Properties and installations-Summary of housing program under title VIII, National Housing Act, as of June 30, 1954 Continued

Properties and installations-Summary of housing program under title VIII, National Housing Act, as of June 30, 1954 Continued

NOTE. When there is more than 1 project at an installation, the number of projects is shown in parentheses.

STATEMENT OF DEPARTMENT OF DEFENSE, APRIL 26, 1954

WHERRY HOUSING PROGRAM, TITLE VIII OF THE NATIONAL HOUSING ACT, AS AMENDED In order to alleviate the acute shortage of rental housing available to military and civilian personnel in military areas, the 81st Congress passed Public Law 211 (Wherry act) on August 8, 1949, which added title VIII to the National Housing Act. This legislation encouraged private construction, under FHA mortgage insurance, of rental housing for military use, when certified by the Secretary of Defense or his designee. Title VIII relieved the Government of the financial responsibility of constructing public quarters normally provided through the use of public funds. Although Wherry housing can supply only a minor portion of the total military family housing need, approximately 78,000 units have been completed or are under construction, with an estimated potential requirement sufficient to achieve a total program of about 100,000 permanent units. This legislation will expire on July 1, 1954, unless further extended by the Congress.

Project development. Wherry housing can be provided only at permanent military installations under the law. The size, type, and location of projects are determined by the military departments. Approval by the Secretary of Defense must be obtained prior to proceeding with any project development. Authority to perform operations under the Wherry Act and to certify needs for specific projects, as required by law, has been delegated to the Secretaries of the military departments. A certification of need must be provided to FHA, as a legal prerequisite to insuring a mortgage specifying that the project is necessary to provide adequate housing for personnel of the military departments, that there is no present intention to substantially curtail activities at the installation, and that the installation is deemed to be a permanent part of the Military Establishment.

Determination of costs. The cost of a project is determined primarily by the rents which can be paid by the personnel for whom the housing is to be provided. Rent ceilings are determined by the military departments after analysis of the capabilities of intended occupants to pay. 1 Other limitations on cost are imposed by provisions that the insured mortgage may not exceed 90 percent of the FHA estimated replacement cost, or 90 percent of the bid replacement cost, or $8,100 average per unit, whichever is lower.

Site acquisition. Where Government-owned land is not available for an approved title VIII project, a suitable site is normally purchased with appropriated funds. Such acquisitions must receive prior approval by the Assistant Secretary of Defense (Properties and Installacions) and, if the price is in excess of $25,000, the Armed Services Committees of the House and Senate must also approve.

Design and engineering plans. Under current operating procedures, the design and architectural and engineering features are prepared by an architect-engineer under contract with the military departments, with certain exceptions, and are processed through the FHA for their approval and cost evaluation prior to advertising projects for competitive bids by interested sponsors. While the architectengineer fees are paid by the military, they are subsequently reimbursed by the sponsor selected and included in the cost of the project. In those projects developed by negotiation, the architect-engineer is employed by the sponsor and the costs are likewise charged to the project. Construction costs have risen constantly, making it increasingly difficult to develop feasible Wherry projects within statutory mortgage limitations.

Supplemental costs. Appropriated funds are used, when necessary, to defray costs of outside utilities, site preparation, and land acquisition. Expenditures

1 Rents on Wherry housing projects are controlled by FHA in coordination with the using military department. A basic rent ceiling, established according to the prospective tenant's ability to pay, is certified to FHA by the military department. Based on the predetermined rent schedules, replacement costs are estimated by FHA to cover construction and management costs, operating expenses, reserves for replacement, vacancy allowances, debt service and FHA mortgage insurance premiums. FHA has responsibility for evaluating costs and inspecting construction. Proposals by building firms may have higher or lower replacement cost figures, which may require adjustment of rental schedules to some extent, but such builder estimates are primarily governed by the predetermined rental rates. Under present legislation, Wherry sponsors are required to certify actual construction costs, and if such costs are appreciably lower than the insured loan, rental rates may be affected sufficiently to require adjustment in the rent schdudle. In projects completed prior to the amendment of legislation in June 1953, rental rates as originally established remained unchanged and were not revised on the basis of actual construction costs as certification was not required. Rental rates as originally established are not related to the amount of the insured loan for any Wherry project nor to actual construction costs, and are adjusted only when a sponsor's net return exceeds 634 percent of the replacement cost, in which case a reduction in rental rates would be required by FHA."

for this purpose under the authorizing legislation (Public Law 155, 82d Cong.) are limited to those projects where costs would otherwise exceed the statutory mortgage limitations, or where the use of these funds is necessary to provide adequate housing and still maintain established rent schedules within the economic means of the proposed occupants to pay. In order to preclude any possibility of excessive profit to the contractors, the off-site utility and off-site improvement contracts are made subject to renegotiation.

Selection of Wherry sponsors.-Under the original Wherry act, enacted in 1949, sponsors were selected by direct negotiation between the military and prospective sponsors. A subsequent change in the law in 1950 authorized the military to negotiate for the services of architect-engineers in preparing standard plans and specifications. Thereafter the competitive bidding procedure was used in developing projects, except in cases of projects of 75 units or less, extensions of existing projects and projects specifically excepted from these normal procedures by the Secretary of Defense. Under the competitive bidding procedure the lowest acceptable bidder is designated as the sponsoring organization; some of the bids received are at lower replacement costs than estimated by FHA. military departments require all sponsoring proposals to be accompanied by a certified check varying from $5,000 to $25,000, according to the size of the project, guaranteeing that the prospective sponsor will proceed promptly with the project, if selected.

The

Sponsors certification of costs.-To prevent unreasonable profits in construction of Wherry military housing, section 10 (b) of Public Law 94, 83d Congress, approved June 30, 1953, added a new paragraph to subsection 803 (b) of the National Housing Act, as amended, requiring the mortgagor under a title VIII FHA-insured mortgage to certify either (a) that the amount of the actual cost to him of the physical improvements on the property equaled or exceeded the proceeds of the mortgage loan, or (b) the amount by which the proceeds of the mortgage loan exceeded the actual cost of the physical improvements. In the latter case, the mortgagor is required to pay, within 60 days after the certification, any excess of the amount of the mortgage loan over the actual cost of the improvements. The excess would be paid to the mortgagee for application to the reduction of the principal amount of the mortgage, thereby reducing the contingent mortgage insurance liability of the FHA. This legislation also directed that the Federal Housing Administration shall construe the term "actual cost" to be only that amount remaining after any kickbacks, rebates, and normal trade discounts received in connection with the construction of the said physical improvements, i. e., includes only the actual amounts paid for labor, materials, and related services.

Changes in replacement cost estimates.-The military departments and the FHA will not agree to any increase in the original bid, after a sponsor has been selected, except when the sponsor has encountered increased costs in construction due to (a) an increase in prevailing wage rates approved by the Labor Department which may have occurred between the time when the sponsor was selected and construction commences, or (b) construction changes which have the prior approval of the military.

Lease provisions.-Wherry housing projects are generally constructed on military reservations under a leasing arrangement. No value is assigned to the land. Accordingly, the sponsor's equity is not enhanced by land-improvement valuation. Also, the costs borne by the Government for site improvements, extension of outside utilities, etc., are, of course, not considered as the mortgagor's cost and do not increase the value of the sponsor's equity. Under present land leases approved by the military departments, title to all structures and improvements vests in the Government upon completion of the project; these become a part of the premises leased to the sponsoring corporation. Occupancy is restricted to tenants designated by the local military commander on a priority basis; only under special conditions can they be made available to others. Inasmuch as many projects are located in isolated areas, the fair market value of the military projects is largely governed in most instances by the continued use of the military installations. Rents are controlled by FHA in coordination with the using military department; any increases are confined to justifiable changes in operating expenses, including taxes when assessed.

PROCEDURES FOR DEVELOPMENT OF WHERRY PROJECTS-LIST OF FUNCTIONS PERFORMED BY MILITARY DEPARTMENTS, MARCH 29, 1954

Application of the following procedures differs widely between the services; Air Force performs all operations at the headquarters level; Army and Navy are decentralized to the district and command level, except that clearances, coordination, policy control and approval authority are conducted at headquarters level. The sequence of these steps may differ between the services.

1. Makes the following basic determinations:

(a) Permanency of installations.

(b) Permanent peacetime military and civilian strengths of installation. (c) Gross family housing requirements for military and key civilian personnel (computed by application of experience factors).

(d) Housing assets-all public quarters, temporary units, and existing title VIII units.

(e) Gross deficit of permanent housing.

(f) Safety factor, including community support.

(g) Net housing deficit (deduct safety factor from gross permanent housing deficit).

(h) Tentative size of project.

(i) Gross rentals that can be afforded by prospective occupants of proposed project.

2. Preparation of DD Form 262 for required coordination and approval.

3. Coordination with other two military departments.

4. Coordination and approval by Assistant Secretary of Defense (Properties and Installations).

5. Secretary of sponsoring service approves project for development. (Air Force considers approval of Assistant Secretary of Defense (Properties and Installations) as final authorization and therefore does not obtain approval of Air Force Secretary).

6. Preliminary meeting of representatives of military and local FHA insuring office to ascertain if project is feasible and meets with local FHA approval. In the event of disagreement between military and FHA at local level, referral to respective Washington offices is made for resolution.

7. Preliminary study and evaluation is given to:

(a) Tentative selection of site or sites.

(b) Determination of actual numbers and types of housing units required. (c) Utility needs and location of existing utilities and distribution system. (d) Probable taxes.

Estimate amount of Public Law 155 funds that will be required (if any). (f) Estimated cost of construction.

(g) Gross rentals.

(h) Coordination of project with master plan of installation.

8. Selection of specific site, and, if not Government owned, secures option on site.

9. Method of development procedure established. Projects are required to be developed under the competitive bid procedure; however, exception for direct negotiation may be made for (a) extension of existing project, (b) projects of not more than 75 units, and (c) specific approval of the Assistant Secretary of Defense (Properties and Installations).

NOTE. At this stage of processing, different procedures are followed in development of projects under the bid procedure, and projectss being developed by direct negotiation. Processing steps indicated by an asterisk (*) are performed only under competitive bidding procedure and do not apply to projects being developed by direct negotiation.

*10. Makes contract with architect-engineer to develop plans, specifications, and other data for proposed project, including site and utilities information, in sufficient detail for FHA to furnish appraisal and eligibility statement.

NOTE. In the procedure followed for projects approved for direct negotiation, military selects a sponsor; sponsor hires architect-engineer and deposits certified check in the amount of 2 percent of estimated replacement cost but not to exceed $25,000 nor less than $5,000.