STATE LIMITATION

SEC. 213. Not more than 15 per centum of the funds used for grants under this title in any fiscal year shall be so used in any one State.

Mr. BARRETT. I think it would be appropriate at this time to commend publicly the three chairmen of the Housing Subcommittee panels Mrs. Sullivan, Mr. Ashley, and Mr. Moorhead-for their outstanding work in developing the recommendations contained in H.R. 9688. I would like also to thank Mr. Widnall, whose cooperation at every point made this subcommittee effort possible.

Mr. Secretary, before asking you to proceed, I will call upon Mr. Widnall for comments. Afterward, would you please introduce your colleagues to our subcommittee, and proceed in your own fashion. Since there is such a great deal of important legislation before the subcommittee, we hope that you will be able to return both this afternoon and tomorrow morning for the many questions our members wish to ask on the various bills, the Third Annual Housing Goals Report, and on housing and urban development problems in general. We look forward eagerly to your testimony.

Mr. Widnall.

Mr. WIDNALL. Thank you, Mr. Chairman.

Mr. Secretary, we join in giving you a hearty welcome before the committee, and look forward to your testimony. We know what a hard job you have done at HUD, and the strenuous efforts you are making to rebuild the Nation's economy through a sound housing program.

I don't know whether or not this sounds like a love feast, but I do want to commend the others on the committee, and pay my respects and compliments to the work of Mr. Barrett, who is chairman of the subcommittee, and actually has worked like a beaver to prepare for these hearings, to organize them well and get the best possible witnesses. I do believe that this can be a very constructive set of hearings that can mean much in laying a foundation for the future that will be of great benefit to our country, to the housing industry, and to all of our citizens.

Thank you, Mr. Chairman. That is all.

Mr. BARRETT. Thank you, Mr. Widnall.

Mr. Secretary, you may proceed as you desire.

STATEMENT OF HON. GEORGE ROMNEY, SECRETARY OF HOUSING AND URBAN DEVELOPMENT; ACCOMPANIED BY EUGENE A. GULLEDGE, ASSISTANT SECRETARY FOR HOUSING PRODUCTION AND MORTGAGE CREDIT, AND FHA COMMISSIONER; FLOYD H. HYDE, ASSISTANT SECRETARY FOR COMMUNITY DEVELOPMENT; AND DAVID MAXWELL, GENERAL COUNSEL

Secretary ROMNEY. Thank you, Mr. Chairman.

I have with me on my right at the table here Mr. Eugene A. Gulledge, the Assistant Secretary in Charge of Housing Production, and the FHA Commissioner. And then on my immediate right is Mr. David Maxwell, our General Counsel. And on my left is Mr. Floyd H. Hyde, the Assistant Secretary for Community Development.

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Mr. BARRETT. Mr. Secretary, may I add, you are more than generous this year in appearing before this committee. Last year you gave us 57 pages, and this year are only giving us 47.

Secretary ROMNEY. Well, I am going to try and condense this a little bit as I go along. And so if I skip some of the printed testimony, you may have a chance to read faster than I speak.

Mr. BARRETT. I would like to conclude also, Mr. Secretary, by telling you that we think we have the most expert members of our committee on both sides. And I do think you have brought here this morning the most experienced men in the housing field.

Secretary ROMNEY. Thank you. I feel fortunate to have them associated with me in this effort.

Assume that I can have the full testimony put in, those portions I omit in my reading.

Mr. BARRETT. That may be done without objection, and it is so ordered.

Secretary ROMNEY. We appreciate very much this opportunity, Mr. Chairman, and the spirit of the committee in holding these and the timely necessity of these hearings.

We expect to discuss administration proposals for

(1) State and local governments with a new, and more assured and flexible form of, financial aid, in the form of shared revenues, to replace cumbersome and limited categorical community development

programs;

(2) Strengthening the overall planning and management capacity of State and local governments; and

(3) Consolidating, simplifying, and rationalizing the numerous overlapping and overly complex public and private housing programs.

Other important proposals have originated from within your committee. They are addressed to serious problems, and it is good that they have been brought forward for study and consideration. Among them is a measure for community development block grants having some of the same underlying purposes as special revenue sharing. And I want to say right here that I believe that your recognition of the essentiality of metropolitan action in meeting housing and other community needs for all is a very significant recognition.

Also included is a measure, similar to the administration's, for strengthening the overall planning and management capacity of State and local governments. I will comment on this legislation later.

Taken together, the administration's proposals now before your committee would transform the basic activities of our Department. Yet each change would be solidly grounded in the lessons of experience. The special revenue-sharing proposal has evolved from more than two decades of legislation which saw narrow programs of slum clearance and public works gradually broadened to encompass urban renewal, large-scale neighborhood development, planned metropolitan development, and the model-city unified approach to interrelated physical and social problems. Similarly, the proposed program of aid for State and local planning and management builds upon the comprehensive planning aid program that was first enacted in 1954 and then steadily broadened and expanded by the Congress. Finally, the recommended housing law revisions carry forward the most productive

of the existing programs, but would drastically simplify the confusing patchwork of special programs which have accumulated over the past 35 years.

These are extremely important reforms. And yet they become even more significant when considered within the context of the President's overall program for a revolutionary restructuring of our Federal Government within a revitalized Federal system. And I just want to call attention to his recommendations with respect to other special revenue-sharing programs, his welfare reform proposal, and his proposal for the reorganization of the domestic executive departments. The major administration reforms before your committee are embodied in H.R. 8853, the Community Development Act of 1971; and H.R. 9331, the Housing Consolidation and Simplification Act of 1971. Title I of H.R. 8853 contains the administration's proposal for urban community development special revenue sharing. Before describing the proposal and the categorical programs it would replace, it might be well to summarize briefly why we feel that these programs should be replaced so that their underlying purposes may better be served.

Intrinsic to a system composed of scores of categorical aid programs, is the need to establish for each program its underlying purpose; the nature and extent of the aid to be given; who shall receive it; and when and under what conditions it should be received. This need gives rise to a dilemma. If the boundaries that shape the many programs are loosely drawn, there will be much duplication and overlapping; but if they are tightly drawn, there will be much red tape and many needs will go unfilled because they fall in gaps between the program boundaries. Often these gaps cannot be foreseen since they are revealed only by operating experience or newly emerge from shifting local conditions.

The President, in his message to the Congress on special revenue sharing for urban community development, gave examples both of the duplication and of the gaps that inevitably arise from the present fragmented system. This is what he said:

Each program is surrounded by its own wall of regulations and restrictions and coordination between programs is often very difficult. Sometimes programs work at cross-purposes and sometimes they needlessly duplicate one another. For example, the Federal Government, working through two different agencies, has been known to fund two different local authorities to build two sewer systems to serve the same neighborhood.

The inflexibility of the present system often means that money cannot be used where the need for money is greatest. If a city suddenly finds that it must put in new street lights, it cannot use funds that are earmarked for demolition or rehabilitation. Geographic restrictions are also a problem. Money for an urban renewal project which has been approved for one carefully defined neighborhood, for example, cannot be used at a closely related site just across the street, if that street happens to be the boundary of the renewal area.

Now there are some local public bodies that temporarily benefit from the duplication and confusion in the system, because they are more skillful than others in obtaining multiple Federal grants. But in the long run, even they suffer from the drain of processing complex applications and from delay and uncertainty in the Federal response. More wasteful still are the losses that result when Federal and local energy, time, and money are spent on projects and activities of low

priority merely because funds are available under some narrow categorical program. Yet other losses result when fragmented programs are inconsistent, or give rise to harmful side effects that could be avoided under a more rational way of carrying out the business of government.

Urban community development revenue sharing would contribute to a more rational way of doing business for these reasons:

Major existing categorical programs would be consolidated into a unified flexible system of Federal assistance.

Project area and other constraints and contingencies of categorical programs would be eliminated.

Funds would flow to units of general local government so that there will be less fragmentation of responsibility at the local level.

Local officials would be free to use resources on the basis of locally determined community development needs and priorities, thereby shifting decisionmaking authority from Federal officials to local officials.

Funds would be allocated to communities on a uniform and equitable basis which takes into account objective need factors and established levels of program activities.

Central cities and other cities of 50,000 or more would be assured of a stable annual flow of funds free from delays and interruptions.

There would be no detailed project requirements to delay the flow of funds and the start of community development activities at the local level. And as a result of this, Federal operations would be simplified.

Local matching would not be required, thereby reenforcing the incentives provided by the other features of the proposal to use funds for high-priority local purposes, rather than for projects for which it is easiest to budget the local share.

Local elected officials will be clearly in charge of managing shared Federal funds flowing to communities. Thus, both the incentives and the responsibility for getting effective results will lie with those closest to the people and the problems.

And finally, the people generally will enjoy an increased ability to influence the use of community development funds as a result of their opportunity to judge, by their votes, the performance of local officials.

All the activities which are eligible for support under all the present urban development categorical programs would be eligible for assistance. Funds could be used to acquire, clear, and redevelop land; to construct public works such as water and sewer facilities; to build streets and malls; to enforce building codes; to fund demolition activities; to rehabilitate slum and blighted neighborhoods; to support the health, social, and similar activities for which model cities supplemental grants are now authorized; and to provide relocation payments and assistance for those displaced by the activities.

No local activity currently funded by categorical grants would have to be discontinued. Every community would have the authority and capability to maintain-and even to expand-any of these current programs.

The only precondition for assistance would be a statement by the city saying how it plans to use the funds. Their use would not be subject to prior Federal approval. With the elimination of excessive Federal redtape, the great attention now being paid to keeping within

the boundaries of individual grant-in-aid statutes and regulations. could be shifted to seeking substantive achievements which promote sound community development. As in the case of the programs being replaced, the requirements of the relocation and antidiscrimination laws would apply.

For the first full year of operation, we will be requesting $2 billion for urban community development revenue sharing, which includes $100 million set aside for the exclusive use of communities having a population of less than 50,000.

At least 80 percent of the $1.9 billion basic funds would be divided among the standard metropolitan statistical areas for distribution to units of general local government within those areas. Each metropolitan area's share would be based on a uniform and equitable formula comprised of four equally weighted factors-population, poverty, amount of overcrowded housing, and extent of housing dfieciencies. Within SMSA's, central cities and cities of 50,000 or more people would receive an automatic distribution of funds on the basis of the same four-part formula. In other words, on the basis of poverty, overcrowding, substandard housing, and population.

For the first time, metropolitan cities across the Nation would be able to plan their annual capital improvement budgets knowing with a greater degree of assurance how much Federal development assistance they would receive for the coming year. Each city's share would be determined on the basis of need factors, removing an aspect of the current system under which higher project costs support and generate greater Federal grants.

The balance of each SMSA's allocation would be used (1) to "hold harmless" metropolitan cities-so that they would not receive less under revenue sharing than they have been receiving annually under the urban development categorical grant programs being replaced; and (2) for distribution to cities and counties within the SMSA, particularly counties and smaller cities which have had continuing community development activity under the categorical programs. Up to 20 percent of the basic funds would be available for discretionary distribution by HUD to units of general local government and States. These funds would be used to (1) provide "hold harmless" funds; (2) assist localities which have demonstrated special needs or special performance capabilities; and (3) fund locally initiated. innovative programs.

Smaller communities inside and outside of SMSA's which have had continuing HUD support for community development activitiesrather than single or intermittent projects-may be assured of receiving equitable "hold harmless" treatment.

The "hold harmless" treatment applies to the larger cities as well as the smaller communities, it applies across the board, and it applies to the smaller communities within the SMSA's as well as the smaller communities outside of the SMSA's. As I mentioned earlier, there is a special authorization with a $100 million appropriation request for the exclusive use of communities of less than 50,000 persons. Those communities would also be eligible for "hold harmless" support from the 20-percent discretionary funds and from the SMSA balances, which together would be in excess of $451 million after all metropolitan cities' "hold harmless" requirements had been met. Finally, all smaller communities outside of the metropolitan areas would also