case.

a. Is the growth unit large enough to ensure a "full range" of
essential facilities and services?

b Can priority actually be given lo any one part of our national

16

1393

Van B. Bruner Jr., Jaquelin Rob-
ertson. Archibald C Rogers
FAIA, and William L Staylon.
Hon. AIA. talk v/ilh Rep. Henry
Reuss (D.. Wis.).

growth system without simultaneously providing choice of other
living opportunities?

c Is the growth unit large enough to "stimulate innovations in
building maintenance, health care, cable TV. . , ."?

(2) Does the proposed choice fulfill the basic national value of
freedom of choice?

a Doesn't the growth unit suggest only certain physical devel-
opment concepts and discourage others?

b Doesn't the report emphasize growth in metropolitan areas,
to the neglect of rural areas and new communities?

(3) The report proposes to deal with about one-third of the
expected population growth between now and the end of the
century. What strategy is to be pursued in dealing with the other
two-thirds of that growth, or even in dealing with that portion of
our present population which needs the kind of improved living
environment envisioned by AW

(4) Miscellaneous points:

a. How would we avoid local government rejection of grovirth

\it development?

b How would the success of the AIA concept be evaluated if it
were accepted today?

c The second report should go into much more detail on the
questions of land acquisition, finance, use and planning, since land
is a key element in the proposal

d. The second report should definitely give some attention to
the basic factors of productivity and employment.

e. What are the governmental or institutional arrangements
(public and private) needed for the required utilities and services''

f Should government "plan and construct networks of utility
corridors'"' What is the local and/or private role''

g. Is it realistic to put utilities in "place incrementally in accord-
ance with the largely private development of housing, commerce,
industry" or is it necessary to fully plan the total development in
order to anticipate the utility requirements and cost trade-offs and
cash flow requirements?

Discussion of the above and other questions will highlight some
of the systems and technological constraints on implementation
of the AIA proposal.

"GOVERNMENTAL CONSTRAINTS
ON THE IMPLEMENTATION OF
^HE AIA DEVELOPMENT PLAN"
-SUMMARY

William Wheaton, Dean

School of Environmental Design

University of California, Berkeley

Given the breadth and depth of government involvement in major
residential development, only what appear to be the most im-

portant government levels and functions will be examined below.

A. Local Government: The smallness and disparity of local
government units reflects not only our national and local history,
but also in most cases a genuine selection of local government
services and tax levels by the consumer (Tirebout). This frac-
tionalization also reflects an increasing class segregation in our
society and is reinforced by numerous fears concerning such mat-
ters as public safety, local lax rates, environmental degradation,
and public education. Abatement of these fears has generally
been beyond the capacity of local governments and is increas-
ingly so as citizen resistance to development grows. A few al-
ternative solutions which might abate these pressures are:

(1) local tax relief through federal assumption of health and
welfare costs.

(2) local tax relief through stale assumption of education costs.

(3) channeling revenue-sharing funds preferentially to local
governments which encourage development units.

(4) cost-benefit studies of planned development for local gov-
ernments.

(5) local power to provide enhanced local services to develop-
ment districts via stale or federal "development unit grants."

(6) privatization of development units by steps to increase de-
velopers' influence vis-a-vis local governments.

B. County Government: County governments behave much
like government units Possible steps to strengthen county devel-
opment planning might include:

(1) county municipal consolidation to internalize local ex-
ternalities

(2) special county service districts equivalent to Ivlunicipal
Utility Districts to permit self-supporting loci special services.

(3) "Lakewood Plans" to provide efficient and higher level
services inequitably to development units.

C. Special Districts: Special districts may be imperative for
development unils They have the special advantage, under many
state laws, of giving the developer control during most if not all
of the development period. Because of the possibilities for abuse,
special effort should be made to allow developers "freedom to
act" at their own expense and risk, to provide for eventual in-
corporation into general unils of government, to provide for an
orderly transfer of control from developer to new residents, to re-
quire special plan review by higher governmental levels, and cen-
tral bond issuance to prevent scandalous shifting of costs. With
these safeguards, consideration should be given to sponsoring a
"development unit " special district as a temporary multi-purpose
government with development power and contracting authority.

D. Metropolitan: With a few exceptions, existing metropolitan
agencies of government do not exist as government but rather as
agencies for executing federally induced planning processes un-
der token legal auspices. While the 701 planning procedure and
the A.95 review process have helped to make local officials more
aware of the need for more orderly planning, the appearance of

17

1394

revenue sharing on a per capita or other formula basis threatens
to eliminate local incentives for "more social" performance. Steps
to strengthen planning efforts at this governmental level might
include:

(1) metropolitan general purpose governments.

(2) metropolitan level allocation of revenue-sharing funds on a
performance of plan basis.

(3) progressive reductions in revenue-sharing allocations for
non-performing local units in a metropolitan area.

(4) "Fair share" housing and economic development plans.

(5) tax-sharing schemes which divide new assessables in loca-
tionally neutral ways.

E. States: The record of the states in this field is abysmal. New
York has taken the lead with its Urban Development Corporation
which enjoys, on paper, all the powers necessary to carry out
state programs of development units. Even so, NYSUDC has not
been totally successful in using these powers, as the controversy
in Westchester County points out. In discussing state action, we
should consider the following possible developments in the future:

(1) state urban development corporations with NYSUDC pow-
ers.

(2) state-enforced standards of equity in local distribution of
housing, industry, land use.

(3) state development plans, with federal incentives and penal-
ties for non-implementation.

(4) state supersession of powers now viewed as local but es-
sentially new, i.e., air and water quality, coastal zone protection.

(5) direct state control of certain plan actions, or state power
to "set aside" local regulations.

(6) slate development courts to adjudicate equities in local
government planning.

F. Federal: Despite the hazards of federal intervention, only
the federal government has the will, the resources, and the dis-
tance from local parochial concerns to be effective in setting na-
tional policy goals, and in providing the funding or tax incentives
which can implement those goals effectively. Recognizing that in
the past federal intervention has tended to be symbolic rather
than effective, the following appear to be likely areas (or federal
action:

(1) development of performance standards for allocation of
revenue-sharing funds.

(2) maintenance of effort requirements in special revenue
sharing.

(3) decentralized and flexible administration of categorical
grants (HUD field offices and annual arrangements).

(4) "Annual arrangements" types of goal statements from local
governments as prelude to block allocations.

(5) equitable performance standards in water and sewer grants.

(6) federal metropolitan development corporations.

(7) federal development banks, acting as a supplement in a
system relying primarily on federal guarantees of state or local
bonds or private borrowings.

(8) federal subsidies for special level services in development
units.

(9) housing allowances backed up by developing incentives.

(10) fonward commitment by federal government of housing
and other assistance funds to minimize development risk.

(11) metropolitan agency authority to redistribute revenue-
sharing funds withheld from non-performing local governments.

(12) support of states in creating urban development corpora-
tions.

G. Government Aids and Private Development: It seems that
most of the development units built in the next few years will be
privately rather than publicly built From the perspective of private
enterprise, government can take several initiatives which will en-
able business to do its job better:

(1) freedom from local building and zoning regulations.

(2) unlimited borrowing powers.

(3) government subsidies for development of sewers, streets,
schools, parks, etc. / ~^

(4) reserve condemnation powers to complete site holdings. J

(5) freedom from the "clout" held by local officials who tradi-
tionally provide approvals and infrastructure.

To conclude, it is not clear that a single-purpose program can
be applied to the diverse processes of development.

AN OVERVIEW OF THE
GOVERNMENT WORKSHOP

Frederick O'R. Hayes
Consultant in Urban Economics

A. The Balanced Community: The Growth Unit recommended
by the National Policy Task Force would be an economically
and racially balanced community. There would be open occu-
pancy as well as an extensive use of housing sutisidies for
families unable to afford housing at market prices and rents. And
something more, for the task force regards the grov^h unit as
serving, among its purposes, as a means of relocating families
"trapped in poverty and the squalor of declining neighborhoods."

This last restores to national public attention a long-neglected
policy locus that was explicit in the development of the Housing
Act of 1949. In that act, the new slum clearance and urban red^ ~n
velopment program (later urban renewal), by providing that pro, J
ects must be predominantly residential either in existing blighted
use or in re-use, emphasized the dual objective of clearing bad
housing and building good housing. It parallels, in this sense, the
requirement in the public housing statute that the community
eliminate a substandard housing unit for every new unit of low-
rent public housing it constructed.

In urban renewal, the critical qualification to the destruction of
substandard housing was the then revolutionary requirement that
families be relocated into decent housing at rents they could af-

18

1395

Van B. Brunei Jr. studies task
force recommendations during
House testimony, June, 1972.

ford. Bui the Act also provided for open-land projects and, in a
fascinating exchange of correspondence with Housing Admin-
istrator Foley. Senator Paul Douglas "clarifies" the intent of this
section Douglas argues that the open-land project should ordi-
narily be predominantly residential and he sees its major purpose
as a means of providing the housing necessary to "decant" the
excessive densities of the central city slums

In two decades, the Douglas concept has been largely unful-
filled promise We have taken an increasingly narrow and terri-
torial view of relocation — first with the argument of "territorial
rights" of existing tenancy to be relocated in situ, later with the
notion that dispossession by government coercion was inherently
bad, and finally with the idea that destruction of "housing for the
poor" was undesirable and repressive regardless of its condition.
However meritorious these policy perspectives, we have rarely
been able to couple slum clearance with any substantial reloca-
tion into new and economically balanced communities

Several of the participants in the government workshop were
"^tremely pessimistic on the prospects of constructing growrth
'-^its that were either economically or racially integrated. The
dominant white middle-class citizenry is. in their view, overwhelm-
ingly opposed to new neighborhoods with significant proportions
of blacks or the poor — and is fully capable of blocking such de-
velopments

Yet. the ultimate consensus was more optimistic for several
reasons Pessimism arose largely from two special cases — first,
the important area of suburban development and second, the in-
stance where low-rent housing is planned for an existing middle-
class neighborhood The latter is not a growth unit where an en-
tire new neighborhood would be built to include housing for all
income groups And. with respect to the former, the task force
clearly regarded within-city growth units as being as important as
suburban growth units, and. in the cities, we have seen many
successful large projects that provide for low- and middle-income
housing as well as housing at market rents or prices

Perhaps, more important, we have had. to date, precious little
experience with the newer and more subtle approach of subsi-
dizing the family rather than the housing unit. A separate project
or building clearly identified as low-rent housing is markedly dif-
ferent in Its impact than the allocation to low-income families of
some proportion of otherwise undistinguishable housing units in
a community othenwise populated by the middle class The task
force policy recommendation for subsidizing the family rather than
'>e housing unit was. for this reason, strongly supported by the
.^vernmenl workshop

The expenence of the Urban Development Corporation also
adds an optimistic note The highly publicized problems in two
Westchester County communities are offset by the acceptance
of the concept of community balance in many other locations — in
the new town in ti^onroe County. New York, among others. One
may not be able to create in other states replicas of the powerful
UDC. but the critical feature may not be the powers of the UDC
but its capacity to seek out and use political leadership that per-

ceives the problem and. however tenuously and tentatively, is
willing to see the development of a solution in the form of a bal-
anced community Our missing ingredient is not power — but com-
petent and aggressive public enlrepreneurship

B. Tho Public Entrepreneur: The task force placed heavy
emphasis on the role of government in assembling land and
making the infrastructure investment They recommend govern-
mental acquisition of 1 -million acres within the core cities and
the metropolitan periphery, this land could accommodate one-
third of the nation's growth over the next 30 years.

The workshop was not sanguine on the prospects of govern-
ment intervention on this scale or the creation in the states or
metropolitan areas of instruments with the extensive powers
needed to do the |0b But there was no dissent whatsoever on the
very revolutionary notion that government should assume basic
responsibility for one-third of the dwellings needed to house our
growing population-
One may doubt that this conclusion is based upon a perception
of the current competence of government The emphasis in the
discussions on the need for new institutions reflects partially the
territorial inadequacy of existing institutions but also the sub-
stantive and procedural limitations of existing governmental or-
ganizations The maze of limitations — the civil service system, the
compliance with external regulation including zoning and building
codes, and the hampering procedural requirements — all burden
most agencies within the normal structure of government. And
whether because of these constraints or for other reasons, the
urban renewal agencies — the clearest antecedent to the growth
unit agency — often failed to secure staff of adequate competence.
If they did better than older government units — and there is con-
siderable evidence that they did (eg . the Report of the Municipal
(Manpower Commission), it was probably attributable to a fresh
start with a new agency and to the frequent separation of the
function in a separate authority or organization.

Peter Drucker has argued that the basic function of government
is policy and program development and that government is ill-
suited to operate programs and almost always does it badly We
would do better to move from Drucker's position to one more
differentiated and potentially more sophisticated First, we should
recognize the continuity of variation from the traditional govern-
ment bureau to the private profit-making corporation. In between,
there is a multiplicity of variants — public corporations, public au-
thorities, phvate non-profit corporations among others — that can
be custom tailored to particular needs (see, for example. Politics.
Economics and Welfare. Robert A Dahl and Charles E Lindblom
for a systematic analysis of the problem).

Secondly, all government functions are not alike The most im-
portant general rule is that innovative and nontraditional functions
need the greater flexibility that accrues as we move across the
range from traditional bureaucracy toward more independent and
sometimes more private models A city finance department can
operate under a set of procedural conditions intolerable for a

19

99-855 O - 73 - pt. 1 -- 89

1396

growth unit development organization

We know that the growth unit development organization must
be a public body — for the power of eminent domain is crucial to
its purpose. Similarly, it must have a capacity to finance Ihe
enormous front-end infrastructure and land costs associated with
large-scale development — and Ihis almost certainly requires bor-
rowing supported directly or indirectly by general government
revenues Melvin Mister added, with the support of his workshop
colleagues, that it should also have the authority to operate any-
where within its statutory turf whether the area is blighted or not.
that it should as a developer of last resort be authorized to build
or sponsor the building of commercial and industrial structure as
well as housing, and that it should have Ihe power to construct
any public facility without dependence on other public agencies

The basic model is the Tennessee Valley Authority, a territorial
focus for organization, incorporating all of the functions and
powers necessary to complete the lOb without major dependence
on other agencies, public or private. The camels with their noses
under the development tent would, in effect, be brought in out of
the rain.

Should they have. too. Ihe authority, like Ihe New York State
Urban Development Corporation, to override local zoning and
building codes? The group would probably agree that ideally il
should, but that il was unlikely in the vast majority of our states
and metropolitan areas to be granted such authority. Almost need-
less to say. Ihe price for relief from the minutiae of regulations and
review should be a new and different system of accountability —
the subslilution of wholesale communication with and control by
a general government for the retail controls of its many separate
agencies

One could draw Ihe line on the role of the public development
agency at many different points in Ihe process. The task force, for
example, would be satisfied with an agency able to assemble the
land and make the required inducement in needed public facili-
ties IVIister wants something more with the power of developer of
lasl resort lo build literally anything. The urban renewal experience
would support the Ivlisler agreement to some substantial degree;
there are points where public and social objectives require a de-
gree of risk-laking beyond what can be expected from private
investment Even the Urban Development Corporation can make
such investments only when annual payments for rent or debt
service are adequate to cover debt sen/ice on UDC bonds.

C. The Private Sector: Ivlost of the housing now being con-
structed in the United Slates is built and marketed by private
developers, even where government subsidies are involved We
agree that this should be true of the growth unit development —
that land assembled and supported by public facilities built by
the public authority should be developed primarily by private de-
velopers subject to plan and control by public authority.

But even with the recommended public purchase of 1 million
acres of land, the private sector would still be building, without
special government involvement, housing covering in total amount
about two-thirds of that needed for population growth plus all of

the replacement demand A key question is our capacity to apply
the growth unit frame lo some significant proportion of this
housing.

There are three basic problems (1) the difficulty of land as-
sembly: (2) Ihe geographic and functional Balkanization of land-
use regulation; and (3) the enormous increase in required infra-
structure investment as projects move beyond usual scale into
growth unit and ultimately new town scale.

It is not impossible lo surmount these problems. Rouse's Colum-
bia, Reston, and Flower tvlound are all examples And so are the
multiple Levitlowns. Long's Maryville near Phoenix, and many
others. (If all of these do not convey an instant sense of satisfac-
tion, they only remind us that the scale of development is only
one aspect of Ihe problem.) The crux of the matter is thai the
problems are not surmounted sufficiently often, and that they en-
tail risks that most developers are unwilling to take.

Nearly all depend upon special circumstances — large tracts in
a single ownership, location beyond the developing fringe or irt
areas low in esteem under current style and fashion. But we mid )
raise the opportunities for larger scale development and reduce
its risks by a few relatively simple (at least conceptually) mea-
sures

With AlA's broader focus on growth units ranging from 500
dwelling units to new town scale. Title VII of the Housing Act of
1968 could be amended to provide similar types of assistance to
developments ranging upward from 500 dwelling units. This
recognizes that there is a continuum, from small projects to the
very largest, of rising developer risk and investment on the one
hand, and also increasing prospective public benefit.

D. Planning and Land-Use Control: Present land-use con-
trols are antithetical to large-scale development — whether public
or private — although they bear hardest on the private developer.
A performance evaluation would suggest several problem areas;

(1) Zoning powers are typically vested in the lowest and small-
est unit of general government — the village, town, or city f^any,
perhaps most, large-scale developments will cross one or more
zoning jurisdictions with the obvious resulting problems of divided
jurisdiction. In addition, Ihe developer must deal with public land
regulation at its most parochial level.

(2) The large-scale protect will rarely lit existing zoning and
plaiting. Even with a planned unit development provision under
the zoning law, the project will ordinarily require separate ap-
provals for zoning changes or exceptions, or lor acceptance a^ "^
PUD. These tend to be drawn-out and political, and involve sub--'
jective judgments.

(3) Government does not control land use solely through zon-
ing. The developer must, m addilion, contend wilh building and
housing codes, occupancy ordnances, fire laws, approval for
sewage connections, septic fields or disposal facilities, water
connections, and others The larger Ihe project, the more he may
be involved wilh standards for Ihe construction of public facilities
— from streets and street lighting lo schools

20

1397

Virtually every large private developer complains about the
enormous cost of delays in their complex approval process, and
public developers have often had the same problems.

One important step forward would be to shift zoning responsi-
bility for major or strategic features of development to the county
or, in multicounty metropolitan areas, to an appropriate metro-
politan area These should cover all large-scale or strategic de-
velopments— housing, shopping centers, industrial parks — as well
as ma;or transportation facilities — airports, shore line protection,
maior open space needs, and other plan elements of like ilk and
importance

Perhaps we should also consider, in our current maze of con-
trols, the possibilities lor: (1) the selected use of self-certification
procedures, and (2) centralization of administrative responsibility
for different codes. There is no reason why a builder cannot apply
code performance standards himself, and proceed with construc-
tion subject to review as he proceeds The risks should be small
if he, in fact, is following the code and has the sense to check out
/'^-jrginal cases of qualification. This does not eliminate enforce-
^ — ^nt, it merely shifts it off the critical path of sequential activity

Similarly, even where the composite of land-use and building
regulations arise from many different agencies, there is no reason
why actual administration and determination of compliance cannot
be centralized in one place. If exceptions or variations are re-
quired, they should be referred back to the initiating agency.

The temporary special district is another possibility which can
cover both land-use control and borrowing authority Wheaton
discusses the special district in his paper. Governmental Con-
straints on the Implementation ol the AIA Development Plan, and

points out the risk of abuse of the power by the developer, and
the desirability of a model law which would retain the advantage
of the special district but with adeouate governmental protection.
Unexplored is the possibility of creating temporary special dis-
tricts controlled not by the developer but by the county or con-
ceivably even the stale

E. Federal Requirements: The government workshop par-
ticipants expressed great wariness on the matter of special
revenue sharing, and a near unanimous belief that performance
requirements should be included in such a program. These per-
formance requirements should include the machinery and re-
search for an effective program of development and redevelop-
ment. The growth unit is the preferred form of development but it
should go where it ought to go and can be serviced — and this is
a major responsibility of the planning process. One should add
that a strong planning process is the only means by which a de-
velopment program can be integrated with a conservation pro-
gram Given the strong environmental movement, the opposition
to growth and development may well kill programs for good large-
scale development unless equal attention is paid to the protec-
tion, as one participant put it, of the "moose and the goose."

F. Neglected Issues: The government workshop participants
paid little attention to some of the basic issues of governmental
and private finance which seemed more appropriately covered
in Ihe economics workshop, and sheer limitations of time led to
a focus of discussion that involved only a few of the possibilities
and problems covered in the Wheaton paper.

1398

Mr. Rogers. We ask that you do consider our recomniendations
■which derive from this statement for incorporation in the pending
legislation. Thank you.

Senator Stevenson. Thank you, Mr. Rogers, for a helpful presen-
tation and also for the offer of further help.

The Better Connnunities Act proposed to eliminate the Federal en-
vironmental review of connnunity development programs. As you
know, the Senate bill does not eliminate environmental review. How
do you feel on that question ?

Mr. Rogers. I think it is a philosophic answer for the time being.
"We do not think environmental review should be eliminated. As ex-
l^ressed in our report, we think the longer term objective is to explore
new ways of designing and putting in place these new communities
so that they acliieve an equilibrium of natuiv and a sympathetic shel-
tering relationship to society. We believe that if this is done — and we
think it can be done — then the need for environmental review disap-
pears. But this is a matter of initially establishing firm criteria to be
followed all through the development rather than playing Russian
roulette in terms of the design.

Senator Stevenson. ^Ir. Marshall Kaplan said — and I quote him —

I would initially accept such submittals merely on the certification by local
chief executives if consistency with the statutory objective. Prior to the receipt
by localities of their second year allocation I would permit Federal ofl!icials to
staff and monitor local performance with respect to several defined criteria.

Do you approve of that approach ?

Mr.' Rogers. I would again think that it is a question of timing and
putting such an approach in context. Right now, it would seem that it
would represent a very risky departure of the responsibility of thf
Federal Government in terms of being sure that national purposes ar'i
being followed. What is needed, first of all. is a reexamination of thi
roles of the Federal Government vis-a-vis State and hopefully metro-
politan areas in which the responsibility — maybe self-certification or
something of this sort — is clearly transfen-ed to the operating levels
below the Federal Government ; and then, at that point. T think his rec-
ommendations could work. But I think there is going to be a formative
period befoiv that can be done.

Senator Stevenson. You stress the importance of metropolitan plan-
ning and development agencies. I think you also mentioned Illinois.
I don't know whether it is still the case, but we not long ago anyAvay
had more units of local government than any other State in the Union.
It is a problem everywhere, a severe i^roblem in Illinois.

Particularly when it conies to getting the units of government in
the metropolitan regions and specifically the city together with the
suburban units on joint planning and development, a metropolitan
body could help. We have metropolitan bodies across the country. We
have the Northeast Metropolitan Planning Commission in northern
Illinois. It has from its inception been ])lagued by tliat difficulty of
simply getting these miits of government together.

Now. one of the questions to be addressed is how. accepting the
necessity for metropolitan planning, you compose, constitute these
bodies in a Avay that makes it possible for them to overcome local
parochial differences. You said representation by direct election.
Would you expand on that. How do we compose these bodies in a

1399

way that enables them to be effective through direct election of all their
membei-s ?

Mr. Rogers. I think we have to start, Senator Stevenson, by indicat-
ing that there are several alternative paths to this goal. We are quite
aware of the need for accountability. I won't say that there is universal
agreement with this proposition. However, because all sorts of facili-
ties— ^sewer, water, and other kinds of functions — have an important
impact on determining metropolitan form, those who man them should
be elected by the metropolitan constituency.

We feel that some of the patterns that do exist can become models
for the future. For example, I had the opportunity to speak to the
Chicago Home Rule Commission some months ago on the opportmiity
which they saw in your new constitution to develop a better deal, I
guess, for Chicago. I spoke to them about taking a hard look at doing
away with zoning, and this was rather shocking. I suggested to them
that if the State, for example, were to recall all of the zoning powers
delegated to a locality, including Chicago, and a new approach to
this method of land control were taken at the metropolitan level of
Chicago including the multiple townships around it, that indeed all
might become winners, all the citizens in the area.

Another model is the consolidated governments which we see — well,
the latest being Jacksonville, Fla., and the surrounding county, Duval
County, which simply merged. They are now a single entity.

Another model is Minnesota's Twin Cities area, Minneapolis/St.
Paul, where they have gradually evolved a whole series of metro-
politan functions which also go to the issue of balancing out the pluses
and the minuses so that the localities in that metropolitan area no
longer compete in terms of who gets the manufacturing plant and
who gets the public housing facility — the cost and benefits are dis-
tributed on the tax base by this metropolitan agency.

So I think there are many ways to do it. We hold to the importance
of the accountability, though, as opposed to appointment, even ap-
pointment by elected officials.

Senator Stevexson. I think there is a growing body of opinion in
the country which says in substance that we are never going to over-
come these political differences on a metropolitan basis, with the
exceptions you cite, and that we should be looking increasingly to the
States for a major role in planning and development, the assumption
being that they can overcome some of the local/regional differences.

How do you perceive the role of the State ?

Mr. Rogers. I think that's a very correct perception. The States
must now reenter this whole field of urbanization ; but with an aware-
ness of the need for the preservation of ecologically fragile areas,
recreational areas, resources, and many other values within the State.
So I would categorically say yes, the State must now be the operating,
cutting edge, if you will, of a national policy, growth policy, com-
munity development, or whatever.

If you recall the map of the ITnited States with the 65 meti'opolitan
areas on it, I think as many as 30 percent of those areas cross State
lines. The question of resolving the problems of these areas at the
State level, and providing for the appropriate consolidation and a true
metropolitan function level that would be the creation of metropolitan
residents themselves, even tliough they be in two or more States — I

1400

think that's the only difficulty. But I do think that there is a need for
the States to take over: and the fii-st tiling they should do is to create
these metropolitan agencies. I realize the political difficulty, don't
misunderstand me, but it seems to me there are ways around these and
maybe the electoral process is one.

Senatoi" Stevensox. You also stressed what you perceive to be at
least to me enormous possibilities for planned development upon the
very solid foundations which exist in the smaller metropolitan com-
munities across the country, the 50,000 population range community,
and they do have the essential services and they have universities and
other facilities which can contribute to a very healthy community of
existence and to the extent you can build upon those foimdations it
seems to me you also would take some of the pressures oif of the larger
metropolitan regional areas.

I wonder, could you expand upon that proposition ? How do we de-
velop on those foundations and begin to shift some of the population
growth patterns ?

Mr. EooERS. This is at the heait of our thinking. Senator Steven-
son. For example, we see a trend now which indicates a movement
away from the largest of our metropolitan areas — New York, Chicago,
Los Angeles — toward smaller metropolitan areas still within this 500,-
000 scale — toward Denver, Phoenix, et cetera. I think this movement
is indicative of a new fact of economic life — the growing employment
centers are now on the service sector and are no longer geographically
limited. We can virtually move wdierever we want. That is a new
factor.

I look at the further opportunity of being faithful to your proposi-
tion and making possible a broader choice of living options for people.
Of course, where and how people wish to live sometimes are different. I
could take, for example, Bloomington, 111., which is at the right scale,
somewhat larger than 50.000; but it has all the facilities. It has a good
economic base. It has a strong cultural base and in mosit cases this size
city is very close to a large-scale city. It is not so far from Chicago
that it cannot participate in the richness of the Chicago area.

Therefore, it seems to me that we would be foolish not to reinforce
such smaller communities as part of a national policy, and we indeed
do see ways of doing that. There are many people who would choose
that kind of life if they felt that they weren't having to give up too
much in terms of the economic opportunity.

Finally, I return to the real problem of quality community devel-
opment which exists in our large metropolitan areas. On page 10 of
our formal statement to the committee we speak of encouraging the
creation of metropolitan planning and development agencies through
the funding allocation mechanism. We think that's an imiportant tar-
get at wdiich to aim.

Senator Stevenson. You acknowledge that one of the real problems
is the larger metr-opolitan areas. That problem could be alleviated to
some extent to give people a choice, an alternative, in Bloomington,
for example.

Mr. Rogers. The fact of a large metropolitan area or megolopolis,
if there is such a thing, in no way argues against smaller communities

1401

or against neighborhoods. So we see the "growth unit" and the impor-
tance of planning and development at tlie neighborh(X)d scale as a
perfectly valid concept, whether we are talked about the entire
northeastern corridor, or the Chicago area, or Bloomington, or the
innercity.

Senator STE\T5]srsox. I think that is terribly important. The sense of
community or neighborhood is breaking down, especially in the larger
cities.

Well, I wish we could prolong the discussion, Mr. Rogers, but we
have very little time. Thank you.

ISIr. Rogers. Thank you very much.

[Complete statement of Mr. Rogers follows :]

1402

THE AMERICAN INSTITUTE OF ARCHITECTS

COMMUNITY DEVELOPMENT REVENUE SHARING/BLOCK GRANT

A STATEMENT BY

ARCHIBALD C, ROGERS, FAIA

FIRST VICE PRESIDENT
THE AMERICAN INSTITUTE OF ARCHITECTS

AND

CHAIRMAN

NATIONAL POLICY TASK FORCE

THE AMERICAN INSTITUTE OF ARCHITECTS

TO

SUBCOMMITTEE ON HOUSING AND URBAN AFFAIRS

COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS

UNITED STATES SENATE

WASHINGTON, D.C.

July 27, 1973
1735 NEW YORK AVENUE, N.W. • WASHINGTON, D. C 20006 • (202) 785-7300

1403

Mr. Chairman and members of the Committee. I am Archibald C.
Rogers, First Vice President of The American Institute of Architects and Chairman
of the Institute's National Policy Task Force. I am also a practicing architect
in Baltimore, Maryland. Accompanying me are Michael B. Barker, Administrator
of the Institute's Department of Environment and Design and David E. Osterhout,
the Institute's Director of Congressional Liaison.

Today, The American Institute of Architects, the national society for
the architectural profession representing 24,000 licensed architects, wishes
to express its views on the community development legislation currently pending
before this Committee.

Mr. Chairman, we have divided our written statement into three
sections. The first section covers five major points we would like to make
regarding the pending legislation. The second section outlines specific provisions
to back up the recommendations contained in section one. The third section is
a brief slide presentation on community development at the neighborhood scale
in what we call "growth units" .

Over the past ten years. The American Institute of Architects has
directed a great deal of thought to the process of community development. The
Report of our National Policy Task Force, titled "America at the Growing Edge:
A Strategy for Building a Better America" , sets forth a policy and strategy that
have been adopted by the Institute's Board of Directors and by the national AIA
Convention.

1404

In brief, the new policies recommended in this report would change
the "ground rules" that now shape, and distort the shape, of American commun-
ities; create a new and useful scale for planning and building in urban areas;
and commit the nation to a major land acquisition policy to guide development
in and around key urban centers .

This report is now being refined with the assistance and cooperation
of over thirty professional and other organizations. This working group of
individuals and organizations, listed in an appendix to this statement, has
agreed on the need for a national growth policy and is now working on the
specific details of such a policy. This year, the Institute is preparing
special detailed reports on re-creating the inner city, creative economics,
and housing, which essentially expand on the concepts contained in the first
report. We believe that the work of our Housing Policy Task Force will be
of special interest and assistance to this Committee when their report is
completed by the end of this year. Since our comments today are largely
based upon our National Policy Task Force report, we request that the report
be included in the hearing record.

SECTION I GENERAL COMMENTS

A) Grant Consolidation. The American Institute of Architects wholeheartedly
supports the idea of Grant Consolidation. For too long the nation has been
struggling in a quagmire of red tape in our community development programs.
Urban renewal, neighborhood facilities, open space, basic water and sewer
facilities. Section 312 rehabilitation loans, public facility loans, and model

1405

cities are each programs whose objectives we fully support, but whose operational
characteristics leave much to be desired. Consequently, the Institute welcomes
the initatives by Congress and the Administration to consolidate the present
patchwork of categorical grant programs for community development into a
revenue sharing or a block grant format.

B) Guaranteed Funding and Program Conditions. One of the most frustrating
characteristics of the existing community development programs, particularly
to local agencies, is the inconsistent and unpredictable nature of program
funding. We believe that community development should be supported at the
local level by relatively constant Federal funding programs. A second and
equally frustrating characteristic of the present programs for local governmentci,'
officials is the continually changing and often conflicting program requirements.
We support the establishment of uniform requirements as well as simplification
and continuity in the funding of community development programs.

C) Federal Goals Still Essential. The Administration's bill almost totally
ignores the prosecution of national community development goals in its proposed
Better Communities Act. This is unacceptable. State and local governments
enact budgets which commit close to 200 billion dollars a year of locally
generated revenues. The record of these governments in achieving national
housing and community development goals using their own funds, particularly

in metropolitan areas, has been bleak. Indeed, the categorical programs which
would be terminated by the pending legislation, were enacted to overcome these
deficiencies. We conclude that any community development legislation must
insure continued pursuit of national goals, including housing, renewing the worn-
out sections of cities, sound metropolitan development patterns, and the building

1406

of new neighborhoods and communities. In Section II of our statement we have
specific suggestions on the kinds of activities to be eligible for assistance, and
on application procedures and requirements aimed at keeping national goals in
the forefront in the community development process.

D) Incentives for Larqe-Scale Development. After many years of study and
close involvement in the community development process, we have come to the
conclusion that the nation can best achieve its physical, economic and social
objectives in the community development field through an increase in the scale
of development. We call this new scale of development the "growth unit" .

A "growth unit" can range in size from 500-3,000 dwelling units and would
provide a complete package of physical and social facilities at the neighborhood
scale. We believe that an increase of scale of development is the most productive
technique to achieve national community development goals. Our National
Policy Task Force report documents in detail our analysis which leads to this
conclusion. Included in the second part of this statement are specific legislative
proposals to encourage this scale of growth in the community development
program. Also our slide show will further illustrate the "growth unit" idea.

E) The Institutional Base for Community Development . In Title VII of the
Housing and Urban Development Act of 1970, Congress declared that national
urban growth policy should "strengthen the capacity of general governmental
institutions to contribute to the balanced urban growth and stabilization" .
For the next thirty years some 18 million acres of land will be urbanized.
Effective governmental controls are desperatply needed to guide the conversion
of this land from rural to urban use. The 228 metropolitan areas which census

1407

data suggest will accommodate the bulk of growth for the next thirty years
will Include 40 6 counties, which are governed by 20,75 5 separate governmental
units. The Chicago metropolitan area has 1,113 local governments, Philadelphia
871 , and Pittsburgh 704. Paul Ylvisaker, a member of the AIA National Policy
Task Force puts it well: "the dynamics of our population and its needs
presently exceed the capacities of our political structures to provide guidance
for intelligent growth. To my mind the crisis now concerns the ability of this
country to rise fast above its past record and achieve the things that must be
done for its people in the year the people need them done . "

None of the community development block grant bills adequately
support the need for institutional change, particularly at the metropolitan
level. Unless substantial incentives are provided in this community development
legislation for institutional change, we will merely continue the present
piecemeal, inefficient and inequitable community development processes
which have led to unattractive, socially imbalanced, and often ill-conceived
and mislocated urbanization. None of the legislation before this Committee
adequately address this issue and, in fact, would seem to encourage the
present unsatisfactory existing patterns . In Section II of this statement we
recommend specific additional provisions for the section on the application and
allocation of funds to achieve this objective.

SECTION II PROPOSED PROVISIONS FOR COMMUNITY DEVELOPMENT LEGISLATION

For the purpose of this analysis we have taken S. 1744, the Community
Development Assistance Act of 1973 and used it as a basic framework for our
comments .

1408

A) Eligible Activities. Generally, we support provisions of S. 1744 over
those contained in the Administration's Better Communities Act, S. 1743.
Specifically, we would like to emphasize three provisions contained in this
respect:

1. technical assistance to persons or organizations essential
to the community development process;

2 . financial incentives to get public facilities built when needed
in a community development program; and

3. payments to housing owners for losses of rental income
incurred in holding for temporary periods housing which is to be utilized

for the relocation of individuals and families displaced by program activities.

(This provision comes from the Omnibus Housing and Urban Development

bill, H.R. 16704, approved last year by the House Banking and Currency

Committee.)

For the past five years The American Institute of Architects has
supported Community Design Centers which provide technical services in the
architectural, planning, and community development areas for individuals and
community groups from our central cities' impoverished neighborhoods. The
primary staffing for these Community Design Centers (CDC's) comes from
architects who volunteer their time to serve the needs of the poor and disen-
franchised. Today there are 71 Community Design Centers operating around the
country . With your permission Mr. Chairman, we would like to include a list
of those Community Design Centers in the hearing record. Even though Community
Design Centers basically operate on the volunteer's time, they, nevertheless,

1409

do need a minimal amount of funding. We believe if citizen participation
is going to have any meaning at all, it is necessary for the community
development legislation to support in a modest way the activities of these
kinds of citizen's programs in impacted neighborhoods. Therefore, we
strongly support the provision in S. 1744 (Section 4 - Subsection 9) which
provides technical and/or financial assistance to persons or community based
organizations providing necessary or appropriate services, including advisory
services, to planning and execution of community development programs.

One of the largest problems confronting a local governmental unit
in attempting to implement a community development program at a neighborhood
scale is the timely installation of the public infrastructure to support the
community development program. For this reason we support the provision in
S. 1744 which includes under "Eligible Activities" the payment of financial
incentives to encourage timely construction of public facilities. These
facilities, such as schools and libraries, are required for the execution of the
community development program, but are not otherwise eligible. The financial
incentives for the timely construction of these essential facilities would not
exceed 15% of the total Federal contribution.

The relocation of people to new housing because of the implementation
of community development programs is as delicate and complex a problem as
there is in the community development field. We believe that the provisions
in chapter four of H.R. 16704, as reported last year by the House Banking and
Currency Committee had a worthy provision in this area. Under "Eligible Activities" ,
this legislation includes payments to housing owners for losses of

1410

rental income incurred in holding, for temporary periods, housing which is to
be utilized for the relocation of individuals and families displaced by program
activities . While provisions of the Uniform Relocation Act may be interpreted
to cover this situation, we do not believe it is clear. Because of the
delicate nature of this problem, we believe that such a provision should be
included in the community development legislation.

B) Amount of Federal Share. If an adequate application procedure is included
in the community development legislation, we believe it is not necessary

to require that state and local governmental units provide a share of the cost
of community development programs. Anything less than 100 % Federal funding
would place additional red tape between state and local governments and the
funding source. We would much rather see the recipients concentrate on
meeting stiff application requirements than be compelled to meet matching
requirements , particularly when the highest local contribution proposed in
any of the community development legislation is only 10%.

C) Application Requirements . Any community development legislation, without
carefully drafted application requirements, is nothing more than an abandonment
of the objectives of the existing categorical grant programs. Without going into
the specific provisions, we would like to express our support for the application
requirements contained in S. 1744. However, we would like to add three
additional requirements that state and local governments must meet in seeking
funding from the community development program .

1411

First, for local units of government in metropolitan areas, we would
like to see evidence of cooperation in the formation of, or participation in, a
metropolitan planning and development agency as a condition for the receipt
of funds. Desirable characteristics of a metropolitan agency are:
1 . representation by direct election;

2 . power of eminent domain;

3 . power of taxation;

4. planning responsibility for metropolitan housing, transportation
open space, utilities, solid waste disposal; and other functions of a
metropolitan scale;

5. power to override local land use controls when they conflict
with the metropolitan plan and program;

6. a development capacity to install in advance needed public
infrastructure to support and shape growth.

We believe this kind of application requirement will begin to solve
the lack of an institutional base at the metropolitan level to deal with what
George Romney called "the real city's problems". This section could also specify
that after 5 years those metropolitan areas that have not formed a metropolitan
planning and development agency would loose, say, 50% of their entitlement
under this act. That is, each local unit of government would be penalized to
the extent of 50% of their entitled funds.

Second, we would like to see state and local governments show
evidence of serious consideration of local property tax system reforms, including
a time table for implementing these reforms. Aspects of the local property taxation
system which encourage exclusionary zoning, provide inequitable educational

1412

opportunities, and threaten the preservation of open space and historic resources
should be included in reform efforts .

Finally, we would like to see recipients of community development
funding certify that they are taking steps to aggregate the scale of development
both in new development and in the redevelopment of existing neighborhoods.
It is at the neighborhood scale, or the scale of what we call the "growth unit" , that
national growth objectives can best be met and that the national housing goal
of "a decent home and a suitable living environment for every American
family" can best be achieved.

C) Allocation of Funds . It is clear in the last fifty years that we have become
a nation of metropolitan cities. Seventy-five percent of our population lives
in the great metropolitan areas of the country. This urban concentration appears
to be continually increasing. Consequently, we believe the provisions of
chapter four of H.R. 16704, the 1972 House legislation, are most appropriate —
wherein 80% of the community development funds are allocated to metropolitan areas.
This would include the funding of municipal governments as well as urban counties.

In order to stimulate the formation of metropolitan planning and
development agencies through such a funding allocation, and indeed overcome
a basic fault of the proposed legislation which would otherwise tend to entrench
balkanized local units of government in metropolitan areas, it would be
desirable to create a bonus system in the first five years to encourage metro-
politan cities and urban counties to institute a planning and development agency
as described in our statement previously.

1413

After five years, those metropolitan units of government without a
planning and development agency would not only lose the possibility of a bonus,
would be subject to an increasing withholding of their entitlements under the
Act until they comply. Those funds which are withheld would be reapportioned
among the metropolitan units of government which do comply.

We have not had the computers or the statistical base necessary
to work out the precise impact of this recommendation on the individual states,
cities, and counties. We also realize the political difficulties that such a
recommendation on funding allocation poses. However, our objective is clear.
We want the funding share of municipalities and urban counties in metropolitan
areas to be conditioned upon the creation of appropriate governmental mechanisms
to control and shape their growth. Granted, there are many variations on how
such planning and development agencies can be set up. It would therefore be
appropriate to include a waiver by the Secretary of this provision if a suitable
substitute were offered by the municipalities and urban counties in a given
metropolitan area .

E) Authorizations . Basically, we support the Senate version of the community
development legislation (S . 1744) because its higher authorization level is
more comensurate with the magnitude of the problem. Yet, even the authorization
level of S. 1744 can only be considered a beginning. We assume, and hope,
it is the intent of Congress ^nd the Administration that this community develop-
ment revenue sharing or block grant legislation would provide a permanent
source of funding for community development activities for state and local

1414

governments. In effect, the basic legislation is a contract authority. In this
vein, we would like to see the authorizations made for at least five years
as proposed in the Administration's bill.

CONCLUSION

To summarize our comments on community development legislation
pending before this Committee, The American Institute of Architects believes
that steps should be taken to eliminate the present fragmentary Federal effort
toward community development and implement (institute) a coordinated,
comprehensive approach that deals effectively with all the interrelated elements.

The comprehensive approach we are advocating should address itself
to the five issues which we have outlined earlier:

1 . the consolidation of categorical grant programs for
community development into a revenue sharing or block grant program;

2 . guarantee of continuity of program funding and program
conditions;

3. the maintenance of national community development goals;

4. the provision of incentives for large-scale development;

5. the development of an appropriate institutional base for
community development, particularly at the metropolitan level.

The American Institute of Architects has appreciate d this opportunity
to present our views on this legislation. We would be pleased to work with you
and your staff further on this legislation, and trust that the Committee will
thoroughly review our recommendations and act favorably on them.

Thank you.

1415

SECTION III BRIEF SLIDE SHOW ON "GROWTH UNITS"

Now, Mr. Chairman, with your permission we would like to present
a brief slide presentation on our ideas for growth at the neighborhood
scale. You will note in the second section as well as in the state-
ment that I have given you so far, our emphasis is on the Importance
of planning and development at the metropolitan scale, the "real city",
as described by Secretary Romney, We are also emphasizing, at the
other end of the spectrum, the importance of planning and development
at the neighborhood scale. Here we are speaking of growth units, by
which we mean new and renewed neighborhoods, perhaps as small as
500 housing units or as large as 3000; in any case, sufficiently large
to provide a full range of community facilities, both physical and non-
physical — housing, shopping, recreation, employment, public services,
etc. These units could be placed within the interstices of existing
urbanized areas in metropolitan areas.

Slide 1 This map shows you the 65 metropolitan

map of metropolitan areas which, as of the last census, had

areas

500,000 or more population.

1416

Slide 2

a map of a particular
metropolitan area

We examined a typical metropolitan area to
see if it did have an adequate amount of
vacant land on which new neighborhoods or
growth units could be developed. In this
anonymous metropolitan area we discovered
some ten to fifteen thousand acres available,
some within the actual core and some within
the suburban area. We discovered that we
could put a considerable number of new communities
or growth units within this metropolitan area with-
out going beyond the current urban area except
for the opportunities to provide at the outskirts
for a new city, perhaps at the scale of Columbia.
We further found that we did not have to take
existing park land, or indeed land that should be
added to the park system. The purpose of the
program which we are recommending and which we
refer to in our National Policy Report which we have
filed with you is to expand the options for our
citizens to live where they wish and how they
wish. The next six slides show ways of locating
these small new neighborhoods or growth units.

1417

Slide 3

growth unit within
the core of a city

Slide 4

grov/th unit in
existing urbanized
area

This indicates the opportunity, which was shown
on the prior slide, of taking cleared land within
the inner city and developing a small, new growth
unit. As the existing residents of the inner city
would tend to move from dilapidated communities
into safe and healthy new communities, this would
then create the opportunity of remodeling of an
existing community. This would then create the
opportunity for upgrading the dilapidated communities
within the inner cities within a period of time. In
order not to "tilt" the balance in favor of the inner
city or in favor of the suburbs, at the same time
we would also propose the development of a growth
unit as suburban in-fill.

Slide 5

growth unit in
suburban setting

We would also propose the development of a growth
unit in existing open areas in the suburbs. This
slide shows the opportunity presented by a large
regional shopping center in the suburbs with
perhaps as many as 60 acres devoted to parking.
This parking could be platformed over and developed
as a high density growth unit at the same time as

1418

one is developing the core .

Slide 6

the diagrammatic sketch
of a large new town
developed over a period
of time by growth units

New towns, which the country needs, can be
seen as collections of growth units. We feel
that new towns can more realistically be developed
by a gradual addition and insertion of new neigh-
borhoods over a period of time and we feel further
that these are most likely to succeed in the vicinity
of existing large metropolitan areas.

Slide 7

growth units as an
expansion of smaller
existing city

Nor are we unmindful of the problems of small
town America. The growth unit scale could be
used to provide logical and gradual expansion of
the smaller cities and towns in our nation, those
of perhaps the scale of 50,000 persons. This
would then provide further opportunity for upgrading
and providing more economic opportunities within
the non-metropolitan centers of the country.

Slide 8

the growth unit in
rural America

Finally, conceptually, we can see the use of
growth units to establish functional centers within
the impoverished rural areas of our nation. All
of the above slides have to do with the expansion

Slide 9

a convention suburban
development

Slide 10

1419

of opportunities for where one wishes to live.
We must also recognize that we should provide
for a rich variety of life styles, so that we may
give our citizens the opportunity to live how
they wish. Perhaps one could refer to these
as appropriate arenas for the pursuit of our
Individual and group happiness, recognizing
further the great and rich variety that there is
within our society today.

The possibility of providing a style that would
not be that different from the existing low density
patterns of suburban America to the other extreme
of a high density urban growth unit.

high density
urbanization

Slide 11

growth unit in center
city

The map of Baltimore with the red spot in the
core showing a growth unit there .

Slide 12

growth unit in the suburbs

1420

Slide 13

a new town site

To recapitulate, we could provide a growth unit at the very heart of
the metropolitan area and expect it to be inhabited partly from within
the inner city and also partly from the suburbs. At the same time in
the suburbs we would provide a new growth unit under the principles
of open occupancy as we recommend in our Report, and again expect
movement to that from both the inner city and the suburbs. And,
simultaneously, we could be putting in the first new neighborhood of
a large new town on the outskirts of a metropolitan area. With this
kind of three-barrelled simultaneous approach, the movement of the
existing population, both inner city and suburban, would create
opportunities such as those illustrated on the next three slides.

Slide 14

playground in the
inner city

Slide 15

activity center in the suburbs

Slide 16

first residential community of
a future large new town

1421

By the movement of the population toward these new and better communities
and neighborhoods we would then be able to go Into the inner city and
provide appropriate amenities for the older and worn-out areas.

Slide 17

activity center
Stockholm

We could by the development of growth units
in the suburbs create the opportunity, in time,
for providing activity centers or many downtowns
such as this (slide).

Slide 18

diagram of public
armature

While we recognize the opportunities for using
many governmental devices such as zoning for
carrying out such a plan and program, we believe
that the most important area for implementing
this plan and program is the design and the timing
of public infrastructure. By this we mean the
armature, the utility corridors if you will, including
highways, other modes of transportation, all
utilities, and facilities for providing educational
and social services. This sketch Indicates the
principle, that is the careful timing and planning
of the public investment in this armature in ways
that create the desired urban development pattern.
In this way one can provide opportunities for the

Slide 19

press conference

1422

new neighborhoods that we have discussed.
One can decide where to build and where not
to build. Today, all too often this public invest-
ment simply follows haphazardly the initiatives,
both private and public, that are occuring within
no strategy and no plan.

We, the American Institute of Architects, are

working hard to have our recommendation considered

and, hopefully, adopted in legislation such as that

before you. Since the publication of our National

Policy Task Force Report a year ago January, we

have conducted a number of press seminars such

as that illustrated in this slide for the purpose

of informing the press, and therefore the public, of the

recommendations that we are making. With the

support of the Ford Foundation, we held a conference

at Harvard last winter. This conference was aimed

at a "real world" critique of our national policy

recommendations. I might say that our recommendations

have stood up very well under the testing of this

kind of conference and exposure to the lay and professional

public. And, more recently as a result of this conference.

1423

we have put together a coalition, the coalition
that we referred to In our opening statement .

Thank you for your attention.

1424

Senator Stevenson. The next witness is Mr. Edward Logue, presi-
dent and chief executive officer, New York State Urban Development
Corp.

Mr. Logue, I say to you what I say to all the witnesses. We are
short on time. You are welcome to proceed as you like but we would
be glad to enter your statement in the record if you care to sum-
marize it.

Mr. Logue. Senator Stevenson, I will do the best I can to do that
if I may have the full statement put in the record.

Senator Stevenson. The statement will be put in the record.

STATEMENT OF EDWARD J. LOGUE, PRESIDENT AND CHIEF EXEC-
UTIVE OFFICER, NEW YORK STATE URBAN DEVELOPMENT
CORP.; ACCOMPANIED BY LEE GOODWIN, COMMISSIONER, NEW
YORK STATE DIVISION OF HOUSING AND COMMUNITY RENEWAL

Mr. Logue. My name is Edward J. Logue and I am president of the
New York State Urban Development Corp. I have with me Com-
missioner Lee Goodwin of the New York State Division of Hous-
ing and Community Renewal and we are liere representing not only
our agencies but the official position of the State of New York.

We are pleased to have this opportunity to come and comment on
this legislation. We would like to begin by pointing out that we are
in, and, in a sense, the committee is in the unusual position of not hav-
ing an executive position made clear, at least on the housing subsidy
components of the legislation. This stems from the apparent abandon-
ment of previous administration positions and, so far, no indication of
a new position. It is our judgment that this is not the year and cer-
tainly not the time for the State of New York to seek out brand new-
departures in housing and community development legislation.

We think — and I have testified to this in various ways before this
committee over many years — that the basic problems in the housing
and community development programs of the United States stem from
a lack of commitment and, above all, from a lack of funding; and so
we are not here with any new and radical ideas. Our testimony will
attempt to be responsive primarily to the ])rovisions of S. 2182. 1 would
like to say that generally it appears to us to be a very flexible bill that
builds on the progress which has been made to date, and we would be
happy, with one or two exceptions, to see it enacted as is.

First, may I say that I am sometimes concer-ned that there may be a
feeling in the Congress that the moratorium declared on January 8 by
Secretary Romney on behalf of the administration has been some-
thing that we have learned to adjust to and accept quietly and peace-
fully. Nothing could be further from the truth. The way in which the
moratorium w'as launched and the way it is beinc; administered has
made this stiff medicine come to be felt slowly. The impact was not
immediate but I can tell you with just tliree statistics how our agency
will be affected. We have managed to ]:)ut into construction in 5 years
of existence some 32,000 units, almost 90 pei'cent of them 236 units.
Last year our production reached 12,000 starts. This year we will be
lucky to get half of that.

As Commissioner Goodwin can detail, the State division started
2,000 units last year and in 1973, so far, has done only 270. In the

1425

private FHA-insured loan section, despite what se-emed to be indica-
tions by Secretary Romney in his text at Houston, the pace has not
been maintained. There were 4,236 private FHA-insured starts in New
York State in 1972, and in the first 6 months of 1973 that number is
down to 231. This is really a shocking droj) in housing production when
absolutely nothing has changed on the demand side or on the need
side.

It's all there, and I can say safely, I think, on behalf of the State of
New York, that if the funds were available, we could not only readily
meet all of our last year's targets, but quickly exceed them.

So we would like to ask this committee and the Congress to urge the
administration to lift this moratorium. To hold the people in America
who desperately need this kind of housing at ransom while the Con-
gress and the administration attempt to restructure the entire housing
policy of this country could lead to very troublesome consequences. It
could have a particularly serious impact at the State level of gov-
ernment.

There are already active State housing agencies which are in the
business of issuing State-backed housing mortgages, and there are 15
other States which have passed enabling legislation. We are in a new
wave in housing and community development that is parallel to the
early creation first of housing authorities, and then of local redevelop-
ment authorities. To shut these State agencies off at this early stage in
their blooming does violence to our Federal system. For all of this to be
held up while this conflict of views is resolved seems to us most un-
fortunate.

Next, we would like to see the Congress reaffirm the housing goals
set forth in the Housing Act of 1968 — particularly the 10-year level of
6 million units of housing for low- and moderate-income families. The
236 program's proper share of that is, we estimate, a million and a half
units in 5 years. The production of 236 housing has been on the average
only 100,000 a year and we would urge that it go up to 200,000 a year
in order to meet this goal.

I have not seen, or may just not be aware of any effort on the part of
the Department of Housing and Urban Development to respond to the
reporting requests which the Congress made in the 1968 legislation.
Regular HUD reports would have given us a much better year-by-
year appreciation of how we are doing in meeting the 1968 goals. We
were now behind schedule. Rather than impose at this difficult time
more ambitious goals, I think we in New York would be pleased indeed
if the goals were reaffirmed and funded. There is still time to play
a little catchup ball and meet those targets by 1978, only 5 years
away.

We at the State level are funding the overly detailed Federal admin-
istrative rule in housing particularly burdensome. I don't think there is
time this morning to tell some of the tales of dealing with Washing-
ton, but I will say the 236 program has, year-by-year, gotten more
cumbersome in the administrative requirements which are dealt out
from the central office. We believe that while there may be a real op-
portunity for local government, there is an interesting and, to me,
very important new trend, in the assumption by States of responsibil-
ity for housing and community development.

1426

I think New York State has led in this, as it has led in so many other
things. Illinois, Michigan, Ohio, Maryland, Pennsylvania, Massachu-
setts, and Connecticut are also increasing the State's role here and if
I may say so, Senator, I do not thmk that S. 2182 gives the proper
opportunity to the State level to assume greater housing responsibility.
However, I should like to emphasize that the States should not be
asked to take on greater financial responsibility. The bulk of the tax-
payers' money still comes down here to Washington. As long as this
is true, we would like to get the subsidy moneys that are required for
housing from the Federal Government.

We are particularly concerned — and this is our only important
negative comment about S. 2182 — ^about section 9, whose purpose it
is to set forth the allocation of housing assistance appropriations. This
section appears to follow somewhat from the concepts of local revenue
sharing and general revenue sharing. From our point of view, section 9
cuts out or diminishes to an insigniKcant role the State level of govern-
ment. In this context I think it is important for the committee to
understand that in New York State over 50 percent of the total 236
production — including that done by the private sector — has been built
by the two State agencies represented at this table this morning.

That would not be possible to continue under section 9 of S. 2182,
as we understand it, particularly section A, subparagraph 1(c).

I doubt very much that there is any intent to discriminate against
the State level. Section 9 may grow out of a lack of awareness of the
newly important role that States are playing. Its enactment would have
very serious and adverse consequences.

Now, the survival of the State Division of Housing and Community
Renewal and the survival of the New York State Urban Development
Corporation perhaps should not be matters of consequence to this
committee. But our joint capacity to produce housing for low and
moderate income families more quickly than is being done anywhere
else should be of interest to the committee. At the very least we should
like the committee to consider the kind of hold harmless provisions
which are in the general revenue sharing legislation.

Senator Stevenson. If I may interrupt, you are referring to the
provision in S. 2182 which allocates 10 percent of housing subsidies
to State chiefly for use in nonmetropolitan areas 't

Mr. LoGUE. That's part of what I am referring to. I am also referring
to page 17 of the bill, the provision that says from the amount allocated
for each metropolitan city the Secretary shall pHocate one-half for that
city or its designated public agency for use in implementing its hous-
ing plan. We believe, and it is the position of the State of New York
that if the legislation is going to require the submission of housing
plans to the Secretary for his review and approval on a 3-year basis,
it is a sound idea that you should let the States determine how that
should be done under State enabling legislation. The Secretary would
retain the right to refuse to approve legislation which he felt was
discriminatory. But frankly, S. 2182 has proposed a great excess of
fine tuning of housing subsidy allocations. With many years now of
local experience, I have seen many cities of the same size and same
condition have totally different responses to their housing needs. I
would hate to see housing funds automatically set aside for municipali-
ties which had no serious interest in using them when there happened

1427

to be other municipalities or States with serious and effective atrencies
and political leadership that Avanted to do something meaningful
about the housing problem.

Tlie next point that we would like to cover concerns local tax impact
assistance. The bill provides— and I'm sorry, Senator, I don't have the
particular section and page before me — for. in certain situations, the
Secretary make public housing funds available to pay full taxes rather
than 10 percent of shelter rent.

In our experience in New York State, we have found outside the
city of Xew York, the largest and most important objection to the
location of subsidized housing is the failure of this housing to pay
the full local property tax. The property tax, in my judgment, is re-
sponsible for bearing an undue proportion of the cost of operating
local government. Given the smaller universe of local government
to view it from, tax abatement looms much larger in the smaller
cities, villages and towns than it does in a place like New York City, or
for that matter, the State.

We feel that the experience we have had is shared elsewhere. If
there is a desire on the part of the committee to see that housing op-
portunities for low- and moderate-income families are made available
outside the central city, I would respectfully suggest that nothing you
could do would be more important than providing the kind of local
tax impact assistance stipulated in S. 2182.

I would like to comment briefly on the 236 program which is the
l)i'ead and butter housing program for low and moderate income peo-
ple in this country today. Section 236 is a popular program. We could
easily, in the State of New York, double the amount of housing of this
kind that we could put into construction next year if the funds were
available. We believe it is a sound program and we would like to em-
phasize one aspect of it which is clearly permitted by the present law
and which is encouraged by S. 2182, but which has been considerably
damaged by the administrative action of the Secretary last year. I
i-efer to the amount of rent supplement units which may be placed in
any given 236 project.

tender the present law, it can go up to 40 percent. This, Senator, is
to me and to many of us, not a matter of economics. It is a matter of
how in America are we going to find acceptable ways, politically ac-
ceptable ways, to house low-income families. I think you will be inter-
ested to know that the 100 or more local housing authorities outside
New York City in New York State put under construction less than
500 public housing units for low-income families.

We. in the I'rban Development Corp.. were able to put under con-
struction 1.800 units for low-income families outside the city of New
York — and an equal amount, by the way. inside the city of New York —
last year.

Now, if we can house 31/2 times as many low-income families as 100
local public housing authoi'ities, it seems to me that says something.
The way we do it is not magic. It is very simple. We have a formula
which we call 70/20/10 — 70 percent of our 236 units in a given devel-
opment are occupied by moderate-income families; 20 percent by low-
income families ; and 10 percent by the elderly. In that way, the amount
of local objection to housing for low-income families is, I assure 3'ou,
sharply minimized.

1428

"VMiere we have had problems — and we have had problems in places
like Westchester — the problems have had to do with the suburbs and
the suburban notion of whether any kind of tax abated housing is
acceptable. That is a whole separate subject which could take an after-
noon. But here w^e are in a position to triple the rate at which low-
income families could be housed in the State of New York. We have the
capacity to put those families in an economic, political, and social set-
ting which is to their advantage. I think we have in America learned
that despite what the institutional lobby in behalf of public housing
may say, there is enormous resistance to the location of new family-
type public housing-type projects across this country.

Xow, with the willingness to do it, with the ability to do it, and
with the capacity to expand it, we find that the Department of Hous-
ing and Urban Development has shut that program down from 40
percent to 10 percent low income units in a 236 development on al-
legedly economic grounds. I would hope that the committee will con-
sider, when it writes its report on this legislation, some language advo-
cating this aspect of the rent supplement program as a means of hous-
ing low-income families in a way which will be useful for them, which
will help them move into the mainstream rather than isolating them.
This is something I hope the committee adopts as part of a sound na-
tional housing policy.

In short, I would hope that the committee and its staff might con-
sider, if the New York experience has any national relevance — and I
think it does — whether the best way of housing low-income families
is not through the 236 rent supplement program instead of continuing
to dribble new public housing starts.

The 236 program has had its full share of criticisms and I would
like to say that I consider those criticisms wildly exaggerated. Only a
tiny percentage of subsidy funds have been misused or abused and I
think it should be of acute interest to the committee to note that the
problems which have existed have not come up in State housing pro-
grams using 236. In fact, as our State housing commissioner reminded
me the other day, the State's role in housing in New York State goes
back 47 years and the State of New York has yet to foreclose on its
first housing mortgage. It may be that we are doing something right.

There have been complaints about the high cost of 236. I think that
we must recognize that if we are to provide housing for families with
the greatest need in a way that they can take advantage of it, we are
talking about what has come to be known as deep subsidies. There is
no way to do it in this country or any other country without so-called
deep subsidies. In fact, the problem is, in a sense, a tribute to this com-
mittee, the House committee, the Congress and I think, to be fair, to
Secretary Romney. I say this because, for the first time, we began to
get quantitatively significant production of low- and moderate-income
housing. I regret that the response to this record production was not
cheers but, instead, the moratorium.

Another problem that we and, I think, all people dealing with 236
have, is the very thin band of income eligibility which is possible
under the present law. With taxes and inflation what they are today,
we think that there are ample grounds for reducing the 25-percent
limit to 20 percent and we would like to urge that upon the committee.

Coming to the end of my comments on 236, the chart which I

1429

passed to you. Senator, is intended to deal with the concern that many
have expressed about the cumulative costs of the program. Now, if it
is accurate to say that there are deep subsidies required, then the ques^
tion is: Are we ever in America going to be able to attord to front
end that expense or are we going to try to postpone the impact as long
as possible, which is clearly what the 236 program intends to do.

I think this is an important and a difficult question and that the
committee ought to study not only the experience in the United States
but the experience in other developed countries. Yet in the meantime,
we suggest that the 10-year housing goal expressed in the Housing
Act of 1968 should be reaffirmed. The point is that if there are 450,000
236 units as of June 30. 1973, that means that to do its fair share within
the time frame set by the Congress, there should be 200,000,236 units
a year for the remaining 5 years of the 10-year period. That comes to
$200 million figuring $1,000 per unit. It is much higher, of course,
in New York State than it is in the Southwest, but that is something
we all have to live with.

The impact of what has been done to date and what must be done
to carry out the full congressional mandate would be a maximum
Treasury annual commitment at the end of the period of $1.5 billion.
It was the Congress judgment in 1968 that these goals would go a
long, long way toward meeting the Nation's needs for subsidized
housing. Wliether that is true or not none of us know today. But I
suggest that S. 2182 goes further and recommends larger appropria-
tions (page 60) ; it is actually proposed to go up to $300 million
on July 1, 1974. I think we in New York would cheerfully settle for
236 contract authority for $1 billion for the next 5 years now and
know that we had it. This stop-and-start business which is char-
acteristic of the Federal Government's role in housing and com-
munity development adds costs to local governments. State govern-
ments, and to the Federal Government and makes continuous pro-
graming very difficult indeed.

We think '$1.5 billion is a modest cost to the Treasury for the good
it would accomplish.

We also hope that the committee will seriously consider the experi-
mental proposals in S. 2169 and S. 2179 which provide for direct Fed-
eral financing. I hope that the committee will consider undertaking a
study of the various forms of financing which might be available. For
example, there is an enormous reservoir of investment monev coming
into the market every year in the form of pension funds which per-
haps could be attracted, in one way or another, to investment in hous-

I would urge the committee and its staff to study seriously the 236
and 221(d)(3) projects w^hich are in difficulty and see if it is not
possible to create statutory authority to convert those projects from
rental projects to homeownership projects. We believe that home-
ownership is the best housing solution that has been developed — and
it has been developed to a greater extent here in America than any-
where else in the world. We hope that the troubled projects might
be given that alternative.

I would like to say a final word on the subject of rehabilitation.
Rehabilitation must be done as part of comprehensive neighborhood
renewal and not just limited to mortgage financing of housing reha-

1430

bilitation. Indeed it is a tool which must be made available on a
comprehensive basis if the enormous supply of originally decent
housing in our older cities is to be maintained.

Senator, I would like to conclude by saying that in the dozen years
or more that I have, from time to time, come before this committee
it's been my experience that this committee has produced and the full
committee has approved flexible, forward looking, and liberal legisla-
tion. If legislation approved by this committee had been fully con-
curred in by the Senate, by the House, and by the administration, it
would have taken us a lot further than we are today toward the solu-
tion of the problems of housing and community development. I would
hope that the committee would not get discouraged by the current
impasse and get this bill out on the floor before September 7.

Thank you.

Senator Stevexson. I expect by the end of next week, ]Mr. Logue,
the Congress would have placed on the President's desk a bill extend-
ing all of the FHA programs and either in the bill or in conference
counnittee language the Congress will also encourage the President to
implement those programs.

AAHiat effect will the high interest rates have on housing starts in
Xew York and do those high rates reinf oive the need for the subsidized
housing programs 235 and 236 ?

Mr. LoGTJE. They certainly do. They are going to have, in my judg-
ment, not only in New York but everywhere, a very serious adverse im-
pact. As you know, the interest cost is an enormous percentage of the
monthly tab that the rent payer or the mortgagor paying off the mort-
gage has to deal with high interest rates make the subsidized housing
program much more necessary and suggest that although the subsidy
to percent is highly desirable, that perhaps the comndttee should con-
sider a flexible subsidy. Low-income families up to this level are
theoretically being taken care of through rent supplement and public
housing and then through the 236 program. There is than an enor-
mous gap where lower middle-income families are ineligible for any
program but find themselves utterly unable to enter the new housing
market.

Senator Stevenson. You mentioned the need to develop various
new forms of financing for housing. I was a State treasurer before
coming to the Senate and as such had roughly $1 billion of State funds
to invest for the State. We developed what became a highly sophisti-
cated system for the investment of that money which not only maxi-
mized the interest return on it for the State but also channeled it
through the banks into various public needs, including the financing of
the consti-uction of housing, principally the construction financing of
221(e) (3) housing. At the time it seemed to me this was a useful way
of providing short-term financing for various public needs, including
the construction of housing, and that traditional possibilities existed
including long-term financing for housing through principally the in-
vestment of the pension plans managC/d by State.

I assume other States are similar to Illinois. The State had enormous
sums in its pension funds, none of which had at that time — and I sus-
pect since — ever been invested in real estate or mortgages. They might
have been invested in a way that could not only have reallocated pri-
vate sources of credit and provided for more housing, but also in ways

1431

that would have benefited the beneficiaries of those funds, a hitjher
return and a verj' secure investment.

We have talked about the need for Federal financial assistance. I
think there is a lot more the States could be doing. Has the State of
New York developed any proposals along this line, along the line that
I tried to start in Illinois, including the investment of pension plans?

Mr. LoGUE. Senator, I think we would have to admit that these funds
are entirely in the charge of an elected State official who is the comp-
troller of t:he State of New York and is a very able and distinguished
public servant. His view of his responsibilities is to maximize the re-
turn to the fund. There has been not only no investment in housing
for low- and moderate-income families of any nature that I am aware
of, but only a very limited investment of any kind in projects which
have a public aspect.

It seems to me that this is something which is worthy of very ser-
ious exploration and where the Congress can properly say to the State
level of government that you have a responsibility to channel some of
this investment into your own States. It seems to be absurd for us to
be putting pension funds into investments elsewhere when our own
industrial economic base is not only not growing, but in many respects
declining.

Senator Stevexson. Perhaps I should give you a study conducted
at my request with the financial support of a New York foundation,
Ford" Foundation, which concluded that our system for the invest-
ment of public funds could not only meet the public needs such as the
public need for decent housing, but also maximize the financial return
to the State government. It comes back not only in high interest but
also in increased sales, income tax receipts, through economic develop-
ment and human growth area. If you would be interested, I just might
be able to find a copy.

Mr. Looit:. I would be very interested and I think Lee Goodwin
and I would like to perhaps create a little lobby back home and see if
we can't get a broader interest in it.

Senator Stevenson. If there is any way that you can think of that
Congress could help to develop such plans — the Federal Government
is guilty of it, too. It doesn't invest its ow^n tax loans that way.

That buzzer signified another rollcall so I thank you both very much.
I will have to now recess the hearings long enough to give me a chance
to answer that rollcall.

[The complete statement and Mr. Logue's answers to a question
from Senator Brooke follow :]

1432

Testimony of Edward J. Logue , President of the
New York State Urban Development Corporation

before the
Senate Sub-Committee on Banking, Housing '
and Urban Affairs

10:00 a.m.
July 27, 1973

Room 5302
Dirksen Senate Office Building

It is with great pleasure that I return once again to
your Committee to testify on pending housing and community
development legislation.

I am here today speaking on behalf not just of the New
York State Urban Development Corporation but of the State
of New York and the administration of Governor Nelson A.
Rockefeller. I have here with me Commissioner Lee Goodwin
of the New York State Division of Housing and Community
Renewal .

The questions of housing and community development are
as important as they were when I first testified here more
than a dozen years ago. These programs have so much to do
with the quality of life of the American people and with
the social and economic health of society. I remain hopeful
that one day they will receive the level of commitment and
priority at the national level that will yield the results
we all in principle agree on.

This year we are unusually handicapped by not having
a statement of the Administration's housing position. We
understand it will not be forthcoming until early September.

It is possible for all of us in New York and certainly
around the country to think of many new approaches to solv-
ing the housing problem. In fact, the history of housing
legislation in our country has been one of never-ending
administrative and legislative changes.

Under this year's special circumstances, we have re-
frained from proposing- totally new schemes for providing
the federal housing subsidies which are so clearly essen-
tial to the achievement of the goals of the Housing Act of
1968.

1433

My testimony will attempt to be responsive primarily
to the proposals made by S. 2182.

The Housing Assistance Moratorium

First, however, a preliminary but vitally important
comment must be made about the January 8 moratorium announced
by the Administration. The moratorium has had a serious and
adverse impact on New York State's ability in both the public
and private sectors to provide urgently needed housing for
low and moderate income families.

In its five years of existence, the New York State
Urban Development Corporation has, starting from scratch,
managed to start construction on 32,200 units of housing in
106 projects in 46 municipalities -- enough units to house
the total population of New York State's capital city of
Albany .

However, I want the Committee to know that the mora-
torium to date has had a serious adverse effect on UDC ' s
capacity to maintain its previous production levels. Of the
32,200 units started by UDC, 28,400 have involved 236 assis-
tance; 1,800 units are public housing turnkey projects, and
2,200 units are limited-profit housing marketed with UDC
financing.

In calendar 1972, we were able to begin construction
on 12,000 units of urgently needed housing. In 1973, until
and unless we receive federal FY 74 236 monies, our produc-
tion will be cut by at least 50%. We will start less than
,6,000 units. This is from an agency which is fully able, if
federal subsidy funds flow, to exceed in 1973 its 1972
production accomplishments and thereby provide at an unpre-
cedented scale quality housing for people who simple cannot
afford decent, safe homes at the present market rate.

The situation is much the same with respect to our
sister agency. New York State Division of Housing and Com-
munity Renewal, which also administers a state housing
program. In 1972, the Division started construction on
some 2,000 dwelling units. Yet in the first six months of
1973 only 270 units were placed in construction.

In the private FHA insured loan section, the facts
are equally instructive. About 4,000 Section 236 units
were placed in construction in 1972. However, against the
backdrop of the moratorium, only 231 units have been
started in 1973.

1434

The situation across the country is much the same.

We think that the imposition of the moratorium is
regrettable indeed. Not only does it have serious adverse
impact on this year's housing production. Much more
critical is its effect on the housing pipeline. As the
Senators know, instant housing is something we have not
been able yet to devise in America. The realities of the
pipeline are unavoidable, and the pipeline is drying up.

As our tools for serving lower income families have
been limited by Washington, I think we are witnessing the
diversion of resources to other uses which may be hard to
reverse. A genuine loss of momentum has afflicted the ten
states which have on-going housing agencies and the fifteen
states which have already passed legislation to create
housing agencies.

I would urge that the Congress, the Department of
Housing and Urban Development, and the Administration
attempt to get together to lift the moratorium immediately,
and make up for lost>_present and future production.

We believe there is a realistic awareness of the
difficulties with the present housing programs, not only
in the Administration but in the Congress, in the industry,
and among state and local agencies. But there is no reason
to hold up housing production until new measures are
adopted and all of the difficulties done away with. That
could take a long, long time.

National Housing Goals

We would like to address ourselves briefly to national
goals, since it is important that housing and community
development legislation be considered in the appropriate
context.

The Congress in 1968 reaffirmed the goals of a decent
home and a suitable living environment for every American
family and determined that this goal could be achieved
within a decade if we committed our resources to the construc-
tion or rehabilitation of twenty-six million dwelling units,
including six million for low and moderate income families.
With the advent of the Section 235 and Section 236 programs,
we have moved impressively toward the achievement of these
goals .

I would urge that we reaffirm these goals as the con-
tinued objective of any new or revised housing program to be

1435

adopted by the Congress. Moreover, I think it would be
timely to consider these goals within the context of the
provisions of the Land Use Policy and Planning Assistance
Act in order to achieve rational and efficient land use.

The Role of States and Localities

We would urge you in these hearings and in your
deliberations on this legislation to consider particularly
the role of the states and their ability to act in concert
with units of local government.

We believe that there is a great opportunity this
year to direct increased responsibility to the state level
of government. The example of New York State is perhaps
instructive. Over the last 47 years, the State Division
of Housing and Community Renewal has been responsible for
14 3,637 units of low, moderate, and middle income housing.
In its brief five year history, the New York State Urban
Development Corporation has added 32,200 units to that
total. In that time, there has never once been a need to
foreclose a mortgage on a State sponsored development.
That is a record we are proud of and one which, we believe,
supports our call for increased state responsibility in
this field.

There is growing concern at the state and local
levels that the federal government may have become too
rigid, too bureaucratic, and too unresponsive in develop-
ing housing policies, programs, and projects. There. is
no denying that there may also be problems in allocating
resources within a state. But those problems can and
should be worked out within the states themselves. The
much tougher problem is avoiding federal rigidities which
can dampen state and local initiative and hang up programs
for endless months.

Allocation of Subsidies

In the context of increased state responsibility,
I am deeply concerned by the concept, introduced for the
first time in S. 2182, of allocating subsidy appropriations
in minute geographical detail, and reserving for state or
regional bodies a mere ten percent of the subsidy funds to
be used primarily in non-metropolitan areas. In New York
State the bulk of subsidized housing is built under the
aegis of state agencies. The record of housing production
in New York has proved the merits of this procedure.

99-855 O - 73 - pt. 1 -- 92

1436

Strengths of the 236 Program

An unprecedented output of near 1/2 million housing
units has been produced in the four years since the incep-
tion of this program in 1969. It took nearly 30 years for
the Federal government to produce a similar volume of
public housing.

Section 236 is a popular program with a high degree
of acceptance in most communities. Our experience is that
Section 236 has been welcomed in communities ranging from
fewer than 500 persons to New York City with its nearly
8 million persons. The program permits economic as well
as racial integration because of its mixture of moderate
and low rents, the latter through rent supplement funds.

UDC ' s Section 236 program, structured on the basis
of 70% moderate rent, 20% low income-rent and 10% low-rent
elderly families, has been accepted from one end of the
State to the other.

This mixture allows a substantial number of low
income families to secure safe, sound housing in a stable
development — surely an attractive alternative to the
concentration of poverty and social disorganization often
found in large public housing projects.

The device which allows us to allocate 30% of the
units in a 236 development to low income families is the
federal rent supplement program. Unfortunately, the
Department of Housing and Urban Development last year
restricted the number of units which may go to rent supple-
ment families to ten percent. We strongly suggest that
this reduction in rent supplement funds sacrifices the
socio-economic mix we have found so successful and leaves
low income families and elderly people no choice other
than public housing projects. We endorse both the con-
cept and the language of S. 2182 on this subject, which
would eliminate the present gap in eligibility limits
between the rent supplement and 236 program and permits
a desirable degree of administrative flexibility.

In fact, I would go further and ask the committee
seriously to consider rent supplement units in a 236
development as a substitute for the old style public hous-
ing projects occupied entirely by low income families.

It is a well known fact that local resistance to
family oriented public housing projects has slowed produc-
tion down to a dribble.

1437

It could be argued that abandoning construction of
such new projects as could be built would reduce further
the supply of decent housing for low income families.

UDC ' s experience would indicate quite the contrary.

The 100 odd local public housing authorities in
New York State outside New York City produced no more than
500 units of housing for low income families in calendar
1972.

In the same year UDC, using the 70-20-10 approach,
i.e., 30% low income families in a 236 project, was able
to start construction of more than 1,800 units of housing
for low income families.

Put another way, we were able with an absolute mini-
mum of local resistance to start housing for three and
one-half times as many low income families as all of these
local housing authorities.

That may have some national significance, not so
much about UDC, as the concept of the greater acceptability
of low income housing if it is part of a larger program of
moderate income housing.

As pointed out just above, our progress in this
regard has been jeopardized by the federal administrative
determination to reduce rent supplements to ten percent
of the units in a given project.

Problems in the 236 Program

It is no secret that wide-ranging criticism has been
leveled at the 236 program. It is important to recognize
that only a tiny percentage of subsidy funds have been
misused.

Other complaints have been recorded about the high
subsidy cost of the 236 program. Much of the high cost is
inherent in the massive scale of output: about 450,000
236 units have been placed under construction since 1969.
Never in the history of government assisted housing in this
country has production reached anything like this rate. If
America is going to provide a high volume of housing for low
and moderate income families, substantial federal expendi-
tures are unavoidable.

Another important component of these costs lies in
the simple but hard fact that bringing down rents of new
construction to a level that moderate income people can
afford requires a very substantial subsidy.

1438

We can increase the volume of housing per subsidy
dollar if we introduce greater flexibility in the income
limits of families to be served rather than rigidly limit
occupancy to families with the least capacity to afford
rents to occupy such housing.

In this context, S. 2182 defines as lower income
tenants those whose incomes do not exceed 90% of the
median income for the area with adjustments at the dis-
cretion of the Secretary of HUD. This is another step
in the right direction which we endorse.

Another aspect that creates difficulty is the
statutory requirement that families pay at least 25 per-
cent of their income for rent. Families of moderate
or low incomes, particularly those with children,
usually seek to keep their rents below this ratio, given
today's high taxes and cost of food, clothing and educa-
tion. In fact, in 1970 only 23% of all renter families
in the U.S. with incomes between $4,000 and $10,000 paid
as much as 25% of their income for rent.

We would suggest as a useful step in alleviating
this problem that the $300 per child allowance used in
computing adjusted income be increased to $900 -- a
more realistic recognition of this element of family
living costs. Additionally, as a tenant's income in-
creases, we would recommend that the increase in rents
be set at 20% rather than the 25% increase in income.
This would encourage these families to remain in their
apartment and would improve the social stability and
economic viability of these developments.

Finally, the combination of relatively tight
income limits and the limits upon insured mortgage
amounts imposed by the statute frequently results in
a very narrow range of eligibility for 236 housing.
It would be helpful if the Congress, as proposed in
S. 2182, permitted the Secretary of HUD administra-
tively to adjust insured mortgage limits so that they
have a more realistic relationship to the cost of
producing housing in a given community.

Similarly, it is important that the urban renewal
program continue to be funded so that the constantly
rising costs of land in our communities can be brought
down in order to permit the 236 program to function
effectively.

1439

Section 235 Program

Many of the comments made about Section 236 apply to
the Section 235 program as well. Nationally we have
obtained very significant output of new single-family
ownership housing under Section 235. However, examination
of the distribution of 235 housing shows that a less than
proportionate share has reached the New England and Middle
Atlantic states. This is attributable to excessively low
mortgage limits per units which have made this program
difficult to take advantage of across New York State
because of high construction costs.

In eight smaller communities in the southern and
western tier of New York, the number of 235 units produced
in fiscal years 1969-1971 was 67; in FY 1972 the figure was
six and in FY 1973 it fell to zero. The reason was that
such units could not be produced within the stated mortgage
limits. To the extent that Section 235 units have been
produced, we find that low income limits of the program
tend to restrict purchase of this housing in many cases to
families whose incomes are too low to properly maintain
even new housing in sound operating condition.

S. 2182 meets many of these problems. One further
change which will greatly strengthen the program, and bring
it into line with the 236 program, would be to expand the
category of assisted housing to include state and locally
aided projects. Under the present provisions, only fed-
erally-insured mortgage loans are eligible for assistance.

Cumulative Costs of 236

We have enough experience to begin to quantify the
total overall costs to the federal government of the 236
program. We can also make some estimates of what the
price tag of this approach will be as we enter the second
five years of the ten year time frame set out in the
Housing Act of 1968.

The existing cumulative commitment of the federal
government for Section 236 is about $450 million per year
as of June 30, 1973. If we are to build 200,000 units of
236 housing per year — a reasonable objective quite
within the scope of the goals set out by Congress in 1968
— it would add about $200 million per year to the cumula-
tive commitment. If this is carried through for the next
five years, the annual cost to the federal government by
1978 for the 236 program would be about $1.45 billion.

1440

We firmly believe that this is an amount that the
country can afford.

To sum up, we think that until there is a serious
study of alternative forms of subsidy and alternative
sources of financing, we should improve and make more
flexible the 236 housing program and the 235 housing pro-
gram. These programs have worked well during the first
five years of the ten year housing goal period and we
urgently recommend that they be continued as the basic
form of housing subsidy in the remaining five years.

Of course, we fully support the careful considera-
tion the Committee has been giving to alternative
approaches to housing families for whom the open market
place does not work. We particularly endorse S. 2169 and
S. 2179 which provide for direct federal financing of
low and moderate income housing and housing for the
elderly. We believe that any such federal direct loan
programs should be administered in tandem with existing
state and local housing finance efforts.

I would also like to endorse today bloc grants as
a supplementary program to support the construction of
low and moderate income housing.

In many cases we could build a much better project,
or overcome a barrier to building any project at all, if
we could apply grant funds to reduce land costs or alle-
viate the adverse financial impacts of projects on their
neighborhoods. Often projects must be carried out con-
currently with other development in the vicinity,
particularly in rural areas which lack the basic water,
sewer, electrical and other public services to support
housing, and in central city areas where rehabilitation
of decaying units and new construction can only succeed
when supported with the new community facilities which
instill a greater sense of neighborhood confidence.

Basically, as I have said, we should improve, but
stay with, the established devices of the 236 and 235
programs — not change horses in midstream, five years
through the ten-year program called for by the 1968
Housing Act. Still, I would suggest we at least take
a partial step toward giving greater flexibility to
state and local governments to meet housing needs by
instituting a concurrent program of bloc grants for hous-
ing support.

1441

Such grants would be made available by HUD to state
and local agencies administering programs for comprehensive
area or neighborhood wide housing development. They would
be usable by such agencies for a wide variety of housing
support activities, including those I have mentioned: land
writedowns, infrastructure and community facilities. This
is not a no-strings attached fund, but the strings will
look to performance - not to functional categories. The
guiding principle should be to keep federal regulations at
a minimum so that local solutions to local problems can
be allowed to emerge.

Two final issues which I would like to touch on
briefly are home ownership and rehabilitation.

Home Ownership

About 64% of American families own their own homes.
We believe that over the long pull this is the optimum
housing solution. We would urge that with whatever
initial steps are necessary or desirable to speed the
production of needed housing, that encouragement and
incentive be given for the conversion to the maximum
degree possible subsidized housing, including existing
subsidized rental housing, to a home ownership mortgage
pattern.

Rehabilitation

A final word on rehabilitation. We have seen,
particularly in the Northeast, the erosion of the quality
of once standard housing at a speed and scale which is
highly disturbing. We believe that the evidence is clear
that high priority must be given to the salvation of such
housing. However, it is equally clear on the evidence
that rehabilitation of housing alone in a troubled or
uncertain neighborhood will accomplish little. Basically
there must be a new infusion of confidence in the future
of such areas. Not only must mortgage financing be
readily available on an insured basis, but there must be
equal improvement in the quality of the environment and
the level of public services.

We would also urge that rent subsidies should not
be limited to new construction but should be made avail-
able to preserve existing housing in neighborhoods we
are trying to preserve -- perhaps as rent certificates.
This is surely an important element in any complete
housing program.

1442

To Slim up, we believe that the country may be at a
turning point in the housing field. In 1968, Congress
adopted as a national goal the principal of a decent and
safe home for every American and for the first time
quantified that goal and set a time period for accomplish-
ing it. Substantial progress has been made in achieving
it but the commitment requires re-affirmation and adequate
funding.

In the first years of this decade we had a good
start, as a nation, in fulfilling this commitment. I
think that this is the wrong time to cut off the
programs that have allowed such progress.

We believe that the basic problems are the recent
pullback in financial commitment by the federal government
and the unnecessarily complex administrative restrictions
that seem steadily to become more severe in the 236
program and other federal housing programs.

The need for the housing is there. The states and
many localities are showing new initiatives and new deter-
mination in displaying a leadership role.

With Federal support in the form of adequate funding,
flexible administration and maximum reliance on state and
local governments, we believe the goals of the Housing Act
of 1968 can be met.

1443

Answkr to Question from Senator Brooke

Senator Brooke : Would you advocate making the federal government "the
houser of last resort" on cases where neither private developers nor local hous-
ing authorities have taken adequate steps to provide housing for low-income
families V

Mr. LoGUE. I am deeply committed to the idea that the federal government
should encourage the private sector and the state and local levels of govern-
ment to take the initiative, hear the administrative responsibility, and to the
extent appropriate share in the financial cost of urgent social problems, whether
local or national in nature.

I think our society has moved a long way in this direction, but has still a
distance to go, particularly for low income families and especially for low
income families who have over a long time been victimized by racial or ethnic
discrimination.

Until this policy is established by the federal government, the private sector
and state and local governments are going to be able to continue to avoid their
responsibility.

In the critical areas of housing, job opportunities, job training, basic educa-
tion, and health, I believe the federal government should assert the respon-
sibility and create incentive systems to see that other parts of the society take
the initiative. In housing, particularly, with the apparently ever-raising cost
of land, construction labor, construction materials, and the cost of money, the
sheer financial ability to provide housing for low and moderate income families
is rapidly diminishing. In addition, for lack of effective national policy, local
governments across the country are opting out of any responsibility for hous-
ing low and moderate income families except in areas where such families are
presently concentrated.

This non-policy has in effect become a policy. It not only reduces the supply
of much needed housing, but it promotes a sense of apartness in American society
which though I hesitate to say it, sometimes appears to border on apartheid.

Senator Stevenson. The hearing will come back to order.

The next witness is Mr. L. B. Nelson, president of the National
Apartment Association. I apologize, Mr. Nelson, for the long delay,
and I thank you for your patience. There's not much we can do about
it I'm afraid.

STATEMENT OF L. B. NELSON, PRESIDENT, NATIONAL APARTMENT
ASSOCIATION; ACCOMPANIED BY JOHN C. WILLIAMSON, LEGAL
LEGISLATIVE COUNSEL

Mr. Nelson. Mr. Chairman, my name is L. B. Nelson and I am an
apartment house developer and builder for Menlo Park, Calif. Our
company is national in scope. We build in many States throughout the
coimtry. We manage about 7,000 apartment units in the western part
of the United States. I also am the president of the National Apart-
ment Association, a trade association of approximately 30,000 apart-
ment developers, builders, and operators, and I appreciate this oppor-
tunity to appear before this subcommittee.

I have a prepared statement which I will give you and won't dwell
on all the details and will merely codify down what this statement says
and bring it down to two main points which I believe are the most
salient points.

Senator Stevenson. I will enter your full statement in the record.
Thank you for summarizing.

[Complete statement may be found at p. 1449].

Mr. Nelson. Also, on my left here, is Mr. John C. Williamson, our
legal legislative counsel to our association.

1444

One of the problems we have in the industry today — and I speak as
a builder as well as the president of the National Apartment Asso-
ciation— is the on-and-ott'-again interest rate problem that we have had
during the past number of years since 1 have been a builder, and that's
been about 25 years. It's much more serious today, however, due to the
fact that we are troubled by many, many problems that we did not have
years ago. For instance, in many cities there's a no-growth idea. They
are dezoning land in many areas.

For instance, if you have an apartment house piece of land, the city
council in some cases has dezoned it down to agriculture. And you
have the ecology problem ; and while ecology' is a fine thing, it is one
of the big problems now that the builders are facing. We have more
complicated and restrictive building codes, and certainly during the
past several years we have had problems with the high cost of labor
and materials.

And now we face the prospect during this year of an income tax
change that, in my opinion, would restrict apartment house build-
ing and be extremely inflationary.

The main problem we face today, I believe, is in the area of interest
rates and money availability. I will just give you an example of my
own case. In the western part of the I'nited States, we are the biggest
borrowers of a large savings and loan institution, and naturally we have
always felt that when money was available we would get first crack at
it because we had been a good customer of this association over a long
period of time. The other day the executive vice president came in
and told me that they had no more money. He said that the window was
just shut all of a sudden and that they had no more money foi* our
company at this time and didn't know when they would have it avail-
able.

Now, no building company or no group of builders across the
country can operate on an on-again, off-again situation. It is im])ossi-
ble. It is costly, and it is, in my opinion, going to be disastrous for
the building business if we do not put an end to this.

The insurance companies today — that is, the large insurance com-
panies— are primarily out of the housing mai'ket. They concentrate
mainly on apartment houses ; that is. large apartment complexes. They
do not normally finance the individual housing. Whether there is a
moral obligation for them to do so, wliirh I believe there is, or not,
is something for the Government to decide, I suppose. But neverthe-
less, the facts of life are that they are out of this business, so it re-
A^olves itself around savings and loans.

Now, when we have a problem as we ha^-e now with money shifting
from one area to the other — and incidentally, this $1,000 certificate
that they have now with no interest rate ceiling, in my opinion, can
be disastrous because it will shift money from one association to the
other or shift money from banks to savings and loans or vice-versa,
and I think you are going to find that during the next year to 18
months, the homebuilding business is going to suffer some tremendous
losses as far as number of new units go.

So our recommendation is that, first of all. that the Government
in general does something about the on-and-off-again interest rates.

The recommejidation to this committee is an area in housing that
has been overlooked, or poorly dealt with and that is having to

1445

do with rehabilitation of existinof multi-family units. There are
literally hundreds of thousands of units in this country that are
available to be rehabilitated, but financing this is not available be-
cause there is no logical program to provide long-term financing.

In our own case, for instance, our company had made an offer to
purchase a number of old iM)H apartment buildings. We found after we
had taken options on these that it was almost impossible to obtain long-
term financing for the cost of these properties plus their rehabilitation.

I will give you an example. Up in Seattle, we had a firm offer and
were ready to buy 550 units that were very rundown. The bank w^as
managing them. It had to take the mortgage over. The location was
good, but the units had been let go. About 20 or 30 percent of them were
completely shot, but it had some real possibilities. We could rehabili-
tate those units cheaper than we could bring them from the start.

Now, we went to the bank and found out that no financing was
available for this rehabilitation on any kind of an economic basis. We
could get 5-year financing, but to get the 25-year financing, that was
not available. So we shelved that particular program.

I believe if a plan Avas developed in which similar to the old 608
would allow and encourage builders to finance out 100 percent, you
would have a lot of i-ehabilitation that you cloi\'t have right now.

I thank you for the opportunity to speak before you, and I would be
glad to answer any questions.

Senator Stevenson. The Federal Reserve Board did take some ac-
tion yesterday to limit the amount of money that the banks can in-
vest in what thy call the 'Svild cards," some limitation.

Mr. Nelson. Isn't it 5-percent or something like that ?

Senator Stevenson. It's 5-percent limitation.

Mr. Nelson. That's still a lot of money, though, and I don't think
that's going to do the job. I think what you need is some way to pump
money back into the savings and loans. It's very simple. The Federal
Home Loan Bank Board could make more money available to the sav-
ings and loans by opening their windows again.

Senatoi- Stevenson. You ovei-hear-d the last colloquy with the last
witness, my remarks about one of the things I tried to do as a State
treasurer. I did mention investment in savings and loans was also a
good thing, as State treasurer, with the view of getting more money
into housing through the savings and loans.

I have always had some doubts about the wisdom of a very restricted
monetary policy as a means of conti-olling inflation. It would increase
the cost of money. Those costs get passed on, and your housing costs
go up. General Motors and the other- cor-porations have to pay a
higher cost for its money. Those incr-eased costs get passed on to the
consirmer.

Mr. Nelson. That's the biggest single cost for the housing.

Senator Stevenson. It's a very high cost, and what seems to be one
of the dangers you face, without driving down cost, without control-
ling inflation, you invite recession and you invite unemployment or
both, what we now call stagflation. We may be heading in this di-
rection Again.

Mr. Nelson. You see, the problem that you have today. Senator,
is that the leadtime for a building project now — it used to be roughly

1446

6 to 12 months, but it's now 18 months to 2 years, because you've got all
these environmentalists and everybody else haggling at you.

Now, when these present monetary policies finally take hold, you
are going to find out that the building programs that had been planned
liave been scrapped because they can't be financed or there are more
delays, and I think you are going to find out within 6 months to a
year you are going to have a serious building stoppage in tliis coun-
try, which is in itself extremely inflationary.

Senator Stevenson. Are your lumber prices coming down any ? Do
these decreases tend to offset the higher borrowing cost ?

Mr. Nelson. No. They haven't come down very much, but they
have stabilized, which is better than the runawav market we had. It
has added about $1,500 to $2,000 per unit to a $35,000 house.

The problem that we have is that when lumber prices go down a
little bit or stabilize, you have something else that hits you, like the
interest rates or other buildin.<r costs. Riffht now, for instance, we
have a big problem with fire departments in many areas through-
out the country. For some reason, they think that most multistory proj-
ects should now be sprinkled. We have to have sprinkling systems in
low-rise projects that is adding a dollar a square foot to our total cost.

Those kind of problems are multiplied throughout the country. So
when you add the interest on top of that, it's just dynamite.

Senator Stevenson. Do you find your land costs are rising, too ?

Mr. Nelson. Well, land costs have gone up some. However, land
costs over the last 5 years have risen relatively a small amount. I'm
speaking from a builder's standpoint. We find ways in which to cut the
land cost down by getting higher density or some way in which to
keep our costs down. For instance, our company has been paying
$2,500 to $3,500 per building unit for land for the' last 6 or 7 years.

Senator Stevenson. You have stabilized that cost by going to higher
density?

Mr. Nelson. That's right. You find ways in which to get around
that, by going to higher density.

Senator Stevenson. I wish, in addition to lu-inging down the inter-
est rates, we could also find ways of redirecting population growth,
giving people a better choice of where to live and encouraging de-
velopment in areas where the land costs are lower, where the labor
costs are lower, where the money is oftentimes available, the lower
interest rate, where people can lead a better life.

Mr. Nelson. If you don't mind, I don't think you can do that through
housing. I think that's got to be done, as the last witness said, through
industry, and then the housing is going to follow that.

Senator Stevenson. I agree with that.

Mr. Nelson. That would be an artificial way to tiy to stimulate a
population shift, which I don't think will work.

Senator Stevenson. Right. I didn't mean to suggest that.

Mr. Nelson. No. But I Avanted you to have a builder's vieAvpoint
that's practical, because a lot of people I've heard have a lot of theory,
but I'm out on the firing line every day and I know the problems in-
volved and I honestly believe, fully believe, that if you encourage
financing up to 100 percent in some cases, if it's properly done and
properly administered, you would have a lot of building of low-cost
units that you don't have right now. You've got so many restric-

1447

tions. We wanted, for instance, to build in tlie San Francisco rede-
velopment area. We were encouraged by a local government agency
to do so. We had so many problems and governmental agencies to
worry about that we just couldn't get to first base and gave up.

Senator Stevenson. There's no question but many of the housing
programs have been improperly administered with an unnecessary
amount of redtape and with unnecessary dela^^s. Many of the FHA
offices just don't have personnel to process the applications. But we
also face sloppy building, inadequate FHA inspection, noncompliance
with local building codes, noncompliance with FHA's own housing
standards.

Mr. Nelson. Can I make a suggestion there ?

Senator Stevenson. One of the suggestions that this committee
has received was that builders have no incentive to build decent hous-
ing because they have no risks. The mortgages are guaranteed 100
percent by the Government. The suggestion is that to give them an
incentive to build decent housing, they ought to share in the risk. How
we do that I don't know. I suppose the thought would be that instead
of the 100-percent guarantee, perhaps would be a 90-perc6nt guarantee.

Mr. Nelson. I've got a suggestion on that. I don't know whether it
will work or not, but T will give you a suggestion. T am basically in
favor of giving a builder — a good builder now that is certified and
is qualified to do FHA work a right to receive 100-percent financing.
Because what's the difference whether you've got 87 or 93 or 100
percent if it's a bum project, it's a bum project all the way around.

So what I'm saying is give the builder enough money to build the
project 100 percent and then make him or his corporation be on the
hook for 15 or 20 percent of that mortgage as a guarantor so he or
his corporation can't walk away. I don't believe in giving somebody
100-])ercent financing or even 90 percent and then let him walk away
from it if it doesn't work out. I think that's wrong. But I think if
he was on the hook, either on some kind of a continuing obligation
you wouldn't have these projects coming back like you do now. The
Government now owns thousands of them that have been foreclosed.

Senator Stevenson. How would you do that? How would you
place that continuing burden on him?

Mr. Nelson. Well, I would say that if a builder gets 100-percent
financing and let's say the building project costs $1 million, you
would make him responsible as a guarantor for that loan of up to
$50,000 or $100,000. So if he walks away from it, it's going to cost
him something. He can't just walk away from it.

For instance, in the 221(d) (4) 's, you can walk away from those
projects. You don't have any personal liability. I would rather see
you give more money but keep him on the hook for it.

Senator Stevenson. Well, I think that's an interesting idea. The
FHA now, of course, does have the authority to do that with an
unscrupulous builder. In some cases, that authority is being used; in
other cases, it isn't being used. I think your suggestion about the
certification as one possibility

Mr. Nelson. But you see, the black list catches the builder and the
GoveiTiment on the wrong end of things. It cat<;hes him when the
damage is already done. This way you catch him in the front end
and make him think more before he goes into a project.

1448

Senator Stevenson. Well, that's true. Some builders are repeatedly
unscrupulous and after some period I suppose if you don't get certified
you get on the black list. The suggestion is that the Government is
going to guarantee financing 100 percent and afterward the project
doesn't work out, then there ought to be some recourse by the Gov-
ernment back to the builder,

Mr. Nelson, Absolutely. I don't believe in a free ride and when
you give 100-percent financing and you have no guarantees on it,
naturally the guy is going to think I can walk away — if it doesn't
work out, I can just walk away from it.

Senator Stevenson, There could be tighter mortgage requirements,
I guess.

Thank you very much. We have to move on.

Mr. Nelson. Thank you very much.

[Complete statement of Mr. Nelson follows :]

1449

STATEMENT OF L.B. NELSON
PRESIDENT
NATIONAL APARTMENT ASSOCIATION
Before
THE SENATE SUBCOMMITTEE ON HOUSING AND URBAN AFFAIRS

JULY 27, 1973

Mr, Chairman and Mennbers of the Subcomnnittee-

My nanne is L.B, Nelson and I am an apartment house developer and owner
with offices in Menlo Park, California although the activities of my organization
are nation-wide. I appear today on behalf of the National Apartment Association,
a trade association of approximately 30,000 apartment developers, builders and
operators. I appreciate this opportunity to make sonne observations and render
some opinions with respect to issues which are before this Subcommittee.

MORTGAGE MARKET

Before discussing specific legislation, I want to ennphasize one fact — that
the current residential mortgage crisis of high interest rates and declining avail—
sibility is the greatest that has faced housing and is, in nny opinion, without
fsarallel since the depression of the early thirties.

Remedies available in the past to shore up housing are apparently no longer
available because of inflationary consequences. Nevertheless, we strongly urge
this Subcommiittee to take whatever steps are necessary to avert ruinous rate
competition between mortgage-oriented thrift institutions and comnnercial banks.
I refer specifically to the increasingly popular $1,000 4-year note with no rate
ceiling issued by banks without limit and by savings and loan associations up to
5% of their assets. We concur in the views expressed by the National Association
of Homebuilders on July 23 before this Subcommittee and by the U.S. Savings and
Loan League in its recent public statement to ena this wild bidding between oanKS

1450

and thrift associations. Not only should Congress place a rate limitation on these
notes, but should move to reassert the connpetitive rate advantage which, as a
matter of national policy, has been enjoyed for several years by mortgage-
oriented thrift institutions.

BLOCK GRANTS FOR COMMUNITY DEVELOP-
MENT AND HOUSING SUBSIDIES

We endorse the concept of special revenue sharing or block grants reflected
in both S. 1743, the Adnninistration's Better Communities Act, and S. 1744,
which was incorporated in Chapter III of the housing bill which the Senate approved
lets t year. We understand the essential difference between these bills. The
Administration wants to vest in locally elected officials the power of decision as
to its needs and objectives in the area of community development with a, signi-
ficant role for the states in allocating these funds. This Connnnittee's 1972
approach would provide for certain Federal guidelines to assure that a community
will, in fact, address itself to nneaningful objectives in the areas of housing,
renewal, elimination of slums, code enforcement and sinnilar objectives. We
believe that some general Federal guidelines or conditions for receiving this
money does not do violence to the Administration's principal objective to vest
more power of decision with local officials.

On the point of greater local decision making, we endorse in principle
section 9 of S. 2182 which would allocate housing subsidies to communities in
accordance with a formula involving incidence of poverty and overcrowding
particularly with reference to metropolitan arecS. The proposal contains suf-
ficient Federal checks and guidelines to insure that the funds will be spent in
accordance with good planning and in response to actual need and ability of a

1451

k

community to implement its plans.

MORATORIUM ON HOUSING SUBSIDIES
When Secretary Romney announced the innpoundment of housing subsidies
on January 8 pending a reevaluation of such subsidy programs we applauded this
action because we shared with many in public and private life that subsidies for
nnoderate income families were diverting attention from the more pressing
need of assisting families of low income. We believed then as we believe now,
that the production theory of housing subsidies was wrong and that more atten-
tion should be directed to assisting low income families to obtain adequate shelter
whether it be new or existing, homeownership or rental. Also, we were con-
cerned over the long-range impact of subsidizing new shelter for moderate
income femilies thereby holding out a false hope to millions of American families
that they too are entitled to have a portion of their housing costs borne by the
taxpayers in the same income group.

We look forward to the HUD Secretary's report on September 7, as certainly
sufficient timie has now elapsed for such reevaluation .

CONSOLIDATION AND REVISION OF NATIONAL HOUSING ACT

t

We support Title I of S. 2182 which represents a consolidation and simplification
of the National Housing Act, subject to these comments.

We oppose section 2A of Chapter I which would provide for the Federal guar-
antee of mortgage bonds issued by local public bodies to acquire or construct
multi-family projects. Federal grants would be provided up to 33 1 ^3% of the

1452

interest costs of such bonds to make up for the added cost of issuing taxable
obligations.

We do not believe there is any justification for involving local public bodies
in the construction and management of multi-family housing. Private developers,
whether profit or non-profit, have proved most responsive in the construction
and management of rental housing. Involvement of local public bodies as developers
is extraordinary and should be undertaken only under compelling circumstances
which, we respectfully submit, have not been revealed at this point.

UNSUBSIDIZED MULTI-FAMILY PROJECTS
We believe it is in error for the Administration to abandon "value" for
"replacement cost" in deternnining mortgage insurance for unsubsidized pro-
jects. Where subsidies are not involved we believe that FHA's role sholild be
that of an actuarially sound underwriting system shorn of the regulatory controls
which should apply to subsidized projects.

We recommend , therefore, that section 501 be divided into two types of
unsubsidized programs, one based on value similar to the present section 207
which would not involve controls over rents, rates of return, and methods of
operation and second, one involving replacement cost sinnilar to section 22l(dX4")
to which such regulations would continue to apply.

REHABILITATION

We endorse section SOlCk") which provides for a special multi-family mort-
gage insurance program covering property located in neighborhood preservation
areas or declining areas where the mortqage is executed to refinance existing

1453

indebtedness secured by the property and to finance any need'ed repairs and
improvennents.Some extraordinary measures must be taken to abate the growing
abandonment of multi-family structures and we believe section SOlCk") is a good
move toward that objective.

However, section SOlCk) is just part of the answer. Many multi-family
structures ; — .for example hundreds of section 608 's built during the 50's —
need substantial rehabilitation. One obstacle to the use of section 22l(dX'*"),
for example, for rehabilitation is the cost certification provisions. We believe
cost certification serves a useful purpose and we are not proposing its repeal and
return to the windfall era of section 608. However, we do recommend sonne
amelioration of cost certification as an inducement to the mere efficient builder
to involve himself in rehabilitation. As we look back over the psist two decades
we note that many things have been tried to produce more rehabilitation but
the relentless forces of blight and abandonment continue unabated. We have
even tried faster tax write-offs with uncertain results and even this faces a
.1974 termination date.

Our proposal would amend section 506 of the revised FHA (relating to cost
certification") so that in cases where a substantial portion of the mortgage proceeds
is to be used for rehabilitation, the proceeds in excess of actual certified cost
would be remitted for reduction of the mortgage principal instead of the excess
of the "approved percentage" of such costs which is 90%, Thus, under our pro-
posal the more efficient builder would be able to "mortgage out". A precedent
for exemptions to cost certification is already included in the law for projects of

1454

twelve or fewer units where the mortgage is less than $250,000. We believe that
an annendment, such as we propose, would assist materially in bringing about
greater participation in rehabilitation and we strongly recommend its approval
by the Subcommittee. I have taken the liberty of attaching a proposed amendment
to section 506 to acconnplish this objective.

SUBSIDIZED MULTI-FAMILY PROJECTS

In making these observations about the proposed section 502 of the revised
FHA in S. 2182, we are aware of the controversy over the future of this updated
version of section 236, as well as its sister program section 235.

We believe that there is a definite role for the Federal government in
assisting families of low income to obtain adequate shelter. The rent supplement
program under section 22lCdy3) was the first such program which employed the
mechanism of private enterprise to accomplish this objective. Unfortunately,
the advent of section 236 with its greater appeal to private developers and the
inhibitions of many in the Congress to paying a portion of someone's rent in
the direct manner of rent supplements, soon relegated rent supplements to a
minor role in the nation's scheme for assisting the shelter needs of the poor.

Now it is proposed in the new section 502 to combine sections 236 and 22lCtft(3')
and employ some of the characteristics of both. Twenty per centum of the units
would be low incomie families who are unable to afford the basic rent (based on
a 1% mortgage) with 25% of income and these would receive "additional assis-
tance payments" (rent supplements). However, HUD could reduce this 20% to
assure economic viability of the project, an exception which we regret to concede

1455

will become the prevailing pattern. Then section 502 goes on to say that not less
than one-half of the units, where tenants receive rent supplements, shall be
occupied by "very low income tenants", those earning not more than 50% of the
median income in the area. "Lower income tenants" is defined as those whose
inconnes do not exceed 90 per cent of the median income for the area. Certain
exceptions to income are noted, sufficient to insure that the nnedian income will
be exceeded in selecting tenants for these projects. In addition as a further
requirement, and as an inducement to reach into higher income groups, the
Secretary shall seek to assure "a reasonable range in the income level of tenants".

We visualize, based on social realities, that this attempt at an economic
mix in such projects is doomed to failure and that ultimately these projects "to
assure economic viability" will house moderate income fannilies or low and
very low income fannilies, but not both and in the latter case supplennentary
funds will be necessary to assure economic viability.

I make these observations with the object of dissuading the Subconnmittee
from shaping a program of economic mix that will not succeed. Instead, the
Subcommittee should gear section 502 to low and very low income families even
if the program involves a deeper subsidy.

Moderate income families, those whose incomes are near or in excess of
the median,should not be the beneficiaries of housing subsidies. There are too
many millions of moderate income families, whose efforts have succeeded in giv-
ing them the status of the unsubsidized. All the sacrifices of America's great
middle class will prove to have been in vain if the Congress persists in shaping
a subsidy program for the relatively few who nnanage to occupy the few projects

1456

which the Congress will annually provide, too often grudgingly, because of
aistronomical projected costs.

If the Congress insists on some mechanism for nnoderate income families,
perhaps the Subcommittee might explore in depth the proposal advanced by Sena-
tor Percy in 1967, when he Weis a member of this Connnriittee. This plan viewed
subsidies for moderate income fannilies as extraordinary and therefore su jested
an extraordinary requirement — a mechanisnn which provided for sonne repay-
ment of the subsidy when the adjusted gross income of the beneficiary exceeded
a pre-deternnined repayment threshold. It merits an in— depth study and nnay
prove to be the key to the nation's major housing dilemma — how to devise a
nr\oderate inconne subsidy program without perpetrating an injustice on millions
of America's tax paying middle class fannilies.

LEASED HOUSING FOR LOW INCOME FAMILIES

We note that the highly successful section 23 program will be extended in the
revised public housing law and that not less than 30 per centum of public housing
contract authorization would be employed for this purpose. Because of its
success, we reconnnnend that this 30% level should be increased to 50% and that
half of the units should be existing housing. The original purpose of this program
was to employ the existing housing inventory for housing low income families.
Unfortunately, the progrann was diverted to become another tool of the highly
questionable production theory of housing subsidies — that poor people had to be
housed in new housing.

We commend the views in the statement to your consideration.

1457

Proposed Amendment to S. 2182

On Page 82, after line 20, insert the following sentence;

"Notwithstanding any other provision of this section, the amount of any mort-
gage under section 501 of this Act, a substantial portion of the proceeds of which
are used for rehabilitation, shall not exceed the Secretary's approved actual
cost of rehabilitation and, where the land and improvements are to be acquired
by the mortgagor and the purchase price thereof is to be financed with part of
the proceeds of the mortgage, the purchase price of such land and innprbvennents
prior to such rehabilitation; or in case the land and improvements are owned by
the mortgagor subject to an outstanding indebtedness to be refinanced with part
of the proceeds of the mortgage, the amount of such outstanding indebtedness
secured by such land and improvennents."

1458

Senator Stevenson. Our next witness is Mr. Thomas Meade and
representatives of the Census Area Stabilization Alliance in Chicago,
and I will apolopze for the record, as I have already done privately
with Mr. Meade, for the long wait and I thank you, too, for the great
patience you have shown. I wish I could say that this never happens
up here but I'm afraid it's more typical than atypical. We are very
glad to have you and we are grateful to all of you for coming along
distance to discuss a matter which I know is of deep importance to
you and to othei"S throughout the country who live in threatened neigh-
borhoods and are principally in our larger cities.

Mr. Meade, I will be glad to have you proceed in any way you would
like, to either summarize or give your statement. I would ask you to
identify for the record everybody who has come with you from
Chicago.

STATEMENT OF THOMAS J. MEADE, CENSUS AREA STABILIZATION
ALLIANCE, CHICAGO, ILL.; ACCOMPANIED BY JOHN IGNAZAK,
UNITED ASSOCIATED BLOCK CLUBS; JEANNE PILLER, SOUTH-
WEST COMMUNITY CONGRESS; MARIANNE GAZDA, ST. PETER
CANISIUS COMMUNITY COUNCIL; MARGARET GORMAN, NORTH
AUSTIN COMMUNITY CONVENTION; AND RUTH HEIBER, AMUND-
SEN PARK COMMUNITY COUNCIL

Mr. Meade. Thank you. Senator.

Mr. Chairman, members of the Housing Subcommittee, Senator
Stevenson : Thank you for your invitation here today. Needless to say,
we would remain, as I indicated to you, for another week just for this
appearance. Gentlemen, my name is Tom Meade; I am today the
CASA spokesman. With me is: Mrs. Ruth Heiber, representing the
Amundsen Park Community Council ; Mrs. Jeanne Filler, representing
the Southwest Community Congress; Mr. John Ignazak, representing
the United Associated Block Clubs; Miss Margaret Corman, from the
North Austin Community Convention; and Miss Marianne Gazda.
St. Peter Canisius Community Council.

We have come to Washington today at your invitation. Senator
Stevenson, because we can no longer remain silent about what we con-
sider to be a great American tragedy, the resegregation of neighrhood
after neighborhood on a block-by-block basis in Chicago and other
cities. We believe that the Federal Housing Administration, FHA 20?)
insured mortgage loan program is the single most important factor in
continuing this pattern of total resegregation.

Let us stop just momentarily and preface our further remarks with
the fact that the CASA coalition totally supports programs which
assist families unable to afford conventional downpayments. CASA
also sees the need for subsidized programs designed to redevelop the
shells of America's inner cities with adequate housing. Further, we
commend the Senate Housing Subcommittee and you in particular.
Senator Stevenson, for the introduction of legislation which will pro-
tect and reimburse the buyers of structurally defective housing.

We are here today to talk principally about the concenti-ation of the
FHA 203 insured lending program and the attendant problems it
creates. This is the major problem with which we are concerned. We

1459

brought with us, in the absence of time to develop a more sophisticated
presentation, our having only 36 to 48 hours to prepare a statement
some maps which are part of an addenda attached to the back of the
statement.

There are three maps. If 1 may bring us to map No. 1, it shows fig-
ures provided by the Society of Real State A])praisers in the Chi-
cago area which breaks the city of Chicago, down into 18 areas.
Now, if you will notice on the green map it shows 18 areas. Area 14
financing. The x's represent the FHA 203 insured mortgage loans,
as compared to only 5 percent conventional financing. The adjacent
area, area No. 13, shows a reverse ratio of 92.5 percent conventional
financing and 7.5 percent FHA financing.

"We show this to illustrate what we mean by concentration of FHA
insured mortgage lending and the lack of the de facto use of FHA
lending in other areas.

To go further, to focus in on map No. 2, we take an area from 1600
west in Chicago, which is Ashland Avenue, to 4800 west, which is
Cicero Avenue, and from 47th Street to 74th Street. In this area there
have been a number of conventional and FHA loans, real estate trans-
actions, within the last 2 years. The dots represent the conventional
financing. The "x's represent the FHA 203 insured mortgage loans.

You will notice that within a four-by-eight block area there is a
relatively total concentration of FHA 203 insured lending and the
total absence of such type lending in the other areas.

Now let us look at map No. 3 which will further determine the
concentration, and one of the attendant effe<^ts of this type of FHA
concentrated lending. We are pointing now to an area between 1600
west in Chicago and 2000 west in Chicago, a one-half mile distance,
and between 59th Street in Chicago and 67th Street, a l-mile distance.
In that area you will notice that we list by address a total of 88 fore-
closures which can be seen visually since they are abandoned buildings,
boarded-up houses, that exist in this section of Chicago today. These
houses were foreclosed ; the statistics were j^rovided to us by the Chi-
cago Area Director of the Federal Housing Administration, ]\Ir. John
Waner.

Our efforts, at best, are highly unsophisticated and do not provide
the type of information that we believe the Federal Housing Adminis-
tration can provide if they develop more sophisticated administrative
programs. Concomitant and concurrent with the FHA concentration
of insured mortgage loans is a disinvestment, if you will, on the part
of the mortgage lenders, the lending institutions, not only in Chicago,
but across America. When they see this type of FHA concentration,
apparently the red flags go up in their minds and these areas become
to them high risk areas and, red-lining procedures go into effect. The
overall effect is almost a total loss of conventional financing in these
same areas.

As an example, in our area in North Austin, Laramie Federal Sav-
ings & Loan moved out, left the community which had helped it build
its resources from scratch over a period of many decades. At the time
that this area became high risk in their minds, the red-lining went on
and Laramie Federal took our deposits and left the area for greener
pastures. Austin Federal Savings & Loan in Chicago, on North Ave-
nue, is another lending institution that applied to remove its head-

1460

quarters from this area in Chicago to Bloominodale, 111., an area re-
mote from that area in which it had its beginnings. Austin Federal
Savings & Loan, as an example, has on its books today approximately
58 percent of its deposits from ZIP code areas 606:^9 and 60651, which
represents oiir community. They return approximately 15 percent of
this money, in terms of mortgage financing and housing rehabilitation
loans, to these same ZIP code areas. Recently Austin Federal applied
for new headquarters in Bloomingdale. 111., to use our deposits for
mortgage loans in the suburbs.

Fortunately, through your intercession. Senator Stevenson, and
Congressman Rostenkowski and the aid of Congressman Annunzio,
the application for removing the headquarters of Austin Federal was
denied. Their headquarters now remain in Xorth Austin.

We need more of this type of responsible ])olitical leadership in
Washington.

Local businesses in the areas where FHA 2i)-\ lending is concentrated
are hurt in the following way : Block by block, the commercial streets
just remain viable and then die, and turn into a sort of wasteland. The
school problem becomes greater and gi'eater. As our neighborhoods
become more and more resegregated, the private schools, as well as
the churches, close down com})letely. As the private schools close, the
private school children move elsewhere. More and more public school
children move into these same neighborhoods and there's a greater
demand than ever on public schools.

For example, in Chicago, in the reseirregated neighborhoods the de-
mand for ))ublic schooling increases. We have been told, by Dr. Hanna,
of the Chicago Board of Education, that by 19.S0, in Chicago, there
will be 180,000 empty school seats and yet today, paradoxically, in
July of 1973, we are in the process of building more and more schools
in the resegregated areas of Chicago.

We will mention briefly the continuing activities of those panic-
peddling real estate agents who are still o])erating on the peripheries
of resegregated areas, and the irresponsible lending institutions which,
apnrove high-risk applicants for FHA-insured mortgage loans.

We know these things from personal experience because we have
block-by-block, house-to-house contact. We know what is going on
because this is where we live. We consider ourselves to be more author-
itative in these matters than any governmental agency or any special
interest group because of the fact that Ave know exactly what's going on
in our local communities as a result of tlie concentration of FHA-in-
sured mortgage lending.

Lastly, we would like to make reference, for the i-ecord, of the Fed-
eral Housing Administration scandals that have taken place so far,
like the Detroit disaster, the problems in New York, the problems in
Philadelphia, and so on. We don't submit that we have final ultimate
solutions for the problems but we do know that there must be specific
solutions.

We know that the solutions cannot be foimd simply in the hearts of
men: that the social engineers witji theii' causal relationships and
effects have done little in improving these problems; and we are still
looking for national political leadership to respond to this sensitive
economic and social issue.

1461

We iir-ofe the Senate' Housinof Subcommittee and the full Committee
on Banking, Housing, and Turban Affairs to draft and sponsor leo^is-
lation which prohibits the concentration of FHA 203 lending and
makes de facto FHA 20-3 lending accessible everywhere, proportion-
ately, in those areas where the prices of housing are within reach of
the FHA 208 insured mortgage loan program.

Specifically, we recommend that the FHA 20,3 insui-ed mortgage
loan program be made competitive with conventional financing. We
propose the abolishing of the discount point system, to be replaced by a
floating interest rate, greater risk assumption, and more responsibility
to be assumed by the private lendei-s, helping to make Federal financ-
ing more attractive for use in other areas where it is nonexistent and
in order to be more competitive with conventional financing.

Further, we recommend that FHA-type financing must be more
proportionate throughout metropolitan areas where the price of hous-
ing is within reach of FHA pi-ograms. We also propose that legisla-
tion be drafted in relationship to the lending institutions whereby
conventional mortgage money will continue to be made available in
the areas peripheral to those which have been totally resegregated.

Further, specifically, we are asking that the Federal Housing Ad-
ministration establish, in the Chicago area, as a pilot, program for the
rest of the Nation, a monitoring system, an infoi-mation retrieval sys-
tem, a data retrieval system, if you will, which will point out the con-
centration of FHA 208 lending and thereby help to enforce the sug-
gested new legislation which we recommend. It would help political
leadership nationally and our people locally in Chicago and other
cities to determine the interrelationships among the lending institu-
tions and foreclosures, the real estate agents and the number of aban-
doned buildings and other specifics as indicated on the agenda, dated
July 20, 1973, which is included in the addenda.

Lastly, we are proposing an economic formula, a hard, practical
formula, that a 5-percent limitation be set on the number of existing
housing units that may be financed in any census tract, in any one
year, through the FHA 203 insured mortgage loan program.

In order to realize the above recommendations, we understand that
there must be major revisions, by way of legislation and administra-
tive change, not only in the governmental agencies, the FHA, but
also in the home loan industry. If FHA is to be competitive with con-
ventional financing, the discount point system must be abolished once
and for all. We have taken note of the Federal Housing Administra-
tion's proposal of Thursday, July 5, 1978, that interest rates on FHA
203 insured loans be increased from 7 to 7% percent. On our initial
review, we consider this proposal nothing more than a sop thrown like
a bone to those homeowners who are now forced to sell through the
FHA 208 program because they have no other avenue of selling, but
we also recognize that the private lenders must get a fair return on
their investments, a fair return on their lending, so that it is competi-
tive with conventional financing and so that it is competitive with
other types of lending ; but the discount point system must go.

We also ask that legislation be drafted guaranteeing that mortgage
lenders are made responsible to local communities, to put back their
funds in those areas from where they get their funds. AVe cannot al-

1462

low the disinvestment referred to previously to continue and expect to
stabilize our communities.

We also ask, gentlemen, that through the U.S. Senate, and that you,
in particular, Senator Stevenson, help us to establish a pilot pro-
gram immediately in the Chicago metropolitan area whereby we will
set up administrative guidelines, through a task force, with the com-
position of you or your direct appointee, the HUD-FHA officials, and
representatives of CASA coalition. This task force would oversee the
planning and developing of the monitoring system (the information
retrieval system) we propose, which is the first necessary administra-
tive function so that basic change can be made in the Federal Housing
Administration policy, and so that policing can be done of the FHA
programs.

In closing, we must stress again that for most of us this is the 11th
hour. For some of us time has run out. It's all over. This continuing
block-by-block resegregation will go on, neighborhood after neighbor-
hood will be resegregated, with its attendant problems. We have heard
testimony this morning from other groups using figures like $20 bil-
lions, representing the American investment in housing in the cities.
I assume this means Federal moneys. We have heard about programs
about physical rehabilitation in the inter cities; we have heard about
programs about New York State needing now $1 billion for 236 pro-
grams.

We submit that none of these programs will ever be implemented
effectively as long as the Federal housing policy such as FHA 203
continues on a concentrated basis, continuing the total resegregation,
and tearing apart the inner cities of America. There must be a hard-
nosed, practical solution. We submit an economic formula such as the
recommended 5 percent. We want equal housing opportunities for all.
We support programs along these lines.

Lastly, gentlemen, we ask that you do not respond or react to our
proposals immediately and do not say that these are unworkable, not
feasible, et cetera until you have had due time to let the ideas and the
proposals we are talking about sink in. These are not simple ideas. We
believe that for the first time, as a representative coalition. We re-
flect the viewpoint of millions of Americans. We need your help. We
have no more time. America needs a CASA.

Thank you.

[Complete statement follows :]

1463

Date: July 27, 1573

To: Senate Housing Sub* committee

From: Thomas Meade
CASA

Census Areas Stabilization Alliance
5758 W. Potomac
Chicago, Illinois 60651
312-379-7823

Mr. Chairman and members of the sub-committee. My name is
Tom Meade from Chicago and I am the spokesman for the Census
Areas Stabilization Alliance (CASA) . CASA is a coalition of
cc»Bmunity organizations, chtirch groups and associated block
clubs, united to bring about substantive changes in the FHA
insured mortgage loan program. With me today are several
representatives of groups presently affiliated with CASA.
They are: Mr. John Zgnaszak, United Associated Block
Clxibs; Mrs. Jeanne Filler, Southwest Community Congress;
Miss Marianne Gazda, St. Peter Canisius Community Council;
Mrs. Margaret Gorman, North Austin Community Convention and
Mrs. Ruth Heiber, Amundsen Park Community Council.

We have come to Washington today because we can no longer
remain silent about a great American tragedy — the total
resegregation of neighborhood after neighborhood on a block-
by-block basis in Chicago emd other cities. We believe that
the Federal Housing Administration, through the concentration
of FHA 203 insured mortgage loans, is the single most impor-
tant factor contributing to the continuation of this pattern.

1464

First let me preface my remarks by saying that CASA totally
supports programs which assist families, unable to manage
conventional down payments, in buying homes. CASA also
sees the need for subsidized programs designed to redevelop
the shells of American inner cities. Further, we commend
this committee in general and Senator Stevenson in particular
for the introduction of legislation to protect and reimburse
buyers of structurally defective housing.

The concentration of FHA 203 loems, and its' resultant
effects, is a major problem — in our neighborhoods, the
major problem—which has not yet been dealt with in terms
of administrative or legislative reform. To us and those
families in similar neighborhoods the problem is abundantly
clear. With the aid of the three attached maps, I will try
to present a bird's eye view of the problem to this committee.

The first map shows the city of Chicago, divided into 18
areas. Within each area the percentage of conventional
mortgages to FHA insured mortgages is shown. It is clear
that certain areas have a high concentration of FHA 203
loans, while areas adjacent to them reflect a relatively
low percentage of FHA loems.

Take for example Area 14. The percentage of FHA loans granted
in the past 2 years was 94.3%. The percentage of conventional
loans was only 5.7%. In the adjoining area. Area 13, the
ratio of Conventional loans to FHA loans is almost reversed
(conventional 92.5%, FHA 203 7.5%>.

1465

Our second map (titled: Conventional and FHA mortgages in
SCO ftirther highlights this problem of the FHA concentration,
by zeroing in on the area between Ashland Avenue and Cicero
Avenue on Chicago's South Side. By noting that Western
Avenue is the dividing line between Areas 13 and 14, the
£act of FHA 203 loan concentration (each x is an FHA loan,
each dot a conventional loan) on a block by block basis
becomes dramatically evident on this second map. The converse
also is dramatically shown; FHA loans are not used uni for-
mally in all areas.

With the fact of concentration firmly established, we move
to the third map. This map further zeros in on the problem.
This map takes em 8 block area between Damen and Ashland and
here we begin to see one major effect of FHA 203 concentra-
tion. In this area in the past 2 years, there have been 88
foreclosures. Now homes stemd abandoned; buildings vacant
and this neighborhood has reached the point of inevitable
deterioration. All this at a cost of hundreds of thousands
of dollars to the tax payers.

The high concentration of FHA insured mortgages in certain
areas has resulted in the total resegregation of these
communities. Coupled with the inaccessibility of FHA in
other areas of the city, the Federal Housing Authority has
fostered and effected, albeit unwittingly, segregated housing
patterns which violate the spirit of all existing civil
rights eind national housing legislation.

1466

Concurrent with the concentration of FHA insured loans is
the process of disinvestment. Conventional lenders refuse
to grant loams in those neighborhoods now leibeled as "high
risk." Often times they even relocate their facilities and
abandon an area all together. In my community Laramie
Federal Savings and Loan has already moved their main office
to the suburbs and Austin Federal would have joined them,
if it were not for our efforts. Local businesses, feeling
the econconic under-pinning of the community being dismantled,
either close down or follow the lead of the savings and loan
institutions and relocate. Homeowners, now unable to secure a
home improvement loan, often have no alternative, but to
watch as their property crumbles around them. This situation
which develops is easily exploited by the panic peddling
real estate brokers capable of turning huge profits at the
expense of stable communities.

What I have said so far mirrors our personal experience with
FHA. When we couple this with what we have seen in news-
papers and magazines concerning FHA scandals in New York,
Detroit, Newark, St. Louis, Los Angeles and Philadelphia,
we see a program which is not only poorly administered
but, as presently conceived, lends itself to the most
blatant abuses.

We know that the solution cannot be found — simply— in the
hearts of men. We know that the social engineers, with their

1467

causal relationships and effects » have accomplished little
in solving this problem. We are still seeking the national
political leadership to respond to this sensitive economic
emd social issues.

From our vantage point right now, we urge this committee
to draft and sponsor legislation which prohibits the concen-
tration of FHA 203 loans and makes FHA loans accessible
everywhere proportionately. Specifically, we recommend
that:

1. FHA 203 insured mortgages; (a) cure made competitive
with conventional loans, by making them attractive
in those areas where conventional loans are used
exclusively; (b) are written proportionately through-
out the metropolitan areas.

2. Conventional mortgage money be made available
everywhere equitably.

3. An FHA monitoring system (Information Retrieval
System) be established to: (a) guarantee no con-
centration of FHA 203 loans; (b) enforce this new
legislation we are recommending.

4. The msucimum availsUaility of FHA 203 loans be fixed
at 5% of the housing units in a given census tract
in any given year.

In order to realize the above, we understemd that major
revisions must be made throughout the home loan industry.
First, if FHA is ever to be c^npetitive with conventional
financing, the discount point system must forever be

99-855 O - 73 - pt. 1 -- 94

1468

abolished. We have taken note o£ the Federal Housing
Administration's proposal of Thursday, July 5, 1973, that
interest rates on FHA 203 insured loans be increased from
7% to 7 3/4%, This proposal is no more them a sop thrown
like a bone to those h^iteowners who are forced to sell
through the FHA 203 program. This proposal guarantees
even greater profits at less risk to the mortgage lenders.
The discount point system, whether it is 1% or 15%, must go.
Further, legislation must be drafted gucuranteeing that
conventional lenders are made responsible to local communi-
ties. We cannot allow the process of disinvestment to
continue and create a void which can only be filled by FHA.

We ask that you, using your good office, recommend that a
pilot program be established immediately in the Chicago Metro-
politan area with administrative guidelines to end the con-
centration of FHA 203 insured mortgage loans.

In closing, I can only stress that in our communities this
may indeed be the 11th hour. The continued block-by-block
resegregation of American cities is inevitable unless the
FHA insured mortgage program is revamped along the lines
suggested. Such a positive approach is needed if America
is ever to insure both viable local communities and equal
housing opportunities for all.

We ask that you give us no immediate reaction, but rather
seriously consider our legislative proposals.

1469

C A S A MEETING CALLED BY SENATOR STEVENSON WITH HUD ADMINISTRATORS

300 S. Wncker, Chicr.go
July 20, 1973

AGENDA

1) WORKING TASK FORCE

A) Purposes To estnb?.ish n pilot program, in
metropolitan Chicago, with r.clministrntive
guidelines to end the concentrntion of FHA 203
insured mortgnge loans.

B) Composition of Tnsk Forces

- Senator Adlci Stevenson. Ill

- Mr. George Unvoulis, HUD Regional Director

- Mr. John Wnnor. HUD Aren Director

- Five C.A,S.A. Rsprosentntives

C) Deadline for Task Force Report!

Plan Formulated. September 1, 1973

D) Before September 1, six weekly working meetings

2) nONITORING SYSTEM (Information Retrieval System)

A) Purposei To monitor all FHA 203 (b) and 221 (d)(2)
insured mortgnge loans by census tract.

B) Information to be compiled and indexed byi

- name of buyer - FHA appraised value

- name of seller - FHA appraiser

- property address - lending institution

- census tract - points charged

- description of house - real estate company

- sals price - real estate agent

- amount of mortgage loan - certificate of inspection

- FHA case number number

- (if foreclosed)

C) FHA insured mortgage loans being prncessedi

- total number

- census tract

- addresses

D) Foreclosures 5

- total number

- census irac;-:

- addfessss

E) Information to date back to 1965

3) ADJOURN

1470

Dear Sentitor Stevensoni

I p.m joining with my nsighbors in sending you this letter to
express my concern r.bojt the Federnl Housing Authority's in-
sured mortgage lonn program (F.H.A. 203 b).

I understnnri thnt this progrnm was established to assist
fnmilieS; unable to mnn?,ge conventional down-payments, in
buying a home. While in theory I am not opposed to such a
plani I know thnt in practice T.H.A. 203 b is the single
most important factor in the blocI<~by-blocI< resegregation
of the city.

As has been witnessed time and time again, this program has
been abused by cox-tain real estate interests and lending
institutions = The concentration cf FHA 203 in certain areas
has led tc great profiteering at the expense of stable
corrmunitles. Other inequities sucl-; as the charging nf
points and low appraisals tend tn support this pattern.

I ask you, therefore r to act on my behalf in having the
follnijxng points written into the new federal housing
legislation now being prepared!

1. That FHA set up a program for monitoring their
loans so that not mors than 5/o of the leans m'^.de
in any year in any census tract may be F.H.A. 203
icci-is. This will insure that FHA 203 is not
concentrated only in certain areas of the city,
end, in addition;

2. That FHA 203 loans not be made available in North
Austin and other communities in which the use of
FHA loans is currently concentrated 'jntil they are
available on a proporticnate basis throughout the
entire metropolitan area.

I feel that the future of my community and indeed the entire
city is at stake and therefore urge you to act upon this
matter now.

Chicago, Illinois

1471

C.A.S.A.

57^8 W. Potcuc

chio«go, ni.
379-7823

0^60 S.)

fqtit St.

* Society of Jtoed Estate Appralsera Data Book
(Sept. '70 thru Oct. '71 t Oot '71 thru Aug '72)^

1472

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1473

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,

(

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;;ai-shf ield

'.'ood

592 a
6020
6036
6330
6i;01.
bk-?.9
r.U.2,9
6507

65ij-2
6539

Paulina

5951
5952
6014

6I37
,'^,204
6227
6228

6512
6524
6644

6006
6021

612 8
6218
6352
6420
6422
6610
6643

-iernl'tage

5917
5937
6027
6046
6105
6106
6120
6321
6327
6345
6353
6422
6423
6426
6436
6442
6525
6545
6551
6625

Honore

6019
6003
6023
6109
6608
6628
6631

'.V. 61st

.'^r-rv

:{d

n>

1746
W. 63rd

S. '/olcott

5950
5952
6025
6051

6214
6239
6405
6417
6421

S. Winchester
5922

5953

6021

6029
6220
6343
6344
6430
64i;5
6534
6537
6503

S. Damen

6II3
6137
6237
6520

w. 59th

1635
1743

1474

Senator Stevenson. Thank yon, Mr. Meade. Mrs. Heiber, Mrs.
Filler, or would any of yon like to add anything to that statement
before we ^et into some questions? If not, t would like to ask a few
questions.

First, though, if that is, as you call it, an unsophisticated presenta-
tion, we could use more unsopliisticated presentations in the Congress.
I tried to say this at your meeting not long ago. I think too often we
operate in a vacuum and make decisions without really understanding
their impact on the people whom we are trying, not always success-
fully, to serve. So I think it is terribly important that we hear, and hear
directly, from the people who live in these programs that are helped or
hurt by them.

I can report a little progress on one of our fronts. You mentioned
the reimbursement provision which I introduced. We are in confer-
ence now with the House on that proposal to reimburse homeowners
for the cost of repairing structural defects which were not technically
in the FHA inspection process, and we are winning. I think the House
is willing to go along with the Senate and perhaps by the end of next
week we will place on the Fresident's desk a bill which will provide
those reimbursement rights.

Now, I think there are a couple points to be made clear for the
record. As I understand it from this and prior conversations, you are
l^rincipally concerned about 203(b) housnig, the major unsubsidized
housing program; is that right? These charts refer to 203(b) housing
or is that all — —

Mr. Meade. That's correct, Senator. Our reference is to 203(b)
housing because in our minds this causes the pattern of resegregation,
whereby no other programs can operate effectively until this kind of
thing stops. We are suggesting the 5-percent limit per- year in each
census tract, along with other programs, such as i-ehabilitating inner
cities, the shells of inner cities, and so on, and otlier types of programs
could work effectively and concomitantly.

Senator Ste\t2nson. Well, I haven't been in the Senate very long
but I'm told in 1968 Congress heard testimony that the FHA was not
guaranteeing housing loans in red-line areas. The Congress responded
then by writing into the law an anti- red-line provision which in part
is responsible now for the availability of FHA loans in red-line areas.

I think one of the conceptual problems that this committee has to
face is whether the FHA loans are the cause of the problem or in fact
the result of another pi'oblem; namely, the unavailability of financing
in these areas. The whole program is predicated on the unavailability
of conventional financing at interest rates that are within the retich
of most Americans. These FHA programs, including the anti-red-line
provision, were intended to make financing for housing where other-
wise it simply is unavailable.

You show us the charts which irrefutably demonstrate that FHA
loans are being concentrated in certain geographic areas, but isn't the
reason for that the unavailability of conventional financing in those
areas and, in fact, if you didn't have FHA financing in those and
other areas across the country, especially now with the very high
interest rates, you just wouldn't have any financing available for most
Americans? They just wouldn't be able to <xot any housing. It's hard
enough with FHA housing. We heard testimony this morning from

1475

Mr. Logue from New York about the FHA rates and low high they
were, how difficult even with FHA financing it was going to be for
most people to get housing. It's a longwinded question.

Mr. Meade. Senator, you are absolutely correct, but that's just part
of the problem, the lack of conventional financing. We agree that con-
ventional financing, the dearth of it in these areas, is one of the major
problems. But also, the easy availability to buyers of FHA 208 insureti
mortgage loans in the same areas that we are talking about, cause the
block-by-block resegregation within a matter of 6, 12, 18, 24 nionths.

I oveVlooked a point in our statement, that every civil rights law
that has been written — the housing legislation that is on the books
today — are violated, in spirit, by the effects of FHA concentrated
lending programs.

The minorities consider the FHA programs a "rip-off," not only
for the reasons of defective housing, but because of this total
resegregation.

The only solution is a hard and fast economic formula that has to be
legislated and administered. There have to be practical solutions.

Senator Stevenson. Well, I have absolutely no question about the
desirability of really cracking down hard on "blockbusters and all the
unscrupulous builders, brokers, and the financial institutions. We don't
really need to discuss that a lot because we are agreed we have got to
come up with some answers. We don't have all of the answers. I'm
getting at the toughest, most difficult part of your proposition which
is this notion that somehow we should, on a rigid formula, allocate
the financing for housing, not just in Chicago — when Congress legis-
lates it legislates for the whole country. We have to be concerned about
the impact of everywhere, and I suspect that the figures which you
have given us on the concentration of FHA housing, w^hich are alarm-
ing, reflect, in part, economic and income levels; and if you were to
say as a matter of law that there can't be more than a certain per-
centage of FHA housing in any given area the effect of that across
the country would be to deprive all the people who need the help most,
most of them, of the financial assistance that's intended through FHA.
They would end up with no housing.

Mr. Meade. I just want to make one comment in response to that.
Senator. I know what you are saying, but there is something wrong
with the Federal Government since it is, in fact, spending billions of
dollars in Housing programs and cannot come up with different pro-
grams which will help relieve this kind of housing need; and second,
something is wrong with a policy which continues to resegrate middle-
class, middle-income neighborhoods like ours today, where the hous-
ing is in good physical condition, up-to-date, and where the FHA 208.
program has the effect of completely changing it.

All we are saying is this : That the program as it exists is destroy-
ing these areas even though it purports to help those who can't help
themselves. We are saying that other solutions have to be found, one
of which is that in order to kee]) our nei,Qfhborhoods viable, thei-e has to
be a limitation of the FHA 208 program. Our reconnnended formula
is a 5-percent limitation in each census tract per year ; but along w- ith
it, since we are spending billions of dollars, we can't understand why
other practical solutions can't be found. We cannot just simply keep
pumping more and more billions into housing programs, when we are

1476

destroying, literally destroying, in an economic and social sense, well
physically maintained neighborhoods. These patterns are happening
all over America. This is what we are talking about. Can't you here
in Washington help us stabilize '?

These recommendations of ours would have the effect of helping us to
stabilize and also, at the same time, to come up with new programs
which relieve the need and take some of the burden for housing for
the people you are talking about.

Senator Stevexson. Well, I don't think there's any disagreement at
all about the end result we are all seeking. We ought to make this clear
for the I'ecord. ^AHiat is happening in your neighborhoods is happen-
ing in neighborhoods all across the country. It's happening in black
neighborhoods and white neighborhoods and mixed neighborhoods.
What you are seeking, I believe, is not an all-white neighborhood.
You are seeking a stable neighborhood,

Mr. Meade. Stabilization is the keynote. That's what we are looking
for. Senator — stabilization, viability, equal opportunities, equal hous-
ing. This is what we want in all those areas where Federal housing
programs are within reach, where the price of housing is within reach
of the Federal programs.

Senator Stevenson. Well, I think that's everybody's purpose and the
Government ought to be able to come up with an answer.

Miss Gorman. I would like to make a comment to the economic fac-
tors that you spoke of. The savings and loans or the mortgage money
for conventional mortgages is not available because we are beginning
to be red-lined. As we are red-lined the conventional mortgage money
becomes very difficult to obtain or impossible, and then FHA moves in
and this is the problem that wo have. We are working on the mortgage
money. We met yesterday with the Federal Home Loan Bank Board
f'.nd we are working from that aspect, too. We realize the problem is
many-fold. We are saying tliis is one area. We are working on the
money pai-t of it. That's another area. There are so many things in-
volved and we are cognizant of that fact, just as I think you are.

Senator Stevenson. Well, Mr. Meade mentioned one savings and
loan as a case in point.

Miss Gorman. But the FHA comes in and it's concentrated because
there's no other- way for people to obtain mortgages.

Senator Stevenson. I see that. In my case, there is no disagreement,
and that was made quite clear in the case of the savings and loan you
mentioned. This committee — not this subcommittee but the full com-
mittee— has jurisdiction over the Federal savings and loan banks and I
think it is something we ought to look at. In the case of the Federal
Home Loan Bank Board, as I understand it, it is not required now by
law to give consideration to the impact upon a community of the de-
parture from that community by a savings and loan institution. In that
one case some consideration was apparently given to that. It is a factor,
I am told, that is considered by law in connection with moves by banks.
For some reason there is a discrepancy in the law between the factors
which must be considered in granting this kind of approval to banks
on the one hand and savings and loans on the other. I don't see any
basis for that distinction in the law and I think it is wrong not to con-
sider the impact on the community.

We are making some headway and maybe we ought to try to make
some change in the law.

1477

Mrs. Filler. I would like to say something:. It is my personal belief
that unless something' like a 5 percent is enacted immediately, there
isn't any hope for the Southwest Side of Chicago. That sounds like
really a dark prospect but that is true, because the turnover is so rapid
and if people don't feel that there's a shred of hope comin<r from the
Government in containing: this we are going- to have an exodus like no
one has ever seen. It began a long time ago and it is continuing except
it is a faster rate. In spite of the fact that money is tight people are
moving out to the suburbs at a fantastic rate. You are aw^are of this.

Senator Stevenson. Well, we were discussing some of the conse-
quences of that exodus earlier in the consideration of regional plan-
ning, but it might make more sense to avoid the problems than to
cope with, them after they become insoluble.

Mr. Meade. Senator, may I ask you, do you see the need for a
pilot program in Chicago to show the way for the rest of the coun-
try a monitoring system such as an information retrieval or a data
retrieval system to graphically illustrate to the Federal Housing Ad-
ministration itself what we are talking about, so corrective changes
can be made as necessary, as determined by such an information re-
trieval system?

Senator Stevenson. Well, I see absolutely nothing wrong with a
monitoring system as I underetand it. I think the facts and figures
and all the information ought to be made available on where the FFIA
housing is going. But I don't see a monitoring system as a substitute
for a program. A monitoring system monitors the programs. The pro-
grams are, as we all know too well, working. So, to that extent, I
disagree. You say you want an FHA monitoring system established
to guarantee no concentration of FHA 208 loans and to enforce this
new legislation we are recommending. Well, there has to be a program,
legislation, some way of resolving these problems. Monitoring doesn't
do that. Monitoring just monitors whatever is taking place and I
think that's

Mr. Meade. That's right. But what we are saying is this: There is
no existing system — in the Federal Housing Administration — which
can give you the facts and information essential to determine what
course of action you must take. We know this is happening out there.
The figures we have, as rough as they are, are accurate figures because
we know what is going on block by block, house by house. I will give
you another illustration. The City of Chicago Building Department
took a 3-square-mile survey, visual survey, of a south central area
of Chicago. In that area there were 450 abandoned buildings. We
were told that there is no way to determine how those buildings were
financed but because of their experience in building, housing, zoning,
et cetera, it is surmised — just surmised — that over 400 of those 450
abandoned buildings were financed through FHA programs.

Why don't we have a built-in system like a monitoring system where
we can find out these things so you can take action if necessary ? It's
w^rong that we do not have a monitoring system.

Senator Ste\t:nson. Well, I think it's good for us to know as well
as for the public. Maybe we ought to get more testimony, if not now,
later, from you. You have had access to information with which to
compile these comprehensive charts. "V^Hiat's missing that you need
that you didn't have to enable you to put together these figures I just

1478

don't know. To the extent it is possible to gret whatever it is, you are
ri^ht ; I think we should get it. We should have access as well as the
public.

Mr. Meade. Senator, I don't know whether this is an appropriate
place or time to ask you once again in regard to your help in getting
the monitoring system and in regard to your help in determining the
composition of a task force to oversee the planning and develop-
ing of this monitoring system, but we would like to ask you once more.
You indicated previously that you would help us. We would like to
ask you again if you will continue to exert your efforts in regard to
these matters.

Senator Stevenson. Well, that goes without saying, of course. Of
course, I'm not the witness at the moment, but

Mrs. Filler. Senator, may I add to that about those figures ? Those
figures were developed by private work from the Societv of Real
Estate Appraisers. In fact, when we went to HITD in the be^nning
they couldn't give us these figures at all. We had a public meeting
on the southwest side just recently and asked about a particular
group called Southland and thev did in fact sit down and type up a
letter and give us these figures that appear on your paper there. But
these figures are not usually available to us because they have case
numbers rather than addresses and we are seeking to have their
administrative change to do it by blocks rather than by case numbers.
There is no way of identifying a particular area the way it is set up
right now. I would have to go through tremendous amounts of work
to determine where in fact the impact is taking place. We can see it
visually because we are out in the neighborhoods all the time. So
that is one of the things we are seeking to do by this task force.

Senator Stevenson. Well, as I indicated before, I would be glad
to give any help to develop such a system that would make informa-
tion available not by case number but by area.

There are many ways to tackle these problems. I think I can confi-
dently say that every member of this committee would agree with
vour objectives. I can cei-tainly say in response to something you said,
Mr. Meade, that no one can feel very confident of the answers. We
are groping for answers. We want to hear the ideas and approach
them with an open mind and try to solve some of the problems that
you have mentioned, and there are many more possibilities than those
you have mentioned.

You did mention more conventional mortgage money. That is cer-
tainly a concern that every member of this committee would share
and we would all try to help out on. We have got to do a better job
of city planning, community development, and more to help the new
areas intelligently and if possible preserve them so that we don't have
to go to the enormous ex|:)ense of renewal and certainly to reverse the
flight from the central cities to the suburbs.

As I tried to indicate earlier, I would like to try to develop ways
also of reversing the flight from the rural areas into the large cities.
We know too well what is happening with the iiiral out-migration
continuing on the one hand, and then the out-migration from the city
to the suburb on the other hand. We know what it leaves us with.
We just don't have all of the answers at the moment.

Mrs. Filler. I have a question. I would like to know how far along
you are with writing the new legislation. In fact, we were told that

1479

the new bill is just about ready. Is this in fact true and if so, where
might we see a copy of what has been done on it ?

Senator Stevt^nson. We can give you copies of all the bills before
this committee. The purpose of these hearings is to help us write
housing and community development legislation. That is why you
are all here. There are many bills before the committee. They are in-
troduced and then we write from those bills.

Mrs. Filler. I know it is probably a time-of-day question, but in
my own mind I am trying to determine how far along are you with
the bill? Do you anticipate it will be completed by the end of the
year?

Senator Stevt^nson. I will have to ask staff. These are the bills.
There are over 50 of them so far before the committee and we are
hoping to report bills out by the end of September.

Mrs. Filler. Is there somewhere perhaps in digest form where this
is available? I know that's like asking for the moon. Secondly, I would
like to know are there any specific recommendations that you have
made that will in fact be a help to us?

Senator Ste\t:nson. We might have some digests. The Senators
probably have. Let's try to put together a collection of bills and, to
the extent we can get them, explanations of what the bills do. In some
cases they will be available and in some cases they won't be.

With that, I am going to have to conclude this hearing and get to
the floor where I have another matter pending of great concern to me.
It is the reform of campaign financing which is in need of reform.

Mr. Meade. Thank you, Senator. In conclusion, I hope you can
convey to the other Senators on the subcommittee and to the full com-
mittee that we would like to say that we may come back a year from
now, but we may not be able to return. This is what FHA 203 is caus-
ing now, today, and in a few short months we may be resegregated.
That's the way it is.

Senator Stevenson. The committee and staff will do its best. We can
promise nothing more than that. Now. Senator Brock has a statement.

STATEMENT OF BILL BROCK, U.S. SENATOR FROM THE STATE OF

TENNESSEE

Senator Brock. Mr. Chairman, I appreciate the opportunity to
testify in support of S. 1188, a bill that I have introduced to end re-
strictive work rules and outmoded building code restrictions on the use
of industrialized building products. My bill enjoys the cosponsorship
of my distinguished colleagues. Senators Beall, Bennett, Fannin, Dole,
Dominick, Tower, and Thurmond.

The language of S. 1188 is the same as found in the amended version
of S. 3373 that I introduced during the 92d Congress. It is an out-
growth of the breakthrough amendment offered by Senator Tower to
the Housing and Urban Development Act of 1969. As finally adopted,
that amendment directed the Secretary of Housing and Urban Devel-
opment to :

(4) assure, to the extent feasible in connection with housing construction, any
major rehabilitation and maintenance under programs assisted under this sec-
tion that there is no restriction by contract, building codes, zoning ordinances, or
practice against the employment of new or improved technologies, techniques,
materials, and methods, or of preassembled products which may reduce the cost

1480

or improve the quality of such construction, rehabilitation, and maintenance, and
therefore stimulate expanded production of housing under such programs, except
where such restriction is necessary to insure safe and healthful working and
living conditions.

Thus, Congress has evidenced a leo:is]ative policy recoo;nizing the
necessity for use of technolog:ical advances in construction. T^nfortu-
nately. Congress has not given enforcement power to support this
legislative policy. My bill should fill this gap.

At my urging, this subcommittee held 4 days of hearings last year
on S. 3373. The Committee on Banking, Housing and ITrban Affairs
has published these hearings in a document entitled "Improved Tech-
nology and Removal of Prevailing Wage Requirements in Federally
Assisted Housing."

Wiat emerged from the hearings was clear evidence (1) that the
new construction technology and products offer an important means
of licking spiraling construction costs and (2) that restrictive work
practices and outdated building codes continue to severely limit the
use of this technology. The work rule barriers result from collective-
bargaining agreements that allow building trades unions to refuse to
handle or install certain products. This results in a limitation on the
use of cost-saving products, lower availability of housing, and higher
prices. The building code impediments, ostensibly established to pro-
tect health and safety, too often serve only to perpetuate out-of-date
and far more costly products.

Numerous witnesses at the hearing presented case histories as to how
restrictive codes and work practices barred the use of the new technol-
ogy. I will not repeat those examples but commend the hearing record
to you. However, I would like to relate one very recent example as an
indication that the problem continues to persist :

In a midwestern city the specifications for a large apartment complex
included 400 floor-to-ceiling factory "piped" fan coil heating and
cooling units designated by manufacturer and model number. These
units were produced in a plant organized by the Sheet Metal Workers
International Association and bore the union label.

The mechanical contractor on the job was informed by his em-
ployees, members of the ITnited Association of Journeymen and
Apprentices of the Plumbing and Pipe Fitting Industry of the United
States and Canada, that they would not install the designated manu-
facturer's units unless the piping was disassembled and reassembled
on the jobsite. The United Association offered the subcontractor the
alternative of purchasing prepiped units of a competitor manufac-
turer whose plant was organized by another local of the United Asso-
ciation. The architect insisted that the competitor's product would not
meet the specifications and the designated manufacturer's units were
delivered to the jobsite. In the absence of the subcontractor, members
of the United Association disassembled and reassembled the piping
on several units before being stopped by the construction superintend-
ent. Further installation ceased until the matter could be settled after
protracted negotiations. Nevertheless, the manufacturer's warranty
was voided on those units disassembled and reassembled on the jobsite.

My bill contains the mechanics to prevent this type of action in
Federal housing program^ without involving the Federal bureaucracy.

1481

It recognizes the need to protect liealth and safety and to adapt to
local differences while still providing the needed boost to productivity
in the construction industry.

The bill itself is straightforward. Its important provisions are:

First, through a civil court action in a Federal or State court, any
person may prevent the enforcement of any local code, law, ordinance
or work rule that restricts his use of new techniques or materials in a
federally assisted housing program unless it is necessary to enhance
health or safety. No action by a government agency is required.

Second, the remedy does not apply if the code or work practice
is required to protect health or safety of working or living conditions.
The person who raises this defense must show by a preponderance of
the evidence, first, that the restraint is necessary to assure safe and
healthful working or living conditions, and second, that the new
product fails to provide this assurance.

Third, the court may order equitable or preventive relief and dam-
ages although damages may not be assessed against a local government
body.

Fourth, the safety and health issue and all other questions under the
bill will be decided by State or Federal courts in the locality.

I want to point out that my bill does not pro^•ide the means for es-
tablishing a national building code. As a result of this subcommittee's
hearings on S. 3373, I found objections to the bill centered around a
provision using standards established by a HI"D-ai)proved standard
setting or testing agency to create a presumption that a new product
or technique meets safety and health requirements. I amended the bill
to eliminate any involvement with such agencies, and took a different
approach by placing the burden of proof on the person invoking the
health and safety exception. This new approach is described in the
foregoing outline. It is a significant improvement since it avoids the
recurring questions of national standards, qualified testing, and
standard-setting agencies and HUD involvement.

I believe my bill provides a simple solution that can provide lower
cost housing to all our citizens. It allows the man who thinks he has
built a better "mousetrap" the opportunity to test his idea in the
marketplace for the benefit of the consumer. I cannot see why anyone
should be afraid to have a work rule, product, or local building code
tested in this manner.

Mr. Chairman, I ask favorable subcommittee action on S. 1188 at
the earliest possible date.

Senator Stevenson.. Thank you. Senator Brock. The committee will
recess until 10 a.m. Monday.

[Whereupon, at 2 :30 p.m., the hearing was adjourned, to reconvene
at 10 a.m. on Monday, July 30, 1973.]

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