Among the operating and maintenance services which would be eligible for Federal subsidies if tenant rent payments were insufficient to cover their costs are the following: tenant counseling on family budgets and on care and upkeep of property; guard and other costs relating to the physical security of project residents; tenant access to available community services relating to employment, health, welfare, education and personal counseling; effective managementtenant liaison on all aspects of housing administration, management, and maintenance; recreational equipment and facilities; and adequate and timely repairs to structures, including the removal of all code violations pertaining thereto.

Section 2 of the proposed legislation clarifies the fact that the determination of tenant incomes must reside with local housing authorities, subject only to HUD oversight with a view toward correcting abusive practices. The Department already possesses the latter authority and therefore statutory changes are unnecessary.

Income determination regulations recently promulgated by HUD served as a vehicle for altering long-standing policies concerning local autonomy and therefore further contributed to local confusion on this subject. Rather than seeking the enactment of a provision which increases the burden on low-income families, section 2 would result in the retention of authority at the local level to determine income and deductions.

Section 3 which is designed to codify Congressional intent concerning sections 212 and 213 of the 1969 Act specifies that the Secretary of HUD is required to amend annual contributions contracts to provide payments up to the statutory maximum allowable contribution for three purposes: to assure the lowrent character of the projects involved; to achieve and maintain adequate operating and maintenance services and reserve funs; and to cover any public housing agency's operating deficit, including deficiencies in reserve funds, for the fiscal year which includes December 24, 1969.

The provision authorizing payments "to assure the low-rent character of the projects involved" does not mean that public housing tenants should be required to pay 25 percent of their incomes for rent. It does mean, however, that payments in excess of 25 percent represent a disproportionate share of their incomes which cannot be tolerated and which are prohibited since the enactment of the Housing and Urban Development Act of 1969.

With respect to the provision for a continuing flow of funds to public housing authorities designed to achieve and maintain adequate operating and maintenance services and reserve funds, this aspect of last year's provision represents potentially the greatest hope for improving the quality of living in public housing. Specifically, the "Brooke Amendment" foresees the channeling of Federal funds to public housing authorities designed to enable them to increase maintenance services where such services are often absent or simply lacking in scope; to increase the scope of services to include recreational facilities where none hitherto existed, guard services where vandalism cannot be prevented by local law enforcement agencies without taxing their already-limited resources, and tenant counseling and participation programs; and to maintain adequate reserve funds.

HUD regulations promulgated concerning this legislation unjustifiably conditioned the payment of funds on "satisfactory standards of management and tenant responsibility." While there is certainly a need for management and tenants to act responsibly, the payment of funds for improving the quality of tenants' living accommodations must not be made dependent on the performance of absentee managers nor should vague and possibly unconstitutional standards be allowed to govern or possibly intimidate legitimate actions on the part of the tenants.

HOUSING AND URBAN DEVELOPMENT AMENDMENTS OF 1970

SECTION. 1. Insert the following paragraph after the last full paragraph in section 2(1) of the United States Housing Act of 1937:

"Except that in the case of those families receiving public assistance, the total amount of their benefits thereunder shall not be reduced as a result of any rent reduction by a local public housing agency made pursuant to the rent ceiling specified above."

SEC. 2. The second paragraph of section 2(1) of the United States Housing Act of 1937 is amended by striking out the words "as defined by the Secretary" after the word "income".

SEC. 3. After the third sentence of section 10 (a) of the United States Housing Act of 1937, as amended, the following is added:

"Provided further that the Authority shall amend or supersede annual contributions contracts to provide payments annually up to the maximum allowable contribution for each contract under section 10(b) and section 14 of the Act: (1) to assure the low-rent character of the projects involved; (2) to achieve and maintain adequate operating and maintenance services and reserve funds; and (3) to cover any public housing agency's operating deficit, including deficiencies in reserve funds, for the fiscal year which includes December 24, 1969.”

Answer: As indicated by your statement, the proposed "Housing and Urban Development Amendments of 1970," which has been included as an attachment to your questions, are addressed to the same concerns as the Administration's 1970 legislative proposals with respect to public housing. Both of these legislative proposals are designed to assure that local housing authorities are provided with sufficient subsidy funds to enable them to achieve and maintain adequate operating and maintenance services and to assure that the low income residents of public housing are not required to pay a disproportionate share of their income for rent. Thus, both the Administration's bill and section 3 of your amendments would require a contractual commitment by this Department to provide local housing authorities with subsidy funds up to the statutory maximum annual contribution to make up the difference between the rents paid by tenants and the amounts needed to operate and maintain the projects. The enactment of legislation which makes this commitment explicit has our strong support.

There is, however, a need to provide similarly explicit statutory requirements with respect to the income contribution which public housing tenants make for their housing, to assure that the poorest tenants in public housing are not required to pay disproportionate amounts of their income for rent and that all those who share in the Federal subsidy available to public housing contribute an equal proportion of their income to meeting the unsubsidized share of their housing costs. The amendment which you sponsored in 1969, limiting public housing rents to 25 percent of a tenant's income, although alleviating some of the more gross inequities, does not accomplish this purpose.

While many of the poor and the elderly in public housing are required to contribute 25 percent of their incomes, other families with higher incomes contribute much less, in some cases less than 15 percent of their income. There can be no justification for such a declining rent-income ratio in a subsidized housing program-to require the poorest families, with the least amount to spend on items other than housing, to pay a relatively higher proportion of their income for rent, and to provide subsidy assistance to higher income families who can afford to bear a larger amount of their housing expense. These inequities can only be eliminated by the enactment of a uniform income contribution standards (including a uniform definition of income), such as proposed in the Administration's 1970 legislative proposals. We recognize that there will be differing yet reasonable views as to what the income contribution ratio should be or as to what should be included in the uniform definition of income, but we believe that equity requires that there be a statutory income contribution standard.

We support the objective of section 1 of your amendments which would make the 25 percent ceiling on public housing rents applicable to all tenants, including tenants who receive public assistance. Toward this end, our 1970 legislative proposal would eliminate the 1969 Act limitation with respect to public assistance recipients, and would have the effect of limiting the required rental of all those having incomes of less than $3,500 to 20 percent of their income.

We do not, however, think it would be appropriate to amend the public housing law, as proposed in section 1 of your amendments. As indicated in your correspondence with the Department of Health, Education and Welfare, such an amendment would have the effect of requiring States and localities which provide welfare benefit on a "rent-as-paid" basis to establish a separate policy for families in public housing and would raise serious questions of equal treatment of public assistance recipients.

Question 2: Next, Mr. Secretary. I would like to know whether your Department is making use of authority provided in last year's Act to make payments in excess of debt service requirements where such payments are necessary to cover the operating costs of public housing and provide a decent standard of ing for public housing tenants. In answering this question I hope that you confine your comments not to the rent reduction which was mandated under year's Act since this was not designed to improve the quality of living in

public housing, but rather to actions taken by your Department to provide tenant counselling on such things as family budgets and the case and upkeep of property; guard services and other activities relating to the physical security of project residents; adequate and timely repairs to structures, including the removal of code violations; recreational equipment and facilities; and effective management-tenant liaison on all aspects of housing administration, management and maintenance.

Answer: In accordance with Congressional intent as expressed in the Conference Report on the Housing and Urban Development Act of 1969, this Department is using its authority to make annual contributions in excess of debt service requirements for (1) payments to cover existing operating deficits of public housing agencies and enable them to maintain adequate operating and maintenance services and reserve funds, and (2) additional payments to make up the amount by which the proportionate share of operating and maintenance expenses attributable to a public housing tenant's dwelling unit exceeds 25 percent of the tenant's income with respect to those tenants who pay a rent based on 25 percent of their income.

We propose to make full utilization of the additional $75 million in contract authorization provided for these purposes by the 1969 Act. Our fiscal year 1971 Appropriation bill includes $33 million for these purposes and we are requesting authority to utilize the remaining $42 million in this fiscal year. As indicated in your question, a portion of the payments made pursuant to clause (2) would be an offset against losses in rental income resulting from the 25 percent ceiling on rents and would not provide any net increase in subsidy funds for the local housing authority. Our last estimates indicate this will amount to approximately $25 million and that $50 million in annual contributions will be available to local housing authorities as additional operating subsidy.

Question 3: Mr. Secretary, last year's Housing Act withheld rent reduction benefits where welfare tenants were involved if such benefits would result in reductions in welfare payments by local agencies. This provision was designed to insure that the payment of HUD subsidies did not enable local welfare agencies to cut back on their commitments. The Secretaries of HUD and HEW were charged with the responsibility of establishing policies within their respective Departments which would aid in the implementation of the rent reduction provisions. I would appreciate your telling the Committee what actions have been taken by your Department to carry out this responsibility.

Answer: In the Conference Report on the Housing and Urban Development Act of 1969, the Secretaries of HUD and HEW were "requested to study the feasibility of developing a uniform policy concerning the rents which shall be paid in public housing for families whose rents come from public assistance." Our proposed 1970 Housing and Urban Development legislation, which was developed concurrently with the Administration's Family Assistance legislation, responds to this request by providing for a uniform rent policy which would be applicable to all public housing tenants including those who receive public assistance.

The rent reduction provisions of the 1969 Act cannot be implemented for public assistance recipients in those jurisdictions which under the State or local plan compute the amount of public assistance benefits for all recipients, including public housing tenants, on the basis of "rent-as-paid" by the family. A separate policy for public housing tenants, i.e., determining their welfare benefits without reference to the rents which the tenants pay, would have the effect of providing families in public housing with greater benefits than would be provided to other similarly situated families who do not reside in public housing. The State or locality may, however, elect to change its plan so that benefits are provided to all recipients on a lump sum basis, in which case public assistance recipients in public housing would receive the full benefit of rent reductions based on the prescribed rent-to-income ratio.

Question 4: Mr. Secretary, the concept of establishing flexible cost limitsdesigned to make local limits agree with local costs-appears to be a good idea. However, some people in the housing industry are skeptical about the success of the Administration's plan to have local FHA Offices cost-out prototypes. In the past, it is argued, local FHA Offices have had difficulty costing-out even single family prototypes. Do you have any reason to believe that local FHA Offices in the proposed 450 areas will be able to cost-out more difficult multi-family prototypes, quickly and successfully?

Answer: Yes. The proposed method for establishing maximum cost limits is not intrinsically difficult, and it would be crucial to all our housing programs-unsubsidized as well as subsidized, publicly sponsored as well as privately sponsored. We have recommended these procedures as a way to assure that cost limits are realistic and up-to-date and we foresee no difficulty in implementing the statutory provisions to achieve this objective.

Question 5: On page 13 of your testimony, you indicate that cost limits “would be based on the 'development cost' of a modestly designed home or dwelling * * *" Some groups have expressed concern over the use of the language "modestly designed." What assurance can you give that local FHA Offices will provide for sufficient amenities to permit the construction of a well-designed home? Specifically, in multi-family project, will room for community space be provided? Answer: The statue requires that the prototype be "of modest design but of a quality consistent with property and design standards acceptable in the area." found in moderate income housing being produced in the housing market area. For example, the type of amenities most commonly found in moderate income housing in New York City, whether conventionally financed or assisted by FHA programs, or assisted under State and local programs like Mitchell-Lama, would be used to determine the characteristics of the unit to be "priced out" for New York City. We do not intend to add six million poorly designed, poorly built units to the housing supply.

With respect to the question on community space in multifamily projects, the prototype would include only dwelling facilities but the cost of nondwelling facilities, such as the one you mentioned, would not be subject to maximum mortgage limits in the private housing subsidy programs. The cost of nondwelling facilities would be required to conform to development cost limits in the public housing program, but there is adequate flexibility in the public housing cost limit formula to allow for the provision of nondwelling facilities. Up to 35 percent of the total development cost of a public housing project could be allocated to only three cost items-land, site preparation, and nondwelling facilities. On the basis of our experience the maximum allocation of 35 percent of development cost should be adequate to meet any needs for community and other facilities.

Question 6: Under the flexible mortgage amount provisions in §. 3639, the maximum insurable mortgage amount for an assisted dwelling unit could not exceed 110 percent of the development cost in each housing market area; whereas, for unassisted housing the maximum insurable mortgage could not exceed 200 percent. How were these figures arrived at?

Answer: The “benchmark” for cost limits is established under the provisions in S. 3639 as the total development cost of a new dwelling "of modest design but of a quality consistent with property and design standards acceptable in the area." In setting the maximum total development cost of a subsidized housing unit, a 10 percent increment is authorized to provide sufficient flexibility to account for items such as variations in land cost within a housing market area. Thus, for all subsidized housing maximum cost limits are pegged at 110 percent of deployment cost.

In determining the maximum development cost of unsubsidized housing eligible for FHA insurance, the same "benchmark" was used (i.e. the development cost of a new dwelling "of modest design but of a quality consistent with property and design standards acceptable in the area"). The 100 percent increment for unsubsidized mortgages reflects a conscious decision to achieve more flexible limits in the FHA unsubsidized mortgage market than exist at present (i.e. it generally increases the existing statutory mortgage limits on unassisted housing). The effect of the application of the proposed flexible cost ceilings on existing statutory maximums in the FHA unsubsidized insurance program is illustrated in the table attached to Appendix C of the Explanatory Statement submitted by the Department. Decisions as to the maximum development cost of a dwelling unit of eligible for unsubsidized FHA insurance can easily be implemented within the context of the proposed flexible cost formula (i.e., by either increasing or decreasing the proposed 100 percent increment in the "benchmark”).

Question 7: It has been argued that the establishment of median income as the sole criterion for delineating the group that may be served by subsidized housing programs overlooks the important relationship of income to the cost of housing. Thus, it has been suggested that the income definition of the Housing Act of 1937 would be more appropriate. Specifically, housing assistance would provided to families who cannot afford to pay enough to cause private enter

prise in their locality to build an adequate supply of decent, safe and sanitary dwellings for their use. I would appreciate your comments on this suggestion. Answer: We believe that median income provides an appropriate benchmark for delineating the group that may be served by subsidized housing programs. It provides an objective standard which is statistically certain and readily available, and which could be uniformly applied to all subsidy programs and to all areas. The data can be easily updated annually on the basis of latest wage data available for each area.

As is now done in the section 221(d) (3) program, the updated figures can be used to compute the income limit for a 3-4 person family. We propose that as is presently done in the 221(d) (3) program the figure be reduced by 15 percent for two-person families and by 30 percent for single-person households; we propose that for 5-6 person families, the figure be increased by 15 percent, and for families with 7 or more persons by 30 percent.

The use of median income in an area, coupled with a uniform definition of income, will provide a standard and equitable benchmark_governing eligibility to participate in federally subsidized housing programs. Income limits would vary across the Nation in accordance with actual conditions in each area. But in each area the same percentage of the total income distribution would be eligible to participate in the federally subsidized housing programs.

The experience with the standard contained in the Housing Act of 1937 for delineating the group that may be served by the subsidized housing program— has conclusively established that it cannot provide an objective standard which is statistically certain and readily available. There is today almost no area in the country for which the "gap determination procedure" prescribed by section 15(b) (ii) of the U.S. Housing Act of 1937 is current and operative.

If there are housing market areas in which more than one-half of the population cannot afford housing without subsidy, and if Congress decides that subsidy should be provided beyond the median income level in such areas, this can be accomplished within the framework of the median income benchmark proposed. The National Housing Conference, Inc., for example, proposed an amendment which would authorize the Secretary to establish an income limit which could exceed median income by not more than 20 percent to the extent required by the current costs of housing in the locality.

Question 8: Mr. Secretary, the proposed 1970 Act would require all participants in subsidized housing programs to contribute 20 percent of the first $3.500 of their income, plus 25 percent of any income above that amount. As you know, I introduced legislation last year which limited to 25 percent the amount of income that a public housing tenant would have to contribute as rent for the unit he occupied. However, the 25 percent figure was used as a ceiling and not as a floor. In light of the fact that the living standard budget for a four-person family in the spring of last year showed a ratio of housing costs to income for the United States of 16.4 percent―according to the Bureau of Labor Statistics—the formula proposed in the 1970 Act would presumably result in rent increases for many low income families. How can this be justified (e.g. what studies were made)? Answer: The Department has collected data from public housing agencies throughout the country, which indicates that approximately 75 percent of all existing public housing tenants with incomes below $4,000 per year would have immediate rent decreases if S. 3639 were enacted. Since about 75 percent of all public housing tenants have incomes below this figure it is clear that an overwhelming number of low income families in the program would be helped-not harmed by implementation of the required rent-to-income ratio formula.

Low income families would receive this additional assistance under the proposed legislation as a result of the operating cost subsidy and the new sliding income contribution scale. This later provision provides that the lower the income of the family the smaller the percentage of income it is expected to pay for housing. The new subsidy mechanism pays the difference between the tenants monthly rental contribution and operating cost of the unit he occupies. These two provisions in tandem will make it possible for those families which had their rental contribution reduced to 25 percent of income as a result of your amendment to last year's housing bill, to have their rental payments reduced further. Families in this category with incomes below $3,500, for instance, would pay only 20 percent of their incomes for rent under the new formula.

Looking at the public housing program as a whole, passage of S. 3639 would result in rent decreases for about 61.3 percent of existing public housing rent increases for approximately 29.9 percent of the formula in pu