Mr. VANDERSLICE. I am explaining it, Mr. Multer. In other words, you come into a new apartment, before rent control. They fix the place up, and they make a lease with you, or they agree with you that your rent is going to be a hundred dollars a month.

Another man comes in, and he will take it as it is. All right, he takes it for $75. There are two scales right there and in spite of all of our efforts to try to get that equalized, when these petitions were filed, we couldn't do it. The Expediter put them right back in the same discriminative position they were in in 1942.

Mr. DOLLINGER. He could have raised those rents between 1947 and 1949 if he had wanted to, however.

Mr. VANDERSLICE. Mr. Dollinger, let's make this a little personal. Mr. DOLLINGER. Let me say this: By the same token they should have reduced the others at the same time to be fair. In other words, if they took a few privileged characters and gave them a reduction, and if the hotel wanted to be fair to the others, they should have given the others the same reduction.

Mr. VANDERSLICE. You have two rental seasons, May and October. In May of 1942, leases had been signed for 10-percent increases in some buildings.

Rent control went into effect on March 1, 1942, and every one of those leases were kicked out. You automatically created a differential there all the way from 6 to 14 percent. That is a condition which rent control itself has created.

Mr. DOLLINGER. All I can say is they never gave me a break on rent because I was in Congress; nor do I see why they should.

Mr. COLE. You mentioned a moment ago the people living on fixed incomes, and some of the poorer people, shall I say, who received a preferential treatment. You don't want to leave in the record the fact that those people who received preferential treatment received it only by reason of some political implication involved?

Mr. VANDERSLICE. Oh, no.

Mr. DOLLINGER. They were privileged poor people, let's put it that

way.

Mr. VANDERSLICE. Well, the point that I was making, Mr. Cole, was that those people have passed away, and there is no reason in the world why the people who succeeded them should have the same rent that they had.

And I would say, Mr. Multer, that had the Expediter exercised this comparability policy it wouldn't have been necessary to file some of these petitions.

Mr. MULTER. If you get this equalization that you are looking for, and if we took off all controls, you would have to raise your rents again as everything else went, up, as wages, maintenance, and everything else went up, wouldn't you?

Mr. VANDERSLICE. We are set until next year.

Mr. MULTER. You mean you have a contract now that is going to give you all you need by way of materials and supplies?

Mr. VANDERSLICE. No; I mean on the labor situation.

Mr. MULTER. On the labor situation you have a contract.

Mr. VANDERSLICE. Yes, sir.

Mr. MULTER. You have no cost-of-living increase clause in that contract.

Mr. VANDERSLICE. Oh, yes, sir; the normal things.

Mr. MULTER. As the cost of living goes up, you will have to increase their wages, and as the cost of materials goes up, you will have to pay more, won't you?

Mr. VANDERSLICE. Yes, sir; but just a second. It isn't that confusing. In other words

Mr. MULTER. I know it is not confusing. I say very simply that if you take off controls everything must go up, including your rents. Mr. VANDERSLICE. No; if a man takes an apartment as it is now, and he doesn't want a new carpet, that costs $7 or $8 a yard, if he doesn't want a complete decorating job, he isn't going to get a new increase.

The wage scales are set until next May. The answer is to not continue the discrimination against us.

Mr. MULTER. I don't want you to think that all Congressmen are mad at the hotel people, because when our Small Business Committee was going through the country the hotels were very nice to us. In many places they made facilities available to the Congress without cost, they gave us meeting rooms and rendered a real public service in helping the committee conduct those hearings.

Mr. VANDERSLICE. I am glad to hear that, Mr. Multer, because from my end of it I usually hear the other end of it.

Mr. MULTER. They weren't residential hotels, however.

Mr. BOLLING. Mr. Chairman.

The CHAIRMAN. Mr. Bolling.

Mr. BOLLING. On page 11 of your statement you quote figures to show that the Chicago residential hotels were running at 93 percent of occupancy of 1942.

In March 1951, it was 86 or 87 percent.

Now, in this exhibit A, attached to your statement, I note that according to the Housing Expediter's survey, in 254 of the 426 vacancies in controlled units, which they found, the rents had risen an average of 80.7 percent over the rents in effect when rent control was established in 1942.

Now, the question in my mind is. Isn't there a strong possibility that in that particular group of rental units, you have priced yourselves out of the market?

Mr. VANDERSLICE. Well, I don't know of any survey that is as misrepresentative as that survey appears to be.

Now, it doesn't jibe with any figures that I have. I asked, as you will see from my letter, the specific information as to what buildings they used, and so on, and they ran behind their usual guard of saying, "As a Government agency we can't give you that information."

At the same time, we asked these hotels to give them the information, and made it possible for them to get it.

I asked about six or eight large building managers, which I knew, and which were representative, and they were not included in this survey. Out of 11,000 units he picks out 254 and says the increase was 80 percent. He doesn't tell you what the increase was for. The place may have been completely rebuilt. He doesn't tell you what the rent was before it was increased. He gives you absolutely no information except that figure.

And he doesn't tell you, Mr. Bolling, what the vacancy was among those units now under control.

It stands to reason if a unit or an apartment is controlled at a rental substantially under the market, it stands to reason that there are not going to be any vacancies.

Mr. BOLLING. You don't think that the obverse of that point might also be true?

Mr. VANDERSLICE. Well, I think he picked up a horrible example. But I would like to see the example so we can see what happened. Mr. BOLLING. You are obviously questioning the survey itself. Mr. VANDERSLICE. I certainly am.

Mr. BOLLING. You don't believe that a hundred hotels is a broad enough cross section?

Mr. VANDERSLICE. I say if you pick the right hundred hotels; yes, sir. But our figures, with twice as many rooms, show almost a 14percent vacancy.

Mr. BOLLING. You are implying by that if we took something between the two sets of figures we might find an average?

Mr. VANDERSLICE. No; I am saying our figures are absolutely

correct.

Mr. BOLLING. And his absolutely wrong?

Mr. VANDERSLICE. No; I say for what he surveyed he could probably justify his figures.

Mr. BOLLING. How many hotels are there in Chicago, the Chicago area?

Mr. VANDERSLICE. About 500, all hotels.

Mr. BOLLING. What would you consider a fair sample?

Mr. VANDERSLICE. As I said before, if you had 10 or 15 thousand units or something like that I think you would have a pretty good picture.

Our figures cover about 25,000 or 26,000 units.

Mr. BOLLING. Did I gather from your earlier statement that you think it is possible to take as many as a hundred hotels and still be working a horrible example?

Mr. VANDERSLICE. I certainly do. I could pick certain hotels and give you one picture and I could pick other hotels and give you an entirely different picture.

Mr. BOLLING. In other words, 20 percent is not a broad enough sample.

Mr. VANDERSLICE. If they were typical hotels, that would give you the picture. This survey, Mr. Bolling, was for the purpose of determining the number of vacancies in Chicago. It was not intended for all the other things that they went into. And it does not give us the information for which the survey was made.

Mr. BOLLING. In other words, the 8,837 units are not a fair sample in your judgment?

Mr. VANDERSLICE. I still say, if they were the proper 8,000 units, it would show a trend.

I have made surveys for a number of years in Chicago, of 180 or 190 hotels, and I found out that Horwath & Horwath surveys represented just about the same picture that I had with these 180 buildings. So I discontinued making a survey.

In other words, if there was a drop of 1 percent in their picture, there was a drop of 1 percent in our picture.

If our revenue was up 3.2, they had the corresponding figure. So I figured they were representative buildings and correctly gave us the

picture we wanted and it wasn't necessary for me to conduct any more surveys.

From the spot survey that I made, I am confident that if this committee would send someone out there, they would find our figures absolutely correct.

Mr. BOLLING. In other words, this survey of the Expediter, in your opinion, represents absolutely nothing?

Mr. VANDERSLICE. As far as I am concerned, it doesn't.

Mr. COLE. What is that survey?

I haven't seen it.

Mr. BOLLING. It is exhibit A in Mr. Vanderslice's statement.

The CHAIRMAN. Are there further questions?

Mr. NICHOLSON. Mr. Chairman.

The CHAIRMAN. Mr. Nicholson.

Mr. NICHOLSON. Doesn't the Expediter have anything to do with your nickel charge for telephone calls?

Mr. VANDERSLICE. Well, he had nothing to do with it originally, but he has a lot to do with it now, and he wouldn't let us charge any more than that now, while a hotel right across the street will be charging 15 cents for a call, but he won't let us raise to 10 cents, or charge a secretarial service charge.

Mr. NICHOLSON. What is the usual price in a hotel in Washington, or Chicago, for a local call?

Mr. VANDERSLICE. Ten or fifteen cents.

Mr. NICHOLSON. Fifteen in some places.

Mr. VANDERSLICE. The great majority are 15 cents in Chicago now. But here you have to file a D-122 and get your records from 1942, he tells me in this letter of this morning. We have got to build up the whole financial structure of a hotel in order to get a nickel more on a telephone call. And I have reason to believe that the Chicago office has granted hotels increases to 10 cents. I have reason to believe that they have already granted 10-cent increases in Chicago hotels.

Mr. COLE. The survey that Mr. Bolling was talking about does not appear in exhibit A, does it?

That is the survey by the Housing Expediter.

Mr. BOLLING. It is the one I am talking about, Mr. Cole.

Mr. COLE. Does that include the Housing Expediter's survey? Mr. VANDERSLICE. Yes, sir; I wrote him and asked him for additional information, which I did not get. I was in hopes of getting further information from him in order that I could come before this committee and give you refuting information, but I did not get it and we will just have to have one definite policy in the future. When we give them figures we will have to insist that we get duplicates from the hotels for those figures.

The CHAIRMAN. Well, those letters are in the record.

Mr. VANDERSLICE. Yes, sir.

The CHAIRMAN. If there are no further questions, Mr. Vanderslice, you may stand aside. We are glad to have your views and they will be considered.

(The following statement was submitted for inclusion in the record by Tighe E. Woods, Housing Expediter:)

At page 3348 of the transcript for June 6, 1951, of the hearings before the Banking and Currency Committee of the House of Representatives on H. R. 3871, the Housing Expediter was requested to file a statement on the application of the fair net operating income provision to hotels in connection with the testimony of Mr. R. L. Vanderslice.

The following statement is submitted by the Housing Expediter for the record. When the Congress in 1949, made provision in the Housing and Rent Act for assuring landlords, insofar as practicable, a fair net operating income, I sought immediately to establish a standard by which this directive could be put into effect.

My first concern was to develop a formula applicable to housing generally throughout the country. At that time hotels were controlled only in Chicago and New York City and I felt that the application of the fair net operating income provision for hotels should wait until I could develop the criterion for the 14,000,000 housing units then under control throughout the country.

In developing a formula for housing we had available the surveys which had been made by accountants of the Office of Price Administration over a period of years. Income and expense figures had been taken directly from landlords' records for properties containing 120,000 rental units in 98 cities throughout the United States. From these data, it was possible to determine the operating position of landlords generally over a period of 8 years or from 1939 through 1946. Intensive study of the information contained in these surveys made it possible to provide for rent adjustments to bring the net operating income of properties up to the level of the net operating income of properties generally during this period.

As soon as this formula was developed, we turned our attention immediately to the problem of implementing the fair net operating income provision for hotels. Unfortunately we had no factual information immediately available, similar to that for housing, by which the operating experience of hotels generally could be determined. However, we arranged a conference with representatives of the two leading hotel accounting firms in the United States-namely, Horwath & Horwath, and Harris, Kerr & Forster and representatives of the American Hotel Association. Repeated conferences were held with this group and operating figures of hotels were made available to us by both of the accounting firms. As a result of these conferences and extensive study of the factual data which were made available to us, we came to the conclusion that it was impracticable to apply a formula similar to the one developed for housing to assure a fair net operating income. We found that there were so many extraneous factors in the operation of a hotel which were not directly related to the control of rents that it was impossible to apply the formula adopted for other housing accommodations. We made every effort to secure statistics on which a reasonable standard for such adjustments for hotels could be based, but without success.

Having reached the conclusion that the fair net operating income provision could not be applied to hotels, we undertook to devise a new procedure which would give hotels in New York and Chicago adequate relief from inequitable maximum rents. We developed a form and procedure which would assure that the gross income from hotels would be sufficient to cover every dollar of increased operating cost. These procedures were developed after many consultations with the representatives of the hotel accounting firms and with the representatives of the industry. Most of the suggestions which were made by the representatives of the industry and by the hotel accountants were found to be acceptable and were incorporated into the new procedure. We felt that we had really solved the problem of hotel adjustments, and still feel that this provision gives Chicago hotels adequate relief from increased costs of operation. Perhaps some of the hotels which Mr. Vanderslice represents were unable to get relief under this cost increase adjustment provision because they were adequately compensated for such cost increases by substantially increased rates, which were established during the period July 1, 1947, to March 1, 1949, when they were decontrolled, and which rates were preserved as maximum rents when these accommodations were recontrolled on April 1, 1949. It should be pointed out that this provision does not limit adjustments by the amount of income being earned. If gross income has not increased as much as operating expenses, adjustments are made regardless of the amount of net income being earned. This relief for increased costs, of course, is in addition to the relief allowable under all of the other adjustment provisions which are equally applicable to hotel accommodations as well as other controlled dwelling units, such as adjustments for major capital improvements, increases in services, etc.