tax difficulty has resulted from a decision of the State Supreme Court and it affects all nonprofit projects. Under the decision, the tax exempt status turns on the question of whether the undertaking is for charitable purposes rather than the nonprofit sponsorship.

Question. If the tax exemption matter is not cleared, will this be the probable result?

Answer. On November 15, 1965, a rental increase was put into effect. The sponsor's budget for the calendar year ending December 31, 1966, at 95% occupancy shows a projected loss of $76,000. Included in the expenses were real estate taxes of $78,500 and payment of $64,000 on a bank loan. The bank loan is not a recurring expense. Occupancy is now 93%. Assuming the accuracy of the sponsor's projected budget, it would appear that the project can only reach a break-even point, without tax relief, through achievement of 97% occupancy or another increase in rent.

EXHIBIT 14

ITEM 8: THE TOWERS PROJECT, SYRACUSE, NEW YORK

Question. On page 13 (FHA sheet) it appears that the Reader's Digest article stated in connection with The Towers project, Syracuse, New York, that "Gevinson simply defaulted and walked away with his profit." You state that this was prior to your present and more rigid requirements for cost certification. Do your present rules provide for a bond or any other form of indemnity to FHA in a case like this?

Answer. No bond or other form of indemnity is required to provide for elimination of excess profit. The FHA is, however, in a position to prevent the drawing down of such profit. This is accomplished by the reduction of the final insured mortgage in an amount sufficient to reflect elimination of excess subcontractor's profits or of other costs determined by the FHA to be unreasonable or unnecessary. Since it is standard procedure to hold back 10 percent of the estimated construction cost, the mortgage reduction is accomplished by simply refusing to approve for insurance so much of the undrawn amount as is attributed to unwarranted profit.

There is always the possibility of fraud or misrepresentation, which is best dealt with under the criminal statutes. Mr. Gevinson has been convicted on criminal charges in connection with the Turtle Creek Square project (see exhibit 9) and we recognize the possibility that the FHA may have been misled by criminal misconduct. In the usual course of conducting business operations, however, we cannot judiciously proceed on the basis that we are dealing with criminals.

EXHIBIT 15

ITEM 9: TURTLE CREEK SQUARE, LTD.

With regard to Turtle Creek Square, Ltd. (pp. 14-15 FHA sheet) you state that Washington Headquarters took this project rather completely in hand, and thereby assumes the burdens of it. You state also that this was an unusual act.

Question. Do you intend in the future to keep this policy in the "unusual” category and would you outline a possible type of case in which your office might step in and handle the matter?

Answer. The case in question, Turtle Creek Square, Ltd., was an extremely rare instance of the Washington office assuming complete responsibility for the processing and direction of a proposal. The unusual circumstances which existed at the time made such a procedure necessary. In this case, the sponsor and the then director of our Dallas, Texas office had reached a complete impasse in their dealings. The personality clash which existed made it virtually impossible for the office to give the sponsor's proposal an objective and impartial analysis. The refusal of the Dallas office to accept the application could not be supported on the basis of the reasons given. Accordingly, it became necessary for the Washington office to provide personnel from the zone and other field offices outside the Dallas area to process this case. The final decision which was reached was a result of a thorough and careful analysis of the proposal.

The Dallas case was exceptional, and I do not anticipate any recurrence. There are, however, from time to time situations in which decisions reached by our field offices are inaccurate or not in accord with our policies and procedures. In these situations, it is necessary that the Washington office exercise its responsibility to disagree with the conclusions or decision reached by the field office. When this occurs, the reasons for the action taken by the Washington office should be fully documented in the files by the responsible Washington official.

Senator MCINTYRE. Just as a matter of curiousity, what was the
amount originally advanced by the Treasury to set up the FHA?
Mr. BROWNSTEIN. I believe it was $200 million.
Senator BENNETT. Why have you not paid it back?

Mr. BROWNSTEIN. It has been paid back, with interest.
Senator WILLIAMS. We are glad you asked the question.

Senator BENNETT. Your testimony was not clear and I assumed from what you said that you still held on to it.

Mr. BROWNSTEIN. It has been paid back with interest.
Senator SPARKMAN. He said including repayment.

Senator BENNETT. He said the amount they had was $1,100 million, including the amount originally advanced by the Treasury. I think the record will show that is what he said. That may not have been what he meant.

Senator MCINTYRE. That is the way I understood it. As I understand it now, the $200 million was paid back with interest and you have a reserve of one billion one.

Mr. BROWNSTEIN. That is correct.

Senator SPARKMAN. Now let me state it the way I remember it. I think it came as an answer to my question as to the net earnings, and he stated that the net earnings were $1,100 million, in addition to the repayment of the amount.

Senator BENNETT. I am afraid you will find he used the word "including."

Senator SPARKMAN. He said including the repayment.

Anyhow, we will see it when the printed record comes through.
Senator WILLIAMS. It is certainly clear now.

Senator SPARKMAN. Yes.

Is there anything else of any of these people?

Senator WILLIAMS. I just want to ask one thing, if I could: We read of imaginative new approaches in the treatment of cities in Scandinavian countries and England, perhaps. I wonder if there is any way that you people can communicate on the international scene about new developments.

Mr. WEAVER. Well, there are two things that have been done and are being done.

The first thing is that we have had our people go to these countries, practically every one of the Commissioners and I have gone to these countries during the last 4 or 5 years and also the other top officials in order to get some idea, and if I may go off the record for a minute, Mr. Chairman

Senator SPARKMAN. I do not know how you could go off the record with all the press here.

Mr. WEAVER. Then I will not go off the record. I forgot they were here.

We are in the process of setting up, through one of the universities, a 3-day conference with the housing officials from another country, which will probably establish a precedent, and this will be the top housing officials of this country and our top housing officials. We cannot all stay 3 days at this time because of the obvious situation that is here in the Congress, but it will start on Sunday and I will be there Sunday and Monday and Mr. Wood will be there Tuesday and I will be back Wednesday with Mr. Brownstein. The visiting country will have our counterparts and we will thereby exchange information as to approaches and programs.

Also, we have had about four or five officials from European countries, Western European countries over the past 6 years who have visited this country and have sat down with us and explained their problems and told us what they are doing, so we are trying to do this. Finally, we have the International Housing Division and International Relations, we are calling it now, branch which gets the literature and sort of extracts this, but the cold facts written are not as good as either the seeing or face-to-face contact.

Senator WILLIAMS. As long as you are doing this, it will not be necessary for this committee to travel, perhaps.

Mr. WEAVER. We think it would be very good for the committee as well as for us.

Senator SPARKMAN. Mr. Secretary, as you were speaking of this international conference, my mind went back to 1949, when five members of this subcommittee as I look around, I believe I am the only one left made a trip to England, Holland, the Scandinavian countries, for the primary purpose of studying cooperative housing, but we went into the subject of housing generally in all of those countries.

We tried to pass back then a cooperative housing bill. The committee reported it out. The Senate turned it down by three votes, I think, but section 213 came in as a result of it.

So it will not be the first time we have had an exchange of ideas with our countries and I will say that we profited by what we did then. That was a long time ago and maybe we need to do some more traveling. Senator WILLIAMS. There have been a lot of changes.

Senator SPARKMAN. All right, do you have anything to say, Mr. Wood?

Mr. WOOD. Just that it is a pleasure to be here.

Senator SPARKMAN. Mr. Haar?

Mr. HAAR. I also join in that pleasure.

Senator SPARKMAN. I believe all the others have had something to say. Well, not all of them because we have some sitting in the back, but it is good to have all of you and we have been pleased to receive this testimony from you and thank you very much. (The full statement of Secretary Weaver follows:)

STATEMENT OF ROBERT C. WEAVER, SECRETARY OF HOUSING
AND URBAN DEVELOPMENT

Mr. Chairman and members of the committee, the housing and urban development legislation presently under consideration by your committee includes three bills proposed by the administration to carry out recommendations by the President on city demonstration programs and other needed programs related to housing and urban development. These bills are: The Demonstration

Cities Act of 1966, introduced by Senator Douglas (S. 2842); the Urban Development Act, introduced by Senator Sparkman (S. 2977); and the Housing and Urban Development Amendments of 1966 introduced by Senator Sparkman (S. 2978).

DEMONSTRATION CITIES ACT OF 1966

The demonstration cities bill is the most important proposal in the President's program to assist in rebuilding American cities. It has focussed the interest of the Congress and the entire Nation on the most critical domestic problem facing the United States-the need to improve the quality of urban life.

In his message to the Congress recommending the demonstration cities bill, the President said:

"From the experience of three decades, it is clear to me that American cities require a program that will

"Concentrate our available resources-in planning tools, in housing construction, in job training, in health facilities, in recreation, in welfare programs, in education-to improve the conditions of life in urban

areas.

"Join together all available talent and skills in a coordinated effort. Mobilize local leadership and private initiative so that local citizens will determine the shape of their new city-freed from the constraints that have handicapped their past efforts and inflated their costs."

The demonstration cities bill would authorize such a program. With its enactment, 1966 can be "the year of rebirth for American cities."

COMPREHENSIVE CITY DEMONSTRATION PROGRAM

The demonstration cities bill would provide to the cities

First, Federal funds to cover up to 90 percent of the cost of planning and developing comprehensive city demonstration programs.

Second, special Federal grants, supplementing assistance available under existing grant-in-aid programs. The amount of these special, supplemental grants will be 80 percent of the total non-Federal contributions required to be made to all projects or activities which are a part of the demonstration program and financed under existing grant-in-aid programs.

Third, Federal grants to cover all the costs of providing relocation adjustment payments to those persons, families, and businesses displaced by activities which are a part of these programs.

Fourth, technical assistance to help carry out these programs.

A "comprehensive city demonstration program" is a locally prepared and scheduled program for rebuilding or restoring entire sections and neighborhoods of slum and blighted areas through the concentrated and coordinated use of all available Federal aids and local private and governmental resources. It will include citywide aids and resources necessary to improve the general welfare of the people living or working in these areas.

The assistance provided by this bill will help cities of all sizes to plan, develop, and carry out programs to rebuild or revitalize large slum or blighted areas and to expand and improve public programs and services available to the people who live in these areas. It will provide funds needed for the city to participate in existing Federal assistance programs. It will encourage the cities to focus and coordinate projects and activities for which assistance is now available under existing Federal programs with other public and private actions to proivde the most effective and economic concentration of Federal, State, local, and private efforts to improve the quality of urban life.

The comprehensive city demonstration programs carried out under this bill would provide massive additions to the supply of decent, low- and moderate-cost housing.

They would make it possible for cities to concentrate all available educational, health and social services on the problems of the large numbers of poor and dis advantaged people who live in slum and blighted sections and neighborhoods. They would make it possible for cities to treat the social needs of the people in the slums at the same time the physical rehabilitation of the slums is being carried out.

In order to qualify for assistance under this legislation, a city must be prepared to plan and carry out a comprehensive city demonstration program. This

will be a local program; planned, and carried out by local people; and based on local judgment as to the city's needs and its order of priorities in meeting these needs.

It will not be simple to qualify for such a program.

It will be necessary for a city to embark on major new undertakings addressed to major urban problems. This legislation is designed to help those cities willing to face up to their responsibilities-willing and able to bring together all the public and private bodies whose joint action is necessary to solve their problems-willing to fully commit their energy and resources-willing to undertake actions which will have widespread and profound effects on the social and physical structure of the city.

STATUTORY CRITERIA

A demonstration must meet the following general criteria

First, it must be of sufficient magnitude, in both its physical and social dimensions, to (1) remove or arrest blight and decay in entire sections or neighborhoods, (2) provide a substantial increase in the supply of standard housing of low and moderate cost, (3) make marked progress in serving the poor and disadvantaged people living in slum and blighted areas by reducing educational disadvantages, disease, and enforced idleness, and (4) make a substantial impact on the sound development of the entire city.

These criteria will require a demonstration program to remove or arrest blight and decay in sections or neighborhoods which contain a substantial percentage as much as 15 to 20 percent of the substandard dwelling units in the city.

Clearance of structures will play a significant part in many demonstration programs, and considerable new construction of low-income housing will be necessary. However, a great amount of rehabilitation will be essential to provide additional low-income housing and minimize dislocation of families and busi

nesses.

Very often, rehabilitation and improvement of substandard and deteriorating units can make them suitable. Some units require relatively minor repairs; others require considerable rehabilitation. In some instances rehabilitation can be carried on without any displacement of occupants. In many areas temporary relocation in the neighborhood can be arranged, and in some instances relocation to another neighborhood will be necessary.

Second, the general criteria for a comprehensive city demonstration program require that the rebuilding or restoration of sections or neighborhoods must contribute to a well-balanced city with adequate public facilities. This includes facilities needed for transportation, education, and recreation; commercial facilities adequate to serve the residential areas; good access to industrial or other centers of employment; and housing for all income levels.

Existing Federal grant-in-aid programs can be utilized to help the city fulfill these requirements. For example, the existing Federal grant-in-aid program for neighborhood facilities can help in the provision of physical facilities needed to house many social services and, in combination therewith, some recreational facilities; the existing mass transit program may finance needed transportation facilities; and the Elementary and Secondary Education Act needed educational services.

The housing component, required by the criteria to be a part of every comprehensive city demonstration program, will generally contribute toward a balanced supply of housing for the city as it provides additional low-income housing. This is, of course, the housing for which there is the greatest need.

Third, the general criteria for a comprehensive city demonstration program require that the program must provide for educational and social services necessary to serve the poor and disadvantaged in the area; widespread citizen participation in the program; maximum opportunities for employing residents of the area in all phases of the program; and enlarged opportunity for work and training.

Many of the educational and social services needed can be provided under community action programs supported by the Office of Economic Opportunity. Opportunities for employing residents in the program, as well as opportunities for other work and training, can be provided through appropriate arrangements with lending institutions, private construction firms, and labor unions involved in the rehabilitation activities and construction of new public facilities which are part of the program.