U.S. DEPARTMENT OF LABOR, Hon. A. WILLIS ROBERTSON, Chairman, Committee on Banking and Currency, Washington, D.C. DEAR SENATOR ROBERTSON: This is with further reference to your request for our comments on S. 1342, a bill to create a Federal Limited Profit Mortgage Corporation to assist in the provision of housing for moderate-income families and for elderly persons. The Corporation would be managed by a Board of Directors with the Housing and Home Finance Administrator as chairman. The Corporation would be authorized to issue obligations and make loans initially up to an aggregate of one-half billion dollars with subsequent increases authorized with the approval of the President to one-and-a-half billion dollars. The loans would be available to private or public nonprofit organizations, or to private corporations borrowing to provide dwellings at agreed charges or to sell to a nonprofit organization, for housing for families of moderate income as defined, or persons over 60 years of age. The loans would be for periods up to 50 years and at a rate of interest equal to the cost of money to the Corporation, plus one-half of 1 percent. We favor sound measures to improve the housing standards of the American people. In general, we believe that measures designed to stimulate private financing of needed housing programs are preferable to direct Federal financing such as proposed in S. 1342. An example is the program provided in the administration's housing recommendations of this year for improved and expanded mortgage insurance for rental housing for the aged. We would prefer, however, to leave specific comment on the desirability and feasibility of the program proposed by this bill, to those agencies directly involved in the financing operations of the Federal housing programs. One fact of importance to note in considering measures designed to provide housing for the elderly is the lack of any necessary relationship between low income and lack of housing in this age group. Surveys by the Bureau of Labor Statistics of this Department have revealed a very high incidence of homeownership among older and low or retirement income families. With regard to the labor standards provided in section 13 of S. 1342, we note that provision is made for the payment of wage rates prevailing in the locality, as determined by the Secretary of Labor under the Davis-Bacon Act, to laborers and mechanics employed in the development of the proposed housing projects. There is no provision, however, requiring overtime compensation for these workers. The lack of such a provision is of particular significance because the Federal 8-hour laws apply only to direct Federal construction and would not, therefore, apply to the construction involved. Any such workers should be secured payment of time and one-half for overtime work in excess of 8 hours in a day or 40 hours in a week. The inclusion of a 40-hour weekly limit on work at straight-time pay, consistent with the Fair Labor Standards and WalshHealey Public Contracts Acts, would prevent the practice adopted by some contractors under the existing 8-hour laws, of working employees a 56-hour week of 7 8-hour days without overtime compensation. In addition to the authority given the Secretary by section 2 of the Copeland Act, he should be given authority to coordinate the enforcement of such labor standards, consistent with his authority under Reorganization Plan No. 14 of 1950, with respect to the Davis-Bacon Act and related statutory labor standards. Draft language to amend section 13 of the bill in all these respects is attached. The Bureau of the Budget advises that it has no objection to the submission of this report and that the enactment of S. 1342 would not be in accord with the program of the President. Sincerely yours, JAMES T. O'CONNELL, SUGGESTED LANGUAGE FOR AMENDMENT OF S. 1342 Amend section 13 (a) (2) to read as follows: "SEC. 13. (a) "(2) that all laborers and mechanics employed by contractors or subcontractors in the performance of construction work assisted with Federal funds under the provisions of this Act shall be paid wages at rates not less than those prevailing on similar construction in the locality as determined by the Secretary of Labor in accordance with the Davis-Bacon Act, as amended (40 U.S.C. 276a276a-5), and every such employee shall receive compensation at a rate not less than one and one-half times his basic rate of pay for all hours worked in any workweek in excess of eight hours in any workday or forty hours in the workweek, as the case may be;" Amend sections 13 (b) and (c) by substituting the following: "(b) The Secretary of Labor shall have, with respect to the labor standards specified in subsection (a) (2) above, the authority and functions set forth in Reorganization Plan Numbered 14 of 1950 (15 F.R. 3176, 64 Stat. 1267, 5 U.S.C. 133z-15), and section 2 of the Act of June 13, 1934, as amended (48 Stat. 948, as amended, 40 U.S.C. 276c)." Hon. A. WILLIS ROBERTSON, BOARD OF GOVERNORS, OF THE FEDeral ReservE SYSTEM, Chairman, Banking and Currency Committee, DEAR MR. CHAIRMAN: This is in reply to a request for the Board's views on S. 1342, introduced March 9, 1959, a bill relating to a proposed Federal Limited Profit Mortgage Corporation. The Board is especially concerned by the provisions of S. 1342 that would authorize an increase in the amount of outstanding tax-exempt obligations by as much as "an aggregate annual amount not to exceed $500 million except that with the approval of the President such aggregate annual amount may be increased at any time or times on or after July 1, 1960, by additional amounts aggregating not more than $1,500 million ***." This is not the time to complicate current fiscal problems further by exempting a substantial volume of new obligations, as the bill would authorize, "both as to principal and interest, from all taxation imposed by the United States, or any State, county, municipality, or local taxing authority." Such a proposal would place generally upward pressures on interest rates in capital markets by offering what would in effect be federally guaranteed tax-exempt obligations to compete with municipal bonds as well as taxable direct obligations of the U.S. Government, not to mention corporate securities issued to finance growth in productive capacity, and various types of mortgages. In our judgment, such an effort to aid moderate income families or the elderly by increasing the volume of tax-exempt securities available to the wealthy is questionable, and would result in a diversion of savings into this type of activity. Apart from the aspect of tax exemption, the Board also questions the appropriateness of so considerably increasing the contingent liabilities of the Federal Government through a guarantee of the kind proposed in S. 1342. The Board notes that a number of provisions of the Housing Act of 1959 were designed specifically to offer further assistance toward providing nonprofit moderate-income housing and housing for the elderly, backed by the existing system of FHA mortgage insurance. The Board believes that it would be desirable to observe the effectiveness of these measures before determining whether additional legislation might be needed. Sincerely yours, WM. MCC. MARTIN, JR. VETERANS' ADMINISTRATION, Hon. A. WILLIS ROBERTSON, Chairman, Committee on Banking and Currency, DEAR SENATOR ROBERTSON: The following comments are submitted in response to your request for a report by the Veterans' Administration on S. 1342, 86th Congress, a bill to create a Federal Limited Profit Mortgage Corp. to assist in the provision of housing for moderate-income families and for elderly persons. The purpose of this measure is to make satisfactory housing more available for elderly persons and families whose income makes them ineligible for public housing but is not large enough to meet conventional rentals. To this end a Federal Limited Profit Mortgage Corp. would be created to make longterm, low-interest mortgage loans to nonprofit organizations or private corporations for the production of dwellings of sound standards of design, construction, livability, and size for such elderly persons and moderate-income families. The Corporation would be managed by a five-man Board of Directors with the Housing and Home Finance Administrator serving as chairman. Rentals in housing projects constructed with financing under the bill would be subject to approval by the Corporation. The Corporation would raise funds for its operations through limited stock subscriptions by the Secretary of the Treasury and borrowing in the private market on its own obligations, which would be substantially backed by the Government. The bill requires that in the selection of tenants for a housing project designed for those with moderate-income preference shall be given certain classes of veterans. We note that the definition of "veterans" in section 10(g) uses June 25, 1950, as the beginning date of Korean conflict services, whereas June 27, 1950, is generally used in providing special benefits. Whether or not the assistance for elderly persons and moderate-income families contemplated by the bill should be provided in addition to existing Government housing programs is a question of general Federal policy. The bill would not appear to have any material impact on the veterans' loan assistance programs administered by this agency. Accordingly, we have no specific recommendation to make on the merits of this proposed legislation. We believe a proposal of this type would be of special interest to the Housing and Home Finance Agency from which your committee will doubtless obtain comments. Advice has been received from the Bureau of the Budget that there would be no objection to the submission of this report to the committee. Sincerely yours, SUMNER G. WHITTIER, COMPTROLLER GENERAL OF THE UNITED STATES. Hon. A. WILLIS ROBERTSON, Chairman, Committee on Banking and Currency, DEAR MR. CHAIRMAN: Your letter of March 11, 1959, requests that we report on S. 1342 which if enacted would be cited as the "Federal Limited Profit Mortgage Corporation Act." The purpose of the bill is stated in section 2 thereof to be to provide satisfactory housing in well-planned, integrated residential neighborhoods for families of moderate income and elderly persons whose needs are not now being served through existing programs of assistance to private and public enterprise. The term "families of moderate income" is defined in section 10(a) so that their eligibility for benefits under the bill is dependent on their income. The term "elderly persons" is defined in section 10(j) and pertains only to the age of such persons, there being no limitation as to income. If any limitations on income are intended as to such persons we suggest that the bill be clarified in this respect. Also, we would like to point out that, whereas section 10(j) contains a minimum age requirement of 60 years, the minimum age requirement for elderly persons under the current Housing Act is 65 years, and S. 57, recently passed by the Senate, contains a minimum age requirement of 62 years. We also believe that a more specific definition of "families of moderate income," within the intent of the bill, is needed as a guide in establishing eligibility for occupancy. To effectuate the purposes of the bill, section 3 thereof provides for the creation of a corporation to be known as the "Federal Limited Profit Mortgage Corporation." The methods and media to be used to carry out the purposes of the bill are matters primarily for determination by the Congress, and we have no particular information so as to be in a position to say whether a corporation would be more satisfactory in this respect than would the more conventional Government agency or whether the new program might effectively be carried out by one of the housing agencies now in existence. We generally have opposed the creation of new Government corporations unless for the most compelling reasons, because corporate entities for the most part are free from the normal safeguards set up by the Congress to maintain strict control over the conduct of the public business and the expenditure of public funds. Broad powers are vested in the Board of Directors to take action without regard to laws generally applicable to Government departments and agencies, and the expenditures of corporations, although subject to audit, are not subject to disallowance by the General Accounting Office. Section 11 (c) would amend section 201 of the Government Corporation Control Act (31 U.S.C. 856) to include this Corporation within the definition of a mixedownership Government corporation. Inasmuch as section 5(a) of the bill provides that the capital stock of the Corporation shall be subscribed to by the Secretary of the Treasury, it would appear that the Corporation would be a wholly owned Government corporation rather than a mixed-ownership Government corporation and more properly for inclusion in section 101 of the Government Corporation Control Act, as amended (31 U.S.C. 846), wherein wholly owned Government corporations are defined. If this change were made there would be no need in the bill for the provisions of section 4(b) (4) since wholly owned Government corporations are required by section 102 of the Government Corporation Control Act to prepare and submit annually a business-type budget. In any event, there is no need for any special auditing provision such as section 4b(5) and we recommend that this section be deleted. Regardless of whether the Corporation is named in section 101 or section 201 of the Government Corporation Control Act, it would be subject to audit by the General Accounting Office under the provisions of either section 105 or section 202 of the Government Corporation Control Act. If an existing or newly created agency is utilized to carry out the purposes of this bill, it would be subject to our audit authority contained in the Budget and Accounting Act, 1921, and the Budget and Accounting Procedures Act of 1950 under which we can make the type of audit most suited to the activities of the agency involved and in accordance with generally accepted principles of auditing. Section 3(b) provides that except as provided in provisions of law relating specifically to mixed-ownership Government corporations, the Corporation may determine the necessity for and the character of its obligations and expenditures and the manner in which they shall be incurred, allowed, and accounted for and the proviso to section 4(b) (5) provides that the financial transactions of the Corporation shall be final and conclusive upon all officers of the Government. Since there are various provisions of law relating to mixed-ownership Government corporations of which very few relate specifically to such corporations, we recommend that the word "specifically" in line 14, page 6, of the bill be deleted. Also, if an existing or newly created agency be utilized to carry out the purposes of the bill, we recommend that both section 3 (b) and the proviso to section 4(b) (5) be deleted in their entirety. The effect of these provisions would be to preclude the Comptroller General from raising any exceptions to any illegal transaction found in the audit. The authority to raise such exceptions is applicable to most all departments and agencies other than corporations and, in our opinion, serves a very useful purpose. Section 3(a) (7) provides for the Corporation "to obtain insurance against loss in connection with property and other assets held." It is a general policy of the Government to be a self-insurer and we favor that policy in the absence of very compelling reasons for deviating therefrom. Section 5(a) authorizes the Corporation to issue capital stock from time to time which shall be subscribed for by the Secretary of the Treasury in an amount not to exceed at any time $100 million. Section 5(a) also provides for cumulative dividends to be piad to the Secretary of the Treasury equal to a return on the average amount, at par, of such stock outstanding during such fiscal year at a rate determined by the Secretary of the Treasury, taking into consideration the probable term of the stock investment and the current average rate on outstanding marketable obligations of the United States as of the last day of the sixth month of such fiscal year. We believe that the rate of return on the outstanding capital stock of the Corporation should be a rate equivalent to the annual yield on long-term obligations issued by the Secretary of the Treasury. Furthermore, dividends are usually thought of as a distribution of profits, but, obviously, in this case the dividends are intended merely to reimburse the Treasury for its actual expense. The characterization of these payments as dividends is misleading from a sound financial reporting standpoint. Also, section 6 provides that no dividends shall be paid except out of net earnings remaining after all reserves and chargeoffs have been provided for, and then only with the approval of the Board. It thus would be possible for the Board, through its discretionary authority, to establish reserves, to prevent the payment of any amount as a reimbursement to the Treasury for its costs. Section 6 of the bill provides that the Corporation, upon application of an eligible borrower, may make a mortgage loan to such borrower, or enter into commitments to purchase or repurchase loans to finance the development of a housing project undertaken by such borrower. As a protection against waste or improper use of the proceeds of the mortgage loan to be provided eligible borrowers under the provisions of this section, we would suggest that a section be added to the bill requiring eligible borrowers to keep records which will enable audits to be made by the Corporation and the General Accounting Office. Such records would also enable the Corporation to see whether the eligible borrowers have complied with the requirements of the act. Under the authority of this section the Corporation would be expected to audit the books of each borrower leaving to the General Accounting Office the right to audit as many recipients each year as determined necessary by the Comptroller General. The following language to accomplish this is suggested for your consideration: "RECORDS AND AUDIT "SEC. - (a) Each recipient of a mortgage loan under section 6 of this Act shall keep such records as the Corporation shall prescribe, including records which fully disclose the amount and the disposition by such recipient of the proceeds of such mortgage loan, the total cost of the housing project in connection with which such loan is made, and the amount and nature of that portion of the cost of the project or undertaking supplied by other sources, and such other records as will facilitate an effective audit. "(b) The Corporation and the Comptroller General of the United States, or any of their duly authorized representatives, shall have access for the purpose of audit and examination to any books, documents, papers, and records of the eligible borrowers that are pertinent to mortgage loans received under section of this Act." In order to provide funds for the Corporation to make mortgage loans to eligible borrowers as provided in section 6, the Corporation is authorized by section 7(a) of the bill to issue and have outstanding on and after July 1, 1959, notes or other obligations in an aggregate annual amount not to exceed $500 million except with the approval of the President such aggregate annual amount may be increased at any time or times on or after July 1, 1960, by additional amounts aggregating not more than $1,500 million. We believe that it is basically undesirable to authorize the Corporation to issue its own obligations to the public for the purpose of obtaining funds to finance the mortgage loans as provided for in the bill. In our opinion, the financing of Government activities of this character should be by appropriations. If, to obtain needed funds, borrowing from the public is necessary, the Secretary of the Treasury should perform this function under the authority of the Second Liberty Loan Act, as amended. This act provides, among other things, a limitation on the total amount of direct and guaranteed obligations which may be outstanding at any one time. Under the proposed legislation, the borrowing authority of the Corporation would be outside of the public debt ceiling and, as a result, the true financial facts of the Government's debt position would be obscured. Section 6(a) (1) (D) provides that "the housing project will not be of elaborate or extravagant design or construction." However, the bill does not include any ceiling of costs per unit nor per room. Section 10(a) defines moderate income families as "families, or individuals, whose income preclude them from purchasing or renting conventionally financed new housing with total monthly housing expenditures of 20 per centum of their normal stable income as defined by Federal Housing Administration." We believe that the section 6(a) (1) (D) |