Mr. SMITH. What is the difference between the capital that goes into war savings bonds and the capital going into the construction of these public-housing projects?

Mr. EGAN. I would say the capital that goes into these housingauthority bonds, through investment houses, is supported and secured by Federal contributions, but the Federal Government does not directly guarantee those bonds themselves.

Mr. SMITH. Let us speak of these Federal contributions as taxes, because that is what it really means. That bond-the bond which a man buys for the building of this project—is guaranteed by the credit of the United States Government; is that not true?

Mr. MILLER. There is a considerable difference between these housing bonds and the bonds or obligations issued by the United States Government. The bonds or certificates of indebtedness, or the obligations issued by the United States Government, are the direct obligations of the United States Government and are payable out of any funds that the United States Government has.

These housing bonds are not the obligation of the United States Government at all. They are the obligations of the local authorities, to start with. They are secured by the agreement of the Public Housingg Administration, which is part of the Government, to make certain contributions per year, under certain conditions.

That is not a guaranty of the obligations themselves, and the agreement to pay the contributions is subject to a number of conditions which may come into being or may not, in which case the contribution would not be paid, and therefore the bond would not be protected.

That is the difference between the bonds of the United States Government and the bonds of the local housing authorities.

Mr. SMITH. You are making the point that the housing bonds are not guaranteed by the United States Government in exactly the same manner as an ordinary bond?

Mr. MILLER. They are not guaranteed at all.

Mr. SMITH. What is this annual Federal contribution? It says specifically in here that it must be provided.

Mr. MILLER. The term "guaranty" has a well-known legal consequence. That consequence, that legal consequence, does not flow here in the sense that you use it. The only obligation of the United States Government here is to pay the contributions under certain conditions; and if those conditions are broken, the United States Government does not pay the contributions.

Mr. SMITH. Now, specifically, what conditions do you speak of being broken?

Mr. MILLER. Well, there are three or four principal conditions. One is that the low-rent character of the project must be maintained. Another is that equivalent elimination must take place. A third-and one which has been most difficult-is that the local community must make a local contribution equivalent to 20 percent of the contribution made by the Federal Government.

If any one of those conditions is broken, the contribution is either not paid at all or is proportionately reduced. And that is a risk that the purchaser of the bonds takes.

In your own State of Ohio, when your supreme court held that the properties were not tax-exempt, that they were subject to taxation, the municipalities in your State could not then provide the local con

tribution which the act required and the United States Government could no longer pay contributions on those projects in your State. Mr. SMITH. But you foreclosed.

Mr. MILLER. No; we did not foreclose.

Mr. SMITH. You took them over, did you not?

Mr. MILLER. With the approval of the local authorities. That was a voluntary agreement. There was no obligation upon them. Mr. SMITH. What point are you trying to make? That the contribution was still being paid just a short period between the time when this decision was made by the court and the time you took it over? That was the only period; is that not true?

Mr. MILLER. I say that after that decision was rendered we could not legally pay contributions.

Mr. BOGGS. A point of information, Mr. Chairman. The House is in session. How long are you going to sit? Is it contemplated that the committee will meet this afternoon, Mr. Chairman?

Mr. GAMBLE (presiding). I think we are going to try to get before the Rules Committee this afternoon on Reconstruction Finance Corporation and the Federal Credit Union.

Mr. BOGGS. So that we will not meet this afternoon?

Mr. GAMBLE. That is right. Mr. Wolcott tried to get before the Rules Committee yesterday, but was unable to do so. He hopes to be able to do so this afternoon on S. 2287, Reconstruction Finance Corporation, and the Federal Credit Union bill, S. 2225.

Mr. BOGGS. Mr. Chairman, is it understood that we will recess at 12:30?

Mr. GAMBLE. Yes. Is that agreeable to you?

Mr. BOGGS. Completely so.

Mr. GAMBLE. I know you are interested in the program on the floor, which involves the District of Columbia bill for 1949 and the legislative appropriation bill, which is even more important.

Proceed, Dr. Smith.

Mr. SMITH. You advertise these bonds, do you not, stating in your advertisement that they are backed by the Federal contributions?

Mr. MILLER. First of all, we do not advertise them. Local authorities advertise them. Secondly, that is quite correct-the security back of them is the agreement by the Public Housing Authority to pay contributions, which security, as I pointed out, is conditional.

Mr. SMITH. Well, that means that they have the full faith and credit of the United States Government back of them, does it not? Mr. MILLER. I would say so.

Mr. MULTER. No; it does not, sir. The agreement is to make a specific contribution up to a limited amount. That does not put the full faith and credit of the United States Government behind them. Mr. SMITH. But it puts the full faith and credit of the Government behind them to the extent of the amount that is pledged.

Mr. MULTER. Certainly.

Mr. SMITH. And the annual Federal contribution covers the interest and amortization; is that not true?

Mr. EGAN. Almost. There was a slight difference in many cases which had to be made up in the rents.

us.

Mr. BOGGS. It has been increased 1 percent in this present bill before

Mr. EGAN. That is right.

75674-48 -19

Mr. SMITH. I understand that is true. But there is a way of financing this whereby even that could be avoided. But practically the entire amount is guaranteed by the faith and credit of the United States Government; is that not true.

Mr. EGAN. Substantially the entire amount of the interest and amortization of the bonds is covered if the maximum Federal contribution is paid.

Mr. SMITH. That is right.

Mr. MILLER. It will be met if the contributions are paid and if the conditions I have mentioned are met.

Mr. SMITH. Not if the contributions are paid. The contributions are going to be paid. The contract calling for the payment of the contributions has certain conditions, to be sure. But the fact is: Could you sell a single bond if you did not have this guaranty back of them? Mr. MILLER. I cannot speculate. I think they would be sold, but at a high interest rate.

Mr. SMITH. If there were no Government guaranty back of them at all?

Mr. MILLER. If the States had some other guaranties. For instance, the State of New York and the city of New York sell bonds guaranteed by the city.

Mr. BOGGS. Will you yield for a question at this point?

Mr. SMITH. I yield.

Mr. BOGGS. Do you consider the full faith and credit of the United States is behind the Federal Housing Administration insurance provisions?

Mr. MILLER. I am not familiar with those provisions.

Mr. BOGGS. Well, what is your opinion?

Mr. MILLER. I do not understand the provisions.

Mr. BOGGS. Is there anyone here from the Federal Housing Administration?

(No response.)

Mr. BOGGS. Will you have someone provide the answer to that question?

Mr. EGAN. We will, Mr. Congressman.

Mr. BOGGS. Thank you, Dr. Smith.

Mr. SMITH. Let us try to be honest and settle this thing once and for all.

The fact is that this is merely an indirect way of selling Federal obligations, that is all. The law provides for it. So why not call the thing by its name and stop this business of trying to make the public believe that private enterprise is furnishing this money in a different way than it furnishes money for other Government costs. They are all the same. The obligations are all the same, in substance and in fact.

Mr. BOGGS. Doctor, may I ask you a question?

Mr. SMITH. Certainly.

Mr. BOGGS. What do you consider to be the answer to the question that I just asked Mr. Egan?

Mr. SMITH. You asked whether the faith and credit of the Federal Government is not back of the Federal Housing Administration bonds. Mr. BOGGS. That is right.

Mr. SMITH. You want my opinion?

Mr. BOGGS. Yes.

Mr. SMITH. I thought it was.

Mr. BANTA. It has always been represented to be.

Mr. SMITH. That was my understanding.

Mr. BOGGS. So that if the valuation of these houses goes down within a period of time, and the mortgages default, the Government will have to make up the difference; is that correct?

Mr. SMITH. The Government will have to pay these contributions. Mr. BOGGS. I am talking about a Federal Housing Administration loan.

Mr. SMITH. I do not think there is any question about that.

This is a rather important matter, in my opinion, because the United States Housing Authority has always represented this thing as being one way when, in reality, it was not at all. This resolves itself, in my opinion—and I want you to express yourselves on it-into a Federal Government transaction, from the Federal Housing Authority down to the local housing authority, to its transactions and to its operations. Therefore, it could not be otherwise than that the nature of these bonds, or these securities which you sell to the public, is exactly the same as all other Federal obligations.

Mr. BANTA. Well, is it a fact that when these bonds are offered, if there is no market, or if there are no purchasers or investors, the Federal Government buys them?

Mr. SMITH. They have been selling these bonds. But you have that specifically written into your indenture, do you not?

Mr. MILLER. What is that?

Mr. SMITH. Guaranteeing the payment of those bonds, interest and amortization.

Mr. MILLER. No.

Mr. SMITH. What do you have, then?

Mr. MILLER. The only thing we agree to do is to pay the contributions, not to pay the bonds.

Mr. SMITH. What was that?

Mr. MILLER. We agree to pay the contributions, in a certain amount. That is the only thing that we agree to do.

Mr. SMITH. Well, the interest and the amortization are practically so. So let us call this annual contribution taxes. In other words, you get it through the collection of taxes; is that not true?

Mr. MILLER. That is right.

Mr. SMITH. That is the way we get the money for any bond, any security. So, fundamentally, there is no difference at all.

Mr. NICHOLSON. Mr. Chairman, may I ask one more question?
Mr. GAMBLE. Mr. Nicholson.

Mr. NICHOLSON. I would like to know how much the rents of these units have been raised, per unit, in the last 6 or 7 years.

Mr. EGAN. Mr. Congressman, that will vary with the localities. Mr. NICHOLSON. Could you furnish me with that information? Mr. EGAN. Surely. Would you like to have it on the average of the country as a whole, or would you like to have it for specific localities? Mr. NICHOLSON. I suppose a cross section of the country would be satisfactory.

Mr. EGAN. We can give you that information.

(The information above referred to is as follows:)

RENTS CHARGED TENANTS IN LOW-RENT HOUSING PROJECTS EACH YEAR, 1941-47

The average rents charged in low-rent projects developed under the original United States Housing Act (Public Law 412) are shown in the following table. These rents in almost all cases include heat and other utilities.

In order to show the actual trend in rents for identical groups of projects, they are arranged in groups depending upon the calendar year in which the projects' first fiscal years ended. The average rents charged for all projects is shown in the last column of the table.

1 Includes also (in last 3 years) 2 projects containing 156 units, with first fiscal years ending subsequent to 1944.

The rents charged in low-rent housing projects are based upon the incomes of the tenants. The increases in rents in successive years accordingly reflect the increases in the rent-paying ability of the tenants in the projects.

It will be noted that the general level in rents is somewhat different for the various groups of projects. This is due to the fact that the geographical and racial distribution of the projects is different in each of the groups. For instance, group 2 has lower average rents than groups 1 or 3, due to a larger proportion of projects in southern localities and a larger proportion for Negro occupancy. The average rents for group 4 are low because of the inclusion of Puerto Rico projects with 4,850 units.

Mr. GAMBLE. Mr. Gwinn wanted to ask you a question.

Mr. GWINN. When I yielded to Dr. Smith we were on the question, Mr. Egan, of your statement, which I now quote:

Private enterprise has nothing to fear from the competition of such a program of public housing.

Do you still want to make that statement?

Mr. EGAN. Well, maybe that is too broad a statement. What I want to say is this: That private enterprise has nothing to fear that we are going to compete for the same market which they are serving.

Mr. GWINN. Let us just summarize it, then, to make it clear. Would you say that a private borrower or lender of money was in difficulty if he was competing with a lender who was buying a bond with these guaranties which Dr. Smith described, providing that the Federal Government, from taxation, would make a contribution equal, or substantially equal, to the interest and the amortization on the building which is a security for this bond? That would be some disadvantage, would it not?

Mr. EGAN. That would be, sir.

Mr. GWINN. And that in the event that the whole project was also free from municipal taxation, except for a nominal amount, say 5 percent of the normal, that would also be a disadvantage to private borrowers and private lenders, would it not?

Mr. EGAN. If they were competing for that market, it certainly would be.