tax. So that there is an opportunity with respect to the Federal Gov. ernment, by reason of the taking over, more or less, in that field, to collect a part of the income. The CHAIRMAN. That is what I was referring to awhile ago. If the State of Virginia, and the other States, by Constitution or otherwise, limit their functions as sovereign States, should not the State of Virginia and other States give some consideration to amending their constitution so as to allow them to function freely as sovereign States? Mr. KAUFMAN. There is not any constitutional limitation which stands in the way of the State of Virginia giving help. The difficulty stems from an entirely different source. The cities, for instance The CHAIRMAN. You said you had a constitutional limitation. Mr. KAUFMAN. I said applicable to the municipality. The CHAIRMAN. Then the constitution could be changed to give the city of Norfolk the authority to raise money if the State did not want to engage in this field? Mr. KAUFMAN. No; I do not think that could be done. The CHAIRMAN. Why? Because the people would not do it? Mr. KAUFMAN. I do not believe that actually the city of Norfolk could safely issue a lot more bonds than it now has outstanding. In other words, I think it would have difficulty if it exceeded the limit. The CHAIRMAN. Then there is no restriction upon the State itself? Mr. KAUFMAN. There are no restrictions on the State. So I say that there is nothing in the way of constitutional prohibition against help by the State. The difficulty stems from the fact that in the Virginia Legislature, cities are outvoted by the county legislatures, and the cities are not able to accomplish much or to get very much in the way of help from the State in the solution of their problems. The CHAIRMAN. This is just a problem before the committee and I thought you might throw some light on it. Are there further questions of Mr. Kaufman? Mr. TALLE. Mr. Chairman. The CHAIRMAN. Mr. Talle. Mr. TALLE. When were these projects built, Mr. Kaufman? Mr. TALLE. At that time Mr. KAUFMAN. It may be that Roberts Park was not completed until 1942, but they were built about that time. Mr. TALLE. At that time, there were no restrictions in the way of priorities or allocations on materials, were there? Mr. KAUFMAN. We ran into some difficulties of that nature with respect to the construction of Roberts Park. Mr. TALLE. And that was constructed in 1942? Mr. KAUFMAN. I think that was in 1942; yes. Mr. TALLE. Was the Navy of help to you in that connection, in getting materials? Mr. KAUFMAN. I do not believe we had to call upon the Navy. We had to make substitutions. We had to use certain materials instead of certain others that we would have preferred to use because of the unavailability of certain critical materials, but the shortages at that time were not so acute that we were not able to work out a solution of the problem in some reasonable fashion. We had to make some substitutions, as I say, of certain materials, but we were able, I think, without Navy intervention, to solve the problem. Mr. TALLE. I think you testified that when these projects were built you did not use money from the Treasury of the United States? Mr. KAUFMAN. If I made that statement, it was inaccurate. Mr. TALLE. I may have misunderstood you. Mr. KAUFMAN. În connection with paying the development cost, until it was completed, the Government did advance certain moneys, which were subsequently repaid. But just as soon as the projects were completed, we went ahead and sold our own notes and thereby derived the money with which we retired any advances that had been previously made by the Government. Mr. TALLE. Do you recall the rate you paid? Mr. KAUFMAN. I think that in the beginning the rate was about 0.85 of 1 percent. The rate declined until it went down to about one-half of 1 percent, and it remained at about one-half of 1 percent during most of the war years. The first jump of any consequence was the one to which I adverted a few moments ago which occurred last January, when we advertised our notes for sale and, of course, you all know undoubtedly that interest patterns have been undergoing some rather radical changes recently. Mr. TALLE. That is right. At that time, the Government did pay a higher rate than that, on the average; did it not? Mr. KAUFMAN. We paid, at that time, on the money that we borrowed from Norfolk banks, 1 percent. The balance of the money we got from the Public Housing Authority and we were paying the Public Housing Authority on that money 22 percent, which I believe is the rate that is required to be charged, by law. Mr. TALLE. At the beginning, then, you did enjoy a subsidy advantage, as far as the interest rate was concerned? Mr. KAUFMAN. I think, unquestionably, that the setting that the projects have is exceedingly helpful in getting the benefit of money, even if privately supplied, at lower rates than would otherwise be available. Of course, the fact that the obligations that we issued are tax-exempt provides an advantage. The fact that we have a subsidy agreement with the Government, by which the Government would undertake to make certain advances if they are needed in order to enable us to pay the costs of operation, is unquestionably an advantage. It does not, however, in my judgment, amount to a guaranty in any sense, of the bonds or notes which we issue. What we do, clarifying the matter that was discussed this morning-what we do, of course, is to hypothecate, to assign the agreement which we have with the Government as security for our own obligations. But, of course, the Government's agreement is not to pay our bonds, but simply to make to us certain annual subsidy payments. Mr. TALLE. You find, of course, as you shift from the short-term lending which you used at the outset to longer-term borrowing, that the interest rate rises, does it not? Mr. KAUFMAN. That is correct. Mr. TALLE. That is why you are paying now 21/2 percent? Mr. KAUFMAN. No; we still could borrow at considerably less than 212 percent if we borrowed from private sources. We had a bid for our notes at 114 percent and we could have borrowed on the money from private sources at that rate. Mr. TALLE. But on short-term contracts, is that right? Mr. KAUFMAN. Yes, sir. I think the notes of certain other housing authorities were placed a month or so after we advertised for bids on ours at a rate of about 1 percent. So I think that at the present time the money could be borrowed, probably, at a rate of 1 to 1.1 percent. Mr. TALLE. What would you say the term would be on that? Mr. KAUFMAN. I would say if the borrowing was not in excess of a year. I am talking exclusively in terms of short-term obligations. Mr. TALLE. Yes; I understand. Mr. KAUFMAN. You are quite right, I think, in stating that if we undertook long-term financing, the interest rate would advance. Mr. TALLE. That is all, thank you. Mr. SMITH. Mr. Kaufman, you spoke about your paying an economic or receiving an economic rent in this project, the Merrimac project. What is your median rent from that project? Mr. KAUFMAN. The average is about $46. We, however, have in effect what we call a hardship formula. In no instance will we take more than one-fifth of the income of a family that has two children or less, or one-sixth of the income of a family with more than two children. So that if the amount of rent that would ordinarily be payable by a particular family exceeded the amount which would be payable if we applied this so-called hardship formula, the amount that would be payable would be that determined in accordance with the hardship formula. But, assuming that there was sufficient paying ability on the part of the tenant, the average would be about $46 per month. Mr. SMITH. What rent do they charge in your city for comparable accommodations, taking into consideration the newness of the structure, the facilities, and appurtenances that go with the units? Mr. KAUFMAN. The answer to that question, Dr. Smith, would depend upon whether you are speaking in terms of units which were built before the war, or units, for instance, which have just recently been built. Of course, the rents on units built before the war were frozen under OPA, and there is a very marked disparity between the rents on those units and the rents that are being derived from units that are being constructed now. Of course, there is likewise a tremendous difference in the construction cost of the units that were built before the war and the construction cost of the units now being built. For instance, the ordinary small apartment, consisting of one or two bedrooms, built by private enterprise, with Federal Housing Administrative assistance, would rent for $80 to $90 per month, if constructed today-maybe even more. Some of them are rented for as high as $110 a month. Mr. SMITH. Same room space, same facilities, heat, light, and so forth? Mr. KAUFMAN. I would say that from the standpoint of area, they are smaller on the average-I am speaking of the ones that are being built today as compared to the ones that we are providing. Mr. SMITH. And you consider that you are receiving full economic rent? Mr. KAUFMAN. I said that by an economic rent I meant a rent which would enable us to take care of all the charges that we have incident to the operation of the project and incident to the servicing of the in debtedness against the project. It would be grossly insufficient if we -had to build that project today at present costs. Mr. SMITH. Do you take into consideration the tax exemption feature when you speak about paying economic rent? Mr. KAUFMAN. I take into consideration the amount that we pay the city of Norfolk, although we do not pay taxes. We pay to the city an amount in lieu of taxes which is designed to reimburse the city for the cost of the municipal services involved. Mr. SMITH. How much does that amount to? Mr. KAUFMAN. In terms of dollars? Mr. SMITH. As compared with what your taxes would be. Mr. KAUFMAN. The amount that we pay the city of Norfolk is considerably less than the amount which we would have to pay if we had to pay the normal taxes assessable thereon. But there is also a big difference to the city in the cost involved, because, for instance, we furnished all the sewerage lines that were installed in the project, we furnished all the streets that were built in the project. In other words, the city was not called upon to expend money in connection with this project that it would normally be called upon to expend if this had been constructed by a private investor. Mr. SMITH. But, it is a fact that when you speak of economic rent, you do not take into consideration taxes?" Mr. KAUFMAN. I am taking into consideration what we pay in lieu of taxes, and I am also taking into consideration all the costs which we incurred, including those incident to the installation of sewerage, water, streets, and other facilities of that character. Mr. SMITH. Why do you not charge enough rent for those buildings? Why do you not charge more rent and take care of the tax situation? Mr. KAUFMAN. We feel as if we are paying the city a fair amount and I think the city feels we are being fair. Of course, it must be realized too that this project is being utilized exclusively or was during the war, for defense purposes. It is being utilized today to take care of the Navy enlisted personnel. Their incomes, of course, are moderate. The unfortunate thing is that we cannot provide more of the people in that category who need homes and should have homes, with homes. They just are not available. We have a tremendous waiting list. Mr. SMITH. What is the median income of the people who rent this property? Mr. KAUFMAN. The over-all income would probably be in the neighborhood of $200 to $250 a month. As you know, the men in the Navy, enlisted personnel, get certain allowances in addition to their base income. In computing their income, we take into consideration everything they get, from all sources. Some of them will have more income than that. It will depend upon the nature of the service they have. For instance, the men attached to the Air Corps get more pay than those who are not so attached. I would estimate, Dr. Smith, that the income of the families housed in that project would be in the neighborhood of $225 to $250 per month. Mr. SMITH. Do you think that conforms with the principles of the United States Housing Authority Act, which provides for low-rent housing for the lowest income groups? Mr. KAUFMAN. There was an amendment, Doctor, to the act, which was adopted as a war measure, by which these projects could be diverted to a purpose such as that, for which this is now being used. Mr. SMITH. I understand that. Mr. KAUFMAN. There was an amendment which made these available for us by war workers, and of course we then, recognizing that the war took precedence over all other demands, devoted the projects to a use which we thought would do the greatest national good. Mr. SMITH. You do not make any allwonce for education, schools, and so forth? The children in these projects go to the public schools, do they not? Mr. KAUFMAN. Yes. Mr. SMITH. No taxes are levied on your project for school purposes? Mr. KAUFMAN. The payments that we make in lieu of taxes are designed to cover services of that character. Mr. SMITH. Do you have the figure with you or could you give it to us if you do not have it with you, as to just what that is? Mr. KAUFMAN. My recollection is, that the amount that we are required to pay-and I think, incidentally, that in instances we have paid more, voluntarily, than constituted our obligation under the contract-our obligation is in the neighborhood of $8,500 or $9,000 per year. Mr. SMITH. And what was the cost of the project? Mr. KAUFMAN. That project cost approximately $2,000,000. Mr. KAUFMAN. We have a tax rate of $2.70. Mr. SMITH. Your assessments are based on 80 percent value? Mr. KAUFMAN. I would say that with property of that character the assessments would be about 60 percent. In some instances, less than that, of the fair value. Mr. SMITH. That would be about $1,200,000? Mr. KAUFMAN. That would be right. Mr. SMITH. And that is $2.70, the tax rate? Mr. KAUFMAN. Yes, sir. Normal taxes would be about $32,000. Mr. SMITH. And you pay how much? Mr. KAUFMAN. My recollection is that our obligation, under that agreement, is to pay about $9,000. But we have paid more because that obligation was contracted upon the theory that we were going to use these for the purpose of housing low-income families. Inasmuch as we have not used them for that purpose, we felt the only fair way to do was to pay to the city an amount corresponding with the revenues that we have received, so that we have voluntarily paid to the city an amount in excess of that for which we are obligated under our own contract. If we were to convert this to housing low-income families, we would want the benefit of that saving in order that it might in turn be passed on to the family and to the fellow government, which is participating, and we would then of course expect to pay only that which we are obligated to pay under the contract. Mr. SMITH. What is the total amount that you pay, for various municipal services, annually? Mr. KAUFMAN. I said about $9,000 that we are obligated to pay. Mr. SMITII. And how much do you pay? Mr. KAUFMAN. I am not certain. My recollection is that we have paid in the neighborhood of $20,000. |