systems constructed to serve subdivisions, small or large, financed with the aid of mortgage insurance under the land development program enacted last year. However, with respect to new water and sewage systems in new communities financed with the aid of the liberal mortgage purchase terms available under the Federal National Mortgage Association's Special Assistance Program, it was felt that the requirement is justified for reasons which may be briefly sum marized as follows: 1. The creation of an entirely new community is a more complex and difficult undertaking than the development of traditional subdivisions. It was felt that before an entire new community is started by private land developers with Federal financial assistance, the local governing body should indicate an active interest in the venture. One affirmative way in which local authorities can demonstrate the type of commitment likely to aid the success of a new community is to take responsibility for such basic needs as water and sewage services. 2. Some advantage also accrues in encouraging land development by sponsors who are primarily motivated to produce desirable building lots for homes, shopping and industry, with the utility enterprise being incidental, rather than encouraging applications from sponsors who might be primarily interested in profits from the water and sewage systems, with the production of desirable building lots being secondary. 3. Where an entire new community is brought into being, it could well provide the nucleus for future subdivision growth on its fringes. A serious involvement in the planning stage by county or municipal officials would tend to provide water and sewage systems on a scale to serve long-range, area-wide needs, even though charges for the services during the early years result in unprofitable operations. Private systems, which are often required to earn more immediate returns, may be unable to postpone profits for 10 years or more so as to serve the future, as well as the current, needs of the new community. None of these advantages, standing alone, would justify the requirement for eventual public ownership, but it was felt that the cumulative advantages do justify the requirement at the start of the proposed program. That is, in the early days of the program, when experience needs to be gained by Federal and local officials and by private enterprise in the financing of land development for entire new communities, it seems helpful to us to eliminate one set of problems that might arise in the absence of public water and sewage systems. For example, it would be helpful if the FHA were not required, during the program's early stages, to determine whether or not a particular locality which has had no prior need to establish rate regulation machinery, will undertake adequate rate regulation after the new systems are built. However, the Department also recognizes that many states and localities do have adequate rate regulations; that many private water companies are ade quately financed and able to build systems large enough to serve future needs: and that perfectly acceptable systems could be provided by such companies in cooperation with responsible land developers motivated to provide desirable building lots. Eventually, as experience is gained under the proposed legislation, we would expect the initial restriction to be modified or removed. Nor would the Department object, if the Congress believes that the additional administrative burdens involved should be undertaken in the early stages of the proposed program, to an amendment to section 204 under which water systems. but not sewage systems, were freed from the proposed requirement of eventul public ownership. However, with respect to sewage systems, we believe that the assurance of eventual public ownership and operation is very important in order to minimize the real risk of contributing further to the acute national problem of stream and river pollution. If an amendment limiting the requirement to sewage systems is desired by the Committee, we will, of course, be pleased to submit appropriate draft language. 2. Question: Why should the administration, fees charged, etc., be subject to the approval of the Secretary? Isn't it sufficient to have these utilities under the direction of a State regulatory body and the same regulation as other systems throughout the state? Answer: Normally it would be sufficient to have private water or sewage utilities regulated by a State or local regulatory body; and in the administration of the provision, the existence of adequate State or local regulation would permit the FHA simply to accept the existing regulations for purposes of the Federal requirement However, in some cases, public regulation may not have extended to the area where the new community is being provided. In other cases the inability to learn, during the planning stage, what approved rates may be upon completion would make it necessary for the FHA to protect homeowners in the future community by providing substitute regulations through voluntary contacts entered into by the developers who make use of the FHA and FNMA assistance. The failure to provide such regulations could well result in the homeowners paying for the same benefits twice. For example, the land developers could sell building lots provided with Federal financial assistance at prices based on appraisals which assume that water and sewage services will be available at rates typical of those prevailing in nearby communities. In the absence of FHA and adequate local regulations, the land developers could sell the utility lines, which were provided with Federal assistance, to a newly formed utility company at inflated prices, and that company in turn could amortize those prices through high monthly utility charges, with the result that the homeowners will in fact be paying for the lines a second time. The danger of this gap in State or local regulations is real in the case of new communities being developed in otherwise rural areas. 3. Question: Section 208 provides 4 percent money for land development (based on the formula of outstanding federal obligations). This is in competition with private buyers which would have to pay a significantly higher rate. If a subsidy is determined to be appropriate by the Congress, it seems to me that it should be based on the current cost of money to the Treasury rather than the average, in a market which is tight and in which the Treasury cost is higher than the average of its securities. Would you comment on this? Answer: Section 208 of S. 2977 would amend the Public Facility Loan Program, established by Title II of the Housing Amendments of 1955, to authorize the Secretary of Housing and Urban Development to make loans to public bodies to finance the acquisition of land for future development. Pursuant to section 202(b)(3) of the existing legislation governing the Public Facility Loan Program, the interest rate for such loans may not exceed the higher of (A) 3 per centum per annum or (B) the total of 1⁄2 of 1 per centum per annum added to the rate of interest paid by the Secretary on funds obtained from the Secretary of the Treasury. Section 203 (a) of this legislation prescribes that the notes or other obligations issued by the Secretary to the Secretary of the Treasury in order to finance the Public Facility Loan Program "shall bear interest at a rate determined by the Secretary of the Treasury, which shall be not more than the higher of (1) 21⁄2 per centum per annum, or (2) the average annual interest rate on all interest-bearing obligations of the United States then forming a part of the public debt, as computed at the end of the fiscal year next preceding the issuance by the Secretary and adjusted to the nearest one-eighth of 1 per centum." As will be noted, this statutory interest rate formula requires that the interest rate charged by the Department of Housing and Urban Development for loans must be sufficient to cover the average of all interest rates actually being paid on the Federal debt. The average interest rate on the Treasury debt is the actual cost of borrowed funds to the Treasury at any particular time. The "current cost of money to the Treasury" affects this average cost only insofar as current Treasury borrowings become part of the overall Federal debt. As the interest rates paid by the Government for new funds and refinanced funds change over the next few years the average cost of money to the Government will change, and be reflected in future rates under the program. 4. Question: This section uses the term "reasonable terms". Would you please indicate what terms would be considered reasonable? Of course, reasonable couldn't be the average of all treasury issues outstanding nor is it reasonable to provide money at a lower rate to those projects that cannot get private financing than is paid by those which can. If the "reasonable terms" depend on the circumstances, give us a high and a low figure. Answer: Section 208 (b) (2) prescribes that the Secretary shall not extend any financial assistance for the acquisition of land unless he determines that the "financial assistance applied for is not otherwise available on reasonable terms." Under the existing Public Facility Loan Program, we have held that a reasonable interest rate for the current fiscal year is one that does not exceed 4 percent. This determination was based on an evaluation of the structure of prevailing municipal market interest rates, expectations regarding the future course of municipal interest rates, alternatives available to the borrower (e.g., Government loan assistance), market imperfections reflecting reluctance of investors to finance new types of securities or bonds for new purposes, and the intent of the Congress. In 1961, the House Banking and Currency Committee, in League of Cities, and the Joint Council on Housing and Urban Development in recommending that this amendment be approved by your committee and enacted into law. This legislation will provide for and guarantee the total revitalization of central business districts so that developers and investors will be encouraged to participate more readily in the revitalization of central business districts. It will allow local governments to plan for the revitalization of the central business district and will allow for renewal on a functional rather than a limited geographical basis. This legislation will also recognize that certain public facilities essential to the central business district may qualify as noncash grants-in-aid. This legislation is needed to implement our present urban renewal legislation and will remove the present residential requirements so that business districts can be rehabilitated and renewed and thus strengthen the tax base of cities. I am sure you know that much of the central business district in most cities is in a badly rundown physical state resulting in deteriorating values and taxes and to those of us concerned with carrying out the obligations and duties of local government are very much aware of the need for the tools to rebuild our business district. I believe that such a program as envisioned by your amendment, S. 3282. will increase employment and produce tax revenues to help meet the educational, social, recreational, and cultural needs of the cities. Since it will be impossible for me to come to Washington and testify before your committee, it is my sincere desire that this letter be entered into the record of the hearings of your committee as endorsement to S. 3282. Thanking you for your help to enact this legislation, and with kindest personal regards, I am, Sincerely yours, Hon. JOHN SPARKMAN, Chairman, Housing Subcommittee, U.S. Senate, Washington, D.C. LES GILLILAND, Mayor. CITY OF KANSAS CITY, Mo., May 4, 1966. DEAR SENATOR SPARKMAN: As you may know, Kansas City has taken full advantage of the Federal-local urban renewal program provided by the Housing Act of 1949, as amended, having now initiated a variety of 13 projects covering some 1,502 acres of blight within our city. Dramatic results are now in evidence in many areas, and we have been most grateful for your outstanding leadership in providing the necessary legislation to make possible this revitalization of wornout areas of our city. However, the one glaring deficiency becoming more and more apparent in the legislative "tools" provided us to carry out a complete program of community development is the absence of any adequate means or program to cope with the problem of renewing or revitalizing the central business district. We have suc cessfully used and are continuing to use urban renewal to rehabilitate entire neighborhoods, to provide attractive new privately owned housing for lower income families, to complete a dynamic civic center, and otherwise to recreate and bring back to life the older central area of the city. But it is generally conceded that without a strong, attractive and vital downtown the complete job of renewal is doomed. In our opinion, the provisions embodied in S. 3282 recently introduced by you fills the one remaining gap in the urban renewal program by making possible a successful central business district project on a sound and feasible basis. There fore, the passage of the legislation is critical for a complete community development program. The City Council of Kansas City went on record several weeks ago in support of the provisions of S. 3282 by enacting Resolution 32175 supporting and urging the enactment of legislation based upon the principals of similar bills introduced in previous sessions, copy of which is enclosed. Thus, the city administration of Kansas City, Mo., urges in the strongest possible terms the enactment of S. 3282 in order that Kansas City, along with all American cities, might be able to complete the comprehensive renewal of our Answer: Title II of S. 2977-the proposed "new communities" programwould assist in expanding the feasibility and utility of a concept which is neither new nor unique, but which is still in an early and difficult stage of its development. A number of well-planned new communities of outstanding design, which are not merely sleeping towns, have been undertaken in the United States without the benefit of the Federal credit assistance proposed in this legislation. These new communities are already under way, and it seems certain that many This is so because of rapid population more will be undertaken in the future. growth, rapid urbanization, and a growing recognition on the part of many members of the homebuilding industry, land developers, industry, and consumers that significant economies and amenities accrue as a result of the development of well-planned new communities. It should also be recognized that the basic credit aid proposed in the new comIt munities program-that is, FHA mortgage insurance is likewise not new. has long been one of the basic tools for assisting successful homebuilding. Most recently FHA mortgage insurance was extended last year, under title X of the National Housing Act, to assist well-planned privately-financed land developments for residential and related uses. The program proposed in title II of S. 2977, basically, recognizes the need to carry this credit assistance one step further, to entire new community developments. Presently, even those responsible for the most successful large new developments have made it clear that there are substantial problems involved in carrying Lack forward land development for new communities on any sizeable basis. of capital among members of the homebuilding industry is a major and basic problem; thes need for considerable time to carry out large developments, and the accompanying expense, is also a critical element. Many undertakings could have been carried forward on a larger or more successful scale were it not for the lack of adequate capital or the considerable financing expenses involved. This would have resulted in economies to the building industry, the consumer, and the locality. Moreover, without adequate and reasonable financing for this relatively new form of development, there is little opportunity, at present, for many small- or medium-sized builders to participate. An increasingly important segment of the housing market is thus lost to this important group. Authorization of the proposed FHA credit aid, along with the more liberal mortgage purchase terms to be provided under the Federal National Mortgage Association's Special Assistance Program, would enable small- and medium-sized builders to join with each other to develop a site commensurate with their needs and capacities or to buy lots from a land developer who is not himself a homebuilder. In short, FHA and FNMA special aids for these larger-scale developments will make more credit available for orderly development, thus increasing the supply of improved building lots at cheaper prices for builders of all sizes. This overall benefit can then be passed on to the consumer. Under the proposed "new communities" program, the planning criteria for the existing title X land development program would have to be met by any new community development. However, before approval will be given to any development as a "new community", additional determinations will have been made that the new community will contribute substantially to the sound and economic growth of the area in the form of-(1) substantial economies, through largescale development, in the provision of improved residential sites, (2) adequate housing to be provided for those who would be employed in the community or in the surrounding area, (3) maximum accessibility from its residential sites to industrial or other employment centers, and commercial, recreation, and cultural facilities in or near the community, and (4) maximum accessibility to any major central city in the area. With these criteria forming the base for the program, its prospects for providing industrial and other economic development and activity in and near new communities can be regarded as extremely favorable. Also, more participation from a cross section of mortgage lenders, land developers and homebuilders will assure economies to the consumer over and above those possible under ordinary land development. This economic influence too will favorably affect the community and its surrounding area. 8. Question: When this idea was presented to the Committee two years ago it was pointed out that at that time here were some 70 "new towns" built or being built throughout the country without the use of Federal assistance of any kind. How are these towns progressing, how many more are now being built or planned? Answer: Because these 70 developments were proceeding without the assistance of this Department we have not had occasion to follow their progress on a regular basis. However, we have requested information from our regional 62-551-66-pt. 2 -44 offices concerning these developments and other similar developments, and will answer this question as soon as the information is received from the field and compiled. 9. Question: Isn't it true that the provisions in Title Two could give the Secretary the same unprecedented authority over land-use that existed in the previous bills? Answer: Title II of the bill contains provisions (1) for FHA mortgage insurance for new communities and (2) for loans to state and local public land development agencies for acquiring land that will be disposed of as sites for well-planned residential neighborhoods, subdivisions or new communities. The special FHA mortgage insurance aids (and related special Federal National Mortgage Association aids) contemplated under the first proposal are conditioned on a determination by the Secretary that the development will"in view of its size and scope, make a substantial contribution to the sound and economic growth of the area within which it is located in the form of "(1) substantial economies, made possible through large-scale development, in the provision of improved residential sites; "(2) adequate housing to be provided for those who would be employed in the community or the surrounding area; "(3) maximum accessibility from the new residential sites to industrial or other employment centers and commercial, recreational, and cultural facilities in or near the community; and "(4) maximum accessibility to any major central city in the area." In addition, the new communities would be required to meet the land planning requirements of Title X of the National Housing Act. Title X was enacted as part of the Housing and Urban Development Act of 1965. These requirements relate to such matters as whether the land development will include, or be served by. adequate shopping, school, recreational, and transportation facilities; and will be consistent with the local comprehensive plans for the area in which the land is situated. Neither the 1966 proposed requirements nor the applicable 1965 requirements are controls unilaterally imposed by the Federal Government, but rather limitations defining the type of developments that could receive the special FHA and FNMA aids. That is, the site development work will be done by private builders and will be financed by private lenders who voluntarily participate in the program and who believe that the planning requirements are consistent with profitable land development. In the case of loans to land development agencies (under section 208 of the bill), only State and local public agencies will be eligible to receive the loans, However, the functions of these governmental agencies will be to acquire the land and dispose of it in accordance with a current local development plan which is consistent with locally-prepared comprehensive planning for the area in which the land is situated. That is to say, while public bodies will use the loans under section 208 for land assembly, the actual construction would be by private builders, financed by private lenders, who believe that the land development plan adopted by the local agency and approved by the Department of Housing and Urban Development results in saleable building lots which the private market will accept. Sales of the land by the public land development agency would in all cases be at not less than its fair value for uses in accord with the development plan. 10. Question: The President asked for a one-year extension of the present (mass transportation) program, which would provide for $130 million for fiscal 1967 and $150 million through fiscal 1968, but no provisions for extension of the program beyond that time. In the House there is a bill, introduced by Congressman Widnall, which would provide for $150 million for fiscal 1967 and $175 million for each fiscal year thereafter without a termination date. Since the Administration statement says "advance funding is essential in the Urban Mass Transportation Program," wouldn't Congressman Widnall's bill provide more advance funding than the Administration program? Answer: It is correct that Congressman Widnall's bill would provide more advanced funding for the urban mass transportation bill than is recommended by the Administration. The Administration-recommended Urban Development Bill (S. 2977) proposes an additional authorization of $95 million for fiscal year |