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"ROM: TO: MR. DAIGER'S OFFICE Mr. Eccles I think that you will be interested in reading the attached memorandum and letter. I should like to discuss this matter with you when you have a convenient opportunity. J. M. Daiger 6/2/37 May 31, 1937 To: Mr. McReynolds From: J. M. Daiger Public housing was made a concern of the Federal Government in 1934-> when the initiation, construction, ownership, and management of housing projects was undertaken by PWA. This was a form of public works authorized in the National Industrial Recovery Act with a view to increasing employment quickly. From the point of view of Federal policy, therefore, public housing was but one of a number of means adopted under the stress of emergency to revive industrial activity. Since then the Federal Government has induced a majority of the States and a number of municipalities to enact public-housing legislation. This legislation is mainly designed to supplement or anticipate Federal legislation. It is predicated on the expectation that the PWA system of loans and grants, or some similar system of Federal aid, will continue to be available to local agencies. The efforts to deal with slum reclamation and public housing on an emergency basis were largely abortive because of the lack of legal machinery, administrative experience, and forward planning on the part of the Federal, State, and local governments. Nevertheless, slum reclamation and public housing constitute an ideal form of joint public works. This is particularly the case under a policy of fiscal and monetary management that contemplates the stepping-up of public construction in a period of business recession to counteract the fall of private construction. The primary problem at the present time is to effect a transition from the emergency basis of operation improvised under the conditions of depression to a permanent basis adapted (a) to the essential long-term nature of the slum problem, (b) to the present stage of industrial recovery, and (c) to the current fiscal policy of the Administration and its objectives in the related fields of money, credit, and prices. This calls for a Federal, State, and local mechanism that can be expanded or contracted according to the general economic conditions of any given period and the prevailing level of building costs and the available supply of building labor in that period, SUGGESTIONS FOR LEGISLATION 1. Establish the office of the Federal Director of Public Housing either within an existing Department or agency or as an independent agency, with authority to the President to transfer its functions to any other Department or agency under the proposed reorganization plan* - 2 2. Establish a fund to be known as the Public Housing Revolving Fund, out of which the Director would be authorized to make loans or grants to State or local public housing agencies. Assume, for illustration, that $1,000,000 (or whatever multiple thereof the President might suggest) were authorized to be appropriated to this fund at some time within the next four fiscal years. 3. Authorize the Director to make loans or grants to such public housing agencies as were authorized by State or local law to enter into contracts conformable to Federal law governing the Public Housing Revolving Fund* Um Establish as a condition of any loan or grant that the public housing agency obtaining it must agree to contribute toward the slumreclamation or public-housing project for which the loan or grant was obtained (a) the equivalent of any State or local taxes that might be levied on such project and (b) the equivalent of not less than one-half any sum granted by the Director of Public Housing. Provide that the Director, in computing the joint grant, might make allowance for a charge for local services other than those ordinarily included in the tax rate} and also provide that the local share of the joint grant might take the form of a donation of land or other contribution to the cost of the project, or of an annual or other periodic payment, or of community facilities or services, the capital value of any such local grant to be determined pursuant to rules and regulations issued by the Director with the approval of the President. p. Authorise the Director of Public Housing to lend to a public housing agency all or any part of the capital cost of a slum-reclamation or public-housing project, such loan (a) to be secured by the taxing power of the municipality or other political sub-division in which the project is located} (b) to bear interest at the going Federal rate of interest, plus 1/8 of 1% raised to the nearest multiple of l/B of 1%$ (c) to mature in not more than 60 years} (d) to be repayable in approximately equal annual or semi-annual instalments of principal and interest combined. The authority of the Director to make such loans would be limited to contracts entered into prior to June 30, 19A2. 6. Authorize the Director to contract for annual payments to be made to a public housing agency, such payments (a) to be made for a period of not more than 30 years, (b) not to exceed in the aggregate in any one year more than 2/3 of the estimated receipts of the fund for that year on account of principal and interest of loans, and (c) not to continue beyond June 30, 1971. On the bails of a 3% rate of interest, each |1,000,000 of loans made out of the revolving fund would return in each year $36,133* of which f24-, 089 would be available for payment of the Federal grants and $12,04/+ would be credited to "Miscellaneous Receipts" after all current obligations of the fund had been met. The monies for the making of the Federal grants would thus be derived from the payments on account of principal and interest of loans made out of the Public Housing Revolving Fund,* 7. The Director of Public Housing wo^ild be required to report to each session of Congress, beginning in 1938, the amount and other particulars of all applications for loans or grants conforming to the requirements for loans or grants, but in excess of the funds available to the Director for such purposes* *In the case of any given public-housing project, the Director would be authorized to determine, according to the subsidy required to accomplish the low-rent purpose, the amount of the annual payments to be contracted for by him. In the aggregate, however, for each |1,000,000 of public housing, the present worth of the annual payments to be aade by the Director over a period of 30 years, computed on the basis of % interest, would be $4-72,000} the present worth of the annual payments to be made by the local public housing agencies would be $236,00Qj the present worth of the estimated receipts cr/er expenditures by the Public Housing Revolving Fund w o u M be |236,OOO; the present worth of the debt service remaining to be met in the second 30 years of the maximum loan period would be $292,000. JMD/tf June 1, 1957 Dear Macs As you know, Mr* Opper, Mr. Lindow, and Mr, Patterson came to my office yesterday morning to go over with me, preparatory to the afternoon meeting at Secretary Morgenthai's house, some revisions of the suggestions contained in my memorandum to you of May 29, which was used as a working basis for our discussion of public housing with the Secretary on Sunday afternoon. The revisions were made in the light of Sunday's discussion with the Secretary and of my conversation with Mr, Gray on Sunday evening. However, because of the turn which the discussion took at the Secretary's house yesterday, there was no occasion for distributing copies of the revised memorandum at that time* I am now sending it to you herewith and also sending copies to Mr. Ihlder, Mr. Opper, Mr. Lindow, and Mr, Patterson. You will know after the Secretary talks with Senator Wagner this afternoon, and with the President tomorrow, whether the plan suggested yesterday by the Secretary himself will be put forward as an Administration measure. I remarked yesterday, when the Secretary held me for a few minutes after you and most of the others had left, that my view of the plan might change after I had considered it further, but that offhand I thought it represented an improvement over the present legislation governing the PWA housing set-up and could be made to serve as a stop-gap for the next year or two if nothing better could be agreed upon. On reflection, I am still of this same opinion. I think you might find it useful to the Secretary, however, if Mr. Opper, Mr. Lindow, and Mr. Patterson would analyze the plan more carefully after you receive Mr. Foley's memorandum this afternoon. For example, the Secretary has several times remarked, with a good deal of emphasis, that one of his objections to the Wagner bill was that the security to be given for loans made under it was worthless. Leaving aside any question as to the validity of this objection, I think you will find upon examination of the plan suggested yesterday that the security to be given for loans would be of precisely the same character as that contemplated in the Wagner bill. Apropos of this, you will recall the point, brought out by Mr» Foley, that public housing agencies are being set up in such a WBJ as to get around jaanlclpal debt limitations and k.m~p the obligations of these agencies from being secured by the local taxing power* This legal subterfuge would be continued BIL6 encouraged under the plan of operation proposed yea* terday* For another thing, I think you will find, upon comparison of the plan suggested yesterday with that suggested by the group working under your direction^ that the cost to the Federal for subsidies under the former would be considerably than under the latter, assuming in each case the mm& capital expenditure -and the same rate of interest* iaoth«sr point of great practical importance is that the plan suggested yesterday would continue the policy of having the Federal Government make lump-sum greats* Ion will recall that this policy wae exhaustively considered by the group workIng und©r your direction and that not • single operating man could be found to say i good word for it. The eonuetmsus was that the lump-sum grant had proved to be the moat costly form of housing subsidy wherever it had been tried—in this country, in Great Britaint and on the Continent, You will recall siso that the reason the group working under your direction recosssended the revolving fund was for the twofold purpose of avoiding, on the one hand, a repetition of the experience with lump-sum grant© and, on the other* the Wagner-bill method., of comdttlag future Gongressei to annual grants o w r a long period of Another difference of such practical importance, from aa operating point of view, is that the method of subsidy suggested yesterday* which would limit the grant to a fixed porcen'tage of the capital cost in my given ease* lacks the flexibility in determining rentals that was stressed by Mr. Qvmy sad Mr* Ihl&erj sad that would be the most effective me&ne of enabling in Administrator to reach the group in a particular eosmmlty which, was In greatest need of rental aid* In calling your attention to those sstters I do not w±Bh to disparage th© practicability as • temporary expendient of the plan proposed yesterday, tout simply to point out that the degree of bs no ©f improvement over the present method of FWA operation a. very Ujslted one and l®m than slight be accogplish&d greater outlay—in fact, withftlesser outlay-—on the part the Federal You will of cours© undarstaad tlmt this letter 1© mi expression of a^y personal views. I have not discussed with either Mr* Ecclas or Mr* McDonald any of the matters that jour gro\ip h&s hed uader coneider&tioa. aince you asked aa to partici pate in the Treasury meetiags ovsr the ;^}&st two Your EhoXosore Treasury D Waahiiigton, D» JT» M* C&iger
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