Disposal of this new public domain in cleared urban land is thu ing the record of disposal of the old public timberland domain. In of the disposal of timberlands in the Great Lakes area, a distingu historian noted that "the dominant fact was default." "Even to so rich and diverse an economy as that of the central Un the lake States forest was a fact of immense absolute and relativ Yet, disposition of this publicly owned asset proceeded from star without one major discussion or debate, without a single major inve controversy, about the ends to be served or the accounting of income This default of attention was particularly marked regarding relinqu Federal control of the public forest, where it is thrown into sharper r one exception-the narrow controversy of 1851 and 1852 in reacti short-lived vigor in prosecuting timber trespass. The sum of the S was not materially different, however. Wisconsin's legislature took a special note of the State's forest property-mainly by formal stip preserve timber values to secure unpaid balances on land sold-but j to point up the very narrow limits of its attention." (Hurst, James W and Economic Growth (Harvard University Press, 1964) pp. 139-140) If we are to remedy past defaults of policymaking, we must tur renewal guidelines and manuals. Here the most relevant document ters 1 to 4 of "Land Disposal and Disposition," 14-1 to 14-4 together public agency letter No. 315, December 9, 1964. The fundamental poli disposition in these documents prescribes as follows: "The public interest requires that disposals of project land be co in a fair and equitable manner and be open, in one way or anothe scrutiny * **Each disposal of land * ** shall be at a price that than the fair value of the land for uses in accordance with the urb plan. The value shall reflect both the advantages created by the proj requirements and limitations on land uses to be imposed on the red the urban renewal plan" (Land Disposition, 14-1-1). Fair value in the disposal guide is, in the main, to be determin independent, outside appraisers taking cognizance of reuse value uses as specified in a particular urban renewal plan. No guide is p size of parcel or tract to be valued though the value of land, as of commodity, is governed to a significant degree by the size of tract lump-sum sale. The method of disposition falls under two broad clas The first involves some form of competitive market sale, either an act with a minimum price or open sale of specified parcels at a predeterm (See 14-3-4: Disposal at Predetermined Prices, and 14-3-5: Disp Open Competitive Conditions (2) sealed bids, (3) public auction, auction with guaranteed bid.) The second class of methods involv on negotiated terms to one or more developers with a minimum p reuse appraisals. (See 14-3-1 for cases of "special value to one re or needed to achieve "an important urban renewal objective"; 14-3-3 fo institutional use; and 14-3-5 for "negotiated disposal under open conditions," approximating a design contest or competition of develo posals.) Public scrutiny, under these arrangements, comes in at an extended negotiation-planning process chiefly through "public di proposed developers" and "public examination of proposed disposal ag (1-4-1). The terms of the disposal agreement and details of the red are to be made open to public view but not the reports of the real sultants or appraisers or the debate out of which the redevelop emerged. The disposal guide thus definitely downgrades determination of va competitive market test: namely, subdivision into reasonably sized fered for sale either by auction or at a predetermined price. While t open as an option, no preference for its use is indicated and it may that as much as 5 percent of urban renewal land has been sold or market in reasonably sized tracts. Under the guidelines, fair valu determined by reuse appraisals. These appraisals must envisage v physical environment that is being drastically altered, which "brings many influences with which the local appraiser has seldom previou (Kniskern, "Re-use Land Utilization Studies," loc. cit., p. 333.) A praiser has noted: "In reuse value appraisal the process of value est unusually complicated because the appraiser must take into consi HOUSING LEGISLATION OF 1966 405 arge number of factors not normally present," including special requirements f the redevelopment plan, large-scale assembly, built-in publicity, favorable nancing. (Appraisal Journal, "Commentary," January 1962, p. 23 ff.). The ppraised values at presumably the highest and best use have run far below total equisition costs for deteriorated real estate purchased under threat of condemation with no allowance for goodwill. Yet, as one HHFA appraiser noted, "it eems unreasonable to believe that the underlying value in blighted areas is igher than the value of the same land when ready for development to its highest nd best use." (Leevern Johnson, "Land Value Write Down in Urban Renewal," ppraisal Journal, April 1962, p. 180.) What has gone wrong to generate these assive losses at a time of booming land values? Part of the blame must rest upon failure to trust the market to determine the ost appropriate paterns of land use by releasing land for sale in reasonably zed parcels with a minimum of special restrictions other than generally applible planning, zoning, and building codes. The planners and local authorities ve attempted to outguess the market. They have substituted their private dgment and tastes about desirable patterns of future use for patterns of land se that would be worked out by the method of trial and error by businessmen ompeting in an open market. Then, too, the large size of tracts offered for evelopment tends to restrict, to a handful, the number of firms that can parcipate in the work of development. Finally, the large size of the development reel brings in the element of monopolistic restriction since a single large deloper cannot but slow down the pace of development to improve his market ospects. The competent local authorities, for their part, have every inducement to sert the market method and to settle for a relatively low appraised value ce under prevailing arrangements two-thirds of any loss in resale would be rne by the Federal Government. Alternatively put, the local authorities have ly a one-third interest in obtaining a higher land price. As Anderson asked: What incentive is there for the local renewal agency to solicit the maximum ce from the buyer" ("The Federal Bulldozer," p. 37.)? These agencies are thus mpted to settle for the disposal plan that will maximize local gain by prescribg concentrated patterns of building that generate expectations of future high operty tax yields. The local authorities are thus induced to attempt to trade present low price for future fiscal yield. A theory of "fiscal yield" as the incipal local benefit of redevelopment has developed (Max Blum, "Fiscal ductivity and the Theory of Urban Renewal," Land Economics, May 1962). This concentration on the objective of fiscal yield-a high ratio of improvent per square foot of land-in opposition to a high land price is, in itself, roughly and even viciously uneconomic. Patterns of improvement density we everywhere been closely correlated with patterns of land value. High e values weed out low-density land uses and constrain building density to the imum levels. This was worked out analytically in Alfred Marshall's celeted "Principles of Economics," where a chapter on urban site values deoped the notion of the "margin of building" (see from his eighth edition, 0, book V, ch. 11). The optimum level is approached only through a process trial and error subject, of course, to the constraint of local zoning, building, 1 planning codes. Each business decisionmaker bears full financial responsity for his errors and so he has adequate reasons for holding them to a minin. By contrast, the record of public decisionmaking on this subject is a y one. he local concentration on the objective of redeveloping land to obtain highest al yield rather than the highest land price is doubly fallacious in that it ores the displacement effect. Demand for new and improved facilities has nite limits and concentration of building in the redevelopment tracts enes a lesser scale of building elsewhere within the local market areas. This ential displacement effect is carefully taken into acount by Urban Renewal rever residential redevelopment is concerned. The local FHA offices are ructed to "protect the potential market *** from being dissipated by other petitive building." "Because of the Federal interest already committed to success of the urban renewal project, FHA will not jeopardize the market the proposed housing in the urban renewal area by issuing commitments to re loans on other housing that would preempt the market demand for housplanned in the urban renewal area." Local officials are expected in their ng decisions to develop a similar protective attitude. (HHFA, local public 4 agency letter No. 315, p. 8). It is even suggested that favorable as determinations should be obtained. "If the tax estimates provided sponsor appear to be excessive or unrealistically low, clarifying informa be secured" (p. 11). All this makes it very plain that competitive bu very much in the picture and that any allocation of fiscal yield to a p redevelopment area must allow for the adverse effects on construction e being carried out. In conclusion, to avoid another round of defaults on land policy occurred in the 19th century, a thorough and exhaustive investiga urban renewal land disposal should be carried out by a competent c of the Congress, and all relevant phases of disposal-appraisal, tract siz lines, consultations, local interest, competitive building and competitive -should be probed. No one could now lay down the pattern of reco tions that would appear reasonable in the light of the findings of su vestigation. I would be surprised, however, if policy recommendation not contain prescriptions oriented to the following: (a) dispose in reasonably sized parcels, probably not exceeding as a general rule, open for competitive sale by auction or at a prede price; (b) aside from generally applicable zoning and building codes plan of redevelopment to deed restrictions that would prevent sp resale and regulate building chiefly with regard to architectural d (c) enforce a positive mandate for use of the competitive ma to determine fair value; (d) provide local agencies with a set or predetermined Fede rather than a fixed share in any loss; (e) provide a set-aside in smaller lot parcels for small business (f) depend upon land price to ration intensity of development a mandate on local officials to ignore fiscal yield; (g) avoid disguised subsidization for institutional use throug mally low appraised values. Senator PROXMIRE. Thank you very much. The committee will stand in recess until 10 o'clock Monda (Whereupon, at 12:52 p.m., the subcommittee recessed, to re at 10 a.m., Monday, April 25, 1966.) HOUSING LEGISLATION OF 1966 MONDAY, APRIL 25, 1966 U.S. SENATE, COMMITTEE ON BANKING AND CURRENCY, SUBCOMMITTEE ON HOUSING, Washington, D.C. The subcommittee met, pursuant to recess, at 10:05 a.m., in room 5302, New Senate Office Building, Senator John Sparkman (chairman of the subcommittee) presiding. Present: Senators Sparkman and Bennett. Senator SPARKMAN. Let the subcommittee come to order. We are honored this morning to have two Senators from Kentucky here with us. Is one of you or are both of you going to introduce the mayor? Senator MORTON. Both of us. Senator SPARK MAN. Fine. Come around. STATEMENT OF THRUSTON B. MORTON, U.S. SENATOR FROM THE STATE OF KENTUCKY Senator MORTON. Mr. Chairman, we are departing from protocol a bit, in that I am the junior Senator, but Mayor Schmied is my mayor because I happen to live in the city of Louisville. That accounts for my proceeding out of order, so to speak. Very briefly, Mr. Chairman, Mr. Schmied was elected mayor last November after, however, having served as chairman of our board of aldermen, which is the legislative body of the city of Louisville, for the 4 preceding years. In 1961 he was 1 of 12 elected to the board of aldermen. Mayor William Cowger was elected mayor at that time. So during the past 4 years, until he assumed the office of mayor in December last, he was intimately associated with the problems of the community, the problems of the city-and they were many—and, of course, in the absence of the mayor he served as acting mayor. Louisville has made great progress since December of 1961 when the Cowger-Schmied team went into office. Mayor Schmied has made his contribution to that progress. The city has received outstanding awards and national recognition, and has been written up in many of the national magazines. I am sure that his testimony will develop this in further detail. I merely want to say that I support Mayor Schmied fully and appreciate the courtesy of this committee in hearing him as the leadoff witness on this very important problem which the committee faces. I thank the chairman and the members of the committee ver STATEMENT OF JOHN SHERMAN COOPER, A U.S. SENATOR THE STATE OF KENTUCKY Senator COOPER. Senator Sparkman and Senator Bennett, m of the subcommittee, I wish to support my colleague Senator in the introduction of Mayor Kenneth A. Schmied. I would like to add that Mayor Schmied, because of his exp as president of the board of aldermen, has wide knowledge of th ing problems of Louisville. Louisville has an outstanding housing and urban developmen cy, and in this field, as well as in other fields, Louisville has tremendous progress in the last several years. Mayor Schmied himself is a fine businessman, and he has b wide experience to the office of president of the board of alderm now to the office of mayor. After hearing his statement you will know that he is well inf and very much interested in the new legislation which is pro particularly that which would establish demonstration cities. So, it is with great pride that I join with my colleague, S Morton, in presenting Mayor Schmied to this committee. Senator SPARKMAN. Thank you very much, Senator Cooper. Mayor, I may say I have a brother who lives in your jurisd who has been there quite a number of years now. He is a retire road man. STATEMENT OF KENNETH A. SCHMIED, MAYOR, CITY OF I VILLE, KY.; ACCOMPANIED BY JACK D. LEETH, EXECUTIV RECTOR, LOUISVILLE URBAN RENEWAL AGENCY; AND WIL T. WARNER, SPECIAL COORDINATOR FOR FEDERAL LOAN GRANT PROGRAMS Mayor SCHMIED. Oh, yes, the L. & N.? Senator SPARKMAN. Yes. Mayor SCHMIED. I'm sure he can tell you what a wonderful ci have there. Senator SPARKMAN. He certainly does. Senator Morton, did you wish to add something? Senator MORTON. Would it be appropriate if Mr. Bill Warner Mr. Jack Leeth, who are experts in this field, occupy these seats? Senator SPARKMAN. We would be very glad to have them. Mr. Mayor, for the benefit of the record, to be sure their names titles appear, will you give them to the reporter? Mayor SCHMIED. We have Mr. Jack Leeth, who is the direct our urban renewal program in the city of Louisville; and Mr. Warner, who is my special coordinator for Federal programs, open space especially is what we have been working on. Senator SPARKMAN. We are glad to have all of you gentlemen |