a deficit in the Federal budget nicht well ogawe the Ndemi Movaly a tighter rein on monetary and credit expansión which Wordd ymran alamat dal of mortgage loans." (page 31) 1 Past experience has demonstrated the sad truth that theirs in fiturbu attract adequate savings deposits in competition, with full ritch and crotraen gations of the Federal government that produce much hughey Yicht In testimony presented to the Subcommittee on Emandal in virərkon Senate Committee on Banking and Currency more than W 1968, I cautioned that it is not possible to achieve all on national m I am pleased to note that the Administration in the Mood Anmmal ikaatt National Housing Goals pays heed to those same pemrat propt "The problem is that meeting the housing pool will popule to somewhat higher priority in the bidding for national armonico Hord F ently the case. It will require shifting the allocation of wpm ppm from some other uses and into housing. The extent of this needed shift is not large and it can be carried out over time so that no economic sector need suffer absolutely-though there will have to be a curtailment of growth rates in other sectors if the housing goal is to be met. . . . Thus, the necessary shift probably will be accomplished only through a series of deliberate economic actions by the Federal Government." (page 28) Acknowledging that achieving even the relatively modest production targets for 1970 and the coming fiscal year would not be easy, the Second Annual Report on National Housing Goals cautioned that the major barrier would be the availability of mortgage finance. Among the steps it recited that the Administration was then taking to hurdle this barrier was the following: "(1) First and foremost in terms of solving the basic problem is this administration's strong determination-in the face of tremendous pressures from all sides to maintain a sound fiscal situation. There simply will not be enough funds available to finance housing if the Treasury is also borrowing a substantial amount in the market to finance a budget deficit. And only if a credible amount of fiscal restraint is maintained can the Federal Reserve ease monetary policy enough to increase the overall availability of credit and reduce the general level of interest rates so as to truly help the housing situation." (page 17) It is unfortunate that after those words were written, the vertical sign disappeared from the plus mark that used to precede the Federal budget balance. The Congress itself contributed to that change by such actions as increasing Federal salaries. We happen to believe that the remarks quoted above are an accurate portrayal of the outlook for housing production. On that premise, it well behooves the Congress to do its share toward bringing the Federal budget back to a condition of surplus, through a reduction of Federal expenditures, in order that capital can be attracted by thrift institutions for us in home finance. Coming to consideration of bills pending before the Subcommitee, we should like to discuss some portions of S. 3639, the Housing and Urban Development Act of 1970, and S. 3640, the Urban Growth and New Community Development Act of 1970. S. 3639 OPEN END AUTHORIZATIONS The bill contains too many open end authorizations for appropriations. In view of the need for budgetary caution, it would be preferable to confine the authorizations to specific dollar amounts consistent with anti-inflationary principles and restrict them to use during the appropriate fiscal years. Provisions that need reconsideration with this aim in mind occur on: 1. Page 29, line 16 to page 30, line 4. 2. Page 40, lines 7 to 19. 3. Page 129, lines 15 to 20. 4. Page 131, lines 1 to 11. ELIGIBLE RECIPIENTS OF SUBSIDIES A doubt is also raised in our minds as to the efficacy of programs that make at least half the recipients of income in the United States eligible for HUD subsidies. Assume that a median income as used in this bill means the amount on the dividing line between the half who receive it or less and the half who receive more income. Section 402 (g) (2) (which through a technical error is designated as 402(f) on page 29) and 502 (h) (2) would make eligible for assistance payments those whose family income does not exceed 80% of median income for the area (with adjustments for large and small families), but would also make eligible not more than 20% of those whose family income does not exceed the median income for the area. Assuming the 20% category is used to the full, it would contain 10% of all those receiving family income or no income. The 80% remainder of those eligible for assistance would amount to those whose income is not over 80% of the median, or the equivalent of 40% of all receiving family income or no income. The combination of the 10% with the 40% produces 30% of all receiving famly Income (or no income at all in the area who would be eligible for HUD assistaLee. Tending to increase this total is that provision in section 42 p2 and ch(2) that arbitrarily boost to 60% of the national median the med an income in any area having a lower median income. Section 9a) of the revised United States Housing Act of 1937 would make that same half of the population eligible as tenants in "low-income" public housing. If the selection of eligibles is to be premised on a broad test of needs and means, as it appears to be, it would be preferable to apply the tests to median income after taxes, because after-tax income is all that the nonsubsidizable part of the population has available to spend for housing or any other purpose. This technique by itself should produce a lower median income and the lesser incidence of taxation on the lower-income segment of the population should produce a more equitable measure of funds to be made available for expenditure. An alternative is to make eligible for HUD assistance a smaller segment of the population on a trial basis. It is always easier to add to a list of eligibles when, as and if conditions so warrant, than to remove anyone from an existing list. A smaller group would minimize the danger of surcharging the available funds. It is better to approach success step-by-step than to plunge headlong into failure. VARIABLE INTEREST RATES One area not yet tried as a concomitant to the use of mortgage funds subsidized by the Department of HUD is the development of a laboratory for testing variable interest rates on mortgages. Obviously, in order to result in an economically feasible lowering of rates, the interest rate must be tied to some practical index that moves down as well as up. Various indices have been employed in such use as has been made of the variable interest rate technique for conventional mortgages. One lending institution ties the rate to its own cost of money. I understand that the Department of HUD varies the rate of interest on outstanding public loans in its own discretion, but a more objective trigger would probably be called for in the case of HUD-subsidized mortgages. Because the practice of varying the interest rate adds some operating costs to those usually experienced by the lender, perhaps the subsidized borrower could be offered the choice of a fixed rate of interest at the market rate or a variable rate of interest at a slightly higher differential. The present, when hopefully interest rates are peaking out, would be the optimum time to experi ment further with variable interest rates on mortgage loans in those States where usury ceilings allows adequate room for the test. FEDERAL USURY EXEMPTION We cannot favor the provisions in section 107 on pages 84 and 85 that would override State usury laws in the case of FHA-VA mortgage loans. In our opinion this is an area of State policy that should be left within the cognizance of the States. Given discretion, they serve as test areas for several theories with respect to interest rate levels and afford an opportunity to test those theories by practice. This opportunity is denied if the Federal government uniformly preempts the topic under consideration. Many States have already seen fit under State law to lift usury ceilings from FHA-VA loans. Others have not. It remains a matter of State discretion. One might venture an opinion that this State option system has shown that when a jurisdiction maintains usury ceilings that fall below market rates, mortgage investment funds tend to dry up in that locality. DEPOSITORIES We have one final comment to offer on S. 3639. Although our savings and loan members have personnel serving their respective communities with reference to various Federal Housing programs, they are confronted with the fact that pending use of project funds, the moneys are kept on deposit with Federal agencies or commercial banks. We respectfully point out that utilizing savings and loan associations as depositories also would serve to add more funds to their working capital supply, the bulk of which goes into home finance. The funds would be as much insured as they are in commercial banks, albeit by FSLIC instead of FDIC. In acting favorably on the Emergency Home Finance Act of 1970 (S. 3685) the House of Representatives included a provision that, when enacted, would also empower any Federal savings and loans association to pledge collateral for 48-279-70-pt. 2-53 public funds in its custody. The provision was deleted by the Conference Committee. We again urge its enactment. We respectfully urge the Subcommittee to consider the proposed legislation now pending before it with a view to adopting suitable amendments to permit savings and loan associations to receive a fair share of depository funds. S. 3640 We now turn our attention to the Urban Growth and New Community Development Act of 1970 (S. 3640). As to the proposed Council for Urban Growth and the accompanying Community Development Corporation, we have no objection to the study and planning functions to be assigned to these entities. But we do believe that the program should be as self-liquidating as feasible, relying more on the use of loans and less on the use of outright grants. Earlier Federal planning programs have made use of advances of funds repayable from loan funds to carry the planning projects into execution. We see no reason why the plans, if used, should be wholly subsidized from Federal funds. It is observed that new towns like Jonathan, Minnesota; satellite cities like Columbia, Maryland and Reston, Virginia; and new-town in-town projects such as Fort Lincoln and to a smaller degree, Sursum Corda, both in the District of Columbia, have blazed a trail for additional projects of that nature envisioned in this bill. Whether the predominance the Federal agencies could establish in these ventures with their substantial access to Federal tax dollars is consistent with State and local determination remains to be seen. As in the case of usury laws, we believe the determination of land use should remain in a decision for State and local government, rather than Federal government. One can hardly envision an item more permanently localized than land. Its use should remain a matter of local determination. Federal studies and assistance such as that which could result from enactment of S. 3640 would provide a valuable guide for use of local authorities in reaching a decision regarding land use, but the decision should be local, not Federal. The protection of anti-discrimination laws extends nation-wide as a safeguard for civil rights. SAVINGS AND LOAN AMENDMENTS Our consideration now reverts to ways by which legislation could assist the savings and loan industry to improve its viability as a principal source of housing finance. The following is a brief list of items of highest legislative priority adopted at the 1970 Legislative Conference of the National League: 1. FSLIC Premiums.-Adapt the Federal Deposit Insurance Corporation method for computing Federal Savings and Loan Insurance Corporation premiums. 2. Liquidity Requirements.—Remove borrowings by savings and loan associations from the base upon which their liquidity requirements are to be computed under a 1968 statute. 3. Federal Capital Stock Associations.-Develop authority for the establishment of Federal capital stock savings and loan associations either initially or through conversion. 4. Investment in Investment Trust.-Authorize a Federal association to invest up to 1% of its assets in any legal entity (including a real estate investment trust) having the principal purpose of investing in housing loans or first liens on real estate. 5. Ertend Urban Renewal Authority.-Extend to areas amenable to develop ment for low- and moderate-income housing a Federal association's present authority to invest up to 2% of its assets in ownership of real property interests and up to 5% of its assets in such interests and real estate loans. 6. Home Site.--Authorize a Federal association to finance the acquisition of an individual home site. 7. Debentures.-Clarify the authority of Federal associations to issue debentures not necessarily subordinated to savings accounts. 8. Stocks and Bonds.-Invest a reasonable amount in corporate stocks and bonds. 9. Consumer Loans.-Make unsecured loans for any lawful purpose to savers in the lending institution. 10. Land Investment.-Authorize a Federal association to invest up to 5% of its assets in land for future development without limiting the time it can be owned by the association. 11. Limited Checking Accounts.-Enact H.R. 29 with amendments to authorize savings and loan associations to offer checking account services to individuals and to groups engaged in activities principally connected with real estate. 12. Federal Home Loan Bank Reserve.-Reduce to 10% from 20% the amount of net earnings a Federal Home Loan Bank must set aside in a reserve account until it equals paid-in capital of the Bank. 13. Trust Powers.-Authorize exercise of trust powers by Federal associations that make a showing to the Federal Home Loan Bank Board of their capability to administer them. We believe adoption of these planks in our legislative platform would better equip savings and loan associations to serve in their role as custodians of savings funds and principal suppliers of home finance. Thank you for the opportunity to present these views. STATEMENT OF PETER FOSCO, GENERAL PRESIDENT, LABORERS' INTERNATIONAL UNION OF NORTH AMERICA, AFL-CIO The Laborers' International Union of North America, AFL-CIO, welcomes the opportunity to testify on behalf of its 600,000 members on one of America's most serious problems-the lack of decent housing for lower and moderateincome families. It is a crucial problem and yet many of our citizens may not even realize the scope of it. This is not hard to understand. In looking at the urban landscape today, so many Americans see only two sides of it-the suburbs and downtown. That decaying, rotting and explosive belt in between goes by so fast for most of them on the freeway they do not have time to pay attention or even realize the depth of the problem. Looking at the downtown areas of many major U.S. cities is truly misleading. New York, with all its problems, is alive with new construction on Manhattan as one corporation after another erects huge skyscrapers. Philadelphia's downtown, grimy and decayed a quarter of a century ago, has been heavily rebuilt and restored with new apartments, commercial buildings and offices. Here in Washington, we can look at many streets and see buildings that have been erected in the last 10 to 15 years virtually restoring the face of the city. This tells us something fundamental. It tells us that American money has been poured at an unprecedented scale in recent years into new office buildings, luxury high-rise apartment buildings, new shopping centers and a variety of other structures found in central cities and suburban areas. All of this has gone a long way toward revitalizing the core of our cities. But it will mean nothing unless we take the same kind of action in the years ahead to pour money into the housing markets in these same cities. For between our new downtowns and the suburbs that surround major urban areas are the central cities that are faced with staggering problems. Consistently, America has been losing the battle to house its population. In 1950, we built 1.952,000 new private dwelling units. But we have never reached that. figure since, despite tremendous growth in our population and decay in the cities. We see no need at this point to recite all the figures cataloging the severity of this crisis. We are confident the committee has heard this many times before. We need only say that the United States clearly has been falling further behind each year in meeting its housing demands. The Government can and should take action to remedy this crisis. The credit policies of financial institutions have been a major bar to making mortgage money available to families making less than $10,000 who want to purchase housing. Since it is apparent there is little likelihood of change in this area in the future, we urge Congress to take the lead. The President has the authority given him by Congress last year to establish discretionary credit control. He is empowered to channel available credit at low interest rates where it is needed. This discretionary credit authority of the President could make more money available for housing. But since the President has failed to exercise it, we urge the Congress to direct him to do so. We believe that the Administration Bill, S. 3639, would do little to provide the housing that is needed for lower and moderate-income American families. The bill would do little more than to recodify existing housing programs. Fur |