be eligible for community development aid from the $1.1 billion requested for rural community development revenue sharing.

Our proposed legislation would consolidate a number of categorical programs-urban renewal-including conventional urban renewal and the neighborhood development program, code enforcement, interim assistance, demolition-rehabilitation grants and loans, neighborhood facilities, and model cities. Federal support will be continued for these programs between now and the effective date of the new legislation, and we will of course honor all commitments under the old programs. In other words, communities that now have commitments under urban renewal or model cities or other programs would have those commitments met.

Now, at this time, Mr. Chairman, I would like to turn to the community development block grant proposal contained in title 6 of H.R. 9688. As I stated earlier, this proposal has the same general purposes as the administration's urban community development revenuesharing proposal. Both would consolidate existing categorical programs into a more flexible system of Federal assistance. They contain similar provisions for the allocation of funds under a formula which takes into account objective need factors, and have other provisions in common. These areas of agreement are far more important than the several points of difference. I should like, however, to comment briefly on certain issues where our viewpoints differ. One relates to the preconditions for Federal assistance in H.R. 9688. These preconditions may result in denying to a locality the distribution of funds allocated to it under the need formula. They also would preserve more administrative processing than is desirable, with resulting delay in the flow of funds to localities and in the execution of their community development activities. The retention of that administrative processing could well encourage the addition of administrative processing, and consequently we think it is desirable to clearly cut it out, and not leave vestiges that might build up again into a considerable amount of Federal review and processing. However, I appreciate the valid concerns which led to the inclusion of these requirements, but believe that, on balance, these concerns can best be satisfied through the locality's annual statement of its objectives and projected use of funds, and the audit requirements contemplated in the administration's bill.

I feel that the minimal additional protection to be gained by a prior Federal review is outweighed by the need to assure cities that they will receive a stable, annual flow of funds. And I think also to make it clear to not only the officials involved, but to the public, that the local officials are clearly responsible for the use of funds, because only if you can make it clear that they have the complete responsibility can you make it clear that they have clear accountability. And I think the accountability is important along with the responsibility. And if you retain a degree of Federal review you tend to fuzz up this question of just who is responsible for what is being done with the money.

The block grant funding provisions do not, in fact, provide localities with the desirable certainty of funding. This is another point. The provision of billions of dollars in contract authority at the Federal level merely aggregates resources at that level. But it gives no assurance to any individual community as to its share of the aggregate funds or indeed that it will receive any at all in view of the administrative processing requirements.

The fact that provision is made in H.R. 9688 for a multiyear fund authorization and a multiyear contracting cycle does give to localities a greater chance to continue to receive funds than under a single-year authorization and time limit. But a locality may receive no contract at all. Thus, the stable annual funding found in the administration's proposal under its distribution formula approach is much diluted in H.R. 9688. Also, bearing in mind the way in which budget accounts are kept, the multiyear authorization and contracting cycle provided in H.R. 9688 involves a large and immediate budgetary impact in the form of "back-door" financing. This has no counterpart in the administration's proposal. I think actually that the administration's approach represents a far firmer commitment with respect to the availability of funds than the contract authority approach in H.R. 9688. Title VI of H.R. 9688 also differs from the administration's community development revenue sharing proposal in that it would replace the program of grants for water and sewer facilities, whereas the administration proposal would continue that program. Our original proposal was, in this respect, similar to H.R. 9688. However, we were persuaded that the continuation of a separately funded water and sewer program was warranted by the need to help counteract generations of neglect that have contributed to widespread water pollution, and to aid particularly our smaller communities in combating this condition. Turning to your proposals for Metropolitan housing authorities and metropolitan development authorities, the principal significance I see in them is the recognition of two things: First, that meeting housing and other community needs for all cannot be achieved on the fragmented basis that now characterizes local government in metropolitan areas; and, second, that the housing and other problems of the central core cities cannot be solved within the central core cities. But as to the detailed aspects of these and other proposals resulting from the timely work of your Housing Subcommittee panels, we have prepared additional comments that I would like to offer into the record. Mr. Chairman, we have taken the summarization of the committee's proposal and made comments on them, and that is what I would like to offer for the record at this time.

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

Secretary ROMNEY. Thank you. And I assume that copies are available for the committee members so that you can look at the printed comments.

(The material referred to follows:)

H.R. 9688, 92D CONGRESS: HOUSING AND URBAN DEVELOPMENT ACT OF 1971

Following is a brief summary of the provisions of H.R. 9688, prepared by the staff of the House Committee on Banking and Currency, along with comments on these provisions by the Department of Housing and Urban Development. Summary

TITLE I-HOUSING GOALS AND ANNUAL HOUSING REPORT Title XVI of the Housing and Urban Development Act of 1968 (which set the national goal and required an annual housing report) would be amended, as follows:

(1) the national housing goal would be broadened to place greater emphasis on preservation of the existing housing stock through a reduction of losses to the existing stock and improved management and maintenance policies;

(2) the annual housing report would be required to include (a) a contingency mortgage credit plan, setting forth proposed governmental actions in the event of adverse monetary and economic conditions, (b) an analysis of changes in various housing costs affecting housing production and recommended actions to reduce the cost of inflationary elements, and (c) an analysis of annual changes in the number and condition of units in the existing housing inventory; and

(3) the HUD Secretary would be required to encourage (through the earmarking of section 701 planning funds) the setting of local housing goals covering major housing market areas (usually the SMSA's); these locally established goals would include both housing production needs and actions needed to preserve the existing housing stock, including (a) the number and types of subsidized units needed to serve various income groups, (b) Federal, State, and local programs to be utilized to meet the goals and the adequacy of private financing resources, (c) identification of such impediments as building codes and zoning regulations and plans to eliminate them, (d) plans to locate low- and moderate-income housing so as to provide greater access to employment opportunities and provide the public facilities needed to serve housing, and (e) plans to promote market aggregation in order to achieve the benefits of economies of scale.

HUD Comment

Some additions and refinements in the annual report would undoubtedly make it more useful. For example, greater emphasis should be placed on the existing housing stock, as proposed in these provisions. However, the intrinsic difficulties of predicting economic and credit conditions for a full year (and the difficulties of selecting from among the numerous possible combinations and permutations of complex and interrelated factors that affect residential financing) give rise to serious questions concerning the value of the proposed contingency mortgage credit plans. Such contingency plans, which would have to be based on data already recorded when the housing report was finished, would become quickly outdated or not relevant to conditions likely to prevail in the year after they are made. These inadequate plans may give rise to expectations that policy will be made in accordance with them. Thus, the plans could be self-fulfilling whether the situation they forecast is beneficial or not to the housing consumer.

It is helpful to encourage local housing studies. However, in order for them to be of high quality, they should not be done routinely every year in every market area. Rather, intensive studies should be made in areas as staff and data become available; they should be kept up to date; and should be extensively revised when there are indications of rapid local changes. Such studies are useful in themselves, but cannot be expected to result in aggregate figures that are useful in making national projections.

For the reasons given in our comment appearing under title IX, the Department questions the proposal for earmarking section 701 planning funds. The Department is in fact obtaining the basic information specified in item (3) of the Summary as part of the “housing element" in section 701 plans.

Summary

TITLE II-PRESERVATION AND REVITALIZATION OF DECLINING

NEIGHBORHOODS

A major new program would be initiated to help preserve older neighborhoods threatened by blight and housing abandonment.

First, cities would be required to designate "neighborhood preservation areas" and prepare 5-year plans for the improvement of basic community facilities and services within those areas. Eligible activities to be carried on would include (1) the repair of streets, sidewalks, parks, playgrounds, utilities, and public buildings to meet the needs of the area, (2) the improvement of private properties needed to eliminate dangers to public health and safety, (3) the demolition of structures determined to be structurally unsound or unfit for occupancy, and (4) the establishment of temporary public playgrounds on vacant land. Cities would receive 90 percent grants to finance these activities.

Second, in such areas, Federal mortgage insurance would be available to permit the preservation and upgrading of the housing stock by facilitating the refinancing of properties and their transfer to resident or nonprofit ownership. Structures covered by the Federally insured mortgage must be basically sound, or capable of being brought up to standard without major rehabilitation. Furthermore, the

mortgage insurance would be available only to permit refinancing or transfers of ownership without raising rent levels for at least one year. (After one year, rents could be raised, as in all FHA projects, to cover necessary increases in operating costs.)

Eligible borrowers would be

(1) owner-occupants of 2-6 unit structures,

(2) purchasers who would become resident owners of 2-6 unit structures, (3) cooperative or condominium organizations consisting of a majority of the occupants of structures containing 7 or more units, and

(4) nonprofit purchasers of structures containing 7 or more units.

The insured loans would bear market interest rates,1 have terms of up to 20 years, and would require equity contribution of at least 3 percent by the borrower. Insured loans to current owners could not exceed the sum of previous outstanding indebtedness on the property, plus necessary improvements. If the resulting debt service plus operating expenses would make the project infeasible at existing rent levels, section 235 or 236 subsidies could be made available on behalf of occupants otherwise eligible for such subsidies.

HUD Comment

This title is addressed to important problems regarding the preservation of declining neighborhoods. Relevant present efforts, in addition to urban renewal and model city activities, include code enforcement and the housing abandonment study authorized by the Housing and Urban Development Act of 1970. (HUD's Research and Technology office is moving forward with the housing abandonment project on a pilot basis.) Also, HUD is attempting to develop better approaches to the extremely difficult problems of encouraging housing rehabilitation, both in declining neighborhoods and in those that may be expected to be threatened before long.

This title of the bill consists of two separate parts that should be separately considered. The first (on neighborhood preservation) needlessly duplicates authorities proposed in the community development block grant proposal contained in title VI of this bill. Thus, the proposed establishment of a "major new program" for declining neighborhoods is inimical to the stated purpose of the title VI block grants to consolidate the major HUD physical development programs into a single community development block grant." (It would similarly duplicate the Administration's community development special revenue sharing proposal.)

The second part of this title would provide FHA mortgage insurance for the refinancing of properties where the eligible borrowers would be present or intended owner-occupants of two- to six-unit structures and cooperative or condominium or nonprofit owners of structures containing seven or more units. These provisions are addressed to the same problems that are now under study by the Department both in the fields of housing abandonment and housing rehabilitation. Our preliminary analysis of this part of the proposal raises a number of unanswered questions. Is it contemplated that a concentrated large-scale effort would be made under the provisions to preserve many neighborhoods in the many large gray areas that exist in most cities and towns? If so, has consideration been given to the extensive subsidies required (a) to cover the difference between the maximum 6% interest rate and current market interest rates and (b) to expand the subsidies under sections 235 and 236? Conversely, if modest subsidy levels are contemplated, is this program intended merely to be a pilot demonstration program, duplicating other research and demonstration efforts, including the abandonment study?

Is major reliance intended to be placed on changes in tenure with respect to buildings in good condition so that minimal subsidies would be required and so that rents need not be raised? If so, has consideration been given to the difficulties that are not reached by this remedy? That is, real estate values of buildings, even in good condition, in declining neighborhoods often depend on programs of major rehabilitation of neighboring buildings. Otherwise, there tends to be an unwillingness, in the absence of extensive subsidies, of private capital to invest heavily in the entire neighborhood even with the benefit of mortgage insurance.

Other questions arise with respect to the feasibility of low-income or moderateincome owner-occupancy of multifamily structures in the range of six units or less. Often financial difficulties arise for the owner-occupant of modest income where a structure is too big for non-professional part-time management and maintenance and yet too small for professional management and maintenance. 1 But see line 2 of page 10 of bill, which provides for a 6% per annum maximum interest rate.

For example, any extended period of vacancy in two out of six units may represent a one-third loss of gross income. Similarly, the need to modernize plumbing in a six unit structure may require major refinancing. Other questions occur with respect to nonprofit sponsorship of relatively small multifamily projects (for example, seven to twenty units) both in terms of distinguishing capable from incapable sponsorship and bona fide nonprofit organziations from those primarily motivated by income from salaries and fees.

In raising issues such as these, we do not mean to denigrate the Committee's concern; nevertheless, these questions will need to be dealt with both by the Committee and by this Department in any of our efforts to devise realistic solutions to the extremely difficult problems of neighborhood decline, housing abandonment, and housing rehabilitation.

The Secretary of HUD would be authorized to carry out the following activities: Homeownership assistance activities, such as

(1) providing training programs in family budgeting, record keeping, and maintenance for eligible families in Federally-assisted homeownership programs, including the preparation of educational materials (booklets, guides, etc.),

(2) making studies of typical homeowner problems (roof repairs, plumbing problems, etc.) and disseminating information through periodic consumer bulletins, and

(3) conducting continuing analyses of FHS experience and other studies to determine crieteria for homeownership in order to help screen section 235 applicants.

Tenant and management counseling activities, such as

(1) providing counseling programs in family budgeting, homemaking, and utilization of equipment for tenants in all FHA-subsidized rental housing, (2) providing training programs for local and other personnel recruited to be members of project management staffs,

(3) preparing model management operating manuals for project managers, (4) providing "seed money" loans (repayable with interest) and advanced training for those with management experience to help them form corporations to manage subsidized housing projects,

(5) participating in FHA rental project application reviews and conferences prior to approval to ascertain that design and materials would be conducive to good management and operating efficiency,

(6) reviewing the required management and operating budget and plan (see below) to be submitted as part of rental project applications,

(7) providing encouragement and assistance to management in the formation of tenant councils, and

(8) engaging in adequate HUD monitoring of management operations in order to identify developing weaknesses before projects reach a serious problem condition.

These activities would be financed through the use of a portion of the one-half of 1 percent mortgage insurance premium now charged homebuyers and renters under the section 235, 236, and rent supplement programs. In rental projects, there would be no retention by FHA of the premium during the first year of the project's life; instead, it would be made available to the owner of the project to help finance the preparation of a project management and operating budget and plan by a qualified management organization. In subsequent years a portion of one-half of the 1 percent premium would help finance the new activities outlined above.

There would also be established within the Office of the HUD Secretary an office representing the overall interests of occupants of Federally-assisted housing. This office would be responsible for actively promoting occupant interests in the HUD programs through such activities as—

(1) maintaining surveillance over present and proposed fees and charges required in connection with Federally-assisted housing which will be reflected in monthly housing costs,