The housing provided under the Wherry Act has been an expensive and timeconsuming procedure with authority divided among several agencies of the Government, and has been open to abuse including excessive profits. Under this bill, the divided responsibility would be eliminated by making the FHA practically a rubberstamp insurance operation without control or responsibility as to standards of construction or operation of the project which is essential if FHA is to protect its insuring liability. The FHA, serving only as an accommodating facility in obtaining mortgage proceeds from private lenders, would be impotent throughout the transactions, yet be required to use its reserve funds to pay the lenders if the mortgagor defaults.

The use of appropriated funds would reduce the cost of the financing, would eliminate certain administrative overhead, and would avoid the necessity for the Federal Government to make and enter into indirect and complex arrangements and relationships with uncertain incidences and consequences. For example, the legislation would authorize the respective military establishments to perform all the rental and managerial services of a lessor, yet not be the lessor; to assume to pay the mortgage indebtedness, yet not be the mortgagor; and to assume all of the liabilities and responsibilities of an owner, yet not be the legal owner.

For these general reasons, the General Accounting Office does not recommend enactment of the bill in its present form and suggests that necessary military housing could best be provided by the appropriated funds method.

For purpose of comparison between existing law and the proposed legislation, we are enclosing an analysis of the more important provisions of title VIII of the Housing Act and this proposed legislation. If it is decided to continue an FHA-insured military housing program, your committee may wish to consider the following comments on and comparisons of the features of title VIII (Wherry Act) and S. 1501:

(1) The proposed competitive bidding features in section 3 (d) of S. 1501 is preferable over the present Wherry Act requirements.

(2) The bill would require the FHA to insure a mortgage in the amount of 100 percent of the lowest acceptable bid for constructing the project, as contrasted to 90 percent of FHA's estimated replacement cost under the Wherry Act. If the FHA should be required to insure the entire cost, at least it should have some authority to withhold approval if it does not concur in the amount of the proposed construction cost.

Final costs to the builder of the project may be either less or more than his bid. In cases where the costs are less than the contract price, the excess of mortgage proceeds over actual cost, plus profits included in the bid, may result in excessive profits. This type of profit is precluded under the Wherry Act by the amendment of June 30, 1953, which requires that the mortgagor certify the actual cost of physical improvements and that the excess mortgage proceeds be applied to the mortgage requirements that should be incorporated in the new program. In comparison, where actual costs might exceed the amount of the mortgage, the contractor might elect to default and, in the absence of a performance bond, his action would cause the Government undue hardship. Protection against such default should be included in the bill.

(3) Under the Wherry Act program, military personnel receive quarters allowances and occupy the housing on a voluntary basis, whereas it is contemplated in the proposed bill that military personnel will occupy the housing constructed as regular assigned quarters and receive no quarters allowances. We believe that quarters assignment authority is necessary for the military establishments because some Wherry Act projects are not being fully utilized. The bill does not include civilian employees as being eligible to occupy the housing units although such persons are eligible under the Wherry Act.

(4) There have been certain tax difficulties with respect to the administration of the Wherry Act projects involving inequitable tax situations and permitting unjustifiable profits that probably cannot be corrected without specific clarifying legislation. This condition was reviewed in our letter of April 18, 1955, to Senator Byrd, chairman, Joint Committee on Reduction of Nonessential Federal Expenditures, a copy of which was sent to you by our letter of April 20, 1955. While this is a policy question for consideration of Congress, obviously it should be given special attention.

(5) Subsection (b) on page 16 of the bill authorizes the military establishments to acquire the projects by lease or otherwise after they are completed. This authorization may be construed to permit the purchase of a project for

whatever amount the parties may agree upon, although the maximum amount of rental that may be paid under the lease is fixed in the subsection. The interest of the Government should be protected by clarifying the maximum that may be paid to the vendor in order to preclude unconscionable profits.

(6) The statement and memorandum in explanation of S. 1501, beginning at page 2660 of the Congressional Record for March 18, 1955, indicate that certain steps will be followed by the military departments and the builder with respect to creation of a corporation, the subsequent transfer of the stock to the Secreretary of the department concerned, and other features to be governed by administrative regulations. The rights of parties involved in this procedure are of such legal import that we suggest they be specified in the law to eliminate conflicts of interpretation and possible misunderstandings.

Sincerely yours,

JOSEPH CAMPBELL, Comptroller General of the United States.

Senator SPARKMAN. It is the hope of the subcommittee to combine as many of these bills as we can into one legislative package, so that the bill, as finally reported from the subcommittee, will contain all of the recommendations and major legislation for this year.

The fact that I have listed the above-mentioned bills does not mean that the subcommittee is restricting the testimony to be given in the next 2 weeks to the provisions of these bills. On the contrary, it is hoped that witnesses will suggest, in the course of their testimony, such changes and additions as they feel are necessary to existing legislation and to the pending bills.

We have in effect 2 days of discussion on our present housing program. It was just informal roundtable conferences, more or less. Many witnesses have indicated areas in which improvement is needed. I am hopeful that from this point on such suggestions and improvements will be in specific and concrete form, so as to facilitate consideration by the committee.

Our first witness this morning is our distinguished colleague, the former chairman and ranking member of the full committee, and also of this subcommittee, Senator Capehart. We are glad to hear from you, sir.

Military housing

STATEMENT OF HOMER E. CAPEHART, A UNITED STATES SENATOR FROM THE STATE OF INDIANA

Senator CAPEHART. Thank you, Mr. Chairman. It is quite an experience to sit on this side of the table. I have no prepared statement. I am just going to talk extemporaneously and I am going to confine my discussion this morning entirely to S. 1501. That is the bill I introduced, together with 29 other Senators. I think had I had time, I probably could have secured the coauthorship of 98 or 99 or almost 100 percent of the Senators. It was just a matter of time in getting around to them. I will confine my talk this morning entirely to

S. 1501.

The first thing I want to talk about is the aims and purposes and needs for this bill. If we do not need housing for our military, then we do not need this bill or any other kind of bill. I think the first thing that the Congress has to decide, and the conclusion they have to come to, as well as the members of this committee, is do we need more and better housing for our military personnel. I think we do.

In fact, there is no question about it in my mind. I think we need no less than 300,000 units. We not only need 300,000 units, but we need better units than we have had in the past. There is no question but what we will have to maintain a large army for many, many years to come. There is also not any question but what we would like to have the boys who go into the service remain in the service, and eliminate the expense of training new men all the time, which is very, very expensive. Not only is it very, very expensive, but likewise you do not get as efficient an Army as you do where a man goes into the service and remains in it for 20 or 25 years.

I have always felt, and I still do today, that the one thing we need above everything else is what I call a professional army. I am not qualified to say whether it should be 1 or 2 or 3 or 4 or 5 million men, because I am not a military man, but I have always maintained, and particularly in this atomic age, that we need what I call a professional

army.

Now what do I mean by a professional army? I mean an army exactly like the fire department and police department in New York City or any other city; an army that is professional and highly trained and highly skilled, which is capable of going into action at any minute. That is the sort of a war we will have if we have another one. In this atomic age we may be hit by atomic bombs from anywhere in the world. We are going to need a professional army.

What do we have to do to get a professional army? No. 1, of course we have to pay good wages-good compensation. However, I think above and beyond that a thing which will get you a professional army and a permanent army, which will keep men in the service, is good housing.

Why do I say that? Because the great majority of the men in the service today are married. I believe the figure is 80 percent in the Air Force. If I make any statements here today that I find later are not factual, I would like to correct them, but I think it is 80 percent in the Air Force that are married.

Senator SPARKMAN. You mean 80 percent of the

Senator CAPEHART. Of the officers, I think.

Senator SPARK MAN. Oh, the officers.

Senator CAPEHART. I forget just how high the average is among the enlisted men. But this bill, of course, covers both officers and enlisted men, so when I talk about the services and the men I am talking about both officers and enlisted men. In any event, it is very, very high. Senator SPARKMAN. May I ask a question to clear my own thinking? Senator CAPEHART. Yes.

Senator SPARK MAN. Would the housing be both for career personnel and temporary personnel?

Senator CAPEHART. Yes. For both. It would be for both. It would be for anybody in the services, or everybody in the services. Senator SPARKMAN. Would it be built on military reservations? Senator CAPEHART. It will be owned by the military. Yes. Senator SPARKMAN. It will be built on the reservation?

Senator CAPEHART. Either on the reservation or ground near the reservation.

Senator SPARK MAN. Very similar to the Wherry Act?

Senator CAPEHART. In that respect it will be very similar. There is not any question but what if you want to keep men in the service

and have a real professional army in this atomic age you must furnish good housing. These men are married and they have children. I have observed that you raise children when you are young, and these men are all young. They transfer them from camp to camp and from point to point almost once a year, and sometimes more often than that. These fellows; that is, these enlisted men and officers, have wives and families. They have a wife and 2 children, or perhaps 3 or 4 children. They transfer them from one installation to the other.

Does it not make sense today that you ought to have sufficient housing to take care of those people? Here is the way it works at the moment, and I know what I am talking about. I am talking about experience not of my own, but people that I actually know.

They transfer a married man from one installation to another. He has saved a little money, but he uses it all up when he arrives at his destination, because he is living in motels with his wife and children while looking for a house to live in. He may spend a week or two, or perhaps a month, looking for a house, or even longer. The wife and children live in that motel. She writes back to the folks at home saying, "All of this is terrible. I wish I could get out. We are going to get out and not put up with this." Morale is bad not only with the immediate family, but with the family back home. The family back home tells its neighbors and the result is that people do not like to go into the service, and they do not like to stay in the service. Then, when they do finally find a house it is not satisfactory. The rent is entirely too high; accommodations are not satisfactory; it is too far from the camp; it is just not right.

I do not know of a private enterprise-and I am talking about a private company now-that when they move their people from one branch factory to another, or when they establish a new factory where they are going to move all the personnel-that does not pay their transportation. Of course, the services do pay for the transportation of these boys, but the private corporations likewise help them where they have housing problems. There is not any question in my mind but what it is needed, and no one can ever convince me otherwise. I do not think there is a single Senator but who feels it is needed. There is no question about it.

It will improve morale. My opinion is that good housing for the military will save our Government millions and millions of dollars a year in just the cost of training new men and the loss of these old fellows who get out because they just cannot take it. Their wives just will not permit them to stay in the service any longer because they do not have a decent place to live. That is No. 1.

Now No. 2. There is no question but what we will have to remain highly armed, with a large army for many, many years—10, 15, 20, 30, 50, and possibly 100 years. We ought to face this situation and ought to furnish and prepare permanent quarters for these people. This bill is a method of doing that. However, there is no use in our taking up your or anybody's time on this bill, which includes the Government itself, and the FHA, and the military, unless they are sold on its aims and purposes. I happen to know the high officials in this Government are sold on it. I do not know about the lesser officials. But I happen to know that the higher officials are sold on this bill.

Let me say this: I think this bill can be improved. I have never seen any piece of legislation that could not; but if we can become in

terested in it and can become sold on the purpose of it, and come to the conclusion as a committee that it is a good thing and we are going to furnish the proper housing for our military, then we can easily get together and iron out any weaknesses in the bill, if there are any. I am sure there are some because it is pretty hard to sit down and write a bill and get it just exactly right the first time.

I assure you for myself and the other 29 Senators who joined with me that we have no particular pride in authorship, but we are just interested in one thing, which is getting good housing for the military. That is the only purpose of this bill. We think this is the cheapest and the best and most efficient way to do it.

Let us talk about some of the objections or the things that the different branches of Government particularly brought up against this bill. Let me say this to you: I have not found a single one of them yet but what it is very simple to overcome. They are minor reasons, and in many instances, if I may so, they are sort of alibis.

For example, one of the things against this bill is they say that we ought to do what we are talking about doing in this bill by direct appropriation. I do not think you are going to get a direct appropriation, to build 300,000 houses over the next 5 years or 10 years. Let me say this to you. It may sound rather queer, but I can prove it to you. It will cost the Government more, or cost more to do it by direct appropriation than it will with this method. We have worked up a chart here comparing this. I wish that that could be handed out to the press, and particularly to Mr. Cole, because he is one of the gentlemen who informed me that it will cost more. It just is not true. Will you hand one of these, please, to each of the Senators and to the press?

The interest rate under FHA mortgages under S. 1501 would be 4 percent. It is a fact, I presume, that the Government must sell bonds on direct appropriations for possibly 334 or let us say 3 percent. One million dollars amounts to selling a $1 million bond due in 25 years. The interest on that bond will be $750,000. Under this plan it will be reduced by the amount of the amortization each year, or at the rate of $40,000 a year. Under S. 1501, the mortgage interest rate, while it is 4 percent, will only run to $520,000.

Someone is likely to jump up, and properly so, and say that you can sell serially numbered bonds and amortize them, but what assurance have you that you can resell bonds 5 or 10 years from now at an interest rate of 3 percent? You know now if you sell a 25-year Government bond it will cost you somewhere between 3 and 4 percent. But if you sell short-term bonds, let us say, what we call notes, for 90 days, or 6 months, or a year, you can do it at the moment at a very, very low rate. But what assurance have you that you can continue to do it over a period of 5 years or 10 years or 25 years? These mortgages are 25-year mortgages. Therefore I do not think there is any basis for saying that you can save money with a direct appropriation now. It just is not true. I do not know who you are arguing for whether for the Government or for the men in the field, that is, the servicemen. I am arguing for the servicemen. I know you may sit around here for a year or 2 or 3 or 4 years, and try to get direct appropriations, and find all sorts of excuses for not wanting to give these men good housing. But I say this to you—the boys will pay. They will pay. I happen to