The Department is undertaking a number of steps designed to reduce defaults and prevent foreclosures. I can summarize these as follows:

ADMINISTRATIVE ACTIONS

1. The Department has made major increases in Housing Management field staff for loan and mortgage servicing personnel to deal with mounting workload. A corresponding emphasis has been placed on training field staff.

2. To bolster field staff expertise, plans are being made to use Certified Property Managers as consultants and to provide a cross-training program for loan servicing specialists in the field with mortgage banking firms in the area, to familiarize staff with mortgage problems and procedures.

3. Organizational changes are being made to decentralize loan management functions to the field so that decisions can be made more rapidly.

4. ADP systems, referred to as the Foreclosure Alert System, have been designed and are being field tested at the present time. These systems will identify defaults in the subsidized and high risk programs 30 days after delinquency rather than 90 days as is now the case, so that special servicing efforts can be undertaken to avert foreclosure.

POLICY ACTIONS

1. A policy has been issued requiring the field offices to process rent increase requests within 30 days, or notify the Assistant Secretary for Housing Management of the reasons for the delay.

2. A policy is being developed and reviewed to:

Permit automatic rent increases on our unsubsidized projects for increased costs beyond the control of the mortgagor, such as taxes and utility increases. Broaden the market for existing 235, 236, and 221(d)3 projects by revising various income restritcions to attract and retain a good cross section of incomes. Tighten up on tenant selection procedures by preventing the admission of applicants who failed to pay their rent at their previous residence or who inflicted major damage to the premises.

Prevent "project-hopping" by rent supplement tenants, except for bona fide reasons, in order to prevent vacancy problems in older projects that may lack some of the amenities of newer projects nearby.

Develop a new management fee system which would provide financial incentives to the manager of the project if he is able to keep the project out of default. 6. Please also provide the Committee with your analysis of Section 23 housing relative to comparative cost per unit, the quality of such units, and an explanation of the superiority of housing built under this program over that built under traditional public housing or FHA Section 236.

In computing the comparative costs, do the figures reflect the tax consequences of Section 23 housing relative to other public housing programs?

If the eligibility ceiling under Section 23 were to be raised upward, how would this provide housing for "the people who really need help" referred to in the President's statement?

Answer. Estimates of the comparative costs of the Section 23 program relative to the turnkey and conventional low-rent public housing programs are based on a study by Frank DeLeeuw and Sam Leaman entitled "The Section 23 Leasing Program," published in The Economics of Federal Subsidy Programs, Part 5. Housing Subsidies, a compendium of papers submitted to the Joint Economic Committee of the Congress of the United States. 1972. These data show that the full costs, direct and indirect, of a typical 2-bedroom unit are $154 a month for Section 23, $219 for conventional public housing and $211 for Turnkey.

The DeLeeuw-Leaman data were then related to estimates of housing quality based on data collected for the National Housing Policy Review. The results showed that it costs $1.03 to produce a dollar's worth of housing services under Section 23. $1.23 under the Turnkey program and $1.40 under the conventional program. We do not have comparable data for Section 236 but a National Housing Policy Review study did find that construction under the Section 236 program costs, on the average, 20 percent more than ordinary private construction.

The figures for the low-rent housing program are full cost figures including all the tax consequences of Section 23 relative to the other two programs. The estimates for the Section 236 program are for construction costs only and do not include foregone taxes.

Finally, our proposed revision of the Section 23 program does not require local housing authorities to change their eligibility ceilings.

ADMINISTRATION'S 1973 HOUSING PROPOSALS

WEDNESDAY, OCTOBER 3, 1973

U.S. SENATE,

COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS,

Washington, D.C.

The Committee met at 10:10 a.m. in room 5302, Dirksen Senate Office Building, John Sparkman, chairman of the committee, presiding. Present: Senators Sparkman, Proxmire, Cranston, Tower, Packwood, Brock, Taft, and Weicker.

The CHAIRMAN. Let the committee come to order, please. Several of the Senators have indicated they would be here for the hearing this morning, but we have a rather long schedule, and we can't wait too long. The Senate is in session, and we don't know when we may be called over there.

We first have a panel of the U.S. Conference of Mayors. Mayor Alioto, we are delighted to see you. I understand you are going to introduce the mayors.

Mayor ALIOTO. I am going to act as chairman, but before that time, Mayor Martin who is president of the Conference of Mayors, will make the opening statement.

The CHAIRMAN. We are very glad to hear from you.

STATEMENT OF A PANEL FROM THE U.S. CONFERENCE OF MAYORS COMPOSED OF MAYOR ROY MARTIN, CITY OF NORFOLK, VA.; MAYOR JOSEPH ALIOTO, CITY OF SAN FRANCISCO, CALIF.; MAYOR RICHARD HATCHER, CITY OF GARY, IND.; MAYOR NORMAN MINETA, CITY OF SAN JOSE, CALIF.; MAYOR LEE ALEXANDER, CITY OF SYRACUSE, N.Y.; MAYOR THOMAS BRADLEY, CITY OF LOS ANGELES, CALIF.; MAYOR FRANK BURKE, CITY OF LOUISVILLE, KY.; MAYOR STANLEY CMICH, CITY OF CANTON, OHIO; MAYOR JOHN DRIGGS, CITY OF PHOENIX, ARIZ.; MAYOR KENNETH GIBSON, CITY OF NEWARK, N.J.; MAYOR MOON LANDRIEU, CITY OF NEW ORLEANS, LA.; MAYOR JOHN LINDSAY, CITY OF NEW YORK, N.Y.; AND MAYOR PATRICIA SHEEHAN, CITY OF NEW BRUNSWICK, N.J.

Mayor MARTIN. Thank you, Senator. We are very happy to appear before this body today to present the mayors' position on the legislation. I am the president of the U.S. Conference of Mayors, and I am here today to emphasize the fact that I am representing all the mayors who make up this great body, the U.S. Conference of Mayors, not just those from the larger cities, but from all classes of cities that have (69)

membership in this organization. Mayor Alioto is acting as cochairman of our legislative action committee, and he will make the formal statement and then call on the various members of the conference to make. brief comments and then answer, of course, any questions that the Senators may have to put to us.

Mayor Alioto.

The CHAIRMAN. Very well.

MAYOR JOSEPH ALIOTO, SAN FRANCISCO, CALIF.

Mayor ALIOTO. Thank you very much. I want to say good morning to you, Senator Sparkman and Senator Proxmire. We are happy to see you are in good shape after the altercation that you had, Senator Proxmire.

Senator Sparkman, we are very, very happy for the opportunity to appear before your prestigious committee once more. As you know, we are no strangers to this committee. Last July, Mayor Griggs of Detroit appeared before you in connection with your community development bill and the positions he took at that time are reaffirmed by us now.

We simply want to bring them up to date.

The CHAIRMAN. Very well.

Mayor ALIOTO. The first thing all of us want to emphasize is that we desperately need action now. There is concern about the fact that there might be guerrilla warfare developing between the administration and the Congress. In that scuffle, we won't get any housing bills at all, or community development bills, and that is a major concern with us. Out there in our cities, our poor and disadvantaged are seeing this housing on an on-again, off-again basis. They hear about impoundment freezes, and the necessity to study these matters further. They are getting confused. There is a notion developing that they may all fall in the cracks, and that we are not going to get something this year.

So we desperately want to urge upon this committee the importance of action now. I think this sense of urgency will temper some of the other things we have to say with respect to the bills before this committee, the administration bill and others. We are always pleased, of course, to have Senator Cranston, who has just come in, listening to our pleas of all of the mayors. He has been a good friend of the cities in the past, and we are happy that you are here.

Senator CRANSTON. Thank you very much. I am delighted to see you.

Mayor ALIOTO. Some of us think the existing programs are working in our cities. We can make an argument. We think that any policy statement in the administration bill or by the administration which in effect states that our programs have been an abject failure of the existing programs is not correct. In my own city, we have built 20,000 units of housing. We have literally developed ghettos into viable neighborhoods on the basis of the programs we have had. Without these programs we simply would not have produced these successes. I think some of the criticism of the policy statements in the administration message really constitutes an unnecessary calumny to the philosophy of Senator Taft, to our own philosophy, Senator Sparkman. I want you to know that the mayors, the group sitting before you now,

do not share the conviction that everything has been an abject failure up to now. We just don't believe so.

Of the 20,000 units of housing in our city, approximately 20 percent of those are socially oriented housing. The rest is market value housing which grew out of urban renewal and urban housing programs. Nevertheless, it doesn't appear at this point that we are going to be able to maintain the categorical grants in their present form.

We emphasize the urgency of getting something done at the present time. We strongly support last year's community development bill passed by the Senate. We think there can't be a development bill without a housing bill. First of all, it is a matter of urgency here to get a bill passed before the end of the year. Second, the community development block grant must be linked to a housing grant which includes new construction. Otherwise, all our efforts are going to be meaningless.

We favor the block concept, the concept that local communities should make the determination of what they ought to be doing. On the other hand, we think there should be some kind of Federal review process. By this, we do not mean a stringent, bureaucratic process that would simply hold everything up while we have to go through one bureaucratic layer after another.

But we don't think the checks should be handed out in the fashion they were, and commendably so, in the general revenue-sharing proposal. We are talking about something different now. We are talking about communities having housing plans that would be acceptable at the Federal level.

We don't think the review should be a technical review, but there should be some indication that the communities involved do have a plan where this money could be profitably spent. We are a little disappointed in some features of the administration's package, and we see hope in other features of it.

There are good concepts. The concept of a housing allowance is not a bad thing. The concept of working with developers may work out in certain situations after we have reached a certain plateau. But we don't have time for experiments now without some corresponding action that will dedicate us again to the goal of 600,000 assisted units a year as against the 200,000 units a year rate we are at now.

We feel that this is very, very important, Mr. Chairman. We are going to follow a format this morning of calling upon each of the mayors involved to make a short statement. We will call on each in turn, and we would then welcome any questions or at any time any questions you want to discuss.

The CHAIRMAN. Mr. Mayor, I am going to suggest that we not question until the panel is completed, because we have to keep things moving, and if we start questioning now, I am afraid it would take entirely too much time. Go right ahead.

Mayor ALIOTO. To sum up the situation, we think we need action

now.

The CHAIRMAN. In that connection, aren't you getting action now? We tried to start this thing back at the first of the year. We got the President's bill yesterday. We are moving. We are going to start next Monday marking it up, in the hope that we can get a bill out of here and through the Senate by the end of October.

Mayor ALIOTO. We appreciate everything that is being done by the committee. The action we are talking about is the action to give us something on a permanent basis and not on an experimental basis. As I say, some of the proposals of the administration are fine, but they are admittedly experimental. They don't propose to phase in their housing allowances until 1976. Some of us don't think that we can wait that long.

We think we need something for 1974 and 1975. We do appreciate the tremendous action taken by this committee, and we do favor the omnibus bill that we have spoken about.

I would like to call on Mayor Alexander of the city of Syracuse.

MAYOR LEE ALEXANDER, SYRACUSE, N.Y.

Mayor ALEXANDER. Thank you, Mr. Chairman. I am here as a member of the legislative action committee, but also as chairman of the community development committee of the National League of Cities. I would like to say that I join in Joe Alioto's expression of the gratitude that Senator Proxmire suffered no harm.

I think it is symbolic that the attack was made while he was running to his office, and not from his office. I have been here before seeking help and understanding for the American cities. As a result of that, I have developed a tremendous confidence in the judgment of this committee and in its ability to respond to the problems of the cities.

You listen to us and then act with great deliberation. I think you give us a lot of patience, because very often you gentlemen are fully informed on the subject matter of these hearings from your own experiences. For your past responsiveness and the responsiveness of Congress, I want to express my gratitude.

I think general revenue sharing is going to be a landmark in the history of American cities. I would like to add my endorsement and the endorsement of the community development committee of the National League of Cities for Senator Sparkman's proposal for a housing block grant. As Mayor Alioto said, I want to emphasize my support for local flexibility, because I think cities do vary in their needs, such as the kind of construction and the site locations and the mix between rehabilitation and construction.

I think the President's proposal for housing allowances does have a place, but I am not sure it will be meaningful to the cities until we have some new construction. Very often in the housing dialog, they talk about the vacancy rate; I would like to submit for your consideration that that is sometimes distorted.

Syracuse is a city of 200,000. We have 70,000 housing units, but one out of every five houses in my city is substandard. Seventy percent of the housing units are wooden frame houses. So even where there is a high vacancy rate, housing allowances may not work. I think we must have new construction and rehabilitation as well before housing allowances can be important.

Now in Syracuse, which certainly is not the size of San Francisco or some of the other large cities represented by the mayors in this room, we have had some 2,100 subsidized housing units built in the last 5 years. That doesn't mean very much when I tell you that we have got some 1,600 on the waiting list each and every year.