We consider ourselves to be on the Authority to increase participation by the tenants' organization, to bring to those issues which have to be addressed by the Authority the various social, financial, political issues and an awareness of the tenants' point of view. It is our hope that the tenants' organization will become strong and independent. Senator BROOKE. As the only tenant authority member to appear before the committee, have you had any difficulty in making an input in voting on policy? Are you given an equal voice? Mr. CONNOLLY. Yes. In the situation that has developed in Boston, there has been a complete turnaround, in terms of the consistency of the board membership, as well as terms of administration. The tenants and many civic organizations in the city, during the past few years they were so critical of the Housing Authority that a large number of people, not only composed of tenants, but other civil organizations, plus the mayor. It is interesting to note that on the day the second Tenant Commissioner came to the Authority, when we actually had a jury, it was on that day we appointed a new administrator. We appointed that administrator, and he is carrying out the policies of a tenant-oriented majority. We have had no difficulty in that respect. Senator BROOKE. Mrs. Wylie, what about recreational facilities in housing projects in Philadelphia? Mrs. WYLIE. There is a lack of recreational facilities in most of the projects there. The Residents Advisory Board has now been included in any planning of any future developments, and I am sure that there is going to be a big change in what the projects will be looking like or whatever public housing will look like in Philadelphia. Senator BROOKE. Do you have a recreational council, as such? Mrs. WYLIE. No. We have members of the Executive Board, who will sit with the planning people who do planning for public housing or whoever the people are, and they will work with them to plan whatever the development will be. Senator BROOKE. Do you have a recreational worker? Mrs. WYLIE. Yes, we have them from the Housing Authority. Mrs. WYLIE. Yes. Senator BROOKE. Is that true in Washington, Mr. Staley? Mr. STALEY. Yes; we do have some recreational workers, although the whole recreational field is very, very inadequate. Senator BROOKE. Are there any in St. Louis, Mrs. King? Mrs. KING. Not in St. Louis. Senator BROOKE. There are so many other questions which I would like to ask you. I am very grateful to you all. The next witness is Mr. Frank de Leeuw, who is from the senior research staff of the Urban Institute. Your statement is very impor tant to us, but perhaps you could abbreviate it. We will have to conclude by 1:30 p.m. STATEMENT OF FRANK DE LEEUW, SENIOR RESEARCH STAFF, THE URBAN INSTITUTE Senator BROOKE. You may proceed, Mr. de Leeuw. Mr. DE LEEUW. I would like to summarize briefly a study we at the Urban Institute have made of operating costs in public housing, and to discuss some of the implications of that study. The question on which we focused our study is: Why have operating costs in public housing been rising so rapidly in recent years? To gain insight into the forces driving up costs, we analyzed data for 23 cities with large local housing authorities during the 4 years 1965 through 1968. The financial plight of public housing in these 23 cities is illustrated in the first of the three charts attached to my statement. (See p. 1059.) In 1965, these cities on the average were covering almost all of their operating costs from rental receipts. With additional Federal payments for the elderly and certain other groups, receipts were more than sufficient to meet operating costs. But by 1968 when operating costs had risen 22 percent above the 1965 level, there was an operating deficit in the average of these cities. The main conclusion of our study is that inflation-the overall increase in prices and wages-is sufficient to account for the great bulk of the rise in operating costs in public housing over the last few years. Other of the factors we examined-were the age of public housing stock, the number of minors per unit on the average in public housing and so on-had significant cost effects and no doubt are important in many individual projects. But in the aggregate these characteristics hadn't changed much over the period and inflation dominated the increase in costs. Our detailed calculations suggest that about 80 percent of the rise in costs is attributable to general inflationary trends. Now of course inflationary cost increases have been affecting private housing and in fact the entire economy, not just public housing. In coming to grips with the special problems of public housing I find it useful to review some of the ways in which private businesses typically respond to cost increases and then ask what special characteristic there may be about public housing that makes these private responses undesirable or inapplicable. One way to respond to rising costs is to attempt to improve efficiency through better management. Our study is not relevant here; it doesn't provide any insight into what scope there may be for better management of local housing authorities. Nothing in our study should be used to argue against any step which will lower costs through greater efficiency. Any gains that can be made on this score benefit everyone and reduce the need to provide other remedies for the cost squeeze. A second way to respond to an inflationary cost increase is by raising prices. In the case of local housing authorities the "price" is the rent charged to the tenants. Now rents have gone up in public housing as chart 1 illustrates, but they have gone up rather slowly. One reason there is great reluctance to raise them more rapidly is, of course, that tenants of public housing are a very low-income group and that average income in public housing has increased very slowly in the last few years. Senator BROOKE. Have you found that the rents have increased proportionately to the increase in income? Mr. DE LEEUW. Overall, roughly; yes. Senator BROOKE. No real discrepancy there? Mr. DE LEEUW. No; I don't think overall there was any real discrepancy. Well, our study suggested that using general rent increases to try to fill all of the gap between receipts and costs would involve a substantial and growing burden on the tenants. Steps to attract a higher income group of tenants would, of course, increase rentpaying ability. Possibly such steps would improve conditions in public housing projects in other ways. At the same time, however, such steps would result in the exclusion of low-income families for whom there was no longer a place in public housing. Moreover, the resultant financial relief would take place only over a period of years as tenant turnover had time to occur, while the cost squeeze is a pressing problem currently. The third response to rising costs, one which private businesses find necessary if other responses are insufficient, is cutting back on the output of services. In public housing the analogous move would be reducing the level of maintenance, boarding units up, or curtailing services in other ways. There is no need to elaborate the point that in public housing this response would cause great hardship among many low-income families. A strong public interest in maintaining the flow of services is thus one respect in which public housing differs from many privately produced goods. Reluctance to increase the price charged to public housing tenants discussed a minute ago, is another. It is these special considerations which underlie the case for changing the Federal support formula in response to inflationary cost increases. My own view-and this, of course, goes beyond the strict limits of the study is that the case for increasing the level of Federal payments is a strong one and is consistent with widely accepted social goals. It is made stronger by the fact that there is no inherent reason why the Federal subsidy should be tied to capital costs. The appeal of tying the subsidy to capital costs is that it is a convenient formula. For many years, moreover, the results were satisfactory from a financial point of view. Now that the results are no longer satisfactory there is no reason to remain attached to capital costs as the basis for setting the level of Federal support. The final point I would like to make is that the current financial problems of public housing point to the need for continuing to think about and experiment with other approaches to improving housing conditions for low-income families. The analysis above has focused on the narrow question of how best to provide for operating the existing stock of public housing from month to month. It is within this framework that the case for increasing the level of Federal support has been made. The more we increase the level of Federal support, it seems to me, the more important it is to explore other ways of using tax dollars to improve housing conditions. Senator BROOKE. Mr. de Leeuw, I want to thank you for this very fine statement, and the efforts of the Urban Institute for the study which they made on this important subject. Your entire statement, of course, will be presented in the record and, of course, we do have access to the reports made as a result of this study. Do you feel that the subsidy formula provided for in the Senate bill 4086 is adequate and meets the need which you have alluded to in statement? your Mr. DE LEEUW. I think it meets the needs that I was discussing in my statement. I don't have the legal expertise to say anything useful about the specific provisions of one act or another. Senator BROOKE. How long is the report? Mr. DE LEEUW. I think, 63. Senator BROOKE. If you have no objection, I would like to have the study to which we have referred entitled, "Operating Costs In Public Housing, A Financial Crisis" by Frank de Leeuw, of the Urban Institute, included in the record. Mr. DE LEEUW. I am sure there is no objection. Senator BROOKE. Without objection from Mr. de Leeuw, it will be so included. (The prepared statement and the document referred to are reprinted on p. 1057.) Senator BROOKE. And further, Mr. de Leeuw, because of the pinch of time, if the committee wants to submit certain questions in writing to you which you could answer for the record, would you be willing to do that? If you would do that, we would be most grateful. Mr. DE LEEUW. I would be glad to do that. Senator BROOKE. Thank you very much. Before we continue I would like to insert in the record, at this point, a statement from the University of California. (The statement follows:) STATEMENT OF NATIONAL HOUSING AND DEVELOPMENT LAW PROJECT, EARL WARREN LEGAL INSTITUTE, UNIVERSITY OF CALIFORNIA (Submitted by Al Hirshen, Staff Attorney, July 1970) We thank the Subcommittee for this opportunity to present our views on S. 3639. The National Housing and Development Law Project is funded by the Legal Services Division of the Office of Economic Opportunity to provide supporting services nationally to Legal Services attorneys working in the area of housing and community economic development. The Project has published a two volume Handbook on Housing Law: Guide to the Federal Housing, Redevelopment and Planning Programs; Landlord-Tenant Materials. The Federal materials includes substantial coverage of the Public Housing, Production and Management Programs; Workable Program Requirements; Urban Renewal; Federal Assisted Code Enforcement; Model Cities; the Federal Housing Administration (FHA) Programs and other subjects. The Housing and Urban Development Act of 1970, proposes a consolidation and reorganization of Federal housing programs which is intended to bring rational administration to the present maze of housing programs. However, the Act goes far beyond consolidation and reorganization. Under the rubric of program rationalization, the Administration has concealed critical substantive changes in existing programs which would fundamentally alter the present rationale underlying the public housing program. Our comments will be directed toward analyzing these changes and bringing to the attention of the Committee their potentially disastrous impact. The Committee is all too aware of the financial problems plaguing the public housing program. Last year Congress recognized the problem and in a forthright manner provided the necessary legislation to remedy it (Brooks-Sparkman Amendments). The then existing subsidy payments for public housing were recognized as clearly insufficient and inappropriate in light of inflationary spiral in the costs of operating and maintaining public housing, and the widening pattern of operating deficits and reserve deficiencies experienced by Local Housing Authorities. Congress also recognized that it was an unsatisfactory solution of the public housing financial crisis to shift the burden to the tenants in the form of increased rents and deferred necessary maintenance of the properties. To this end the so-called Brooke-Sparkman Amendments provided: (1) a general limit on rents that may be charged to public housing tenants of percent of their income; (2) authorization for HUD to make annual contributions: (i) to compensate for the difference between the operating cost of an apartment and rent set at 25 percent of tenant's income, (ii) to meet operating deficits of local housing agencies, and to maintain adequate reserve funds, and (iii) to maintain adequate operating and maintenance services. Congress authorized an addition of $75 million for annual contribution contracts to cover the cost of the Brooke-Sparkman Amendments. However, the enlightened will of Congress was not to be implemented, and was in fact ignored by HUD's bureaucratic machine. HUD, through its new regulations, determined that authorized monies would not be sought to "maintain adequate operating and maintenance service", and operating deficits would not be cleared. The tortured reasoning utilized by HUD to reach this position directly conflicts with specific sections of the Senate-House Conference Report, as well as statements made by members of this Committee at the time the legislation was enacted. A legal memorandum prepared by our Project, and already before your Committee, makes it clear that Congress intended to meet the financial crisis in public housing through additional authorized monies. The reason behind HUD's failure to implement the Brooke-Sparkman Amendments is now clear. HUD has a contrary plan in S. 3639 to deal with the financial problems of public housing. Through S. 3639, HUD would shift the burden to the poor in the form of rent increases, and by authorizing up to 20% of public housing units to be filled by middle income families to the exclusion of the poor. S. 3639 represents a secretive but drastic shift from the Congressional mandate expressed in the Brooke-Sparkman Amendments. It places an intolerable burden upon the poor; it can only worsen the public housing crisis; and it cannot be justified or hidden under the rubric of uniformity. The Administration bill would require that participants in the subsidized housing programs contribute 20 percent of their first $3,500 of income plus 25 perecnt of any income over $3,500 [See sections 402 (c) (2) and 502(f) (2) of the Mortgage Credit Assistance Act (hereinafter MCAA) and sections 9(c) and 10(b) (6) of the Public Rental Housing and Homeownership Assistance Program (hereinafter IRHHAP)]. Moreover, sections 402(1) and 502(k) of the MCAA and section 9(d) of PRHHAP provide for exclusion of income earned by minors and non-recurring income thus increasing the income factor in the rent to income ratio sections noted above. S. 3639's proposed rent ratio would cause massive rent increases across the country. Currently public housing rents average 19% of a tenant's income after deductions allowed by Local Housing Authorities. The HUD proposal would practically double existing rents in parts of the country, such as the south and southwest, where public housing rents are only 15 to 16% of net income. An examination of the Philadelphia Housing Authority's determination of rent system is illustrative of the restrictive nature of the Administration's definition of income. For example in Philadelphia a family of 5 (4 children, one earning $300/yr. and 3 not earning anything) earning $4,680 would pay $65 in rent. Under the Administration's definition of income in 9(d) the family rent would be $70.1 An increase of $60 per year-a vital sum to a poor family. To this lowincome family, a $60 increase means either less food and clothing or eviction. The increased rent to income ratio coupled with the restrictive definition of what is income would have the chaotic effect of overturning a fundamental premise of the Housing Act of 1937, as amended, which has time and again been reaffirmed by the Congress-to provide "decent, safe, and sanitary dwellings within the financial reach of families of low income. The tragedy of the Administration's approach to the financial problems besetting Local Housing Authorities is not only that it will create intolerable hardships for public housing tenants, but simply that it does not solve the problem. In a recent study, funded by HUD, prepared by the Urban Institute, and entitled, Operating Costs in Public Housing-A Financial Crisis, the Institute found that "price and wage inflation is the major cause of increased operating costs in public housing." 1 $4,680 minus $600 deduction for two minor persons of the four minors in family equal $4.080. 20 percent of first $3.500 equals $700 per year, and 25 percent of remaining $580 equals $145 per year for a total yearly rent of $845, or $70.42 per month rent. |