(The statement referred to follows:) ARCHITECTS' RENEWAL COMMITTEE IN HARLEM, INC., One very effective way of dealing with slumlords in New York City (and in other urban centers) who own and maintain buildings in a condition continuously dangerous to their tenants would be to deprive such owners of their depreciation allowance under section 167 of the Internal Revenue Code. In many cases, the reason why landlords purchase slum buildings and operate them so profitably without taking care of them is because of the depreciation allowance. If they were deprived of that economic benefit because the buildings they owned were certified by the appropriate city agency to be in a deteriorating condition, this would be a most effective incentive for them to keep the buildings in good repair. The economics of the situation can be shown in the following example: A real estate operator may purchase a slum building for $200,000. Of this, $80,000 may be in cash and the other $120,000 may be by mortgage. In any given year he would have the following expenses: The owner may take in yearly rents up to $45,000 on property of this kind. Deducting the expenses listed above, he would have total income of $20,000 on his original cash investment of $80,000. Moreover, because of the depreciation allowance, he may end up by paying no taxes whatsoever on the $20,000 income. If the useful life of a building is 20 years, under straight line depreciation, he could deduct $10,000 against his income and pay taxes on only $10,000. Thus (depending on what income the owner derives from other sources), he could save anywhere from $2,200 to $4,800 on his tax bill. In addition, if he takes advantage of the accelerated depreciation provisions of section 167 of the code, he can deduct as much as $20,000 in the first year after his purchase (in the second year his depreciation allowance would be $18,000; in the third $16,200, etc.), thus, in the above case, he could end up by paying no taxes whatsoever although he earned $20,000 income on an $80,000 cash investment. It is for this reason that investments in slum tenements are so profitable. If a slumlord were deprived of the depreciation allowance, he would have to pay taxes on the entire $20,000 income, which would mean a tax bite of up to $9,600. Slumlords faced with the difference between paying no tax and a tax of $9,600 in any given year would be more likely to invest $2,000-$3,000 or more to fix up their buildings. An amendment could be made to section 167 of the Internal Revenue Code adding an new subsection (j) which would read as follows: "(j) No depreciation deduction shall be allowed to any taxpayer owning a housing accommodation (other than a single-family residence occupied by the owner thereof) if at any time during the tax year such accommodation is certified by any governmental agency having jurisdiction to be a fire hazard or in a continued dangerous condition or detrimental to life or health." Section 2(f) (9) of the rent, eviction, and rehabilitation regulations of the New York City Rent and Rehabilitation Administration uses similar language with respect to putting otherwise exempt housing accommodations under rent control. The same kind of test could be applied with respect to the depreciation allowance. Regulations issued by the Secretary of the Treasury might provide that any violation of a city's criminal code or administrative code for maintaining a housing accommodation in a continued dangerous condition should be transmitted to the local Internal Revenue Service office so that they would have a record of such violations for checking against the tax return of the owner of the building. Deduc There should be no constitutional difficulties in such an amendment. tions are a matter of legislative grace and can be conditioned by Congress in any reasonable way it chooses. Moreover, such an amendment fits within the theory of the depreciation allowance. The allowance is appropriate only where a building is kept in normal repair and gradually loses its value over a period of time. In that situation, an owner should not be required to take his loss only in the year when the building finally collapses, but should be able to charge the value of the building over its norinal use. However, where slumlords do not keep a building in normal repair and through their action and nonaction endanger the lives of its tenants, they should not be given the privilege of spreading their loss over a period of time. They will be able to take their loss only in the year when it is actually suffered, i.e., when the building actually collapses. As a practical matter, no landlord could possibly wait until the last year to take his loss and would be compelled to make the necessary repairs to keep his building in a safe condition and thus be allowed to take his depreciation allowance. The tax code could also be amended to insure that a slumlord could not carry back or forward any loss on a building collapsing because it was in a dangerous condition through the owner's nonaction. This would protect against such an owner obtaining any kind of tax saving. A proposal of this kind would be a most effective economic sanction against slumlords in New York City and elsewhere. LEON FRIEDMAN, Esq. NOTES.-I would suggest that version of section 167 above be further revised to read ** if for a period of 30 days or more in any tax year such accommodation. 2. It should be incumbent upon the owner, not the IRS, to demonstrate (by attaching a copy of a clean report from the local buildings department) that his deductions are allowable. C. R. HATCH. Mr. DAVIDOFF. The ARCH proposal recommends the adoption of a new subsection, subsection (j) of section 167 of the Internal Revenue Code. Subsection (j) would read as follows: "No depreciation deduction shall be allowed to any taxpayer owning a housing accommodation (other than a single family residence occupied by the owner thereof) if for a period of 30 days or more during the tax year such accommodation is certified by any governmental agency having jurisdiction to be a fire hazard, or in a continued dangerous condition, or detrimental to life or health." The ARCH proposal would make it incumbent upon the owner, not the IRS, to demonstrate that his depreciation deductions were allowable. The owner could do this by submitting a declaration from the local building department that his building was free of violations of the type that would preclude the granting of the deduction. Further, ARCH proposes that the local agencies having jurisdiction over building conditions be required to submit to local IRS offices lists of buildings in violation of local codes. ADA strongly supports this proposal as a major means of regulating the quality of dwelling units and as a proper means of limiting the privileges granted under section 167 of the Internal Revenue Code. I would like, if I may, to include a point which I confused earlier as a part of the amendments which we propose to H.R. 13064. And that is that the rent subsidy program should be modified to benefit those low income families who pay more than 20 percent of their income for shelter rather than the present 25 percent. The supplement would pay the difference between the rent and 20 percent of a family's income. The workable program should include a requirement that cities establish a model building code based on performance standards. Such a code should utilize research and development advances made in the building industry. Finally, in conclusion, in his demonstration cities message President Johnson concluded by asserting, "If we begin now the planning from 60-878-66-pt. 1——31 which action will flow, the hopes of the 20th century will become the realities of the 21st." ADA believes that the goal of a decent home and a suitable living environment can and must be achieved well before the 21st century. This goal can be achieved within the next decade: 1. If funds are provided in sufficient amounts and with an increasing Federal commitment. 2. If renewal programs will in fact benefit relocatees by providing decent housing in suitable living environments. 3. If the rebuilding of all cities, and the establishment of new cities are viewed as related parts of a national development policy. 4. If HUD makes rapid and vigorous participation in meeting the national housing goal a condition precedent to the granting of Federal aid. (The pamphlet previously referred to follows:) METROPOLITAN HOUSING DESEGREGATION The case for an affirmative program under title VI of the Civil Rights Act of 1964 (The Potomac Institute, Inc.) NOTE As this publication went to press, President Johnson declared in his state of the Union message on January 12, 1966, that he would ask the Congress for Federal legislation to prohibit discrimination in the sale or rental of housing. It is most heartening that this long-overdue proposal has now been placed on the national agenda, although the specific details of what the President will propose or what the Congress may dispose-are not yet known. However, a Federal fair housing law can reach only part of what this publication advocates. For if the experience under State and local laws on housing nondiscrimination is any guide, reliance on the individual complaint procedure has negligible impact on existing ghettos, which are at the heart of the Nation's segregation problems. It thus becomes even more imperative that concerned Federal agencies exercise their authority and obligation under title VI of the Civil Rights Act of 1964 to eliminate existing community patterns of housing segregation. Together, the Presidential proposal and the congressional title VI mandate can remedy the evil of housing segregation, which has also meant the continuance of slum conditions, segregation of children in public schools, and other unfortunate consequences of ghetto existence. THE END OF THE BEGINNING "The voting rights bill will be the latest, and among the most important, in a long series of victories. But this victory-as Winston Churchill said of another triumph for freedom-'is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.' "That beginning is freedom; and the barriers to that freedom are tumbling down. Freedom is the right to share, share fully and equally, in American society to vote, to hold a job, to enter a public place, to go to school. It is the right to be treated in every part of our national life as a person equal in dignity and promise to all others. "But freedom is not enough. You do not wipe away the scars of centuries by saying: 'Now you are free to go where you want, or do as you desire, and choose the leaders you please.' "You do not take a person who, for years, has been hobbled by chains and liberate him, bring him up to the starting line of a race and then say, you are free to compete with all the others,' and still justly believe that you have been completely fair. "Thus it is not enough just to open the gates of opportunity. All our citizens must have the ability to walk through those gates. "This is the next and the more profound stage of the battle for civil rights. We seek not just freedom but opportunity. We seek not just legal equity but human ability-not just equality as a right and a theory, but equality as a fact and equality as a result. "For the task is to give 20 million Negroes the same chance as every other American to learn and grow, to work and share in society, to develop their abilities-physical, mental, and spiritual, and to pursue their individual happiness."-President LYNDON B. JOHNSON, at Howard University, June 4, 1965. INTRODUCTION The historic Civil Rights Act of 1964 includes specific prohibitions on discrimination in voting, public accommodations, public facilities, public education, employment and federally assisted programs. Housing discrimination as such is not mentioned in the 1964 act. Careful consideration of title VI of the act, however, leads to the conclusion that it does directly preclude racial discrimination in the sale and rental of private housing. Section 601 of title VI states that: "No person in the United States shall, on the ground of race, color, or national origin, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any program or activity receiving Federal financial assistance." This language does not confer discretionary power on Federal agencies; it imposes a compulsory obligation. In his testimony on this section before the Senate Judiciary Committee, former Attorney General Robert F. Kennedy emphasized: "Simple justice requires that public funds, to which all taxpayers of all races contribute, not be spent in any fashion which encourages, entrenches, subsidizes, or results in racial discrimination ***"1 The legal concept of "discrimination" is not static, but one which is evolving continuously as a result of political and judicial development. In 1896, the Supreme Court held that "separate but equal" treatment of the races fulfilled the constitutional requirements of the 14th amendment. In 1954, the Court overruled that doctrine, declaring that the separation of the races by government is inherently discriminatory. In 1964, by enactment of title VI of the Civil Rights Act, the Congress added to the prohibition on racial discrimination the further stipulation that no person "be excluded from participation in" or "be denied the benefits of" any federally assisted program. To achieve the objective of title VI, therefore, requires more than a passive Federal position with respect to discrimination. Racial discrimination is so deeply embedded in our present-day society that the mere “nondiscriminatory" expenditure of public funds may further entrench and subsidize segregation in public life. For the purposes of title VI, it is immaterial whether segregated housing patterns result from current practices of racial discrimination not prohibited by law, or reflect past discriminations embodied in today's ghettos. In either case, the congressional mandate can be fulfilled only by Government taking positive steps to eliminate and prevent community patterns of racial segregation, for the perpetuation of discrimination by a failure to remedy it may itself be considered an act of discrimination. Every federally aided program affecting housing should be measured against this affirmative requirement for compliance with title VI. This publication demonstrates that the title VI affirmative requirement applies directly to federally financed urban renewal, highway and other construction and land acquisition programs. These Federal programs annually displace from their homes thousands of families, many of whom are forced to relocate in racial ghettos where communities tolerate housing discrimination and establish patterns of segregated housing. Moreover, apart from relocation into segregated housing it will be shown that the title VI requirement applies to the entire private housing sector, which is directly benefited by and materially dependent upon the totality of Federal assistance programs in the area of community facilities and services. Yet Federal programs affecting housing presently are being administered without adequate safeguards to insure that public funds are not being spent in a fashion which encourages, entrenches, subsidizes or results in racial discrimina1 88th Cong., 1st sess., on S. 1731 and S. 1750, p. 333. tion. To meet the title VI requirement, major affirmative changes in policy and administration of Federal programs affecting housing are recommended.2 Lastly, it is suggested that if Federal agencies and metropolitan communities do not move affirmatively to comply with title VI as it affects racial discrimination in housing, court suits may be filed against both the localities and the Federal agencies to enforce compliance. It is to be hoped, however, that litigation will be made unnecessary by the voluntary actions of Federal agencies and metropolitan communities to end racial discrimination in housing. I. HOUSING DISPLACEMENT IMPACT OF MAJOR FEDERAL CONSTRUCTION PROGRAMS Many thousands of families are displaced from their homes every year by projects under the workable program for community improvement and other governmental activities. The major Federal assistance programs that force these families to seek other housing are: (1) Direct construction by government: e.g., highways, schools, public housing, public buildings, and such neighborhood facilities as community or youth centers, health stations and similar public institutions. (2) Slum clearance, urban redevelopment and renewal. (3) Acquisition of sites to be used in future construction of public works and facilities. (4) Acquiring and developing land for recreational, conservation and other public uses, including the purchase and clearance of land in built-up areas for such open-space needs as parks, squares, pedestrian malls, etc. It is estimated that about one and a half million Negro Americans will be displaced from their homes because of these federally financed construction and acquisition activities in the first 8 years following enactment of the 1964 Civil Rights Act. Commenting on housing relocation, the Housing and Home Finance Agency (HHFA) stated: "Experience shows that some families displaced from slums and blighted properties have considerable difficulty in finding other accommodations that are decent, safe, and sanitary and within their means due to the limited supply of such housing available to them. For personal or similar reasons, others seek housing no better than that found in the slums and blighted area from which they have been displaced ***."5 The HHFA cautioned community officials "to be fully aware of the importance of taking the necessary steps to provide the means for displacel persons to obtain decent housing which they can afford," and then offered the following guidance about the important elements in determining relocation needs: "At the time of submission of an initial application for approval of the workable program for community improvement, the community will be required as a minimum to have made a reliable estimate of the number of families to be displaced during the ensuing 2-year period, broken down into four categories of governmental action (i.e., urban renewal, highway construction, code enforce In applying the title VI requirement to housing, we do not overlook what is known as the housing exemption that Congress wrote into sec. 602. That exemption removes Federal financial assistance by way of "a contract of insurance or guaranty" from the section authorizing Federal agency enforcement of title VI rights. By this exemption. Congress left unaffected the existing nondiscrimination machinery of the Federal Housing Administration and Veterans' Administration home loan guarantee and insurance programs under President Kennedy's Executive Order 11063. In this dicussion it is not the exempted Federal housing insurance and guarantee programs, but rather the variety of direct Federal construction, assistance, and loan activities affecting housing with which we are concerned. The workable program for community improvement is the program developed by a local community for the prevention and elimination of slum and blight conditions. To qualify for Federal financial and technical assistance in urban redevelopment, each community must have an approved workable program that meets the standards of the Department of Housing and Urban Development. Statistical projections prepared for the Congress (see table I-App. C) show that an estimated 111,080 families and individuals will be displaced annually from their homes during these years by acquisition of real property for federally assisted programs (see 88th Cong.. 2d sess.. Committee Print No. 31, House Committee on Public Works, pp. 15, 258). Multiplication of the "family" ingredient in this estimate (64 percent) by average family size (3.71) reveals that in the 8 years between 1964 and 1972 about 2.400.000 persons will be displaced. Experience shows that of the persons displaced under these programs approximately three-fifths are nonwhite (see Urban Renewal Administration statistics, table 3, p. 25. Report of Advisory Commission on Intergovernmental Relations, January 1965, "Relocation: Unequal Treatment of People and Businesses Displaced by Governments"). It thus appears that about one and a half million Negro citizens will be displaced from their homes under Federal and federally assisted programs during the first 8 years after the effective date of the 1964 Civil Rights Act. Workable Program for Community Improvement, Program Guide No. 6, "Answers on Housing for Displaced Families," p. 1, August 1962, HHFA. |