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(The article referred to and Secretary Weaver's reply follow:)

[From the New York Times, Feb. 20, 1966]

SLUM PLAN'S COST LIKELY TO DOUBLE-PRIVATE AND PUBLIC SPENDING UNDER JOHNSON'S PROPOSAL TO BE CLOSE TO $6 BILLION

(By Robert B. Semple, Jr.)

WASHINGTON, February 19.-President Johnson's plan to rebuild slum areas of American cities, if approved by Congress, would be twice as large as it originally appeared.

This is one of several previously undisclosed facts about the plan that have emerged from talks with housing experts in Government, in the academic community, and in the cities themselves. If their expectations are correct, the program will upgrade 350,000 dwelling units and improve the lives of more than a million residents.

The President outlined the plan-known as the "demonstration cities program"-in a message to Congress in January. He proposed to spend $2.3 billion, spread over 6 years, on from 60 to 70 selected cities that would be willing to focus their resources on badly blighted neighborhoods. To qualify for funds, the cities would have to undertake not only physical renewal-improvement of dwellings but also social renewal, which means that schools, parks, and other community services would have to be included in the project.

The message was written in general terms and contained little specific evidence to support its promises. Some city officials were publicly skeptical of the $2.3 billion figure. They noted that when spread out over 6 years it amounted to less than the current annual expenditures for long-established urban renewal programs.

However, a number of assumptions, and expectations are now clear and will be presented to Congress when hearings on the program open February 28.

For one thing, the $2.3 billion represents only the net cost to the Federal Government. In actual fact, total expenditures from private and public sources combined will be somewhere between $5 billion and $6 billion, including acquisition, rehabilitation and construction of dwelling units, plus community and social services and other costs.

In the last few years of the projected 6-year program, experts calculated, at least $3 billion of the total could be recovered through the resale of upgraded units. This would leave a net of roughly $2.6 billion, of which the Federal share would amount to roughly $2.3 billion.

Secondly, the cities chosen for Federal funds would fall into three categories: large cities of more than 500,000 persons; intermediate cities, 250,000 to 500,000 in population, and smaller cities of less than 250,000 inhaibtants.

The number of cities to be included in each category is still undecided: the administration apparently wants to remain flexible on this point. However, it is likely the program may ultimately include 5 to 8 large cities, 10 or 12 intermediate cities, and 40 to 50 smaller cities.

In any case, the distribution of funds is likely to be nearly even: Roughly $2 billion for large cities, $1.8 billion for intermediate cities, and more than $1.6 billion for smaller cities.

Finally, specialists in the field believe that the program, if enacted, can achieve significant impact in most of the demonstration cities. They believe that at the end of 6 years it can vastly improve one-third of a city's substandard dwelling units and radically change the environment of 10 percent of the city population. It is difficult, of course, to apply these percentages to the country's very largest cities. To upgrade one-third of New York's estimated total of 230,000 substandard units, for example, would require a huge part of the program's total resources. However, in New York's case experts believe that sizable improvements are possible in selected neighborhoods.

Behind these expectations lie a series of statistical models, constructed largely in the academic community, that provide working estimates of the program's cost and impact in "typical" or average cities in each population group.

In the large-city category, according to these calculations, a typical city looks something like this: population, 700,000; total dwelling units, 220,000; total substandard units, 30,000.

A typical "target" or demonstration neighborhood in such a city might include from 80,000 to 100,000 residents living in 24,000 to 28,000 dwelling units. Of these

units, according to what the experts believe is a reasonable division, 8,000 are substandard that require either replacement or complete rehabilitation, and 16,000 are in various stages of decay.

The major cost in this typical city, as it would be in all cities, would be the acquisition of blighted buildings. (Under the President's program, acquisition will be carried out by a city agency set up to run the demonstration, using powers of eminent domain in much the same way as they are used in the urban renewal program.) The cost of acquiring 24,000 units in a "typical" large city project would be about $140 million.

DEMOLITION COSTS NOTED

Based on past experience, an average of about one-fourth of the 8.000 substandard units would require demolition. The cost of demolishing 2,000 units would be $2 million, the cost of replacing these with new units would be $24 million.

The rest of the units, the remaining 6,000 substandard units and the 16,000 in various stages of decay, would require various degrees of rehabilitation costing more than $80 million.

To these basic physical costs-about $250 million all told, are then added other costs of a social nature: relocation of neighborhood residents, as necessary; administration and planning; and "community participation" and social programs such as day care, employment and family-counseling services.

If other community facilities such as schools, health centers and neighborhood recreational centers are included, as they may well be, the total "social" costs of the program would amount to roughly $100 million, thus producing a total cost of perhaps $350 million.

Similar models can be drawn up for cities in the intermediate and low population groups. Average costs of the intermediate programs are about $170 million, in the small city group about $30 million.

RESALE FACTOR VITAL

The gross costs of the program can be computed from these models by multiplying these average costs by the number of cities in each population category and then by adding the three categories together. The approximate result is $5.3 billion. Additional costs, including the renovation of stores and shops in the area, produce a final gross figure of about $5.6 billion.

In computing net costs—the next step-the experts have devised a resale price low enough to allow those who buy the upgraded units to charge rents within the reach of low-income groups. This represents a conscious effort to avoid the experience of many urban renewal projects, which have often cleared out slum areas only to refill them with housing that no low-income person can afford.

The resale figure generally used by experts to achieve these objectives is $7,000 for rehabilitated units and $12,000 for totally new units.

Their assumption is that a $7,000 unit would produce a rent of $60 monthly, which they believe is within the capacity of those earning less than $3,000 annually. A $12,000 unit, they estimate, would produce a rent of from $100 to $110 a month.

These resale figures are then multiplied, in effect, by the number of units involved in the overall program to reach a total "recovery" figure of $3 billion. This is then subtracted from gross costs of more than $5 billion to bring the net to a level that Mr. Johnson thinks is manageable by local treasuries and the Federal budget.

COMMENTS ON NEW YORK TIMES STORY ON DEMONSTRATION CITIES PROGRAM, FEBRUARY 20, 1966

The New York Times article of February 20, 1966, about the proposed demonstration cities program by Robert Semple, presents an analysis of a demonstration cities program under certain assumptions that emphasize the costs of physical improvements. Within this framework it is an interesting and arithmetically plausible analysis.

The analysis was obviously geared to the $2.3 billion demonstration cities program cost mentioned by the President in his message on the proposed demonstration cities program. The $2.3 billion as used in the Times story represents the net cost of the program. It appears from the article that this net cost is derived

by an assumption that about 24,000 units would be acquired in a typical large city to be either demolished or rehabilitated. The costs of acquisition and rehabilitation in the typical large city would amount to $250 million. To this would be added $100 million of expenditures for community facilities, such as schools, health centers, neighborhood and recreational centers, as well as the social cost of the program. For smaller size cities for the same types of improvements, smaller amounts would be required. For all the cities that would be involved, the costs for these purposes would be about $5.3 billion and additional costs primarily for renovation of commercial properties, producing a final gross figure of $5.6 billion in the Times analysis. The proceeds from the sales of units that have been rehabilitated would then be deducted from the gross cost to arrive at an estimated net cost figure of $2.3 billion.

It is important to note that the Times analysis has been built up on the basis of a model for a typical city under certain assumptions as to the population and number of dwelling units in the demonstration area, and on the assumption that the major part of the cost involved will be for housing improvements and other physical improvements. The social services cost is not identifiable in dollar terms.

In an analysis of this sort, all models necessarily have to be based on certain assumptions as to the arithmetical factors involved. The formula and the purposes for which supplementary grants would become available under H.R. 12341 would cause a different focus upon the factors that may be involved than in the New York Times analysis.

The stated purpose of H.R. 12341 is for "rebuilding slums and blighted areas and for providing public facilities and services necessary to improve the general welfare of the people who live in these areas." The demonstration program effort, thus, would be designed to have a comprehensive and coordinated program of social services to better the lot of the people in the area, as well as to improve the physical conditions in the area. It is intended that all available Federal aid programs for both social betterment and physical improvements should be utilized to the maximum extent feasible for accomplishing these purposes.

To induce the cities to undertake such an effort, they would receive supplementary grants equal to 80 percent of the local share required for all projects or activities which are a part of the demonstration program and financed under existing grant-in-aid programs.

These supplementary grant funds could be used to (1) assist cities to provide their required share of the cost of projects or activities which are part of the demonstration program and are funded under existing Federal grant-in-aid programs, and (2) provide funds to carry out other, nonfederally assisted, projects or activities (including projects or activities of the type eligible for Federal assistance under existing grant-in-aid programs) undertaken as part of the demonstration program.

In drawing typical city models to analyze program cost in accordance with the bill, therefore, three critical factors are involved in the calculations: (1) the program cost as based on the local determination of components of the program and the mix of such components; (2) the proportion of these program costs that would be borne by expenditures under ongoing grant-in-aid programs typically expected for a city of a given size; and (3) the disposition among program components, as determined by the local city demonstration agency, of the supplementary grant funds obtained under the formula provided by the bill. It is in the nature of the program that each qualifying community will develop an imaginative program predicated upon its particular needs and circumstances. Cost estimates for any individual city cannot be stated definitively in advance because of variations in program components that would occur from locality to locality and because of variations in levels of funding that will be available for regular Federal grant-in-aid programs in different localities. Therefore, given certain assumptions about program components and available present Federal grants-in-aid, we can build up estimates of typical situations. We cannot, however, calculate fund allocations until the proposals from cities are received.

The starting point for an estimate of the program cost would be similar to one of the points used in the New York Times analysis; namely, a model of a typical large city. The Times' model was a city of 700,000 with a demonstration area of 80,000 to 100,000 people, containing 24,000 dwelling units, of which 8,000 need to be demolished and 16,000 require some degree of rehabilitation.

It should be noted, however, that in a city of 700,000 to 800,000, the total number of substandard units in the entire city is likely to be between 20,000 and 25,000. Furthermore, all but about 4,000 are likely to be substandard by virtue of a lack of adequate plumbing facilities and therefore amenable to rehabilitation. The 4,000 or so would be the total number of dilapidated units in the city. Therefore, in an area of such a city that might contain about 80,000 residents and have 24,000 dwelling units, it is unlikely that all 24,000 would require either extensive rehabilitation or demolition as the Times analysis has assumed. In fact, if we assume that 16,000 would require some form of rehabilitation ranging from major to minor rehabilitation, as the Times analysis assumes, but also that one-fourth of the units in the area or 6,000 need only normal maintenance and repair, perhaps 2,000 units would have to be demolished. This would significantly reduce the net cost required to deal with housing in the area.

On the other hand, a significantly larger allowance should be made for social services in the area as well as certain physical improvements that would help achieve the social purposes, such as schools, health centers, and neighborhood centers. The bulk of the funds required for physical improvements and social services would be provided under regular existing Federal grant-in-aid programs, such as urban renewal, public housing, neighborhood center grants, economic opportunity programs, manpower development and training, and numerous others. The typical amounts of such Federal program expenditures and the required local matching share can be estimated for a city of a given size, containing a demonstration area of a given population. Eighty percent of the local matching share of such activities would then determine the potential supplementary grant entitlement for the demonstration program in that city.

For a city of between 700,000 and 800,000, with about 24,000 families in the demonstration area, the supplementary grant entitlement for the demonstration program in that city might amount to an estimated $15 to $20 million per year or $75 to $100 million over 5 years. The total program activities, including those under the regular Federal grant-in-aid programs as well as those supported by the supplementary grant funds, might amount to as much as $75 million a year, or $375 million over a 5-year period. On the basis of such estimates for 60 to 70 cities of different sizes, it is contemplated that $2.3 billion in supplementary grant funds would be required over a 6-year demonstration program period, of which 5 years would constitute the active operating period after the first year of preparing the plan. The total program impact, including regular Federal grant-inaid program expenditures and State, local, and private expenditures in all the demonstration areas could rise to an aggregate total of about $10 billion over the 5-year period.

All size categories of cities have been thought about instead of the three shown in the New York Times story. Demonstration cities could range in size from 1 million or more to cities of less than 50,000. The largest number of cities would be in the smallest size category. A good geographical distribution in all parts of the country would also be sought.

In summary, the New York Times story was an attempt to explain how a net cost of $2.3 billion would accommodate a physical improvement program. It was a logical but limited explanation of a city demonstration program.

The estimate that has been presented herein, based on the provisions of the bill, is indicative of how the figure of $2.3 billion was arrived at. As the estimate related to the bill indicates, there will be a great deal of flexibility in the sizes of cities and types of activities undertaken under the demonstration cities program.

The bill also contemplates that (as the President stated in his message on city demonstration programs) "the complete array of all available grants and urban aids in the fields of housing, renewal, transportation, education, welfare, economic opportunity, and related programs" will be available under existing Federal programs to cope with problems in the demonstration area. Finally, the bill definitely contemplates a broader program scope with much more emphasis on social services than was contemplated in the New York Times example.

Mr. ASHLEY. Secondly, on page 2 of your statement you say that you will make it possible to treat the human needs of people in the slums, and at the same time the physical rehabilitation will be carried

out.

We do have in this program two rather distinct elements, as I understand it. One is the capital improvement rehabilitation, and the other

is the human needs factor. These are quite different. Capital improvements can be paid for, and then constitute a continuing cost. This cannot be said, as I see it, where the increased input of socal services to a particular area are involved. Are these meant to be continuing costs to the Federal Government?

Secretary WEAVER. Well, I think there are two categories of these. In the first place, there are those costs which are now provided for by grant-in-aid programs in which the Federal Government makes a partial grant. These are, as you know, over the various terms, depending upon the nature of the services. Obviously these would be continuing.

Secondly, there would be those services which would have to be augmented during the period of this particular proposal. Here you would have the supplemental money being used over a period of time.

Mr. ASHLEY. As far as the social services are concerned, we are now primarily being paid by the local community, this would be a contribution of almost every Governor for the duration of the program in the 6 years, is that correct?

Secretary WEAVER. Well, the program would have to be effected in the sense of being substantially completed from the physical side of it within a period of 5 or 6 years. The question of how the services would be financed and for how long, would have to, I am afraid, be handled on a case-by-case basis. There is nothing in the law that would limit the period. Some might go beyond the period which we call the completion of the project. Because this is completion more or less in its physical rather than its social aspects. Obviously, there would be a problem here. It could not go on ad infinitum.

Mr. ASHLEY. Precisely. Under the OEO program we have the same kind of a problem, where services are provided, where funding is on an annual basis, and the cities engaging in the program find it difficult to sustain services that have been initiated. Is there this problem?

Secretary WEAVER. There is this problem. But I don't think it is quite as severe here, because in the first place we are talking about an appropriation over a 5-year period which gives you more than just the annual appropriation problem.

Secondly, I think there is the fact that some of these programs, particularly some of these social programs, if they are successful will have less of a need after the 5-year period. If you are training people, for example, who are not yet employable, over a 5-year period you should get over the bulk of that, and you would not have to continue to spend as much money after 5 years for that as you did during the first 5 years.

Mr. ASHLEY. Doctor, have you had a chance to examine the amendments that several of us have worked out?

Secretary WEAVER. Yes, I have.

Mr. ASHLEY. I wonder if you would care to comment on adding some additional criteria for eligibility. The amendment addresses itself to two additional criteria. First, that the sections of the neighborhood in question be subject to higher priority economic and social pressures, such as population density, crime rate, public welfare participation, delinquency rate, unemployment, educational level, health and disease characteristics, and degree of substandard and dilapidated

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