Mr. EGAN. No; but, Doctor, I do not think that anybody wants to aggravate the housing shortage today.

Mr. SMITH. Nobody but the people who are interested in slum clearance, that I know of.

Mr. EGAN. I do not think that even those people are.

Mr. SMITH. You have got to admit that the purpose of this is not to increase the number of houses. It is written right into the bill.

Mr. EGAN. That is right; I would not say that the purpose is to increase the number of houses in the long run. But it would increase the supply during the period of shortage.

Mr. SMITH. And you go out on the market now and compete for building materials, labor, and so forth. You have got to take that away from those people who are using building materials and labor with which to construct houses, do you not?

Mr. EGAN. That is correct, Doctor.

Mr. SMITH. Then let us be factual about it. It simply means that you would reduce by that amount the building that would otherwise take place.

Mr. EGAN. Well, except that it is a part of the whole housing problem. You have to try to meet the needs of all income groups, and that is what I think this bill contemplates.

Mr. SMITH. Is the need greater-let us put it frankly and flatlyfor demolishing slum dwellings and rehousing those people-assumthat you do rehouse them, and you do not; you do not rehouse slum dwellers but get tenants from other sources but assuming that that is true, is that more critical than the need for dwelling units to house veterans and others in need of housing?

Mr. EGAN. From my own observations in recent years, the overcrowding is terrific in some of our large cities, and I think we need all the housing we can get.

The people who are living in these crowded conditions in the bad areas are not, in my opinion, in a position to go out and seek new quarters among those that are coming on the market.

Mr. SMITH. Mr. Egan, are the operations of the local housing authorities subject to audit?

Mr. EGAN. They are, sir.

Mr. SMITH. By whom?

Mr. EGAN. By the Public Housing Authority or the General Accounting Office, if they see fit to go in and audit.

Mr. SMITH. Where is there anything in the law which gives the General Accounting Office the authority to audit the books of a local housing authority?

Mr. EGAN. Counsel just tells me that the Appropriation Act of 1948 gives the General Accounting Office authority to go in and audit our operations. Prior to that date we exercised our contract powers to delegate to GAO the right to audit local authority books.

Mr. SMITH. Has the General Accounting Office audited the books of the local housing authorities?

Mr. EGAN. I know of at least one case where they actually went in and audited.

Mr. SMITH. And what phase of it did they audit? That which had to do only with the Federal end of it, or that which you presumably would call the local end?

Mr. EGAN. Well, they audited their entire operations.

Mr. SMITH. Would you give me the names of the places?

Mr. EGAN. I would like to check on this, but the one that sticks in my mind at the moment, I think, is Norfolk, Va.

Mr. SMITH. You will put that in the record, will you?

Mr. EGAN. Yes. Would you let me reserve the right to check on this matter and submit a statement for the record?

Mr. SMITH. Yes.

(The statement referred to is as follows:)

POWER OF THE GENERAL ACCOUNTING OFFICE TO EXAMINE LOCAL HOUSING AUTHORITY BOOKS AND RECORDS

Under the provisions of the Assistance Contract between the PHA and the local authorities, the PHA has the right, through any agent or representative designated by it, to examine the books and records of the local authorities. Using

this power, the PHA has cooperated with the GAO whenever the GAO desired to audit the books of a local housing authority by designating the Comptroller General as the agent of the PHA to make such investigation. There is attached hereto a statement of the PHA policy which was transmitted to all local authorities.

Pursuant to this action of the PHA, the Investigation Division of the GAO, prior to July 1, 1947, made audits of the books of a large number of local authorities. PHA has not been informed by the GAO of all the local authority audits made by it. However, comments or questions have been referred by GAO to PHA in connection with its audits of approximately 75 projects. It is believed that GAO has, at one time or another, audited accounts of at least one-half of all local authorities.

The Government Corporation Appropriations Act, 1948 (and the Government Corporations Appropriation Bill for 1949) provides that expenditures for annual contributions "shall be subject to audit and final settlement by the Comptroller General of the United States under the provisions of the Budget and Ac counting Act of 1921, as amended." The Budget and Accounting Act provides inter alia that (31 U. S. C. 72) "Nothing in this act shall prevent the General Accounting Office from suspending items in an account in order to obtain further evidence or explanations necessary to their settlement." In view of this provision, the GAO can now as a matter of legal right require the local authorities to permit an audit of their books by the GAO as a condition to the approval by the GAO of the payment of the annual contributions.

MANUAL OF POLICY AND PROCEDURE-LHA PROJECT STANDARDS AND PROCEDURES

CHAPTER 4200. AUDITING GENERAL

Section 4200:1. Investigations by the Comptroller General of the United States. By cooperating to the fullest extent possible with the Comptroller General's Office in enabling them to carry out their assigned responsibilities, the FPHA has established a working relationship satisfactory and beneficial to both agencies. The purpose of this section is to inform local housing authorities of the authority and responsibility of the General Accounting Office in conducting investigations of their operations as well as the general scope of its activities on such assignments and to indicate the policy of the FPHA in this respect.

1. Reason for Investigations: Under Federal Law (42 Stat. 24, Sections 312 and 313) the Comptroller General is charged with responsibility for conducting investigations relating to all transactions in which the Federal Government has a financial interest, and in the conduct of such investigations is authorized to examine all matters relating to the receipt, disbursement, and application of public funds. The Comptroller General's Office has advised us that his Office is concerned with the following types of operations of local housing authorities:

(a) All federally owned projects operated by local housing authorities under a lease agreement or contract of agency.

(b) All federally aided projects with respect to which payments of annual contributions have been made to a local housing authority.

2. Scope of Investigations: The Comptroller General, through the Division of Investigations of the General Accounting Office, does not plan to conduct the investigations on a regularly scheduled basis, nor is it contemplated that they will cover all local housing authorities. The investigations are made on a "spot" basis at the discretion of that office. The scope of the investigation includes the fiscal phases of operation of projects to determine the proper accountability for and prudent expenditure of all funds. The nature of the investigations conducted by the General Accounting Office differs considerably from the examinations made by the Audit Division of FPHA. Arrangements are being made with the General Accounting Office to eliminate, to the extent practicable, duplication of the work of that Office and the FPHA.

3. Identifiaction of Representatives: Representatives of the Comptroller General will identify themselves by presenting credentials bearing the signatures of the Comptroller General, the Chief of Investigations and of the investigator, as well as the latter's photograph, and a limiting date. The staff conducting the investigations have been instructed to arrange their work so as to cause as little inconvenience as possible to local project personnel, and to bear in mind that the current operations of the projects should not be disrupted by the investigation. Approved: 4-5-46. Effective: 4-23-46.

Mr. SMITH. So the Government has the power to audit the books of the local housing authority, yet you claim the local housing authority is not merely an agent or dummy of the Federal Government?

Mr. EGAN. Well, Doctor, I think any lending institution, even a private institution, reserves the right to examine the books of the corporation to which they are lending. Our position is the same position of any lending or banking organization.

Mr. SMITH. You are speaking about auditing these books from an investment standpoint. I am speaking about auditing these books from the standpoint of Government supervision.

Mr. EGAN. Doctor, after all, the Government has a stake in these projects. Under the act it is said that they have to exercise economy in the construction and administration of the project. We want to make sure that we are not paying more contribution than is absolutely necessary. That is why we audit.

Mr. SMITH. But you make the statement that the General Accounting Office has the power to audit the books of the local authority. Does the municipality have the power to audit the books of the municipal authority?

Mr. EGAN. What was the last question?

Mr. SMITH. Does the municipality have the power to audit the books of the local authority?

Mr. EGAN. In some places they do and in some places they do not. Mr. SMITH. Where do they do that?

Mr. EGAN. Well, I would like to check that. That varies with the State laws.

Mr. SMITH. Will you put that in the record?

Mr. EGAN. Yes, sir. In some places the State housing authority audits the books.

(The statement referred to is as follows:)

RIGHT OF GOVERNING BODY TO AUDIT LHA ACCOUNTS

There are no provisions authorizing any municipality to audit the accounts of a local housing authority.

However, in Massachusetts the State Housing Board or certain other state bodies may prescribe methods of accounting to be maintained by the local housing authorities. In New York, the State Commissioner of Housing may prescribe methods of accounting to be maintained by the local housing authority.

In Ohio the accounting of the local authority is subject to inspection and approval of the bureau of inspection and supervision of public offices, which in turn transmits its report to the State Board of Housing.

Mr. SMITH. I do not merely mean, as is provided in Ohio, that the local housing authority make a report to the municipality.

Mr. EGAN. No.

Mr. SMITH. There it can make a report to the municipality, but the municipality cannot do anything about it.

Mr. EGAN. But, Doctor, in the State of Michigan, as an example, the housing authorities are a part of the local city government, and I am certain that the city government is probably looking over their operations in the way of audit.

Mr. SMITH. What interest would the city government have in looking over their operations?

Mr. EGAN. Well, the city government, in the State of Michigan, I think actually owns the projects.

Mr. SMITH. The city government owns the project?

Mr. EGAN. I think the title of the project is in the name of the city. Mr. SMITH. That is not true in the State of Ohio.

Mr. EGAN. No; it is not.

Mr. SMITH. In the State of Ohio the housing authority is a body corporate and politic.

Mr. EGAN. That is correct.

Mr. SMITH. It is a city within a city. It has its own government, its own counsel, its own government powers-and the city cannot touch it. Is that not true in most of the States? If what you are saying is true about Michigan, I do not know, but I will be glad to have you insert evidence in the record to show that that is a fact. Mr. EGAN. Yes, Doctor.

(The information above referred to is as follows:)

STATUS OF HOUSING LAW IN MICHIGAN

1. Size of city which may engage in low-rent housing.-Under the Act of 1933, the power to engage in low-rent housing and slum clearance was limited to "any city or incorporated village in any county having a population of over 500,000." This provision was amended in 1937 to limit the power to any city or incorporated village which itself had a population of over 500,000.

In 1938, however, these limitations were removed and the present provision permits "any city or incorporated village in the state to engage in low-rent housing and slum clearance and to create by ordinance a commission with power to effectuate said purposes."

2. Relationship between local housing authority and municipality.-The Act as a whole shows that the local authority is merely a department or agency of the city.

The title of the Housing Commission Act indicates that the Act is intended to authorize a city or incorporated village to engage in low-rent housing and slum clearance. The title further indicates that it is the city or incorporated village that is "to create by ordinance a commission with power to effectuate said purposes."

Section 2 authorizes the city or the village to "purchase, acquire, construct, maintain, operate, improve, extend and/or repair housing facilities and to eliminate housing conditions which are detrimental to the public peace, health, safety, morals and/or welfare."

Section 3 then authorizes the city or village "to create by ordinance a commission with power to accomplish the purposes set forth in section two."

The Commission does not itself condemn land, but must recommend the institution of such condemnation proceedings to the city or village (Sec. 10). The title to the project is in the city, since Section 11 provides that "all debts. con.

tracts, leases, or purchases entered into by the commission shall be in the name of the city or village and shall be approved by the governing body of said city or village." Furthermore, all claims which may arise in connection with the housing project "shall be presented as are the claims against the city or village: Provided * * said claims shall be paid only from the operating revenue of said housing project or projects." All bonds and notes issued in connection with the project are issued by the city or village (Secs. 17 and 47).

*

The commission must make an annual report to the governing body of the city or village, and must make such other reports as said governing body may from time to time require (Sec. 9).

Furthermore, in addition to several enumerated powers granted to the housing commission, Section 7 provides that such commission shall have such other powers relating to the housing project "as may be prescribed by ordinance or resolution of the governing body of the city or village."

Mr. EGAN. I think we submitted a statement on that point-which was raised by Congressman Fletcher on the first day of the hearingsas to the powers and control of local authorities.

That varies somewhat from State to State. In the State of Massachusetts, for instance, the State housing authority has considerable control over local housing authorities.

Mr. SMITH. Now you are bringing in the State. Does the State have the power, then, to audit those books?

Mr. EGAN. In the State of Massachusetts they do.

Mr. SMITH. And does a local community have the power to audit them?

Mr. EGAN. In Massachusetts I do not think they have; no, sir.

. Mr. BUCHANAN. Doctor, I might say that the mayor of Grand Rapids, Mich., president of the United States Conference of Mayors, is in the room here at this time. I think the should identify himself and state the facts.

Mr. SMITH. Yes; I would like to know what the situation is in Michigan.

The CHAIRMAN. Mayor Welch, are you prepared to state whether the local housing authorities are creatures of the city or creatures of the State legislature?

Mr. WELCH. They are creatures of the State legislature.

The CHAIRMAN. That was my impression. My memory was that we set up the local housing authority by State law.

Mr. SMITH. So that they are not responsible to the local community or the municipality?

Mr. WELCH. Oh, yes; they are. The legislature gives the local authority the power to establish a housing authority. They are under the direct control of the local municipality.

Mr. SMITH. Yes; I understand that. That is true with respect to all the States. But let me ask you this question, Mayor Welch: Does a municipality, in Michigan, where a project is located, have authority to audit the books of the housing authority?

Mr. WELCH. Yes, sir. The housing authority cannot inaugurate any project without the permission and consent of the local legislative authority.

Mr. SMITH. You mean the municipality can establish a local housing authority without any connection with the State?

Mr. WELCH. The State gives the municipality the right to appoint a local housing authority. So the local housing authority becomes a creature of the municipality.

Mr. BOGGS. Will you yield, Doctor?