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new community development with federally assisted water an and open space facilities.

Low-income housing demonstration.-Provides grants for i and development projects concerned with new or improved n providing housing, including self-help housing, for low-income and families, and for low-income elderly and handicapped pers families. Appropriate projects may include such areas as desi reduction, land acquisition, land use, financing, and social con well as construction.

Property improvements.- Provides for insurance of loans ( $5,000 to alter, repair, and improve residential and nonres properties and loans of up to $15,000 (not to exceed $2,500 1 dwelling unit) to alter, repair, improve, or convert existing sti used or to be used as dwellings for two or more families.

Expenditures in 1970 for housing and urban development ha estimated as follows:

Urban renewal.
Vodel cities program..
Low-rent public housing program..
Rent supplement program
Home ownership and rental housing assistance.

LENDING PROGRAMS

tive housing. Assistance is provided in the form of monthly payments to the mortgagee on behalf of the mortgagor of a part of the interest on a market-rate project mortgage insured by FHA.

Home mortgages.- Provides assistance to low-income families in buving a home or a membership in a cooperative housing project. Assistance is provided in the form of monthly payments to the mortgagee to reduce interest costs on a home mortgage insured by FHA to as low as 1 percent. The homeowner must pay at least 20 percent of his adjusted monthly income on the mortgage. Direct loans on

Senior citizens housing.-Provides low-interest, long-term loans for new and rehabilitated rental housing, dining facilities, community rooms, and workshops for the elderly (62 and older) and the handicapped. Other housing assistance programs

Rent supplements. -Provides Federal rent supplement payments to owners of certain private housing projects. The program is designed to make decent housing available to low-income families and individuals. These supplements amount to the difference between at least 25 percent of the tenant's monthly income and the fair market rental for the unit he occupies.

Low-rent public housing:-Provides loans and annual contributions which permit public agencies to provide decent, safe, and sanitary housing for low-income families at rents they can afford. Local housing authorities rent to low-income families divelling units provided by construction, rehabilitation of existing structures, purchase from private developers or builders (the Turnkey method), and by lease from private owners.

Low-rent public housing (leasing and contracting).—Provides annual contributions to authorized public agencies to work with real estate agencies, owners, and developers to provide housing for lowincome families. Local authorities lease dwellings from private owners and make them available to low-income families at rents they can afford. Local authorities are also authorized to purchase a structure containing leased units and resell it to the tenants on terms which they can manage without undue financial hardship.

Vodernization of low-rent public housing projects.- Provides loans and annual contributions to bring existing public housing projects up to present-day physical standards, and to involve tenants in all aspects of management including planning and implementing modernization programs, advising on management policies and practices, expanding services and facilities, and providing employınent opportunities.

Model cities.- Provides supplemental financial and technical assistance to enable cities to improve the quality of their physical and social environment. Cities are required to utilize and coordinate existing Federal grant-in-aid programs, State, local, and private resources, and to involve neighborhood residents in planning and executing comprehensive five-year plans.

Guarantees for new communities.- Provides support for new community development by authorizing Federal guarantees of the bonds, cash flow debentures, notes, and other obligations issued by private developers to finance new community development projects. It also provides for supplemental grants to State and local bodies providing a

Some industrial concerns have been able to obtain loans o favorable terins than rould be iflailable from private source the Reconstruction Finallee Corporation before 1952, and w cently from the Small Business Administration. Loans to can exporters and to foreign firms and governments to finai purchase of American goods are made through the ExportBank. Guarantees of, and participation in, private loans a undertaken by the Export-Import Bank.

BENEFITS TO BANKS

Banks themselves have been the recipients of benefits fru Federal Government which may be interpreted to be in the ni subsidies. Some of the more important are the following:

Although stock held by member banks in the Federal Reservi is not essential to the functioning of the Reserve System, sii moner-creating power comes from the Congress, the member nonetheless receive in assured income of 6 percent on this ] Reserve stock.

The Treasury keeps its funds in commercial banks under rules which give the banks an opportunity for profit since i is not paid on tho tax and loan accounts representing taxes co and the proceeds of sales of Treasury securities. The Treasury fers parts of the accounts to the Federal Reserve banks, at pre intervals, and attempts to synchronize the withdrawals with 1 expenditures. In this interval, the commercial banks can plan employment of these Treasury deposits in the making of loans earnings would thus be diminished if the Treasury made its o

NATURAL RESOURCE AND REGIONAL DEVELOPMENT Pi

immediate transfer to Federal Reserve banks or if the Treasury required the banks to pay interest on these deposits.3

The banking laws of the United States and the various States support the banks in the position that not all depositors are likely to withdraw deposits at the same time. The result is that banks need and in fact do hold as reserves only a fraction of the amount of demand which might be made upon them. When the reserve requirements of commercial banks are established at low levels or reduced, the banks may expand credit and their earning assets without any real cost to themselves.

Banks also have been able to expand their loans significantly as a result of the Federal Government's various loan insurance programs, and the Government's participation in other loans, such as some of those of the Small Business Administration.

There are various other ways in which the U.S. Government, especially through the operations of the Federal Reserve System, absorbs costs which might ordinarily be expected to be paid by the commercial banking system itself. This absorption of costs by the Reserve System amounts in effect to a Government subsidy. While the par collection system of clearing checks at face value is generally accepted as a national good, there is no clear or persuasive reason why the banks should not pay the costs of check clearing, as they do indeed in some local situations, through local clearinghouses. As it is, the commercial banks, in effect, receive a subsidy in an amount which would otherwise have gone into the Treasury accounts through the residual earnings of the Federal Reserve banks. The Government and the Federal Reserve System also bear part of the cost of such services as handling, sorting, and maintaining stocks of coin and currency, which banks would otherwise have to absorb.

A large proportion of the Government's irrigation, re power, and other natural resource and regional developmen are frequently considered as subsidies. The reclamation prog Federal Government had its inception, liko the earlier la in the goal of settling new lands. To the extent that the c struction of irrigation projects was borne by interest-free f though repaid, this would constitute a subsidy, similar 1 celerated amortization of defense facilities.

With the coming of multipurpose projects and the assu the Federal Government of responsibility for fish and in servation and for flood control, it becomes difficult to deter elements of subsidy are involved in the costs of entire pri

A conspicuous example of a multiple-purpose project determination of the extent of subsidy is particularly diffi Tennessee Valley Authority. The TVA carries on such di tions as electric power production, manufacture, develop research on fertilizers, flood control, improvement of nai cilities, topographic mapping, and educational programs.

The argument as to whether or not the TVA power rate adequate to cover all capital costs, on a basis comparable electric utility companies, remains an unresolved issue. Th eral agreement that TVA rates have covered the costs of bu operating the facilities that are used exclusively in gene transmitting power. There is no such agreement as to wh have borne a fair share of the joint costs of multipurpos The allocation of the costs of dams as among navigation, flo and power remains a matter where wide divergence of vier There is also disagreement as to whether a subsidy is invo rates charged are insufficient to permit a rate of return com that generally considered a fair rate of return for regulat electric utility companies. Finally, a subsidy may be invol the taxes, or payments in lieu of taxes, are less than the such taxes which an equivalent utility company might pay

The TVA in 1956 produced 3 percent of all the plant manufactured in the United States; by 1963 this was dow 1 percent. Sales of fertilizer are not on a commerical bas made to organizations collaborating in an educational prog at improving the manufacture, distribution, and use of

Some of these programs certainly pay for themselves, not; some do not pay for themselves directly but tend to cconomic potential of the area, thereby increasing its abil more taxes and to add more substantially to the wealth a of the Nation. The Columbia Valley, Upper Colorado, anı rence Seaway projects may be cited as other multipurpo with benefits accruing in the first instance to particular groups of people. In fact, any Federal public works, once and begun, will obviously funnel funds and benefits into t which it is located, with the cost borne by the Nation's ta

It is clear that many of these reclamation, power, flood co irrigation programs, as well as related programs for the of forests, for the assistance of agriculture, and for the pro

Tax BENEFITS

Various tax provisions, as they have worked out, tend to favor certain firms, industries, and individuals, and thus might be interpreted to involve an element of subsidy. The provisions for accelerated amortization of certain facilities for tax purposes have already been mentioned. The depletion allowances for petroleum, sulfur, gas, and other extractive industries are designed to permit producers by means of a tax credit to recoup the reduction in capital involved in the extraction of particular raw materials, and thus to encourage the development of these resources.

State and local governments have encouraged new businesses by providing for specific exemptions from business and property taxes. State and/or local development bonds to finance the location of new industry are Federal income tax exempt, thereby aiding industry and capital investors alike.

Attempts to obtain greater equity in the tax structure have resulted in benefits that tend to help particular groups of individuals, such as home mortgagors and other borrowers, those with high medical expenses, the aged, etc.

a whole.