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I cannot possibly see how the sum would be variable with that kind of a formula.

The fourth lesson which our recent experience teaches us is that you cannot expect private enterprise to undertake low-cost housing projects unless you play fair with private enterprise; and I would think any housing bill brought in by the Federal Government should make it productive or make it possible, at least, for the cooperation of private enterprise; and it can be done within proper limits. There is a distinct field in which private enterprise in the form of

а limited-dividend corporations, tenants, cooperatives, and similar social of semisocial private agencies may provide housing without Government aid except in the form of low-cost credit.

I think we all agree it is desirable that there should be support of this housing movement, and particularly that the great foundations may be brought to operate in this field. Unfortunately this bill does not provide any such possibility.

In the recent past the Federal Government has so restricted the freedom of private enterprise in that field and has driven such hard bargains on credit that not a single one of the five limited-dividend projects financed by P. W. A. Housing Division has been able to meet its obligations to the Government, notwithstanding the fact that none of these projects pays taxes.

Senator WAGNER. May I ask some questions right there? Of course, this is primarily to take care of the low-income group, and the limited-dividend projects in the projects they have so far erected have not gotten down to the ones that I am, so far as this legislation is concerned, primarily interested in.

Mr. GRIMM. Yes, sir. Senator WAGNER. Do you mean that the restrictions you complain of are in charging a too high rate of interest?

Mr. GRIMM. Too high a rate of interest, and providing too small allowances for maintenance, and so on, so as to make it impossible for them to live.

Senator WAGNER. I have attempted to deal with that phase of it, and after all is it not a fact that is more a matter of dministration ?

Mr. Grimm. You set up a fund of $25,000,000 for that kind of activity, a wholly desirable form of activity.

Senator WAGNER. I wanted to find out what your suggestion was, that in this legislation there should be a limitation placed on the rate of interest.

Mr. GRIMM. I want to make this point, that there is a place in this field for private enterprise that ought to be encouraged, and that ought to bring in the moneys of the great foundations like the Lowenberg, the Rockefeller, and the Millbank, and so on, many of them throughout the country, into this field, and yet that money not only is not invited, but is pushed away, and the five hardy souls that have in spite of the difficulties succeeded in making deals have found to their grief at the end of the first or second year that they cannot live under the agreement, and have come to Washington and asked for relief, and that in spite of the fact that none of them are paying local taxes.

The CHAIRMAN. I got the impression from Mr. Straus yesterday that his limited-dividend project was paying.

Mr. GRIMM. Senator Straus himself, who came to my office within the 6 months, told me of attending a meeting here at which all of the representatives of the five projects met for that paricular purpose.

The CHAIRMAN. He gave me the impression it was a highly successful financial enterprise.

However, apart from that, I visited yesterday a limited-dividend project across the Potomac River here that impressed me very much indeed, that is being built by a private individual, and a mortgage by the New York Life Insurance Co., and the Federal Housing Administration has insured the mortgage.

It has, I think, approximately 247 tenements, and it is so highly successful that they are building another unit twice the size of the present unit.

Mr. GRIMM. That is not what I am talking about, Senator, and the very provisions of this bill directly bring the projects you are seeking to set up, into competition with the kind of projects you refer to, which comes under section 207 of the National Housing Act.

The CHAIRMAN. You are talking about projects that borrow from the Reconstruction Finance Corporation ?

Mr. GRIMM. I mean that get P. W. A. funds, the limited dividend corporations.

Senator WAGNER. What kind of projects do you have in mind ?

Mr. GRIMM. The Hillside project is one I have in mind, and the Boulevard Gardens.

Senator WAGNER. They come in competition with what?

Mr. GRIMM. I don't understand your question. What I mean is, the kind of projects you seek to set up through the use of the $25,000,000 fund under your bill, the limited dividend corporations, in offering an 85 percent loan, brings them into the field directly in competition with the kind of housing set-up under the Federal Housing Administration in section 207 of the National Housing Act, the same kind of business exactly. Senator WAGNER. I understood you were complainingMr. GRIMM (interposing). Not complaining, just observing.

Senator WAGNER. Well, it was in the nature of a complaint, that the interest rates are too high.

Mr. GRIMM. That is right.
Senator WAGNER. Wasn't that a complaint ?
Mr. GRIMM. An observation, I will call it.

Senator WAGNER. Suppose we reduce the interest rate to lower than that which is now charged by the Federal Government to other limited dividend corporations, are you not then providing competition with private industry which does not get its loans from the Federal Government?

Mr. GRIMM. It is not as simple as that, it is not only restricted to the interest on the loan. If I come to you with this kind of a project and I say it costs a million dollars to build, of course it becomes the function of the Federal Government at once to examine your organization, and they say you have got so much for this, and so much for this, and you have got to cut it down, we will say it costs only $937,000. Then, on the rent side they say, well, you are charging too much rent, don't charge $13 a room, but charge $11.50. A bargain is driven there, and then it comes to the matter of expenses.


allow so much for coal, so much for help, and a bargain is driven there. As the result an agreement is finally effected, and five such agreements have been effected and a strait jacket finally produced into which the projects are forced, and they have been unable to live.

My only hopes in calling attention to this condition was that, since you want to help and encourage private industry, you do not do it by that kind of medicine.

Senator WAGNER. You see no matter what we do there is always somebody that finds fault.

The CHAIRMAN. He admits the one activity of the Federal Government in low-priced housing is highly successful, but the other is wrong.

Mr. GRIMM. That is the point.

The CHAIRMAN. And the one that is successful is the one where they do not ask for tax exemption.

Mr. GRIMM. That is correct.

The CHAIRMAN. And the one that is a failure is where the tax exemption is granted. Mr. GRIMM. That is right.

Senator WAGNER. What is the failure due to-is it the high rate of interest charged !

Mr. GRIMM. That is one. Senator WAGNER. The other is what? The CHAIRMAN. Management, control, insurance, repairs, and all of those other factors.

Mr. GRIMM. One is private enterprise and the other is Federal direction,

Senator WAGNER. Let us not confuse it. Of course, land institutions have complained that the Government has charged too low a rate of interest, therefore coming into competition with them, so that no matter what we do somebody will complain. But what I wanted to find out from you, Mr. Grimm, is it your suggestion we ought to provide a maximum rate of interest?

Mr. GRIMM. No.
Senator WAGNER. How can you do it by legislation, then?

Mr. GRIMM. I would eliminate this portion entirely, because it will not be workable, and the fund is too small to be productive.

The CHAIRMAN. Will you name that portion of the bill?

Mr. GRIMM. It is the portion providing the $25,000,000 to limited dividend corporation subjects. I will suggest how, in the form of a substitute plan I have in mind, private enterprise would be taken care of by providing the same formula for it that you give to the governmental bodies.

The CHAIRMAN. That is an interesting observation.

Mr. GRIMM. You want to encourage them. Now, the fifth les. son that experience has taught us is the danger inherent in tax exemption. I do not mean to imply that tax exemption has no proper place in the scheme of low-rent housing. But it must be treated as a part of the Government grant and, as such, must be reflected in the financial set-up, so that the community may at least know how much it is actually paying for its low-rent housing through the medium of tax exemption. If tax exemption is treated on any other basis, it will result in unduly increasing the burdens of those com

munities which most need low-rent housing and which in meeting that need will dangerously reduce the income from real estate taxation upon which they depend to meet their own operating expenses. Senator Wagner skillfully meets the objections to automatic tax exemption of Federally owned projects by authorizing the agency created by his bill to pay the local community annual sums in lieu of taxes. Presumably such payments would be part of the grant. The device is an ingenious one and is wholly desirable.

The sixth lesson relates to the effect of Government competition with private enterprise. I know the author of this bill has all along had foremost in his mind that any activity of the Government in public housing must not conflict or compete with private industry. This is of fundamental importance. But the policy of the Government in the past 3 years has been directly in competition and in conflict with private industry. Time and again, on my journeys through the country in behalf of the Treasury Department, I found that real-estate owners and builders were reluctant to erect much-needed large-scale housing, because they dreaded the competition of Government-aided housing. I have no doubt that P. W. A. housing has provided hundreds of jobs. I also have no doubt that it prevented thousands of people from securing jobs on private housing construction which would have been undertaken but for the fear of Government competition. That must now be removed. It does not seem to me that the removal of this evil, so vital to the financial health of our country, is sufficiently provided for in the bill.

It must be arranged that the design, construction, and equipment of subsidized houses must not make them equivalent to housing for families able to pay their own way in new housing without Government aid.

Senator WAGNER. That is exactly what I am trying to do. Have you a more definite formula?

Mr. GRIMM. I think so. I would have a good deal to say in the bill, if I were writing it, about limiting the design and construction. They have not learned that lesson yet. I saw recently plans of a building about to be erected in New York City, providing at very great expense a subgrade area in which there was to be located community laundries, a kind of equipment that none of our best-class houses enjoy, and one that makes it very expensive in the set-up.

It is hardly conducive to diligence or the will to earn and save to find that the fruits of one's labor can purchase less desirable homes than are provided for those who cannot or will not earn or save as much. The provision against this abuse must continue to be reinforced by the provisions now in the bill which makes it difficult for anyone to seek an apartment in a publicly aided housing project who has an income beyond the designated limit.

I would go a good deal further-I would make it a crime for a man to make a willful misstatement in an application for an apartment in a public housing project. My observation is that a great deal of resentment in the local community comes from the very kind of people we seek to aid by public housing, because they see some of their fellows getting away with things they are not entitled to, and that can only be prevented by a very rigid procedure along the lines I have indicated.

The seventh lesson is that the provision that all Government-aided projects must pay the prevailing rate of wages will add greatly to


their cost. I do not mean to be understood as being opposed to fair wages. But my own experience with the prevailing rate of wages clause in Government work has convinced me that either the Government will not or cannot determine what the actual prevailing wage is. The result is that Government under such statutes pays a wage substantially higher than that which is actually paid in private employ. This will result in greatly increasing unit cost and reducing the quantity of housing purchasable by the funds which the bill makes available.

You are simply going to get a great deal less housing than if this amount of money was spent by private individuals.

If the Government is really to embark upon the excellent course of a vigorous and wide public housing program, I recommend that earnest efforts be made to arrive at some more equitable agreement in advance with the building trades' unions. Such agreements should certainly provide that once a low-rent housing project is begun anywhere in the United States no strike may be called to tie the

proggress of construction. Any labor difficulties in social work of this caliber should be the subject of arbitration.

In the Biltmore housing job in New York City, an interunion jurisdictional dispute held the work up for several months at a cost that ran into some two or three hundred thousand dollars and the poor people of the United States Government are not paying that money which was absolutely and completely wasted. I can say this suggestion of mine is purely practical, because if union disputes have done much to increase construction costs, more than any other single cost, they could be made the subject of arbitration after the job is finished.

I can readily understand these several references to the Wagner bill may perhaps be confusing and as forcing me utterly on the side of the opposing bill. I would not wish that point of view to remain, and for the purpose of making my suggestions constructive and helpful as I can, I should like, with your permission, to leave in the record a simple slum-clearance plan that will do all you seek to do, spend your money much more widely, and secure more housing for the money, and not fall upon the overtaxed people of our country in the next year, but scatter it over a term of years, and such a program will also be open to private groups and foundations as well as to governmental bodies.

Senator WAGNER. I think, Mr. Grimm, you and I are agreed on this, that the slums, as much as possible with governmental cooperation, ought to be cleared.

Mr. GRIMM. Let me say this, you do not provide anywhere in the bill for clearing slums. This is a slum-clearance program that may be out on the barren hinterland, and in my plan I provide there shall be no new houses unless slums are cleared, and there is no provision to that effect here.

Senator WAGNER. Of course, some things we have to leave to administration, and I am quite willing, if it can be done, to make that more effective. At any rate, you are satisfied that with Government cooperation there ought to be clearance of slums?

Mr. GRIMM. Yes.

Senator WAGNER. I think I can speak for you, that you are also satisfied that when we come to providing housing at the present time, until our standard of living gets higher for the low-income group,

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