HUD-SPACE-SCIENCE-VETERANS APPROPRIATIONS FOR FISCAL YEAR 1975 TUESDAY, MAY 21, 1974. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WITNESSES JAMES T. LYNN, SECRETARY JAMES L. MITCHELL, UNDER SECRETARY ROBERT R. ELLIOTT, ACTING GENERAL COUNSEL JOSEPH BURSTEIN, ASSISTANT GENERAL COUNSEL FOR PUBLIC HOUSING CHARLES G. HAYNES, INSPECTOR GENERAL ROBERT E. RUDDY, DEPUTY UNDER SECRETARY FOR FIELD OPERATIONS POLICY DEVELOPMENT AND RESEARCH MICHAEL H. MOSKOW, ASSISTANT SECRETARY HOUSING PRODUCTION AND MORTGAGE CREDIT SHELDON B. LUBAR, ASSISTANT SECRETARY-FHA COMMISSIONER DANIEL P. KEARNEY, DEPUTY ASSISTANT SECRETARY WOODWARD KINGMAN, PRESIDENT, GOVERNMENT NATIONAL MORTGAGE ASSOCIATION HOUSING MANAGEMENT H. R. CRAWFORD, ASSISTANT SECRETARY COMMUNITY PLANNING AND DEVELOPMENT DAVID O. MEEKER, JR., ASSISTANT SECRETARY EQUAL OPPORTUNITY DR. GLORIA E. A. TOOTE, ASSISTANT SECRETARY LEGISLATIVE AFFAIRS SOL MOSHER, ASSISTANT SECRETARY NEW COMMUNITIES ADMINISTRATION ALBERTO F. TREVINO, JR., GENERAL MANAGER, COMMUNITY DEVELOPMENT CORPORATION SALES REGISTRATION FEDERAL INSURANCE ADMINISTRATION AND INTERSTATE LAND GEORGE K. BERNSTEIN, ADMINISTRATOR FEDERAL DISASTER ASSISTANCE ADMINISTRATION THOMAS P. DUNNE, ADMINISTRATOR (1) ADMINISTRATION W. B. CHRISTENSEN, ASSISTANT SECRETARY NATHANIEL J. EISEMAN, DEPARTMENTAL BUDGET OFFICER ALBERT J. KLIMAN, DEPUTY DEPARTMENTAL BUDGET OFFICER Mr. BOLAND. The committee will come to order. The committee welcomes Secretary Lynn and his staff of the Department of Housing and Urban Development. We have had some problems in getting together but they are quite understandable. You have had problems with some of the programs, and you have had to relate these problems, I guess, to other agencies in the Government. Consequently, we have been delayed in getting started. Hopefully we can get through these hearings by the end of next week. The committee is delighted that you are looking so well. You always have a nice smile. Where was the last seminar you were at? Was that in New York? Was it last week? Secretary LYNN. They all tend to run together, Mr. Chairman. The last panel I was on was in Portland, Oregon, about a week ago at a meeting of the Association of Mutual Savings Banks. I can't recall what the one was prior to that. SUSPENSION OF HOUSING SUBSIDY PROGRAMS Mr. BOLAND. Since we last met in this forum, both the subsidized and conventional housing programs have experienced some rough going. Sixteen months ago, Mr. Secretary, the administration placed a total moratorium on all subsidized housing. Last September, following completion of the HUD study, the moratorium was partially lifted. A revised section 23 leasing program was announced at that time along with the release of some $60 million of rehabilitation loan funds. Owing to various kinds of delays-some possibly prompted by a concern of Congress that the revised leasing program lacked proper legislative authority-not a single unit has been built under the new program. While this committee was among the first to caution that the existing subsidy programs could not survive under a continued aura. of corruption and mounting defaults, we did not intend that lowincome housing come to a complete standstill or be abandoned, which they haven't from what you have been telling us. Some workable formula must be found and at an acceptable cost level. PROBLEMS IN HOUSING INDUSTRY Beyond the immediate problems of the subsidized programs, the housing industry faces other serious troubles. One year ago, when you last appeared before this subcommittee, annual housing starts were pegged at a rate of about 2.28 million units. The seasonally adjusted rate for March of this year is 1.46 million units, and the current estimate of total housing starts in 1974 is only 1.6 million units, down from 2 million units in 1973 and about 2.4 million units in 1972. Part of the problem, of course, has been interest rates. Recently they have again gone through the roof and have sucked a good deal of money out of the savings and loan institutions. The President's announcement making available an additional $10.3 billion mortgage money may help, but as we open these hearings, we would all agree that HUD faces some very serious problems in the housing and community development areas. We will be exploring these areas in the next few days as we get into particular facets in the budget. The Department is requesting $5.1 billion in fiscal year 1975 as compared with $3.5 billion in fiscal year 1974. This is an increase of about $1.6 billion above last year. The bulk of that increase is represented by the $2.3 billion request for implementing the Better Communities Act, and by a $400 million increase in housing payments. In addition to these increases, the amended budget requests an additional $200 million for the Better Communities Act, bringing the total fiscal year 1975 request for that activity to $2.5 billion. Within the $2.5 billion you provide for particular transitional fundings, $200 million for urban renewal, $125 million for Model Cities, and then you have special transitional funds of $100 million for cities that have particular problems. Mr. Secretary, you have a long statement. I have read it, and I think it is a good one. We would be delighted to hear you. At the end of your statement we will have some questions with reference to it and to the budget. GENERAL STATEMENT OF SECRETARY LYNN Secretary LYNN. Mr. Chairman and members of the committee, you will recall that something like 60 days had elapsed between the time I took office and the last time I met with you. If there ever was a new boy on the block, it was I, and I very much appreciate the understanding given me by this committee in those circumstances. Unfortunately, I must come back to you again asking for understanding, but this time on a matter of procedure. At the time the budget before you was put together, there were many uncertainties involving legislation and workload. Since that time, many things have happened which to us anyway-have clarified the situation. As a result, a series of amendments to the budget are now being developed to reflect new decisions that have been made both on staffing as well as on certain program areas. I have been authorized by the Office of Management and Budget to discuss these changes with you, even before the official document is submitted. To facilitate your consideration, I have attached some tables to this statement summarizing the changes. ACTIVITIES OF THE PAST YEAR We have now been in office for better than a year. If I had to use only a couple of phrases to best describe the role of HUD management during this past year it would be "evaluation and policy development"principally with respect to community development and housing programs and "coping with and planning for transition to new, and better programs." On the community development side, the President submitted to the Congress about a year ago the "Better Communities Act." The Senate has now acted on community development legislation in combination with comprehensive housing legislation. Although there are some provisions in such Senate-passed comprehensive bill that are good, there is much that is, in our view, unsatisfactory-for example, provisions which perpetuate a number of the worst aspects of the current cate gorical programs. In contrast, however, the House Housing Subcommittee has reported out to full committee a version of community development block grants which, while different in certain important respects from the proposed Better Communities Act, nevertheless constitutes a substantial improvement over the current categorical programs and is acceptable to the administration. Although you know better than I the vicissitudes of the legislative process, we are hopeful that the subcommittee bill will proceed rapidly through the full committee, the Rules Committee, the floor and conference with the Senate. In housing, our efforts at evaluation and policy development have focused principally upon two problem areas: First, the problem of mortgage credit availability; and, second, the problem of housing for our lower income families. HOUSING STUDY As I outlined in my testimony here a year ago, the Department embarked on a massive study of housing which consumed a great deal of management time during the spring and summer months of last. year. Approximately 75 people at the Department and over 100 outside contractors were engaged in the study. The product of outside contractors alone extended over 10,000 pages. The results of the study are contained in what I hope is generally regarded as the most thorough and comprehensive review of housing policy in recent years. Based on this study, the President announced certain policies, actions and proposals last September which, you will recall, included legislative proposals for improving the availability of credit by Increases in mortgage amounts of FHA insured loans. A mortgage interest tax credit of up to 311⁄2 percent. More attractive terms for insured mobile home and home improvement loans. Use of market interest rates and elimination of discount points on insured loans. A coinsurance program. Experimentation with insured mortgage terms. I am pleased to report that both the Senate bill and the House bill as reported by the House Housing Subcommittee are responsive to many of the requests I have mentioned. We believe that ultimate enactment will help substantially in revitalizing FHA and in bringing about better availability of housing credit generally. DIRECT CASH ASSISTANCE The President also identified direct cash assistance as the most promising approach to help lower income families meet their housing needs because of the advantages of freedom of choice for the families, substantially less inequity and reduced subsidy costs for families encouraged to seek and rent decent, safe and sanitary existing housing as compared with subsidized construction of new housing. More time, however, is needed to evaluate this approach, and the Department is presently engaged in an intensive effort to examine such problems as possible inflationary effects of cash assistance. While we believe that such study and evaluation is absolutely necessary before implementation of any new program, we also recognize the need for continuing at least in the interim to provide additional subsidized housing. For the reasons set forth in housing study, the sections 235 and 236, rent supplements, and conventional public housing programs are not, in our judgment, the best designed programs for accomplishing this result. REVISED LEASING PROGRAM In September, the President authorized, as an interim measure, 200,000 additional units of subsidized housing, of which 118,000 would be allocated to a revised section 23 leasing program under which the Federal Government seeks to control subsidy costs by reliance on market rents and seeks to simplify the assistance by paying the difference between the fair market rents and a percentage of family income. A simplified program has the additional advantage of putting the subsidy, for the first time, all out on the table. The revised section 23 program doesn't hide indirect subsidy through tax exempt federally guaranteed financing, property tax exemptions, special depreciation provisions, and actuarially unsound mortgage insurance programs. To repeat, what we propose to pay-much as we would do under a direct cash assistance program-is simply the difference between fair market rent and a portion of family income. In addition to the units authorized by the President in September, the budget provides for an additional 300.000 units for fiscal year 1975 under the revised program. To make the program work better, we have requested certain changes in the authorizing legislation of section 23. Some of these changes have been incorporated in the Senate bill, and most of them have found their way into the House Housing Subcommittee bill. Upon enactment of the legislation, we propose to move from the current section 23 program into the new program. PUBLIC HOUSING Finally, we have devoted a very considerable amount of time to evaluation and policy development in the housing management area. With respect to public housing, a number of things have become clear: Housing authorities are in need of substantial modernization funds. Operating subsidies also must be raised and must be delivered under a more rational system encouraging good management. A long term policy of financial support which will involve the States, and, where appropriate, local communities, must be developed. Tenant rentals must be based on a system where income is more realistically defined and all tenants are required to pay something. Certain of these objectives can be implemented administratively, such as prototype cost basis for distributing operating subsidies. Others, such as changes in tenant rents, will require legislation; and I am pleased that the House Housing Subcommittee bill is responsive to a number of our requests. I have taken more words than maybe I should have to inform the committee as to what we have been doing over the last year, but I think it is only against such a background that our budget proposals can be |