In my opinion this operation can bear the payment to the City of $10,000 as was done last year, and you will note I have provided for it in the accounts. You will also note the above Balance Sheet does not reflect an asset for the value of the building or a liability for the mortgage against it which is correct seeing the corporation is the owner. However, these items are not carried on the City's Accounting Records either, eventhough the Real Estate Department lists the building as City property.

Senator PROXMIRE [acting chairman]. The committee will come to order.

Chairman Sparkman has left to answer the quorum, but meanwhile we will proceed.

Our next witness is the former distinguished Congressman from New York, a good friend of the committee, James Scheuer, now of the National Housing Conference.

STATEMENT OF JAMES H. SCHEUER, PRESIDENT OF THE NATIONAL HOUSING CONFERENCE, ACCOMPANIED BY A. M. PROTHRO

Mr. SCHEUER. Mr. Chairman, I am delighted to be here today, and I have with me Mr. Prothro, who served for many years as General Counsel to the FHA and then Deputy General Counsel to HUD, and he is now practicing law with Krooth & Altman, works around the clock. He also works around the year with NHC, and it is a great pleasure to have him with me.

Senator PROXMIRE. Very good.

Mr. SCHEUER. I have a statement that I want to submit for the record.

Senator PROXMIRE. The entire statement will be printed in full in the record (see p. 149).

Mr. SCHEUER. We will be glad to answer questions.

Let me just hit three points hard to start out with. No. 1, as to the question of equitable treatment for housing programs. It is true we have not devised a way of housing all the poor well, nor have we devised a way of educating all our people with good education or providing all our people with superior meal service, yet we do not close down our schools and hospitals, because we fail to achieve design and delivery systems of other public services for all of the theoretically potential constitutents.

And to my mind, it is a curious anomaly to me as to why, for the first time, this administration has said, because we cannot do the whole job now, we are not going to do anything.

To me that symbolizes the administration's apparent longing to get out of the housing business. I think that equitable treatment philosophy should be looked on for what it is worth. Somebody ought to say, "The Emperor ain't got no clothes on."

I have heard criticism of 235 and 236. We have heard the word "mismanagement" and so forth. Housing programs, unfortunately, tend to reflect the human condition and people are not perfect. Tenants are not perfect, project owners are not perfect, and government administrators are not perfect and government is not perfect.

I have been a critic of housing programs for a generation. Most of the housing programs that we have now are serving the American people very well; and millions of American families over the last generation, and over the close to 40 years that we have had housing programs, have led lives that were enriched and enhanced, far happier, far more satisfying, with far better environments for their kinds to grow up, than they would have had, had there not been these Federal housing programs.

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There have been a very small number of defaults in 235 and 236. In my own personal experience as a housing sponsor, I can tell you many of these problems have been due to conditions far beyond the control of the developer or the nonprofit group. These include increase in city taxes, increase in wages and other operating expenses that cannot be controlled, and whoever is making the decision on project operation and maintenance is caught between Scylla and Charybdis. Does he watch painfully and sadly and see the project deteriorate, or does he try to protect the project and people by providing minimally adequate operating resources. Of course, in some cases where inflation has hit housing, something has to give; but I think to blanket all Federal housing programs as failures, to blanketly label 235 and 236 as failures, is to state a gross misstatement. It is not fair to the work of Democrats and Republicans who have worked so diligently in both the House and the Senate to produce housing for all Americans.

Third, on the meeting of the deficit in public housing projects, I think we have simply got to find a way of making public housing programs viable and functioning. I think we have to do more than we have in the past, not less.

I believe we have to enable local public housing agencies to provide far more security than they have in the past, through stimulation of tenant groups who can do better through their own eyes and presence around the project, through the provision of locks and bolts and intercoms, some space modification that Oscar Newman has talked about, but above all, providing some kind of tenant facilities and services, and seed money, that make that project hang together as a group of human beings who are relating to themselves and relating to the neighborhood.

With those three comments on the questions you asked some of the mayors, let me very briefly hit some highlights on your bills and the administration bills.

Over the years, we supported reform and change. We support whatever permutations and shifts of emphasis and new techniques in the programs are necessary to make them viable. And we felt that the administration had taken over a formidable job and a laudable and perhaps needed job in reevaluating and giving scrutiny and oversight to over 35 years of housing program experience in 6 months' time. We hoped, too optimistically, perhaps, that they might have come up with fresh thinking to enable us on both sides of the aisle in a nonpartisan way to get on with housing Americans more effectively.

We feel they have given us too little too late. The housing programs were suspended with a promise of better programs. Nine months later, we were presented with renewed promise for better programs, a slight thaw of the freeze, but a very clear indication that the Federal Government wants out of the housing business.

Meanwhile, of course, the disastrous effects of the moratorium continues. The housing problem increases. The backlog of needs continues to grow and our capability to produce decent housing is rapidly diminishing.

We cannot urge strongly enough in answer to your question to the mayors that the Congress take an all-out, flat, obdurate approach and really dig its heels in on the moratorium.

I think that the time has come when we stop using our housing production mechanism as a lever to control the economy and to fight inflation. Housing is too basic a commodity, housing is too basic a supplier of jobs, and of profits that are taxable to provide income to the Government. Housing is too massive an element in a vibrant, healthy, and sound economy for that spigot to be turned on and off at the whim of whoever may be chairman of the Council of Economic Advisers or who may be running the Federal Reserve System as a means of economic control. It just will not work, and there is too much. hanging in the balance in terms of American communities, American jobs, and a safer and vibrant economy.

So now, we are losing housing, we are losing jobs and I don't believe that our Nation can afford to face the full impact of these continued program suspensions in 1974-75, when the administration promises. us that better programs may be forthcoming.

Let me reiterate what Mayor Alioto said. I am not talking just about poor people. I am talking about roughly one-half of American families, up to an income of $14,000, or $15,000, or $16,000 a year, who are currently priced out of the private housing market, namely, without Government programs of the familiar type, without some kind of tax assistance, some kind of land aggregation assistance, some kind of subsidized debt service systems, without some combination of these aids.

The private housing program simply wipes out as a part of its effective market half of the American public. So, I am not just talking about the very poor or just the poor.

Senator PROXMIRE. You are understating your case, as you know. You are being conservative in that statement. The average family income in this country is about $10,400.

That means 50 percent earn less, 50 percent earn more. If you take $15,000 or $16,000 and above, you are talking about only 20 percent, maybe 25 percent, who can afford new houses. The latest figures I have is that new houses, perhaps people with $12,000 or $12,500 can afford a new house but that really rules out 60 percent, not 50, but 60 percent. Mr. SCHEUER. Right, Senator.

Senator PROXMIRE. Three-fifths of the American public.

Mr. SCHEUER. You are quite right. We are not here as special pleaders for the poor or the very poor but as general pleaders for America.

Now, let me say a word about specific proposals, and it is difficult within the context of the President's message, since no legislation was available on time, only the message itself.

Now, we don't want to throw the baby down the sink with the bathwater, and there were some good things, some laudable elements in the President's proposal.

His recommendations were designed: (1) To ease the present tightmortgage credit situation, (2) to make it easier for homeowners, both rural and urban to obtain mortgages over the long term, (3) to assist low-income families to obtain decent housing and, (4) improve the community environment. We approve and support the proposed acts to modify the mortgage credit situation.

A plan by which Ginnie Mae will commit to buy up $3 billion of residential mortgages at somewhat lower interest rates than current interest rates is strongly endorsed by us.

We believe in the use of subsidized interest rates to bring the cost of housing down. We urge Congress to authorize increases in the permissible mortgage amounts of FHA loans to get away from the very burdensome and difficult matter of points which are passed on by the developer or the nonprofit to the buyer, and are difficult for him to handle.

We also support part of the President's second group of proposals geared to assisting homebuyers to obtain mortgages in the long term. These include authorizing on an experimental basis more flexible repayment plans in FHA insured mortgages, establishing a mortgage insurance tax credit up to 3%1⁄2 percent and insuring private mortgage insurance companies.

We do not support the President's recommendations that all limits should be removed on interest rates for FHA- and VA-insured mortgages. We feel there should be continuing control on them.

We are disappointed that with the exception of the tandem plan none of these programs provide means of producing housing at significantly less cost.

The cost of money is a prime factor in determining the ultimate cost of housing and of course, that is why the interest reduction and subsidy programs have been so very popular.

Now, the third set of Presidential proposals deals with assisting lowincome families to obtain decent housing.

First among them, of course is the direct cash assistance program. Now, rather than make a long statement on that, it has been covered very adequately this morning-generally we are in favor of the cash assistance programs, at least on a continuing demonstration basis. We have had a cash assistance demonstration program in New York City for the last several decades under our welfare program where we have been paying the cost of housing. And welfare hotels are examples of what can happen in terms of driving up costs by simply adding to the income flow without producing new housing and what happens when you have a cash assistance program without regular rigorous controls on the kind of housing for which that cash flow may be applied.

A large portion of the welfare hotels in New York are the most abysmal kind of slums. Yet Federal moneys are being used to support welfare people in these hotels. So the two graver reservations we have about the direct cash assistance perhaps is No. 1 it does not produce new housing, and No. 2 there are no apparent controls on the kind of housing in which poor people will be able to live with the assistance of the direct cash grants.

We take it as an absolute, given that, while we are experimenting with direct cash assistance-and maybe it will work in this country where it has not worked in other countries-we must consider the programs that are geared to housing production.

In addition, where most of our urban housing is in short supply, you cannot solve the problem by mirrors, you cannot solve the problem by trickling down, you cannot solve the problem by feeding the horses and sparrows. You solve the problem by creating more housing.