ments, expansion of section 221 of the National Housing Act, and widening of the provisions for additional subsidies for public housing. These provisions recognize the economic costs that relocation so frequently imposes and the dis. proportionate impact of those costs on low-income families. The comprehensive remedies offered by S. 1201 and S. 1681 go a long way toward assumption of proper public responsibility for making whole those who have the bad luck to be in the way of a needed public improvement. STATEMENT OF DR. WILLIAM N. KINNARD, JR., SRA, MAI; PROFESSOR OF FINANCE AND REAL ESTATE; HEAD, FINANCE DEPARTMENT SCHOOL OF BUSINESS ADMINISTRATION, UNIVERSITY OF CONNECTICUT Gentlemen, Your kind invitation to present commentary on the two bills under consideration is greatly appreciated, particularly in view of the fact that we at the University of Connecticut have worked for several years on problems of business relocation/dislocation resulting from public improvement programs. Thanks first to a grant under the excellent management research program of the Small Business Administration, we produced the first management research report under that program. It was entitled "The Impact of Dislocation From Urban Renewal Project Areas on Small Business," and initiated a series of studies on our part on the same area. It also stimulated interest in the Congress and elsewhere for legislative action to ameliorate problems we uncovered. Subsequently, our research group published an addendum to this report in 1964, in which we brought up-to-date many of the issues that had been considered in the earlier report. In addition, we have explored the problem of business dislocation and relocation as it pertains to programs other than urban renewal. In 1963, I was also asked to contribute an article on the special relocation problems of elderly small businessmen, which appears in "Essays on the Problems Faced in the Relocation of Elderly Persons," published jointly by the University of Pennsylvania and the National Association of Housing and Redevelopment Officials. Finally, we were invited to present testimony on February 28, 1964 at the Providence, R.I. hearings of the Select Subcommittee on Real Property Acquisition, Committee on Public Works, U.S. House of Representatives. In that testimony, I made several recommendations for legislative action which I am most pleased to note are included in the two bills under consideration here. As a result of this background, much of the emphasis in this presentation will be placed on the relocation segments of the two bills. At the same time, however, as a student of real estate appraisal, a teacher of real estate valuation, and a real estate appraisal practitioner who holds professional designations from the American Institute of Real Estate Appraisers and from the Society of Real Estate Appraisers, I feel that certain comments about the valuation and acquisition aspects of S. 1201 are also appropriate. These views come not simply from experience in appraisal and valuation analysis, but also from an 18-month period of service as director of urban redevelopment for the city of Middletown, Conn. After very careful examination of these two bills, I have concluded that the differences between S. 1681 and the relocation sections of S. 1201 are so minor that I may address my remarks exclusively to S. 1201. Therefore, it is to that bill that all of the following are directed. GENERAL OBSERVATIONS The basic aim to provide fair and equitable treatment of all persons affected by the acquisition of real property in Federal and federally assisted programs "on a basis as nearly uniform as practicable" is, in my view, both highly laudable and essential in an era in which public acquisition of private property rights is expanding and may be expected to continue in that direction. Speaking particularly about the problems of impacted businesses in my testimony before the Select Subcommittee on Real Property Acquisition, I made a statement which appears to me to be equally applicable to all affected persons: "It is my position that the burdens and costs of public improvement programs should be borne by the community at large, which is to benefit from the improvements, and not by individual businessmen in a haphazard, nonsystematic fashion." The findings of the Select Subcommittee on Real Property Acquisition leave absolutely no doubt that there is much too wide a disparity among the various Federal and federally assisted improvement programs in their acquisition practices. Justice and equity demand a much more nearly uniform pattern of treatment. A second major improvement which is brought to the fore by this proposed legislation is the recognition that just compensation must include more than payment for rights in realty, and that a careful separation of the several ingredients of impact on the economic status of the affected individual or business is essential. In addition to providing the basis for more equitable and uniform treatment of individuals and businesses, this recognition also paves the way for much more nearly consistent appraisal or valuation practices; since the professional appraiser may now concentrate solely on rights in realty with the full realization that other claims will be dealt with separately. The final general comment I have to make relates to the aim of offering the full amount of what is considered to be fair and reasonable value of the rights to be acquired initially and immediately. This so-called one-price policy is, in my view, perhaps the single most important provision in this act. The Federal Government, as distinct from a private purchaser, must think in terms of equity to the seller at least as much as in terms of efficiency in purchasing. With respect to such a policy, it is common for practitioners to argue that it provides a basis for unscrupulous individuals to seek substantially more than the just compensation to which they are entitled. Moreover, there is some evidence that, at the moment, courts in many jurisdictions tend to give equal weight to appraisal opinions of whatever quality or origin. These facts notwithstanding, it is fundamental that the risks or hazards that some compensation payments will be other than the amount that would appear just, must be borne by the Government, which represents society as a whole, rather than by individuals. This is analogous to our system of justice in which a person must be presumed innocent until proved otherwise. Similarly, an owner of private property rights being acquired by a public agency must be presumed to be acting honestly and in good faith unless and until the courts demonstrate otherwise. This point is underscored by the fact that in a few studies which have been made it appears that a policy of negotiation generally results in hardship to those persons economically or financially least able to bear it. VALUATION AND APPRAISAL The sections of the act dealing with appropriate procedures and methods for the estimation of value and of damages are basically excellent. As indicated already, the clear and unequivocal separation of compensation for expenses and costs incurred, from compensation for private rights in realty acquired is absolutely fundamental to good valuation and appraisal practice in the future. The professional real estate appraiser is skilled in the valuation of rights in realty on the market. Elimination of extraneous matters such as moving expenses, legal fees, and even appraisal fees will clarify the role of the appraisal, and in turn should result both in better quality work for Federal agencies and in a clearer understanding on the part of the courts of the issues involved. It is also highly desirable that all Federal agencies utilize professional fee appraisers in their acquisition work within a consistent pattern of policies. Unless and until staff appraisers reach a level of professsional competence which is not yet possible in all Federal agencies acquiring real estate, the professional private fee appraiser can and should continue to play a critical role. The important point is that better work can be obtained from these professionals if the policies under which their services are hired and the framework of valuation within which they are asked to operate is as nearly uniform as possible. The basic and clear-cut delineation of the process of valuation before the taking and valuation after the taking, when only part of a property is to be acquired (sec. 101(a) (4)), is extremely important. This is absolutely fundamental to appropriate valuation practice, and should be made the policy for all Federal agencies acquiring rights in realty. I would point out, however, that items C, D, and E under section 101 (a) (4) actually represent the difference between item A and item B. Requiring in all cases that the property owner be provided with a statement of C, D, and E may lead to difficulties if these are used as the basis for the development of a net damages figure independently of items A and B. In other words, it is possible for an appraiser to add independently what purports to be the fair value of the taking plus any damages or benefits experienced by the remaining parcel, and to obtain an answer which is quite different from the difference between the value of the total property before the taking and the value of the remaining property after the taking. This problem, however, is not nearly as serious as the one in the definition of "fair value" found in section 102(b)(1) (A). The word "cash" is a very unfortunate one because this carries the implication that there must be an all-cash transaction. Certainly, from the point of view of the typical purchaser of real estate in the U.S. economy, an all-cash transaction is a real rarity. Many appraisal texts and writers have sought to circumvent this difficulty by using the concept of "cash to the seller." This argues that while the purchaser may normally resort to financing in order to raise the funds to pay for the realty, the seller will receive the full price in cash. Unfortunately for this argument, the evidence of the marketplace simply does not bear it out. Many transactions (indeed an increasing proportion in the last decade) involves the acceptance of some evidence of debt by the seller as at least partial payment for the property. Therefore to define market value in terms of a cash price is potentially to eliminate much market evidence which would have a very direct bearing on the appropriate estimation of market value. I respectfully recommend that the word "cash" be eliminated from the definition of "fair value." It might help if the phrase were changed to "the highest price measured in dollars." A further point in section 102(b) (1) (A) that is particularly desirable is the effort to eliminate both speculative gain and the so-called wet blanket effect on property values when a public improvement project is imminent. This will not be particularly easy to translate into practice in every instance, but it certainly is a policy that should be conscientiously sought by every Federal agency acquiring private rights in realty. In section 101 (a) (11), there is still a question that remains. By whose standards or by what criteria is a remnant to be regarded as "noneconomic”? I can foresee difficulties in interpretation of this in practice. If it is possible to be somewhat more specific without placing agencies in an operational straitjacket, this would be highly desirable. RELOCATION Because of my particular interest in relocation problems, I am separating my commentary on these sections of the act from that which pertains to appraisal and general policy. Based upon our studies and observations in the field of business relocation since 1959, I would say emphatically that, beyond a certain limit, advice, counseling, and assistance to the owner-manager of a dislocated business are much more important than direct cash compensation for losses incurred. Indeed, one of the objectives of any relocation assistance policy should be the avoidance, or at least the minimization, of many such losses. It is my professional conclusion, based on both our studies and the studies of others with which I am familiar, that a considerable number of firms which discontinue operations either during or shortly after dislocation from a public improvement project area could be retained as viable businesses contributing to the well-being of the owners, the employees, and the community. Although it is not entirely a problem of small business, business relocation is particularly onerous for the small owner-operated business. In part, this is a matter of limited financial resources. To this end, relocation payments of both moving expenses and personal property losses are extremely helpful. A definite limit does not seem unrealistic, however. I would suggest that the limit for a combination of moving expenses and personal property losses be set at $5,000, instead of the current $3,000. In terms of financial resources, however, the dislocated business is often much more hard pressed to borrow funds in order to continue, expand, or even change direction slightly in a new location. While the Small Business Administration's program has been greatly enhanced in the past 5 years, and has certainly become much more effective with respect to dislocated businesses, much more needs to be done in this area. Therefore I particularly applaud those sections (108, 110, and 301) which offer expanded loan programs to affected businessmen. I would strongly suggest, however, that further special treatment be afforded the "elderly" businessman who finds it particularly difficult to obtain loan funds for any substantial term. In addition, for an economic point of view, it is quite evident that many businessmen are "elderly"-in the sense that their age begins to represent an economic liability—as early as age 55, and on some occasions on age 50. Means should be devised to enhance the availability of loan funds to such potentially productive workers in the managerial-entrepreneurial field. I am also quite pleased to see the retraining provisions of section 302 included, as well as the training provisions of section 301(b). I would suggest, however, that further emphasis be placed on the training and/or retraining of small businessmen as businessmen (or managers), rather than simply as technicians. There should be, I believe, a paid period of managerial training for small businessmen who are forced to seek new quarters. Our studies and those of others in similar grants from the Small Business Administration management research program indicate that this is an area in which a considerable amount of potential net gain to the U.S. economy exists. For the very small business, it seems to me that a closer tie with title IV of the Economic Opportunity Act might be created. This would mean that businessmen who have been relatively unsuccessful in the past would be afforded a particularly important opportunity to enhance their abilities as businessmen and managers. In view of the fact that the alternative, in many instances, is public assistance for a potentially prolonged period, the net gains offered to our economy from such a program argue strongly for its inclusion. On a relatively minor point, I would suggest that some wording from S. 1861 be borrowed so that section 110 (a) read in part "shall be fair and reasonable, and as uniform as practicable." In section 112(a) (1), I wonder whether the concept of "adjacent" means "continguous." If it does, it seems to me that this is an unnecessarily narrow conception. Quite obviously, some definite limit must be set, but physical contiguity is not by any means the limit of direct and measurable influence. I would suggest that there be some wording added so that the provisions of section 110 (a)(5) be implemented by direct action on the part of the public agency involved. In other words, I recommend that the responsibility for initiation of a request for compensation be at least shared between the private parties and the public agency. There is simply too much lack of information and too much misinformation still extant among affected persons. CONCLUSIONS Despite the foregoing specific recommendations for what appear to me to be improvements in the structure of S. 1201, I would personally be pleased to see the bill passed in its present form, with one exception only. That refers to the necessity, as I see it for redefining "fair value" in such a way as to eliminate the word "cash." As a practical matter, cash transactions generally tend to occur at a price level lower than that associated with transactions involving the use of debt. As a result, serious limitations would be placed on the amount of awards that could legitimately be made within the framework of that definition. Aside from this one major point, I believe that your subcommittee and its staff are to be highly commended for what is basically a highly desirable and necessary piece of legislation. Speaking both as a specialist in real estate valuation and as one who has conducted considerable research into problems of business relocation, I strongly believe that passage of this bill will represent a major step toward the common goal of increased equity and a closer approximation to justice for all owners of private property rights affected by public improvement programs. THE COMMONWEALTH OF MASSACHUSETTS, Hon. EDWARD M. KENNEDY, U.S. Senate, Washington, D.C. DEAR SENATOR KENNEDY: I would again like to urge your favorable consideration of legislation to raise the amount available for business relocation payments under the Federal Highway Act. As you know, at the present time, the highway program is limited to $3,000 in the amount of relocation payments that can be made to businesses affected by takings under the interstate highway program. In most cases, this amount is totally inadequate to meet the basic needs of business relocation. The interstate highway program in Massachusetts, as well as throughout the country, is now entering that phase of its work which centers in highly urban areas. The $3,000 limit, while useful in rural areas, has become unreasonable in suburban areas and grossly unfair when applied to the urban areas. This department has long hoped that Senator Muskie's bill, or any other bill aimed at improving the plight of business relocatees would receive favorable consideration by the Congress. In recognition of the time priorities involved in completion of the interstate highway program by 1972, the department has already presented to the Legislature of Massachusetts an amendment to the State relocation law that would authorize the department to pay such additional amounts as might be authorized from time to time by the appropriate participating Federal agency. At the present time, there remains in the interstate program alone, some 807 businesses which will be acquired before the completion of fiscal 1966. Their plight is desperate. Many of these businesses will be taken by highway programs which are passing through urban renewal areas. If the law stays as it is today, those businesses which are taken by urban renewal on the one side of the street will be entitled to relocation payments up to $25,000 or more, while their neighbors in the highway areas are only entitled to a maximum of $3,000. We enthusiastically endorse your comments favoring legislation to cure this very unfair situation, and we would be happy to have this letter placed on the record of the committee. Very truly yours, JOHN D. WARNER, Associate Commissioner for Highway Engineering and Right-of-Way. Hon. EDMUND S. MUSKIE, GREATER BOSTON CHAMBER OF COMMERCE, Boston, Mass., July 14, 1965. Chairman, Subcommittee on Intergovernmental Relations, Old Senate Office Building, Washington, D.C. DEAR SENATOR MUSKIE: The Greater Boston Chamber of Commerce would like to record its strong support of S. 1681 and S. 1201 which are presently before your Subcommittee on Intergovernmental Relations. The Boston chamber represents approximately 3,200 business firms in the Bos-ton metropolitan area and has appropriately undertaken a program designed to promote the sound, orderly, and economic development of this Greater Boston community. We have, in this connection, given strong support to programs of mass transportation, urban renewal, airport development, and others which affect the development of this urban complex. We have also consistently given our support to programs which would establish necessary and proper relocation assistance and payments for persons and businesses displaced by any and all forms of public land-taking action. Needless to say, efforts to establish a comprehensive and uniform program of relocation assistance and payments have been to date largely unsuccessful within the Commonwealth of Massachusetts. Much of the hesitancy and unwillingness to establish such a program at this State and local level can be traced to the serious inequities which exist among federally assisted programs and the difficult administrative and financial problems involved in correcting such inequities at the local level. It is the Boston chamber's feeling that the thrust of the relocation programs provided for in the legislation pending before your subcommittee is a logical and necessary extension of the Federal Government's responsibility in its execution of federally aided programs. |