the Housing and Urban Development Act of 1972 are therefore of the utmost interest to the committee.

Welcome to the hearing, Mr. Secretary, and I believe that you have a prepared statement, have you?

Secretary ROMNEY. Yes, sir.

The CHAIRMAN. You may present it according to the text or you may brief it and call attention to the main points, whichever you choose. So you are recognized to proceed as you desire.

Secretary ROMNEY. Thank you very kindly. I think I will follow the text inasmuch as it is quite succinct and deals with a very broad

area.

The CHAIRMAN. That will be perfectly all right.

STATEMENT OF HON. GEORGE ROMNEY, SECRETARY OF HOUSING AND URBAN DEVELOPMENT; ACCOMPANIED BY NATHANIEL EISEMAN, BUDGET OFFICER; NORMAN WATSON, ASSISTANT SECRETARY FOR HOUSING MANAGEMENT; DAVID MAXWELL, GENERAL COUNSEL; EUGENE GULLEDGE, ASSISTANT SECRETARY FOR HOUSING PRODUCTION AND MORTGAGE CREDIT AND FHA COMMISSIONER; AND GEORGE BERNSTEIN, ADMINISTRATOR OF THE OFFICE OF INTERSTATE LAND SALES AND ADMINISTRATOR OF THE FEDERAL INSURANCE ADMINISTRATION Secretary ROMNEY. I am pleased to be with you today as you consider the proposed Housing and Urban Development Act of 1972.

The bill consolidates and simplifies our housing laws based on proposals made by the President 2 years ago. It contains community development provisions that arise out of urban community development revenue sharing, as proposed by the President to the Congress in March of 1971.

Mr. Chairman, in view of the earlier hearings, I can well appreciate why you have requested that I limit my prepared statement to a brief discussion of a few issues that need to be highlighted. I shall do just that, and shall remain to answer questions by you and members of your committee as long as you wish.

My staff and I will of course also be available to help your committee in any way that we can as you complete your work on this bill.

My first comments relate to the community development provisions of title IV of the bill. I am gratified that it embodies several of the basic principles of the President's proposed program of urban community development revenue sharing.

First, the funds would flow to or through local units of general government, thereby strengthening their ability to deal with their development problems in a coordinated manner, and with maximum responsibility and accountability.

Second, the title would broaden the purpose for which community development funds could be used, thereby giving local communities more flexibility in meeting their needs, without regard to the artificial distinctions, restrictions, and redtape that necessarily characterize narrow purpose, categorical programs.

Third, the programs would be allocated under an entitlement formula which, in part, is based on need factors and would flow to locali

ties in a regular manner that they can rely upon. However, these virtues of the legislation would be enhanced if some perfecting changes were made in title IV.

Redtape is like a weed that tends to spring back and flourish if not uprooted. Three of the provisions of title IV as drafted would have as their principal result the perpetuation of excessive Federal processing and review. I recommend that the committee eliminate the detailed applications requirements of section 404, the local cost-sharing requirement of section 403, and the loan program of section 408. I believe that the intended benefits of these provisions are illusory.

At a minimum, it would be helpful if your committee made it clear either in the bill or the committee report that Federal processing of the application should involve review only of matters-and these should be few--required by the act to be set forth in the application.

I believe that there is no intention that Federal officials review the viability or other characteristics of specific projects and undertakings included in an overall local program, and this should be expressly stated. The report should also make it clear that the allocation formula sets the funding level for a metropolitan city unless HUD's review of the city's application indicates that the title's provisions are not being

met.

The local cost-sharing requirement would involve both local and Federal officials in the task of estimating the cost of the activities to be paid for from the Federal 90 percent contribution and those to be paid for from the local 10 percent contribution. I see nothing to be gained from this activity. I believe it to be an inappropriate carryover from narrow purpose, categorical programs where local cost sharing may serve a useful purpose. That is, a local community which is not required to pay any share of the cost of a project under a categorical program would be tempted to apply for program funds even if the project is not very important to its well being. But title IV differs in that its intent is to permit the local community ample discretion in applying the community development grant funds to purposes which it considers of high priority. Under these circumstances, there is no incentive to embark on a wasteful project simply because Federal funds are available, and thus there is no need for a counter-incentive in the form of cost sharing.

The local cost-sharing requirement, if carried over into this program, would drag along with it a number of troublesome problems. For example, it would be necessary to determine precisely what activity or undertaking may count as a noncash local credit, whether to permit the pooling of local share credits from year to year, and whether to permit unused noncash grant-in-aid credits under the urban renewal program to be applied to this program. These are precisely the types of problems which should be avoided, and which would be avoided if the 10 percent requirement is struck from the bill.

These are exactly the type of requirements that require revival of redtape that this legislation is designed to get rid of.

The loan provision under section 408, would require even more detailed Federal processing than the grant provisions of the title. This is so because a close look will have to be taken at the aided activities to determine from what source and when the loan can be repaid. Moreover, local governments will be forced to identify specific parcels

scheduled for acquisition and sale so that the amount of the loan can be determined after taking into consideration the amount of the expected sales proceeds. I believe that these detriments outweigh potential benefits of the provision. As Federal funds begin to flow reliably under the grant provisions of title IV, the ability of local communities to borrow related funds in the marketplace will be far greater than it is now under the categorical programs. I therefore recommend the elimination of the entire loan provision.

If, however, your committee disagrees with this recommendation, then either the bill or the committee report should make it clear that the loans are intended to be given only to those localities, especially small communities, that cannot obtain loan funds elsewhere at reasonable rates.

I also recommend that the Model Cities program be folded into the consolidated grant program under title IV.

I recommend this very strongly. I cannot overemphasize what I think is the importance of folding this Model Cities program into the urban community development revenue sharing program because it seems to me that it is the type of program that ought to be included and ought to be the responsibility of the local officials consulting with private citizens, as is provided for in the bill.

To continue the program separately would only complicate and confuse the efforts of local governments to deal with their community development problems. There is no reason why a locality's city demonstration program should be kept separate from its community development program, since both will be directed at the same set of problems. The Model Cities program can be folded into title IV in such a way as to permit the activities under that program to go forward just as before. The resulting increase in flexibility and coordination would help eliminate some of the problems that we have encountered both in the urban renewal and the Model Cities programs.

Finally, there is one other change in title IV that I believe to be essential for its successful operation. Section 407 (g) requires that 20 percent of title IV grant funds approved in appropriation acts be used only outside metropolitan areas. These funds should be permitted to be used more flexibly in order that small communities and counties within metropolitan areas may be assured fair access to discretionary grant funds under the title. For example, this flexibility will be needed in those exceptional cases where the combined claims upon "formula" and upon "hold harmless" funds within a metropolitan area leave little or nothing for discretionary allocation to some small communities or counties in the area.

I think this is particularly important in light of the fact that Congress has before it very extensive proposals to assist the communities outside of these metropolitan areas, and if you set aside 20 percent of the funds under title IV for just communities outside the metropolitan areas, what we are going to encounter is a shortage of funds for those communities outside of the central cities of the metropolitan areas, and this will include counties in those areas. So it seems to us that it is very important to make it possible to use discretionary funds either. outside the metropolitan area or within the metropolitan area outside of the central cities to the extent necessary.

There are also several provisions in title I of the bill-the Revised National Housing Act-which merit your committee's attention. One of the most significant issues raised by title I is the requirement in sections 402 (a) and 502(a) that all rental assistance projects and homeownership assistance developments of eight or more units be approved by resolution of the local governing body.

The administration has repeatedly expressed concern about the same issue this provision addresses, namely, that the basic choices about the shape of a community should be decided by the people of that community-not by the Federal Government represented by the bureaucrats in Washington.

Our position, often stated, is that the Federal Government will not attempt to impose assisted housing upon any community, because the kinds of land-use decisions and housing questions involved are essentially local in nature. Local officials must be entrusted with the decisions as to how much low-income housing will be built, how it is to be built, and where it is to be built. That is our policy.

While doing everything in our power to insure that no housing decisions are forced upon local communities against their will, we also intend to see that no Federal housing funds will be spent in communities that engage in racial discrimination.

This provision in question clearly has the Federal Government dictating to local governments, in very specific terms, the way in which they must make their local housing decisions. In this respect it is undesirable.

I think the undesirable aspect of the provisions, Mr. Chairman, is that it has the Congress telling the local communities how they are to make their housing decisions. We believe they ought to make their housing decisions, but we do not think the Federal Government ought to dictate to them on how they make those housing decisions.

We encourage and welcome efforts by local governments to initiate and develop procedures of this kind which will focus local responsibility and heighten early public awareness. It is our position that it is inappropriate for the Federal Government to impose a specific review and approval mechanism, but we do believe that local elected officials, not the Federal Government, must make and be accountable for these decisions. Of course, housing should not be located in a city or other local jurisdiction where that housing fails to meet local ordinances and provide access to necessary community facilities and services.

Many communities may not want or need the authority that this provision would thrust upon them. As a matter of fact, I think it is significant that the organizations of local governments oppose this provision which clearly indicates that the mayors and local officials do not want this mandatory requirement. I have also had that indicated by Governors and others, and the hard facts are that a provision of this type could add to the complications and difficulties of getting any of this housing constructed. We have already burdened builders and others with tremendously complicated requirements in connection with these programs. Requirements have been greatly increased in the last 3 years as a result of fair housing requirements. relocation requirements, and environmental requirements; they are becoming, even though desirable, very, very burdensome.

Some of the communities will find themselves ill-equipped to implement this added provision. The results could will be increased redtape, lowered housing production, and higher housing prices, and might cripple our common objective to meet the housing needs of our citizens in lower to middle income ranges, such as teachers, policemen, and firemen, who are now major beneficiaries of these programs. Under section 201 (i), 50 percent of the mortgage insurance premiums paid into the special risk insurance fund can be used to finance programs of counseling and related activities. It seems to me bad policy and precedent to divert insurance premium funds that are needed to pay potential insurance losses to any other purpose, no matter how worthy. Moreover, we believe it would be unwise to expand the counseling program until we have gained a better understanding of the needs in this area through our present demonstration program.

Proposed section 502(f) requires deep subsidies for at least 15 percent of the units in every subsidized rental housing project. I believe it undesirable to apply the 15 percent requirement to each and every assisted project. The basic purpose of the proposal can be accomplished by applying the requirement to the program as a whole, rather than to each project.

Section 114 would extend to two additional classes of housing assisted by the FHA the provisions of section 518(b) of the National Housing Act. That section authorizes compensation to purchasers of existing section 235 homes which are defective on the date of issuance of the insurance commitment.

The two additional classes of housing are those insured under section 221(d) (2) and those located in older urban areas and insured under section 203. The section would authorize compensation for any defect of the dwelling existing on the date of issuance of the insurance commitment which is attributable to a failure to meet State or local health and safety codes. This is a significant change in the standards under the existing section 518.

The present law imposes obligations on HUD only if the defects should have been disclosed by a proper HUD inspection and if they seriously affect the use and livability of the property. Under section 114, minor defects would be covered and also defects that were not noticeable when the FHA approval was given. The coverage would extend to homes that received FHA insurance commitments as long ago as August 1, 1968.

Extending it that far back retroactively will create tremendous problems in undertaking to make accurate decisions under the provisions.

I recommend that section 114 be substantially revised to eliminate obligations with respect to relatively minor defects that could not reasonably have been found during a proper inspection; to limit retroactivity to those situation in which fairness requires it and it will be possible to identify eligible recipients and to determine payment amounts; and to define areas covered under section 203 as "older and declining" rather than just "older" which would extend this provision to most neighborhoods in our older cities. I think this is a very important amendment, a small one, but very important in terms of administering the program properly and defining it properly.