Senator BIDEN. I do not see how it would work without that but assume I am incorrect and go on to the next thing. The allowances, the subsidy allowances that are going to be given. The cash payment that is the other departure.

Secretary LYNN. May I, before you get to that-I do not like singling out the mortgage interest tax credit alone as to the kind of things that would help the market mechanism, because we list a whole lot of other things that we think are important in that regard in the message.

Senator BIDEN. I guess what I am saying is that if either your mortgage tax credit proposal or the allowance, the cash allowance proposal are not accepted, then the program falls.

In other words, they are not the only things that would make it work but if either of those two are absent, I find, unless I am not following the logic, I find it difficult to see how this new thrust is going to function.

Secretary LYNN. Senator, let me try.

We have the President has proposed a number of initiatives to improve credit availability for the people that have the jobs, that have the incomes, to afford better housing.

Senator BIDEN. They are going to move out of their existing houses into better houses?

Secretary LYNN. Yes; that has been happening.

Senator BIDEN. That is the trickle up theory.

Secretary LYNN. You have to have movement up generally, and I prefer not to call it trickle, because it is upward looking, and has an affirmative note to it. What I am saying is that we have credit mechanisms that have resulted in more house construction and housing unit construction in the last 3 years than we have ever seen before in this country.

What the President is saving is that there are a number of proposals that should improve upon that system, get rid of feast and famine, make it possible for a young family to be able to move in a better house early, a number of proposals of that kind.

But that is separate from what we are proposing as the assistance to those people that notwithstanding the marketplace working well cannot get into that market. There are a group of people in this country who are not in the marketplace because they just don't have enough money to be.

On that there are a number of different approaches. You can have a construction oriented approach, or a cash approach.

Senator BIDEN. I understand that. But if they don't move out, if the continuation doesn't go on, the program does not work.

Secretary LYNN. You are right. It is the sine qua non.

Senator BIDEN. Now I think I do understand a little bit. then. The other part of it would be, another important component is the assumption, which I assume is true, because it has been stated time and again and no one has really challenged it, and it surprises me, as it seems to surprise Senator Weicker, that we have increasing the American people have increasing real income, and that this trend is going to continue.

I guess for the record or later on if you could brief me or someone on your staff could give me more substance for that assumption that there is that increasing real income.

Secretary LYNN. There is a whole chapter of the housing study devoted to this.

Senator BIDEN. Fine. Now what I am still a bit perplexed about, assuming as Senator Proxmire-I mean Senator Packwood-that everything works, it all fits in and we are on our way, things are going to look, assuming you are correct, things are going to look good in post-1976.

They may not look real bad to you pre-1976, but they are going to start really looking good post-1976.

Secretary LYNN. Right.

Senator BIDEN. If you had trouble last year, or 2 years ago talking about cash payments with regard to welfare recipents, how in the heck do you think that in 1976 another election year, you are going to haveoh, how about George Romney as your candidate?

My God! I just can't imagine him talking about direct cash to anybody; really and truly. I think there is a serious political consideration here.

Secretary LYNN. First of all, Senator, one of the reasons for taking this course is to think it through as carefully as we can, and instead of having anecdotal information, with one person saying they are going to do this with the money and others saying oh, no, they are going to spend every nickel just the way you want. Instead of that we will have data and facts.

The time of consideration I would hope would be sometime in 1975, the earlier the better.

Senator BIDEN. I would think that would be crucial to your whole program but then again I haven't been around that long to know whether that is important.

The other thing, and my time is rapidly dwindling here, it seems to me that what is reflected here is, in response to our question from Senator Packwood, which is the converse, what happens if one of these major links or several of them break down and it doesn't go forward, where are we with regard to housing and the Federal role in housing? He asked it for all, and I understood you responded, by saying there are still certain things that stand on their own two feet that we would like to see housing, and there are things listed primarily in the first part of your statement.

There are also things, as I see it that primarily would direct themselves to subsidized as opposed to public housing. They direct themselves to a different market than the public housing market. They are the lower income, lower to middle income people who are going to be benefited as they should be benefited by your initial proposals.

I am not trying to box vou into a category. I want to make sure I understand this. So if that is correct, if those things do in fact enhance the situation of that lower middle and middle income person in the subsidized housing range as opposed to public housing and the other program, the whole program breaks down in terms of cash allowance or the mortgage tax credits or whatever, it seems that when we end up, we have a real risk of ending up with a public housing guide that Lowell Weicker talked about being out on the limb with no program being available for it.

Secretary LYNN. The kind of formula that we would intend using in our new construction program is one that really achieves, we believe, substantial equity as among the people at all different horizontal levels of lower income, starting from the lowest up to people who need housing assistance at all, because if you go to a concept of looking at a given market area and that what it costs to obtain safe housing there, and you look at a decision of what is a fair proportion of a person's income, no matter what it is, low or moderate, or whatever it might be, and say that is what he should spend on housing, and then work a program along those lines, it seems to us you achieve vertical equity. Senator BIDEN. I would like to go into detail later with you as to the specifics.

Secretary LYNN. We would welcome it.

Senator BIDEN. I would like to get to the last things. Number 1, vou time and again talked about market forces that are going to produce this renaissance and I guess I sound as if I am facetious.

The market forces that are going to better the housing situation for subsidized and public housing use, maybe at a later date, or maybe it is in your report, you could really specify what those market forces are, if they are something other than the increasing real income of the American people and the change in the feast and famine of credit for mortgages.

Is there anything more substantive or in addition that leads you to believe that these market forces are going to work in that direction? Secretary LYNN. First of all, Senator, they have been working. Right now we have a tight mortgage situation, but we would like to avoid it by some of the techniques we are suggesting. The truth of the matter is that when you look at the level of housing production in the last couple of years in the United States, it is more than anyone would have dreamed of even 5 years ago.

In other words, what we are saving is the market forces can be seen by the number of units that are being built in this country. Up to 3 million units last year, if you include the mobile homes in it, and that is more than double what we had in prior years.

I am saying the mechanisms are working. We want them to work better. But you still need special assistance for the people at the lower end of the scale, because the market forces do not help them directly. All the market forces do is provide enough housing for them to move in if they have the money to pay for it.

Senator BIDEN. I would like to get back to that again. The last yes. I am still a bit perplexed as to why, even if this program is as good as you think it is, and has as many positive points as its proponents say it does. I am still perplexed as to why we cannot go forward with the study that has to be done in order to assure that this is a workable program, and at the same time take care of the ongoing, which can be stopped in 1976, for example, if your proposals are right, take care of the programs that are onstream now and in fact there is not any great disagreement as to their being at least a good deal more benefit than harm produced by the program.

What worries me is the inbetween time. What happens to all those people who are out there?

Secretary LYNN. Senator, we are proposing a program for the inbetween time. We don't like section 236, because it now has a very drastic notch effect in addition to being extremely expensive. It is a program that has become quite unworkable in many areas of the country, and there are a number of other reasons we don't like it. We feel the same way about section 235. What we want to do is work the marketplace, again, in a different way during this period.

We want in the main through our new construction program to go to a developer who is going to be building, and he is building for that conventional market, and say, give us some of your units, and if we have people with income here and it takes this much for you to make out with regard to this thing, we will pay the difference, so we do intend having construction during this period of time.

The question is: What is the most cost-effective way and the best way to handle the interim situation.

Senator BIDEN. My time is up. I would like to come back later, if I

may.

The CHAIRMAN. Senator Brooke!

Senator BROOKE. Thank you, Mr. Chairman.

Mr. Secretary, I am sorry I didn't hear your statement. I had an amendment on the floor. I have several questions. I shall try to keep them short and concise, and I would appreciate the same from you.

What is your estimate of the total additional rental income which would accrue to local housing authorities if all of the changes in public housing rent requirements which are contained in your bill were adopted?

Secretary LYNN. Give me a minute, please.

Senator BROOKE. As you know, I am very much concerned about the proposed changes in the public housing rents requirements contained in title III of your proposed legislation. As I understand it, you would abolish the provision contained in the present law which permits a 10percent deduction in defining income for elderly families.

Secretary LYNN. And the 5-percent deduction for other families. Senator BROOKE. Yes, and you would repeal the so-called Brooke amendment which provides that welfare agencies may not reduce welfare assistance to public housing clients as a result of the one-quarterof-income limit on rent contained in the first Brooke amendment. Secretary LYNN. Yes.

Senator BROOKE. And you would require that a tenant pay rent equal to at least 40 percent of the operating cost of his dwelling unit ; is that correet?

Secretary LYNN. Yes.

Senator BROOKE. I am concerned about how these proposed changes will affect public housing tenants. They may result in substantial rent increases for some tenants. In this regard, I wrote to you asking for information on the effect of these and similar proposals. I would request that your response to my letter may be made a part of the record at this point.

The CHAIRMAN. That will be done. [The letter follows:]

THE SECRETARY OF HOUSING AND URBAN DEVELOPMENT,
Washington, D.C.

Hon. EDWARD W. BROOKE,
U.S. Senate,

Washington, D.C.

DEAR SENATOR BROOKE: This is in response to your letter of September 10, 1973, concerning various legislative proposals which would significantly affect the rents paid by public housing tenants.

Attached are our responses to the questions you have asked. I am sure that you understand that some of our answers, of necessity, are really informed opinions. In my few months here at HUD, I have become keenly aware of the shortcomings in our data-collection system as it pertains to public housing. As you can see from our answers, we need data on many aspects of LHA operations that we are not currently obtaining. I hope to rectify this situation over the next few months.

I have responded to your specific questions in the same order as in your letter. I hope you find that these answers are adequate for your purposes. Please let me know if I can provide further information or assistance.

Sincerely yours,

JAMES T. LYNN.

QUESTIONS AND ANSWERS-RENTS PAID BY PUBLIC HOUSING TENANTS

1. Question. What is the current inventory of public housing units and their value?

Answer. The number of LHA owned dwelling units under management as of June 30, 1973 was 979,400. The original Federal investment in these units was approximately $12 billion.

2. Question. How many and what types of LHAs were in "serious financial condition" as of June 30, 1969, June 30, 1972 and June 30, 1973? What percentage of total public housing units were operated by these housing authorities on these two dates? Is the number of local housing authorities in “serious financial condition" likely to increase or decrease in FY 1974 if the current “interim formula” for operating subsidy is retained?

Answer. The financial soundness test which established a ratio of locallyproduced income to expenditures and under which certain LHAs were considered in "serious financial condition" was first installed in 1970. Therefore information regarding LHAS in "serious financial condition" on June 30, 1969, is unavailable. The following comparison between 1970 and 1972, however, may be of interest.

Financial information for June 30, 1973, from which comparable figures could be developed has not yet been compiled; however, payments of operating subsidies from 1973 funding are being made to 51.3 percent of all housing authorities and these authorities operate 83.7 percent of the total number of units in management. This means, essentially, that these authorities are no longer able to generate enough rental income to cover their operating expenditures and are dependent upon the Federal Government for day-to-day support.

The number of LHAS in "serious financial condition" is likely to increase in FY 1974 whether or not the interim formula is retained.

3. Question. Does the designation of "serious financial condition" take into account deferment of services and maintenance by local housing authorities?