wanted to build subsidized housing for them in an adjacent town. That town didn't want to have subsidized housing within the town limits. The manufacturer solved the problem in that case by giving the town the option of (1) having the plant and the housing or (2) losing the plant by refusing the housing. They accepted the housing. Not all industrialists are that aware or concerned about housing problems of their employees. Do you really want to bar private groups such as private nonprofit development corporations from utilizing housing subsidies without the affirmative approval of the local officials? Perhaps we would accomplish more by allowing those officials the political expediency of being passive. They have a full arsenal of means of obstructing the construction of subsidized housing if they are really opposed to it. Similarly, we question the barring of subsidies to private developers in communities which do not have a Workable Program. (pp. 10-11 and references on pp. 24-25). We suggest that the Workable Program requirement be limited to those programs where the public jurisdiction is uniquely qualified to be the grantee. We recommend that this section be reconsidered.

A second assumption in the Bill is that all local governments are capable of
developing and managing housing programs that do not piggy-back on existing
federal housing programs at the present time. This is a debatable proposition
at best. For instance, a number of communities in New York State lost out on their
general revenue sharing allocations because they didn't even fill out the one-page
applications on time. This assumption of capability is implicit in the automatic
entitlement provisions in sec. 124 (b) (2) on p. 31, but we question its validity
in light of the experience to date in general revenue sharing. Again, we recommend
reconsideration of the proposition, with a view to shifting from the revenue sharing
to the block grant approach.

The third problem is the cutback in the funding levels. Presumably the cutback
in the categorical funds is due to the transfer of funds to the block grant. Under the
terms of the bill (p. 32) unexpended block grant funds are to be redistributed to
other applicants for block grant funds. This is penalizing the community which may
not have a level of governmental competence adequate to administer the housing
program outlined in the bill. We suggest as an alternative that unexpended block

through a tandem plan or an interest subsidy. These are elements of an approach to the problem, but continuity of funds does start with the free market rate.

I don't think that anything could be done at this moment at the Federal level about State usury laws which are very, very disruptive. Here again this is why the FHA and the VA programs are so important.

Mr. ASHLEY. You might want to give us your views with respect to the administration's proposal to grant a tax preference to lending institutions, based upon the percentage of mortgages on residential property in their overall portfolio. I am curious, too, about the views that you might have on the suggestion that pension trusts, for example, might assist in this area more readily than they have in the past. I am sure you are familiar with the proposal that a very small percentage of their assets be mandated for investment into Government-guaranteed mortgages, which would return, at this juncture, about 811⁄2 percent, or something of the kind.

Mr. ROTHCHILD. If I may step out of my official role, because I do not want to speak to your questions officially without consultation with my association. I have to explain by biases since I have a major interest in a savings and loan in Illinois.

I think that, as against setting aside specific bundles of assets to go into housing loans, the use of tax credits in one way or another comes closest to permitting the market to respond, to operate freely. When you set aside a bundle of assets and say you must use it in one way or another, you are really contradicting everything that the money market responds to and I think that a proposal mandating a percentage of investment in mortgages would probably be selfdefeating.

I think, personally, that measures that continue to make the savings and loans and the mutual savings banks viable and assure their continued channeling of money into housing are appropriate, but that is purely a personal point of view.

Mr. ASHLEY. I really do not have time to quarrel with you, but if I did I would. I feel that the operation of the market is fine during the downturn phase of the business cycle, but when the economy is expanding the people who shriek loudest about the operation of the free market are the savings and loan associations. What they want. then is some kind of statutory mandating of an interest differential between themselves and commercial banks.

They want there to be no free market operation, for example, in terms of bank CD's that carry a 4-year maturity. It is just a question, it is not, of the particular circumstances. It would seem that we can talk about the free market with great clarity and in ringing tones in some situations, and yet in other situations, why, those who have. pleaded the loudest are the first to come in and tell us what consternation is reigning in their industry and how important it is for the Government to mandate some controls on the free market. Wouldn't that be essentially a fair statement?

Mr. ROTHCHILD. Essentially that is a statement we must contend with from those industries, I am sure. But I think that you have to recognize that one of the faults in the structure, with the exception of

24-038 74 pt. 1 46

There are several matters which relate to implementation of specific projects.

(1) We recommend the retention of the "Widnall" requirement establishing
standards for the acquisition of private properties. It supports the
concept of area-wide rehabilitation or redevelopment and reduces the
potentiality for exploitation of the housing program by property owners
who want to be "bailed out" of bad investments.

a

(2) We recommend that the federal government require/specific plan be submitted for funding which includes a statement of purpose, a detailed budget, a presentation which can be understood by the citizenry, and an opportunity for the

citizens to be heard on the plan (pp. 24-26).

(3) We recommend that the needs of major projects be recognized by
authorization of multi-year funding. This is essential to attract
private capital. (pp. 4 and 23)

(4) We recommend that if a public agency has used tax abatements as an
incentive to redevelop or rehabilitate an area, the difference between
the normal tax and the reduced tax be made an eligible expenditure
under the Act. (pp. 27-28)

Let me enlarge on the problem of multi-year funding by citing a couple
of examples from my experience. During World War II, the federal
government interned many Nisei from California in camps near Denver.
When the war was over, many of these citizens chose to remain in
Denver, and because of the housing shortage at the time, they settled

in marginal housing near the Tri-State Buddhist church on the edge of

the downtown area. I found they could afford better housing, but it was

not available in the part of the city where they wanted to live. Over a period of time, a major urban renewal project has allowed the Church to move from

a converted warehouse into a new building, a residence for elderly citizens has just been opened, and a business and cultural center for the Japanese-American community was dedicated recently. Other buildings in the area also are being renovated. This has involved a considerable time span because the community is closely knit socially and culturally, and a major effort mounted all at once would have shattered it. Yet, it was necessary to know that the funds would be available to assure that the project would be consummated before the necessary investment capital could be raised.

In contrast, a NDP (Neighborhood Development Project) program was started in a semi-rural slum on Denver's outskirts. Funding, of course, was on a year-to-year basis. The population, who had been residents of the Ozarks, were uprooted by the depression dust bowls and stopped in Denver instead of going on to California. By now, they are elderly and are not particularly affluent. I guess most of them would be called "the working poor." In any event, our inability to schedule assistance for the entire area let unscrupulous real estate men and contractors prey on them; many sold out at a pittance and others paid unconscionably high rates for repairs to "fly-by-night" outfits who accurately pointed out that the housing did not meet city codes and frightened the residents into assuming huge bills. We could not offer a firm alternative, and many families in that area were the victims. Had we been able to say with a degree of certainty that we could provide low-cost rehabilitation loans next year or the year after, most of this exploitation could have been avoided.

facts, one might say that in a particular instance it is considered in writing or under the contract that one of these many alternates is paying the discount. When we come right down to it, isn't it always the buyer who pays the discount, whether he is the one who on paper is paying it or not, Mr. Rothchild?

Mr. ROTHCHILD. I do not think that you can deny that that is the case, although I think one could propose that it would not necessarily be right. This is probably a matter of one's comfort with any transaction, but there are times when sellers believe they have paid the discount and made a contribution to the buyer. There are times when builders do in fact reduce the price of their house by picking up discourts or by hiring money in advance, that is committed for funds. But to the extent that prices of houses are adjusted by discounts, certainly the buyer pays them.

Mr. ST GERMAIN. On page 9 of your testimony, you state, the administration's strong reliance on this approach, meaning the housing allowance or cash assistance program, to low-income housing would seem to indicate that they are satisfied with their test results.

When Secretary Lynn testified here last week, opening the hearings a week ago yesterday, he stated that they could not begin the program until late 1975 and most likely would have to put it off until early 1976. It would begin with the senior citizens on welfare, because they are still testing. We have further answers to other questions during the questioning of the witnesses for the administration wherein they stated that in answer to some of these questions, well, we are going to have the answers after we get the results of our tests.

So in essence, they have just begun to test. The original tests, I think, began in a very limited manner in two communities, maybe 2 or 3 years ago, and then expanded approximately a year ago to a larger number of people; however, they are still in progress. They haven't got results. This is what bothers me. They have stopped all production. They are going to continue testing. They want us to adopt a piece of legislation which, despite the provision for leased housing, is essentially a nonhousing production program that they say they are still testing and they are going to figure out how to administer between now and early 1976.

Mr. ROTHCHILD. Well, Mr. St Germain, the mortgage bankers consented to the moratorium for two reasons: First, there was clearly an administrative problem that we thought should be spoken to; and second, we believed that the housing industry should make a contribution to the war against inflation at that moment.

But we do believe that while the administration is testing their housing allowance program, and until it is satisfied with the fact that it does not need more testing, I guess that is what the statement should have been, that the housing production subsidy programs should be reactivated, and should be carefully administered and monitored to see that they are economically sound, but that they should be continued. I would like to just remind the industry, those of us who were involved in the subsidy programs, and the members of this subcommittee, that both the 235 and 236 programs provided workouts for people, that is that as people's incomes went up it was originally proposed that their subsidies were to go down. The predictions of the mass of funds needed for these programs, I am not sure ever took this point