Mr. EAGAN. I am trying to be honest with you, Doctor. I really am Mr. SPENCE. Doctor, will you yield?

Mr. SMITH. Yes.

Mr. SPENCE. These obligations that you are speaking of are issued by the local housing authority.

Mr. SMITH. On the strength of

Mr. SPENCE. What I want to know is, How could the local housing authority pledge the faith and credit of the United States?

Mr. EGAN. The local housing authority cannot, Mr. Congressman. Mr. SPENCE. Has it the authority to do that?

Mr. MILLER. The act pledges the faith and credit of the United States to the payment of the contribution. Only that far. And that is conditional.

Mr. SPENCE. The local housing authority has no control over the contributions that you make to it, has it? How can the local housing authority, created locally, pledge the faith and credit of the United States?

Mr. EGAN. I do not know how they can, either.

Mr. SMITH. Pardon me, Mr. Spence. You say the local housing authority, Mr. Egan, has no power to pledge the security of the Federal Government?

Mr. MILLER. The local housing authority has the power to pledge that if it gets the contributions, it will use the contributions to pay the bonds.

Mr. SPENCE. Will you yield again, Doctor?

Mr. SMITH. Certainly.

Mr. SPENCE. You enter into a contract to pay contributions?

Mr. EGAN. That is right.

Mr. SPENCE. And they pledge the contributions?

Mr. EGAN. That is right.

Mr. SPENCE. They are a local organization. They have no authority to pledge the faith and credit of the United States. They rely upon your contributions; is that not true?

Mr. EGAN. That is correct.

Mr. SPENCE. That is what I meant. I do not see how it is possible that a local organization created under State law could pledge the faith and credit of the United States Government.

Mr. FOLGER. That would be the same thing as my pledging your credit.

Mr. SPENCE. Why, yes; pledging the credit of somebody else. They cannot do that. They can pledge the money contributed to them, just as an individual can pledge something that is owed to him.

Mr. EGAN. They can also pledge the amount that they have in excess of their operating costs for any 1 year toward those bonds.

Mr. SPENCE. But that is their individual pledge, and not a pledge of the United States Government.

Mr. BROWN. The local authority makes the contract with the Federal Government. That contract stipulates the conditions, and has to be approved by the Federal Government.

Mr. EGAN. That is right.

Mr. SPENCE. And they pledge the money that is periodically paid to them. They could not do otherwise, it seems to me.

Mr. BOGGS. Will you yield, Doctor?

Mr. SMITH. Yes.

Mr. BOGGS. Have you ever redeemed one of these bonds?

Mr. MILLER. No, sir; we have not. The only thing that resembles that is this Ohio situation, where we paid the Youngstown housing authority for the project. We bought the project from the Youngstown housing authority and they used the money which they obtained from us to pay off the bonds. We cannot pay them off.

Mr. BOGGS. So that, in the 11 years since 1937, the full faith and credit of the United States has never been used in connection with one of these bonds; is that correct?

Mr. MILLER. Only in connection with the payment of the contributions.

The CHAIRMAN. Doctor, will you yield to me?

Mr. SMITH. Yes.

The CHAIRMAN. How much reserve have you built up against the retirement of the bonds from the income of the property?

Mr. MILLER. Under the bond issues, the local authorities set up a reserve, from earnings, over a period of 9 years, which is equivalent to 1 year's debt service on the bonds sold to private investors. Many of them now have their full reserve set up, some of them have not yet. The CHAIRMAN. I am now speaking of the income from the property other than annual contributions.

Mr. MILLER. That is right. That is out of the income of the property. It is not out of the contributions.

The CHAIRMAN. Have they actually set up a reserve out of income? Mr. MILLER. Not out of contributions.

Mr. CHAIRMAN. Out of income?

Mr. MILLER. Out of income there is built up this reserve about which I am speaking, which is called Series A reserve fund.

The CHAIRMAN. What does that reserve average?

Mr. MILLER. It is required to be in the maximum amount of 1 year's debt service on bonds sold to private investors, that is, the amount of principal and interest that will come due in 1 year.

Mr. EGAN. Mr. Chairman, there is another point that I perhaps ought to bring out here. There are other reserves set up out of income by the local authority which are called repair and replacement reserves and vacancy and collection losses reserves. In the event that there were not sufficient funds from annual contributions to pay for the debt service on all bonds, these reserves would be available for that purpose.

The CHAIRMAN. What I was getting at was this: You retire these bonds, and carry the debt service, out of income of the property other than contributions?

Mr. EGAN. That is right; to the extent that income exceeds operating expense, the balance is used for debt service.

Mr. VINSON. In other words, the maximum contribution, which in general approximates the debt service, is paid in full only when their is no balance left from rental income after payment of operating expenses But we have paid very much less than the maximum contribution, as a result of the fact that substantial amounts of rental income have been available for debt service.

The CHAIRMAN. I am wondering how much reserve local authorities have built up from the income of the properties other than from contributions.

Mr. EGAN. Mr. Chairman, it really does not take the aspect of reserve. It is really the surplus after a year's operation, which is then applied to the debt service.

The CHAIRMAN. What surplus is there, then, from the income from the properties, other than the annual contribution, which might be used in debt service?

Mr. EGAN. The surplus is the amount left out of rental income after payment of operating expenses. Its amount varies, of course, depending upon the rental schedules of the project which, in turn, are tied to the incomes of the tenant families.

The CHAIRMAN. What we are trying to get at here is whether the properties carry themselves, so far as the debt is concerned-I think that is what Dr. Smith is getting at, also or whether the Federal Government does not actually retire, or provide for retirement, of the bonds of the local housing authorities.

Mr. EGAN. The Federal Government does contribute to the retirement of those bonds, and if the maximum subsidy were paidThe CHAIRMAN. It contributes in what percentage?

Mr. EGAN. The contributions paid from 1941 to 1947 averaged 64.5 percent of the maximum contribution.

The CHAIRMAN. 64.5 percent

Mr. EGAN. Of the maximum contribution.

The CHAIRMAN. Of the annual contribution was used for debt service; is that correct?

Mr. EGAN. Let me put it this way: If the full annual contribution is paid, it would be sufficient, in general, to pay all debt service. But since we have only paid on the average, 64.5 percent of the maximum annual contributions to the local housing authorities, we can say that 35.5 percent of the debt service came from the operating income. The CHAIRMAN. That is over and above maintenance?

Mr. EGAN. That is correct, sir.

The CHAIRMAN. Then we can say that the properties are maintained from income other than annual contributions and, also, that 35 percent of the funds used for the servicing of the bonds also has come from the income of the property other than from annual contributions. Mr. EGAN. That is correct, Mr. Chairman.

Mr. SMITH. What is the amount that you paid out since the inception of the program, in terms of dollars?

Mr. EGAN. The annual contributions actually paid on Public Law 412 projects that is what we are talking about

Mr. SMITH. The 116,823 units?

Mr. EGAN. Yes; is $56,071,599. That is through July of 1947, from the inception of the program.

Mr. SMITH. Where did the Government get the money to pay these annual contributions?

Mr. EAN. It was appropriated by the Congress.

Mr. SMITH. I say, where did the Government get it?

Mr. EGAN. They got it through taxation.

Mr. SMITH. All of it?

Mr. EGAN. I really do not know. Presumably they got most of it from taxation. I do not know all the sources of Government funds. Mr. SMITH. It derived part of it from borrowings, did it not? Mr. EGAN. That is right.

Mr. SMITH. So that that is now included in the Federal debt and drawing interest, is it not?

Mr. EGAN. That is correct, sir.

Mr. SMITH. And is a permanent charge on the Federal Government and will double itself at the present rate of securities, in about 35 years.

Mr. EGAN. I could not say that.

Mr. SMITH. In any event, that is a cost that must be charged against these projects.

Mr. EGAN. That is correct.

The CHAIRMAN. If I may interrupt you, Doctor, this program, which calls for 500,000 units over a period of 5 years, would obligate the Federal Government to pay something over $6,000,000,000.

Mr. EGAN. It would, Mr. Chairman, if the maximum contribution were paid for the full period of time.

The CHAIRMAN. That is 100,000 units per year, and would be somewhere between 8 and 10 percent of the total volume of home construction. That is on the basis of last year's construction and on the basis of our anticipation of future home construction.

Mr. EGAN. I would say that is correct, Mr. Chairman.

Mr. SMITH. Since this is essentially a replacement program—I mean by that that it is intended to replace slum dwellings, dwellings already in existence and since supplies are already tight, and competition is keen, enactment of this law will aggravate that competition; and, since yours is a replacement proposition, will not the effect be to reduce the number of houses that would be otherwise built?

Mr. EGAN. Doctor, that is correct. But, as I visualize this program, it seems that it will be some little time before we get 100,000 units into construction because we have to do all the preliminaries that are necessary to enter into a loan contract with the local housing authorities. I do not believe that we will hit the peak of construction contemplated in this program until about 1952 or 1953.

Mr. SMITH. When do you begin demolition?

Mr. EGAN. When construction starts. If the site is a slum site, demolition starts when construction starts. If, however, vacant sites are used equivalent elimination can be postponed during the housing shortage.

Mr. SMITH. On page 65 of the pending bill, S. 866, it says that [reading]:

there shall be no demolition of residential structures in connection with the project assisted under the contract prior to July 1, 1950.

So you would presumably begin in 1950. That is not very far away, is it?

Mr. EGAN. Doctor, is that not in title V of the bill?

Mr. SMITH. That is true, it is in the other title of the bill. Nevertheless, it has to do with demolition of structures.

Mr. EGAN. That is correct.

Mr. SMITH. And that begins in 1950. [Reading:]

there shall be no demolition of residential structures in connection with the project assisted under the contract prior to July 1, 1950.

That is the way the law reads.

Mr. EGAN. But that is urban redevelopment. That is really not tied up to the low-rent housing program under title VI.

Mr. SMITH. You say it is not tied up with the title VI program? Mr. EGAN. No. It is a separate title of the act to be administered under the Housing and Home Finance Agency.

Mr. SMITH. Just what is the purpose of title V? What do you expect to achieve by title V, beginning on page 59 of the pending bill? Mr. EGAN. Doctor, I am really not an expert on this urban redevelopment feature of the program but, as I visualize it, having read through it, it contemplates that there will be some Federal funds available to localities to remove bad areas of the cities and to write down the cost of those areas to a figure based on their new use.

Now, the area could be used by a housing project going into that city; it could be used by a school; it could be used by a park; or it could be used by anthing else. It is not tied in with the housing features. Mr. SMITH. But it would involve the demolition of houses, would it not?

Mr. EGAN. Yes, Doctor.

Mr. SMITH. They can use it for a park or they can use it for a playground, or whatever else they want to use it for. They do not have to build houses on that site at all; is that not true?

Mr. EGAN. That is true, sir.

Mr. SMITH. Very well.

Now, you are maintaining that the program has as its objective an increase in the number of dwelling units in the country.

Mr. EGAN. I would not say that. I do not know whether it will actually increase the number or not. It depends upon what areas you go into.

For instance, if one of our low-rent housing projects is built on an open site, we would then be increasing the number of dwelling units until such time as equivalent elimination took place. But if it is built on a site where demolition takes place it would not.

Mr. SMITH. At the same time, in another area of the city, they are demolishing, under title V, slum houses.

Mr. EGAN. That might be true. It is possible that you could have a simultaneous operation. You could have construction of low-rent housing going on on an open site under title VI, and have demolition going on under title V so that the new housing would take care of those families on the other site.

Mr. SMITH. Is there not a shortage of houses in the United States at the present time?

Mr. EGAN. Unquestionably, Doctor.

Mr. SMITH. Do you want to aggravate that shortage?

Mr. EGAN. I certainly do not, Doctor.

Mr. SMITH. Would you not be aggravating it by instituting this program?

Mr. EGAN. Well, you could always defer it. Under title VI we can defer the equivalent elimination until the shortage is caught up with. If the program under that title V was started as of July 1, 1950, we would not have any control over it as to whether the result would be less houses or not. We have no control over it.

Mr. SMITH. Well, now, this is a part of the same program, is it not? Mr. EGAN. Well, yes; it is a part of the whole bill, really.

Mr. SMITH. Of course. Just because somebody else is going to administer it is not going to change the facts.