are going to spend money, you are going to circulate it and increase the economy for whatever nonsensical project would be proposed. I would feel more comfortable if I had a little more objective measure to evaluate something which is proposed. Mr. JONES. We have always wanted to enlarge and to give a greater flexibility to the Corps of Engineers to make a study of economic justification. Maybe through this operation we can come up with some answers to take into account many economic factors in arriving at a benefit/cost ratio. I hope we can get some formula that proves useful. Colonel LEE. Sir, it will not be an easy formula to apply. You are moving into the indirect effects of your projects, and you are moving into what you anticipate the private sector of the economy will do after you build the public sector. Mr. JONES. It is fraught with all kinds of dangers. Also, the historical use of economic justification has been employed so long that it is hard to overcome these practices that have been going on throughout the years. Thank you very much. General WOODBURY. Thank you, Mr. Chairman. Mr. JONES. The committee will stand adjourned until 2 o'clock. (Whereupon, at 12:20 p.m., the committee recessed, to reconvene at 2 p.m. the same day.) AFTERNOON SESSION Mr. JONES. Mr. Norman Beckman, Director of the Office of Intergovernmental Relations and Counsel, Department of Housing and Urban Development; accompanied by Richard H. Bryant, Office of the General Counsel; Morton Schomer, Urban Renewal Division, Federal Housing Administration; and Johnathan Howes, chief, State and local planning assistance programs. Mr. Beckman. STATEMENT OF NORMAN BECKMAN, DIRECTOR, OFFICE OF INTERGOVERNMENTAL RELATIONS, AND COUNSEL, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT; ACCOMPANIED BY RICHARD H. BRYANT, ATTORNEY-ADVISER, OFFICE OF GENERAL COUNSEL; MORTON W. SCHOMER, ASSISTANT COMMISSIONER FOR MULTIFAMILY HOUSING, URBAN RENEWAL DIVISION, FEDERAL HOUSING ADMINISTRATION; AND JONATHAN B. HOWES, DIRECTOR, STATE AND LOCAL PROGRAMS DIVISION OF PLANNING ASSISTANCE Mr. BECKMAN. Mr. Chairman, on my right I have Richard Bryant, attorney-adviser with the Office of General Counsel; Morton Schomer on my immediate right, Assistant Commissioner for Multifamily Housing, Federal Housing Administration; and on my left, Jonathan Howes, who is director of the State and Local Programs Division and Planning Assistance in our Department. Mr. JONES. Gentlemen, I am sorry that we were delayed. We had a rollcall, and we had to remain to answer to our names. It is awfully hard to schedule these hearings and always keep on time. Mr. BECKMAN. Yes, sir. We are very pleased to testify today. I would like, with your permission, to submit the formal statement for the record and limit my oral remarks to the proposed amendments in this legislation, S. 602, that pertain to our Department. Mr. JONES. Without objection, it will be received and printed in the record. (The prepared statement of Mr. Norman Beckman follows:) STATEMENT OF NORMAN BECKMAN, DIRECTOR, OFFICE OF INTERGOVERNMENTAL RELATIONS AND URBAN PROGRAM COORDINATION, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Mr. Chairman and Members of the Committee: I am pleased to appear before the Ad Hoc Subcommittee on Appalachia to discuss the interest of the Department of Housing and Urban Development in the Appalachian regional development program and the Department's views on S. 602, the Appalachian Regional Development Act Amendments of 1967. I would like to identify some of the common interests and missions of the Department and the Appalachian Regional Commission, to identify the HUD programs operating in the Appalachian region, and to cite our experience with HUD activities specifically authorized or encouraged under the Appalachian Regional Development Act of 1965. Finally, I would like to comment on those proposed amendments to the Appalachian Act that are of particular significance to the Department of Housing and Urban Development. The Appalachian Act joins the Federal Government and the Appalachian State governments in a unique alliance to promote economic growth and human development in the 12-State Appalachian region. The Act created a unique instrument to insure the success of this innovative approach to "creative federalism”—the Appalachian Regional Commission. The Commission is directed to concern itself with and to help coordinate the entire range of Federal, State, and local efforts affecting the future growth and development of the region. The goals of our Department and of the Commission are consistent and supportive. The Department attempts to encourage responsible and representative political institutions and cooperative arrangements. This includes mechanisms for responsible regional political leadership, with the capacity to identify and face the major issues of regional development, set objectives and priorities, and make commitments of resources based on careful assessment and selection from among alternatives. We support interstate, State, and local action to create more capable political institutions able to identify their own problems, set priorities of needs, and organize the appropriate combination of programs for dealing with those problems and needs. We place emphasis on assisting the most pressing community needs, and distributing the benefits of Federal programs to those whose needs are the greatest. We press for innovation and experimentation in meeting urban environmental and human needs through research and demonstrations, and the use of new programs, procedures, organizations, personnel, and technologies. These are also the principles being implemented by the Appalachian Regional Commission. We will continue and expand our efforts together with the Commission— to assist the residents of Appalachia in achieving a wider range of access, opportunity, and choice as to housing and employment, and to welfare, recreational. and cultural facilities. A number of HUD programs have proven to be of especial value and utility in the Appalachian region. These include our urban planning assistance program, authorized by section 701 of the Housing Act of 1974. The "701" program assists in the preparation of comprehensive local development plans, including planning for the provisions of transportation and other public facilities, economic and social analyses, and long-range fiscal plans. It was amended by the Appalachian Act specifically to authorize assistance, on especially favorable terms, for Appalachian regional planning. Earlier this year the Department made its first planning grant to the Appalachian Regional Commission to aid in the preparation of a regional development plan and action program for central Appalachia and of special studies and plan for five individual Appalachian States. The HUD grant of $500,000 will be supplemented by $167,000 in local contributions. Although this is the first 701 grant to the Appalachian Regional Commission itself, we have made many grants to other planning bodies within the area. Through September 30, 1966, about one out of every eigth dollars of all 701 program approvals had gone to the Appalachian area-where less than 10 percent of the Nation's population resides. Section 114 of S. 602 would amend section 701 of the Housing Act to authorize the Secretary of Housing and Urban Development to make 4 planning grants to local development districts within Appalachia for comprehensive planning and for participation in Appalachian regional planning. The primary purpose of these amendments is to encourage additional multi-county planning activities within Appalachia and to bring together many of the planning functions now discharged by a number of levels of Government, as part of such planning. Although we agree fully with the intent of the proposed legislation, we recommend that it be carried out, instead, through adoption of the section 701 program amendments recently proposed by the Department as part of this year's legislative program. These are now under consideration by the House Committee on Banking and Currency, as section 208 of H.R. 8068 and 8069-identical bills introduced, respectively, by Representatives Patman and Barrett. These amendments would establish a new, Nationwide program of assistance for "district" planning. The district boundaries would be locally-established, generally on a multi-county basis, and could include smaller cities but not metropolitan areas. Under our proposed program we would make up to 23 grants, through the States, for comprehensive planning for such districts. The grants would usually be for % of cost, but could be increased to 4 where the district was primarily within redevelopment areas or economic development districts designated by the Secretary of Commerce under the Public Works and Economic Development Act of 1965. As of the end of 1966, about half of the counties in Appalachia had been so designated. Under section 213 of the Appalachian Act, 701 assistance on a 34 basis is also available for comprehensive Appalachian regional planning. This provision would be continued under our proposed legislation. Our proposed amendments to the section 701 program were not submitted to the Congress in time to be considered by the Senate Committee on Public Works before it took action on S. 602. We believe that they will provide adequate and appropriate assistance for local development districts within Appalachia which are, or will be, in a position to undertake comprehensive planning. A brief review of the Department's other programs operating in the Appalachian region will serve further to identify our commitment to the people of Appalachia. The Housing Act of 1954 authorizes advances for public works planning. This program provides interest-free advances to assist planning for individual local public works and for areawide and long-range projects which will help communities deal with their total needs. All types of public works, except public housing, are eligible. Examples include water and sewer systems, school buildings, recreational projects, public buildings, irrigation projects, health facilities, bridges, and a variety of other public works. About 12 percent of all advances through December 31, 1966, were made in the Appalachian region. The public facility loans program-authorized by the Housing Amendments of 1955-provides long-term loans for the construction of needed public facilities. This program is especially geared to communities of under 50,000. In addition, the law specifies that the Secretary shall give priority to applications from municipalities with a population of less than 10,000. Approximately one-fifth of all approvals through September 30, 1966, were for projects in Appalachian areas. The urban mass transportation program is designed to encourage planning and establishment of areawide urban mass transportation systems and to help localities provide and improve mass transportation facilities and equipment. As of the end of September 1966, about 10 percent of the total funds provided for this program went to localities in the Appalachian region. The programs I have just outlined are only some examples-albeit major examples of HUD programs in Appalachia. The Department has also funded major urban renewal work in the area (about 10 percent of the national total) and has provided loans for housing for the elderly and grants for neighborhood facilities, urban beautification, and the acquisition of open-space land. We have made substantial FNMA special-assistance purchases of housing mortgages and have provided FHA mortgage insurance for about $5 billion of property improvement loans, home mortgages, and multi-family project mortgages, including some low cost housing projects. A number of other new HUD programs also offer considerable potential to Appalachian communities. The model cities program is the most significant of these in that it would assist localities to analyze urban problems and to concentrate their resources on resolving them. Twenty-three Appalachian commnuities have filed applications for participation in this new program. A number of these will undoubtedly be included in the initial planning grant approvals to be awarded shortly. In addition, we urge the Congress to appropriate funds this year to support title IX of the Demonstration Cities and Metropolitan Development Act of 1966, through which all States, including those in Appalachia, can receive 50 percent matching grants to provide information and technical assistance services, on a whole range of community development problems, to communities of under 100,000 population. These smaller communities, particularly, suffer acutely in securing the expertise needed to identify problems, develop local programs, and make application for the appropriate Federal or State assistance. Our technical assistance and urban information service program will help overcome these problems by making available to local government officials skilled technicians from the State government to assist in this process on a continuing basis. We have also assisted the work of the Appalachian Regional Commission by participating on the Federal Development Committee for Appalachia, established by Executive Order about two years ago. We commit ourselves to continue this work and to intensify it if the Commission deems it necessary. I have cited to the Committee the funding of many planning and action programs in the Appalachian cities, counties, and States by the Department. Candor requires, however, that we acknowledge that, in the light of the vast problems besetting this region, there is a need to do more and to do it more effectively. Section 115 of 8. 602 would, among other changes, amend section 214 of the Appalachian Regional Development Act of 1965 to remove the present requirement under which public facilities construction projects in Appalachia are eligible for supplementary grants only if they are being assisted under grant programs authorised on or before the date of the 1965 Appalachian Act itself. We support this liberalizing amendment. It would have particular application with respect to our grant programs for basic sewer and water facilities, neighborhood facilities, the advance acquisition of land for future construction of public works and facilities, and urban beautification, all of which were enacted subsequent to the Appalachian Act itself. It is our hope that the Appalachian Regional Commission will make full and liberal use of the section 214 supplementary grant authority in connection with the various HUD programs both those already eligible under the 1965 Appalachian Act and those that become eligible as a result of the liberalizing amendment contained in S C The Ongress has enacted various programs to help make adequate low cost Housing available throughout the country. Of these, the public housing program das den nord extensively in the Appalachian region. Approximately 77.000 public being mits, or about 10 percent of the national total. have been placed under ausal contributions contræers in the Angalachian region since the initiation of De program. These units are of great denest to many low income families in the oder lems and mokrate income families are assisted by our mortgage insurcar mena ar vies 21 of the Natimal Housing Act, for adequate but brow deer DNK private wprost, or limited dividend sponsors may de meie sees om eerder" Awns for such beasing nder section 23 add von her supplementaries sur le sue avilable in conneethe vid de 21 4.0) per unit as an alternative to the below-market Unfortunately, very little use has been made of these section 221 programs in Appalachia. This is mainly because nonprofit organizations in the area lack the capital to defray the necessary preconstruction expenses and also lack the technical and managerial competence to initiate and carry out section 221 projects. Section 111 of S. 602 would add a new section 207 to the Appalachian Regional Development Act to meet this problem. It would authorize the establishment of a revolving fund-the Appalachian Housing Fund-of up to $5 million for loans and grants. These would be made by the Secretary of Housing and Urban Development to encourage and facilitate the construction of a greater volume of housing, under the section 221 programs, for low- and moderate-income families and individuals in the Appalachian region. The Secretary, after Commission approval of a proposed project area as having significant potential for future growth, could make grants and loans to provide preliminary financing for such projects. Loans would be available for up to 80 percent of the cost of planning a project and obtaining a mortgage under section 221-including, for example, the cost of preliminary market and site analyses, site options, and FHA processing fees. The loans could be made to private nonprofit, limited dividend, cooperative, and public organizations undertaking or sponsoring proposed housing projects. They could generally be made either without interest or at low interest, but loans to limited dividend groups would be at the market rate. Except for this type of loan the Secretary would have discretion to waive repayment of any amounts which could not in fact be repaid from project mortgage financing. The Secretary would also be authorized to make grants under this program to private nonprofit, cooperative, and public mortgagors or sponsors of proposed section 221 projects. These could be for up to 80 percent of those preliminary project expenses which the Secretary determined, at the time of the grant, not to be recoverable from mortgage proceeds. The Department of Housing and Urban Development favors enactment of the new section 207. The availability of funds for pre-construction costs and technical services needed to bring a project from the initial concept of need to the point of beginning construction, when mortgage funds would become available, could considerably stimulate the construction and rehabilitation of housing for low- and moderate-income families in Appalachia. Certainly, there is a very great need for such housing in that area. Basically, of course, this would be an experimental program, and it is not really possible to predict in advance how successful it will be. However, we consider it well worth trying. The FHA insuring offices already provide some technical guidance and assistance to sponsors in the early stages of developing a project before any money is expended in developing plans and taking options on land and so forth. At preliminary conferences, the FHA insuring office informs the sponsoring group about the policies and procedures to be followed and discusses such matters as the proposed location of the project, type of construction contemplated, approximate number and type of units, type of people to be served plans for management of the project, identity and experience of the principals who will own and operate the project, and similar matters. However, there are certain kinds of technical assistance which FHA itself cannot and should not render, such as advice on the option and purchase of land architectural services, legal and financing work, and selection and supervision of a builder. Many of the costs of these preliminary services and the costs needed to option land for building or option properties for rehabilitation will be reimbursed out of mortgage proceeds, but there is a lapse of time during which "front money" must be secured from some source in anticipation of mortgage financing. Otherwise, the project will not get beyond the discussion stage. The new section 207 assistance program for low-income housing proposed in the pending Appalachian Act amendments, our proposed new section 701 district planning program, and the proposed extension of Appalachian Act supplemental grant eligibility to such HUD programs as those for basic water and sewer facilities, neighborhood facilities, and the advance acquisition of land will provide additional weapons for the war on Appalachian blight. The Department of Housing and Urban Development will use them fully. We pledge our financial and manpower resources and a willingness to work together with the Appalachian Regional Commission, the 12 Governors, and the President's representatives to determine how our efforts can best be directed |