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Digitized from Box 8 of the White House Special Files Unit Files at the Gerald R. Ford Presidential Library
MEMORANDUM OF PRESIDENTIAL HANDWRITING
FILE CODE
DATE:
12/19/74
SUBJECT:
Meeting with Roy Ash, 12/20/74, to hear and decide appeals
from previous Presidential FY 76 budget decisions by Departments
of Labor, HUD, and by EPA and NASA
RECOMMENDED
LETTER
MEMO
PHONE CALL
NEWS SUMMARY
NEWS CLIPPING
OTHER
BRIEFING PAPER
BERALD R. LIBRARY FORD
TO:
THE PRESIDENT
FROM:
ROY ASH
NOTE: Above removed from Special Files Box #4
CHECKMARK ONLY
SENSITIVE - NO HANDWRITING
THE WHITE HOUSE
WASHINGTON
December 19, 1974
MEETING WITH ROY L. ASH
Friday, December 20, 1974
2:00 p.m. (60 minutes)
Oval A Office
From: Roy L. Ash
I. PURPOSE
To hear and decide appeals from previous Presidential
FY 76 budget decisions by the Departments of Labor,
and Housing and Urban Development, and by EPA and NASA.
II. BACKGROUND, PARTICIPANTS, AND PRESS PLAN
A. Background: The FY 76 budget submissions of the
Departments of Labor and Housing and Urban Develop-
ment and of EPA and NASA have been considered by
the President and initial Presidential decisions
on the key issues have been reached. This meeting
will provide the affected Cabinet Officers and
Agency Heads to appeal these previous Presidential
determinations.
B. Participants: Roy L. Ash, Paul O'Neill, and
Dale McOmber
2:00 p.m. - Secretary Brennan
2:15 p.m. - Secretary Lynn
2:30 p.m. - Administrator Train & Frank Zarb
2:45 p.m. - Administrator Fletcher & Frank Zarb
C. Press Plan: David Kennerly photo
III. TALKING POINTS
A. Secretary Brennan, what is the first issue you would
like to raise as a part of your appeal?
ORIGINAL IN PRESIDENTIAL
HANDWRITING FILE
GREATED FORD LIGRARY
(
- 2 -
B. Secretary Lynn, would you begin with the first
matter you would like to appeal?
C. Administrator Train, would you begin by describing
the substance of your appeal for us?
D. Administrator Fletcher, what is the first issue we
should review in considering your appeal?
FORD & LISSARY GERALD
Tra.
Dept.
THE WHITE HOUSE
WASHINGTON
DECISION
MEMORANDUM FOR THE PRESIDENT
FROM:
ROW-L. ASH
SUBJECT: DOL Appeal of 1976 Presidential Decisions
The Department of Labor has appealed three of your initial
1976 budget decisions:
1.
Comprehensive Manpower Assistance, for which DOL recommends
continuation of the 1974 BA level of 2.4 billion in 1976,
regardless of the outcome of other temporary jobs legisla-
tion. OMB recommends a return to the original 1975
budgeted level of $2.05 billion, arguing that temporary
job legislation, not this account, should be used to
handle unemployment increases. You had delayed your initial
decision until Congress had acted on pending jobs legislation.
2. Grants to States for Unemployment Insurance and Employment
Services. You initially decided to include $1,060 million
each for 1975 and 1976. DOL has appealed for $1,334
million for 1976 to handle expected cost increases and
an average unemployment rate of 6.5%. Since the appeal,
OMB and DOL have agreed to seek a 1975 supplemental of
$200 to $250 million, to be available through 1976, to
cover the pending emergency unemployment compensation
bills and other workload increases. OMB believes this
will be sufficient with the $1,060 million we recommend
to cover legitimate needs through 1976. If not, additional
supplementals could be sought in 1976.
3. Occupational Safety and Health Administration (OSHA). You
initially decided not to include in DOL's personnel ceiling
the 180 compliance officers added by the Congress in 1975.
DOL appeals this decision primarily on political grounds, -
that it was part of a compromise that avoided restrictions
on OSHA inspections of small business. OMP recommends not
allowing the 180 until DOL develops an integrated Federal/State
enforcement system. A deferral or rescission will be necessary.
GLEALO FORU LIBSARY
2
Section III of the appeal letter discusses some lesser problems
DOL has with the initial decisions. We understand DOL agrees
that these problems can be settled between DOL and OMB.
Attachment A is a summary table comparing your initial decisions,
the DOL appeal, and the current OMB recommendation. It also
includes our current joint recommendation on financing pending
legislation. The estimate for uncontrollables will be
substantially higher when unemployment assumptions are set.
Attachment B is a brief summary of the items at issue. Attachment
C is DOL's full appeal.
GERALD FORD VIBRARY
Best Possible Scan from Poor Quality Original
1976 Budget -- Summary Table
Department of Labor
(In millions of dollars)
1975
1976
Initial
DOL
OMB
Initial
DOL
CMB
Program
Actual
Decision
Appeal
Recom.
Decision
Appeal
Recom.
UI and Other
BA
8,005
8,340
8,340
8.340
8,701
8,701
8,701
Uncontrollables
BO
5,710
8,536
8,536
8,536
8,722
8,722
8,722
Pending Logislation
Public cobs and
BA
2,700
4.000 4,000
-
Une playment
DO
1,211
1,6501/1,350]/
1,549
2,1501/2,1501/
Compensation
Controllable Programs
Comprehensive Man-
BA
2,266
2,304
2,394
2,394
2,0505
2,400
2,050
power Assistance
BO
1,450
2,790
2,790
2,790
2,512
2,687
2,512
Grants to States for BA
64
64
64
64
71
89
71
Unemployment Insur- BC
892
1,060
1,051£ 1,0513/
1,060
1,334
1,060
ance and Employment
Services
Occupational Safety
BA
70
101
102
101
102
105
102
and Health Adminis- BO
69
101
102
101
102
105
102
tration
All Other
BA
576
470
470
470
605
605
605
BO
1,185
661
661
661
614
614
614
Total
BA
10,981
14,129
15,370
15,369
11,529
11,900
11,529
BO
9,306
14,350
14,990
14,989
14,559
15,612
15,160
1/
Initial estimates. Will be revised substantially when unemployment rate
assumptions are set.
2/
Pending action on NEAA
" Created
FORD LIBRARY is 038870
Attachment B
1976 Budget
Department of Labor
Comprehensive Manpower Assistance
(In millions of dollars)
1976
1974
1975
Initial
DOL
OMB
Actual
Decisions
Decisions
Appeal
Recom.
BA
2,266
2,400
2,050
2,400
2,050
O
1,450
2,790
2,512
2,687
2,512
Initial Decision
This account finances training and employment programs under
the Comprehensive Employment and Training Act (CETA). The
initial decision was based on three factors: (1) the major
program resources for combating the effects of high unemploy-
ment is to be NEAA type legislation; (2) there is no evidence
on program impact to warrent increases for CETA; and (3) the
delays in start-up in 1975 indicate substantial carryover to
1976 that has the effect of preventing sharp declines in
program levels despite the BA reduction.
DOL Appeal
The Secretary believes it is politically unwise to reduce BA
in this account. The Congress and the public could view it as
failing to respond to worsening economic conditions, particu-
larly for youth, minorities, and the disadvantaged, regardless
of the NEAA type programs.
OMB Recommendation
There are no new programmatic grounds for increasing BA. Outlay
estimates as well as enrollments continue to run well below the
1975 plan, indicating that carry forward into 1976 may be even
higher than current projections. Additional funds could not
significantly increase the volume of service provided until late
1976 or early 1977. OMB and DOL are both recommending $1 billion
for the public jobs bill expected to be passed by Congress for
the remainder of fiscal year 1975. This or a similar program will
indubitably be extended if unemployment remains high next year.
2
The $2.05 billion level should be retained for the FY 76
budget. The Secretary should direct congressional attention
to the actual program level as reflected in the outlay estimates.
The NEAA approach should continue to be the primary resource
for offsetting the impact of high unemployment.
FORD is LIBRARY 028470
Best Possible Scan from Poor Quality Original
Attachment 1.
1976 Budget
Department of Labor
Grants to States for Employment and
Unemployment Insurance Services
(In millions of dollars)
1975
1976
1974
Initial
Initial
DOL
OMB
Actual
Decision
Decision
Appeal
Recommendation
0b1./0
892
1,060
1,000
1,334
1,060
Initial Decision
The into Presidenti all devision provided for a level program for
FY 75 AND BY 76 X needs diversion of the Employment
Service to uning claims processing - the
traditional practice.
DOL Appeal
The Department of Labor accepted the FY 75 funding level including
diversion and requests an additional $274 million in FY 76 based
on an unemployment rate of 6.5% and a 12% increase in costs.
OMB Recommendation
OMB recommends a program level for both FY 75 and FY 76 to meet
anticipated claims loads with a 78 mandatory cost increase rather
than the 12% requested. OMB and DOL both recommend a $200 million
supplemental for 1975, to remain available through 1976, both to
handle the special unemployment compensation programs expected to
be enacted by Congress and to serve as a contingency against other
workload increases which cannot be handled by the regular 1975 and
1976 appropriations. These amounts should be adequate, but if not,
further supplementals can be requested in 1976.
FORD is LIBRARY 03
Attachment B
1976 Budget
Department of Labor
Occupational Safety and Health Administration
(In millions of dollars)
1975
1976
1974
Initial
DOL
OMB
Initial
DOL
OMB
Actual
Decision
Appeal
Recom.
Decision
Appeal
Recom.
BA
$70.1
$100.8
$102.0
$100.8
$102.2
$105.2
$102.0
O
$69.3
$100.8
$101.6
$101.6
$102.2
$105.2
$102.0
EOY
Pers.
1596
1705
1885
1705
1677
1857
1677
Initial Decision
Continue 1975 budgeted Federal program level with some overhead
reductions and expand the amount available for State grants.
L Appeal
Accept the 1975 congressional increase of 180 additional compliance
officers (making a total of 1,100), and continue at this level
through 1976. DOL argues that acceptance of the 180 is needed to
block congressional attempts to exclude small business from OSH Act
coverage. DOL also claims that initial decision provides insufficient
BA to finance approved program level.
OMB Recommendation
Retain previous allowance for personnel (920 compliance officers)
pending DOL development of an integrated Federal/State system to use
OSHA enforcement resources to achieve maximum reduction in accidents
and illnesses. This will require submission of a rescission or
deferral to the Congress of approximately $2 million. Retain 1976 BA
allowance for now, but we will adjust as necessary as soon as DOL is
ready to show us how the allowance is insufficient.
If DOL insists that an increase in the budgeted compliance officer
level is absolutely necessary to avoid opening the OSH Act to unwanted
amendments, a small increase of approximately 30 compliance officer
positions could be allowed.
GERALD R. FORD
Attachment C
U.S. DEPARTMENT OF LABOR
OFFICE OF THE SECRETARY
WASHINGTON
December 10, 1974
MEMORANDUM FOR THE PRESIDENT
Subject: Department of Labor 1976 Budget
The Department of Labor's appeal from some of the many
decisions made on its FY 1976 budget is in three parts,
the first dealing with employment and counter-cyclical
economic programs; the second with labor standards;
and the third with how we manage the Department. Before
getting into the specifics, I want to emphasize that
these appeals are made in recognition of the need for
budgetary restraint. In fact, we have not appealed
many items even though they have great merit. However,
we do need additional resources to deal with unemployment
and some of the problems that have arisen under OSHA.
We also need greater flexibility in managing the resources
of the Department.
I. Employment and Counter-cyclical Economic Programs:
Decisions on the funding of CETA have been deferred,
apparently on the theory that if NEAA or some other
public service employment program is enacted, CETA
funding can be reduced. Given the present economic
situation and the projections for calendar 1975
and beyond, such a reduction appears not only unwise
politically, but, more importantly, would constrain
our ability under Title I of CETA to deal with
specific State and local problems that are sure to
GERALD FORD VIGRARY
arise, particularly as they relate to the needs of
youth, minorities and disadvantaged. Therefore,
the Department requests that CETA be funded at at
least $2.4 billion in FY 1976, the same as for 1975.
- 2 -
Additional authorizations for emergency public employment
programs should not be made at the expense of this base
training and employment program.
The tentative decisions would also require a diversion
of resources from the Employment Service into the
handling of unemployment insurance claims. Such an
action reflects a misconception of the role and
function of the Employment Service. The notion that
the Employment Service is purely for job placement
and that its role disappears when jobs are scarce
is not only wrong but also is destructive of the
Department's ability to provide needed services to
workers in hard times. The result of this decision
would be to reduce drastically efforts to match the
unemployed with available jobs. The importance of
the Employment Service, particularly in hard times,
has been highlighted by a recent consent decree filed
in the D.C. Federal District Court which will require
the Employment Service to expend additional millions
of dollars on a full range of services for migrant
workers. This decree resulted from a conclusion by
the Court that the Employment Service had not provided
those services to which all segments of the population,
including migrants, are entitled as a matter of law.
Very candidly, a diversion of existing resources,
without supplementation, will make the Department
vulnerable to additional such legal actions.
In short, we feel that we need a total of $1,057 million
for ES and UI grants in FY 1975 and $1,334 for 1976
based on a 6.5 percent unemployment rate, and more if
the rate becomes significantly higher. This funding
level should tie directly to the insured unemployment
level projected in your Economic Report.
II. Labor Standards:
Congress provided 180 new positions for compliance
activities for FY 1975 under the Occupational Safety
FORD & LIBRARY GERALD
- 3 -
and Health Act, and allowed $5 million of existing
funds to be spent through the States to provide
consultation services to small businesses. The
present decisions would not provide any employment
ceiling for the 180 positions this fiscal year
($3.2 million). Only our agreement with the Congress
to provide such services forestalled efforts this
year to exempt small firms employing millions of
workers. In addition, while we are able to finance
consultation services this year, it can only be done
next year at the expense of providing funds to the
States to meet their developmental commitments under
approved plans. Without these funds and personnel
ceiling, it will be impossible to meet our commit-
ment to the States, the Congress, and Workers.
In an effort to cooperate in holding the line, we
are foregoing, for the moment, three other important
labor standards thrusts: a slight expansion in
the older workers program under the Age Discrimination
in Employment Act; a supplemental to meet the heavy
workloads under the recent amendments to the Fair
Labor Standards Act; and more training and consultation
services under OSHA designed to meet Congressional
criticism. However, you should be apprised that
the need for services in these areas may become SO
acute as to force us to come back on one or more
of these items in the near future.
III. Management of the Department:
We do have some management problems which we have
been trying to work out with OMB. It seems only
reasonable that the overall personnel ceiling for
FORD LIBRARY
the Department can be spread as we deem necessary
and that adequate funds to support our distribution
will be granted in the appropriate program areas.
Also, we are assuming that OMB will help obtain a
speedy resolution of the apparent conflict with the
- 4 -
Departments of Agriculture and Interior over 350
positions formerly supporting the Job Corps.
Unfortunately, some of OMB's proposed decisions will
impinge upon our ability to run the Department in
an efficient and effective manner.
For example, the Pension Benefit Guaranty Corporation
has been subsumed within the Department of Labor for
budgetary purposes. Congressional intent is clear
that the Corporation should be independent, with
equal participation on the Policy Board by the Secretaries
of Labor, Commerce, and Treasury. This tentative
decision would make the Corporation subject to budgetary
acts visited generally on the Department of Labor. The
other members of the Policy Board join me in conveying
their strong feeling that the Corporation should be
shown in the independent offices' section of the budget.
It is also proposed to pay a greater than warranted
share of Departmental expenses from one of the
accounts of the unemployment insurance trust fund
in order to save general revenues. Although we are
exploring this with OMB, the condition of the fund
is such that very little diversion is possible.
Finally, we believe it important to have our Solicitor's
Office as a separate appropriation account rather than
being lumped into Departmental management. The
Department of Labor is the second largest law enforcement
body in the Executive Branch. The Solicitor's Office
is absolutely crucial to the success of the law
enforcement efforts of the Department. Both the
Administration and the Congress ought to have the
benefit of being able to identify clearly the law
enforcement implications and consequences of their
budget decisions by direct reference to the Solicitor's
Office, rather than indirectly by considering the
Solicitor's Office under the general "management
overhead" umbrella.
FOPO
- 5 -
I look forward to discussing these items with you so
that you can better understand why I feel it necessary
to appeal the decisions discussed above.
The Sunnain
Secretary of Labor
HUD
LIGHARY
FORD
&
THE WHITE HOUSE
WASHINGTON
DEC 1 374
ACTION
MEMORANDUM FOR: THE PRESIDENT
FROM:
ROY
F.
ASH
15/
SUBJECT
SUBSIDIZED HOUSING PROGRAM LEVEL
The Department of Housing and Urban Development is
recommending that the 1976 Budget include 406,000 units of
subsidized housing. The 1975 Budget authorized 400,000
units in FY 1975; however, HUD currently estimates that no
more than 200,000 units will be approved.
The attached memorandum and supporting table have been
jointly prepared by OMB and HUD staff setting forth the
major considerations which affect the issue.
In summary, Secretary Lynn believes authorization for
406,000 units is necessary in the interest of "continuing
an acceptable climate on the Hill" so that the Administra-
tion can continue to achieve progress on other desired
programs, and to avoid the risks of having Congress mandate
higher expenditures under the Section 8 program or use of
the old subsidy programs. I recommend that the number of
units approved should be as low as politically feasible,
and in no case greater than 200,000 units. My recommenda-
tion is based on the belief that any level of activity
will be criticized as inadequate in some quarters, but
that political support for the program cannot be linked to
any particular commitment level. I believe that the esti-
mated direct Federal costs of the Section 8 program (annual
--$1,093 for existing housing and $2,044 for new construction;
lifetime--$8 billion per 100,000 units) are excessive and
would seriously limit your ability to phase in welfare reform,
such as HEW's proposed Income Supplementation plan. These
costs coupled with other program defects outweigh any politi-
cal advantages of a high level of activity. Your decision
on this issue should be made within the broader context of
where does the Administration go with respect to Income
Assistance across the board.
Attachment
8415 FORD
DEC 16 1974
MEMORANDUM FOR: THE PRESIDENT
FROM:
James T. Lynn
Secretary of Housing and Urban Development
Roy L. Ash
Director, Office of Management and Budget
SUBJECT:
Subsidized Housing Program Level
Statement of Issue
How many units of subsidized housing should HUD be authorized
to approve under the Section 8 (Lower Income Assistance)
program in fiscal years 1975 and 1976?
Background
The 1975 Budget proposed the approval of subsidies for 300,000
units under the revised leasing program, recently superseded
by the Section 8 Lower-Income Housing Assistance Program. The
Budget, as printed, provided only "for an additional 200,000
units" for FY 1975. Between the time the Budget was printed
and the figures were announced, President Nixon decided to
provide for an additional 100,000 units for FY 1975. This
decision was based, in large part, upon the necessity of pro-
viding assistance for lower income families at a level, as
informally communicated by key Majority Members, acceptable to
the Congress. Indeed, there was a tacit understanding that if
the Administration showed its good faith at the 300,000-unit
level, key Majority Members would do all in their power to see
that the housing program design and community development block
grant program followed the general lines of the Administration
proposal. Those Members fulfilled their promise.
In addition to the 300,000 units for FY 1975, 116,000 units
under the revised leasing program originally budgeted for
FY 1974, but not approved, were carried over into FY 1975, for
a total FY 1975 authorization of 416,000 units. The contract
FORD
2
authority needed for the 416,000-unit production level was
provided by the Congress pursuant to an Administration request
in the Housing and Community Development Act of 1974. Finally,
108,000 units representing the balance of units for bona fide
commitments under the suspended housing programs were carried
into FY 1975.
Units actually approved under HUD subsidized housing programs
in recent years follow:
1970
1971
1972
1973
1974
393,900
400,900
426,900
105,500
30,100
The lower levels of commitment in fiscal years 1973 and 1974.
have resulted in runout cost reductions in the range of about
$18.5 billion.
Alternatives
1.
Continue the 400,000 authorized unit level under the
Section 3 program in FY 1976, requiring an additional
200,000 units of authorization in view of an estimated
200,000-unit carryover from FY 1975, and provide an
additional 6,000 units for Indian housing under the
Conventional Public Housing Program (HUD recommendation).
2.
Reduce the authorized unit level in 1975 to the lowest
level politically feasible, but in no case more than
200,000 units (excluding bona fide commitments) for all
programs and maintain it at that level in 1976 (OMB
recommendation).
The budget impact of each alternative is shown in Attachment A.
Program Analysis
Alternative levels of subsidized housing approvals can be
analyzed from four different standpoints: (1) the housing
needs of low-income families, (2) supply and demand conditions
in the homebuilding industry, (3) costs of Section 8 units, and
(4) political realities.
(1) Consumer Needs
Estimates of "housing needs" of lower income families range
from 4 million units (the number of occupied units lacking com-
plete plumbing) to over 11 million units. Clearly, a gap in
FOR
3
units required cannot be met in the near future at either of
the alternative production levels.
HUD and OMB agree that inadequate housing is basically
an income problem, rather than a supply problem. However,
the Department believes that housing subsidies are warranted,
pending a policy decision on a better solution.
HUD argues that--as a bridge, both theoretically and
politically, to direct cash assistance--the new Section 8
program is an improvement over the suspended subsidy programs
(albeit certainly no panacea) :
- The role of private owners is expanded to include
management and maintenance of units.
- Tenants are able to select the unit in which they
choose to live.
- The term of the subsidy payment is limited to 20
years for private owners.
- The program permits more emphasis on use of existing
housing stock rather than on new construction, sub-
stantially decreasing costs and eliminating tax
preferences associated with new construction.
- The program can encourage economic integration.
- Benefits are more directly related to need.
- State and local government participation is increased.
- The program permits more flexible financing since
housing may be financed conventionally, by public
bodies or under FHA mortgage insurance programs.
- The program encourages direct competition between
private developers and local housing authorities
60 that better site selection and lower development
costs will result.
- Subsidy requirements are limited to fair market rent
in any arca, rather than being open ended as they
were in the suspended programs.
OMB believes in-kind subsidies are an inefficient means
for addressing the problems of low-income families, since they
limit choices between housing and other goods. Moreover, a
HUD-commissionel opinion survey found that even though poor
housing conditions were found to be "serious" by 35% of low-
income families and 51% of minorities, such conditions ranked
lower on the low-income population's list of serious neighbor-
hood problems, than such problems as drug addiction, trans-
portation, and crime. In addition, ONE believes the Section 3
program represents only a small improvement over the previous
subsidy programs that have bean suspended since January, 1973,
and will have these defects:
- Benefits would be distributed inequitably in that
only a small fraction of eligible families (at
400,000 units, only 1.55 of the approximately 23
million families with qualifying incomes) will
receive bonofits.
The costs of the program will be substantial
relative to the benefits perceived by the
assisted family. In fact, under the rent
supplement program, to which the new construc-
tion feature of Section S bears a strong
resemblance, HUD found that only 435 of Federal
expenditures were perceived as a direct benefit
by the low-income recipient.
- To the extent new construction is emphasized,
low-income families will not have freedom to
choose their own unit.
(2) Stimulation of the Housing Market
The production of new subsidized housing units can be
rationalized in terms of the need to offset depressed housing
market conditions.
HUD and OMB agree that some portion of federally sub-
sidized housing units come at the expense of unsubsidized units,
so that the net addition to total starts is less than the number
of units subsidized. (The Federal Home Loan Sank Board staff
estimated that, during a period when mortgage money was reason-
ably available, only 14 out of every 100 subsidized starts
represent a net addition to total starts.)
To the extent that Section 3 does stimulate additional
activity in the housing suctor, actual construction will not
begin for some time. For instance, construction on units
approved during FY 1975 will begin, at the carliest, in the
Spring, 1976. Similarly, actual construction on units approved
FORD
GERALD
limit choices between housing and other goods. Moreover, a
HUD-commissionel opinion survey found that even though poor
housing conditions were found to be "serious" by 35% of low-
income families and 51% of minorities. such conditions ranked
lower on the low-income population's list of serious neighbor-
hood problems, than such problems as drug addiction, trans-
portation, and crime. In addition, ONE balieves the Section 3
program represents only a small improvement over the previous
subsidy programs that have bean suspended since January, 1973,
and will have these defects:
- Benefits would be distributed inequitably in that
only a small fraction of eligible families (at
400,000 units, only 1.55 of the approximately 23
million families with qualifying incones) will
receive bonofits.
The costs of the program will be substantial
relative to the benefits perceived by the
assisted family. In fact, under the rent
supplement program, to which the new construc-
tion feature of Section S bears a strong
resemblance, HUD found that only 435 of Federal
expenditures were perceived as a direct benefit
by the low-income recipient.
- To the extent new construction is emphasized,
low-income families will not have freedom to
choose their own unit.
(2) Stimulation of the Housing Market
The production of new subsilized housing units can be
rationalized in terms of the need to offset depressed housing
market conditions.
HUD and OMB agree that some portion of federally sub-
sidized housing units come at the expense of unsubsidized units,
so that the net addition to total starts is less than the number
of units subsidized. (The Federal Home Loan Sank Board staff
estimated that, during a period when mortgage money was reason-
ably available, only 10 out of every 100 subsidized starts
represent a not addition to total starts.)
To the extent that Section 3 does stimulate additional
activity in the housing suctor, actual construction will not
begin for some time. For instance, construction on units
approved during FY 1375 will begin, at the carliest, in the
Spring, 1976. Similarly, actual construction on units approved
FORD i LIBRARY GERALD
GERALD
5
in FY 1976 will begin later in FY 1976, at the earliest.
However, most industry members have taken the position
publicly that the decrease in total starts is attributable
in large part to the decrease in units approved in Federal
subsidized programs.
Although the housing market is currently depressed,
the Troika forecasts a natural upturn in housing starts to a
level of. 2 million units by mid-1976. A high level of
approvals during FY 1975 and 1976 could possibly contribute
to overstimulation of the market by the time of actual con-
struction, as it did in CY 1972.
(3) Costs of Section 8 Units
Costs under the Section 8 program can be looked at
from three standpoints:
a. on a per unit basis
The existing component of the Section 8 program
is a less costly alternative than the new construction compo-
nent, and comes closer to the goal of minimizing the role of
the Federal Covernment in the operation of local programs.
On the other hand, the more expensive new construction
component continues HUD's involvement in review and approval
of plans, as under the suspended housing programs. A comparison
of per unit cost for both existing and new Section 8 units, as
well as HUD's experimental housing allowance program and an
earlier program, are shown below:
Comparison of Annual Per Unit Housing Assistance Costs
Tenant
Local
Contrib.
Total
Agency
(family (4) ;
Annual Rent
Adminis-$5,000 an-
Shopping
Direct
Payment
trative nual
Incentive
Cost to
Costs
income
Savings
Govt.
Direct Cash
Assistance
$2,067
$203
$1,250
$106
$ 914
Sec. 8 -
Existing
$2,067
$223
$1,100
$ 97
$1,083
New
$3,144
Fee may
$1,100
n/a
$2,044
be allow-
ed, but
not yet
dotermined
Sec. 236
with Rent
Supplement
$3,144
n/a
$1,038
n/a
$2,106
FORD LIBRARY & SERATO
6
b.
Short-term budget impact
Attachment A illustrates the budget impact of
alternative levels of subsidized housing approvals.
Existing units approved for subsidy result in
outlays more quickly than newly constructed units, despite
the lower average annual subsidy per existing unit.
The attachment also shows the cost per 100,000
units, using different mixes of new and existing units.
C. Lifetime costs
Each 100,000 units approved under the Section 8
program are estimated to cost approximately $8 billion over
the life of the contracts (assuming approvals are split 75%
new/25% existing, and that the average contract runs 26.25
years). In addition, Section 8 units can be insured under
certain FHA and other Federal mortgage insurance programs,
thus increasing the contingent Federal liability.
d. Political Realities
HUD believes that, Administration promises
having been made to key Members of the Congress, they ought to
be kept--certainly for FY 1975 and, because the new Section 8
program will not get rolling until FY 1976, through that year
as well. Failure to keep our word, combined with the present
low level of housing starts will, in HUD's view, result in a
mandating of the Section 8 program, or the old suspended pro-
grams, or both. During the current year, serious attempts
were made to mandate these programs in the Housing and Community
Development Act of 1974, HUD's basic appropriation and the
supplemental appropriation needed to fund the Community Develop-
ment Block Grant Program. In each instance, the ability of
the Administration to have the mandating provision deleted was
based upon its "good faith" to move ahead on the Section 8 pro-
gram at the budget levels it had promised.
OMB acknowledges that the subsidized housing programs enjoy
substantial political support, but believes that this support
cannot be linked to any particular commitment lovel. Any
level will be criticized as inadequate in some quarters. An
individual builder, on the other hand, is only interested in
7
how many units he gets approved, not the national total.
While his chances are greater at a higher level of commit-
ments than a lower level, this is equally true at 100,000,
200,000, or 400,000 units.
Secretary Lvnn's Recommendation: Alternative #1. The
Secretary's request is based largely on "continuing an
acceptable climate on the Hill" so that continued progress
can be made toward programs, such as direct income assistance,
desired by the Administration and so that the risks of man-
dated higher expenditures and mandated use of the old subsidy
programs or Section 8 can be avoided. Given the depressed
state of the housing industry and the drastically reduced
subsidized housing commitment level in FY 1975 and most of
FY 1974, he believes such mandating is not just possible but
very probable. Further, Secretary Lynn believes that our
programmed level of over 400,000 units for FY 1975 was in
substantial part responsible for the passage of the 1974
Housing and Community Development Act in acceptable form and
that, particularly since we will not commit anywhere near that
figure in 1975, a reduction from 400,000 as the authorized
level for FY 1976 would be construed as bad faith in the
Congress. He proposes to move to what he calls an "inventory"
concept in budgeting for the Section 8 program for FY 1976.
Under this concept, the request for new budget authority would
be for only 200,000 additional units but the text of the Budget
would make it clear that this is to permit an approval level
of approximately 400,000 units inasmuch as it is estimated
that about 200,000 units of the FY 1975 authorization will
carry over. In his judgment, the passage of additional time
from the date of suspension of the old programs and enactment
of the new Act, decisions on direct cash assistance and, most
importantly, assuming, as expected, that housing starts are
recovering reasonably well in calendar 1975--particularly in
the last half, a much better climate for logical decision-
making on the FY 1977 budget will prevail.
Director Ash's Recommendation: OMB believes that the number
of units approved should De as low as politically feasible,
and in no case should exceed 200,000 units. Given the anti-
cipated 200,000 carryover from FY 1975 this would mean no
request for new authority for FY 1976. The program defects
identified above, coupled with the high cost, argue for a low
level of activity under this program. A low level of authorized
units would also promote quality processing, assuming personnel
FARD CIBRARY
8
levels were not reduced proportionately, and preserve the
Administration's flexibility to set future year unit approval
levels, based on existing conditions in a given year. In the
short term, Secretary Lynn's inventory concept is not neces-
sarily unreasonable, since HUD lacks the capacity to meet the
400,000 unit goal during 1975, and perhaps in 1976 as well.
However, effectively by FY 1977, a real base of 400,000 units
will be established. Once established, this level will be
difficult to withdraw from, even if a "demand" (income assist-
ance) approach is eventually implemented. The demand from the
construction industry for production assistance will not be
satisfied by income assistance to eligible consumers, 60 any
production level may become a future floor.
Attachment
Decision: Approve HUD recommendation
Approve OMB recommendation
Other (see me)
FORD
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
DATE: December 16, 1974
WASHINGTON, D.C. 20503
LY TO
(TN OF:
CVA:Housing Branch
SUBJECT: The HUD Appeal
Mr. O'Neill
Secretary Lynn has appealed the decisions on seven items included in
his 1976 Budget estimates. The amounts at issue in 1976 are shown
below:
Obligations
Outlays
Pres.
HUD
CVAD
Pres.
HUD
CVAD
Mark
Appeal
Recom.
Mark
Appeal
Recom.
(in
millions
of dollars)
New Communities
N/A
N/A
N/A
-1
-1
-1
Research and Technology
65
75
65
58
71
58
Community Development Loan
Guarantees (OMB Est.)
N/A
N/A
N/A
--
10
--
Comprehensive Pianning
50
Open
Open
60
Open
Open
Counseling
--
2
--
--
2
--
Mortgage Insurance Premiums
N/A
N/A
N/A
-18
--
-18
Staffing:
Amount
167
177
¡72
167
177
172
FTP's
14,829 15,559 15,287
Each of the items is discussed in a separate issue paper attached to this
memorandum. The issues are summarized below.
New Communities
The Secretary believes HUD should have the authority to make additional
guarantee commitments so it can:
Honor moral commitments.
FOND
Avoid defaults on existing projects.
Forestall a congressionally mandated program.
CVAD continues to believe an immediate suspension is warranted in order
to avoid increasing the contingent liability further until it can be
shown that there is some advantage to doing so.
Research and Technology
The Secretary argues for the original $75 million program on the grounds
that:
2
Ongoing projects, coupled with congressionally mandated and
OMB-requested studies, would consume an excessive portion
of the $65 million mark.
Congress will cut the request further, and HUD's Research
program already has suffered more than research programs
in other agencies.
CVAD believes that $65 million can cover the ongoing and requested studies
and still leave $12 million for new initiatives.
Community Development Loans
Secretary Lynn believes HUD should have the authority to guarantee loans
because failure to implement this provision would:
Damage the Administration's credibility.
Create enormous political problems.
Produce no real advantage since the program is unattractive
enough to keep most recipients away.
CVAD continues to see no programmatic justification for loan guarantees.
Comprehensive Planning Grants
The Secretary and CVAD agree that a final decision on "701" funding
should await a Presidential decision on land use and planning consolida-
tion. In the event a decision is delayed beyond the point where the
budget must be locked up, CVAD recommends straight lining the program
at $50 million.
Counseling
The Secretary believes that a HUD evaluation study demonstrates the cost-
effectiveness of counseling, and this, coupled with a congressional
mandate, warrants a $2 million Counseling program in 1976.
CVAD recommends against a separate appropriation for Counseling on the
grounds that:
The HUD study does not provide anything approaching a
reliable basis for concluding that counseling is cost-
effective (a view shared by many at HUD).
SERALD FORD LIBRARY
Federally funded counseling will make a new group of agencies
dependent on Federal money, thus creating yet another lobby
for ever-increasing amounts of Federal institutional support.
3
Mortgage Insurance Premiums
The Secretary recommends against any increase in premiums because:
There has not been sufficient staff work to permit a
defense of higher premiums.
The adverse impact on low-income families would bring
political costs which exceed the relatively small outlay
savings.
CVAD believes that enough staff analysis has already been done to
justify higher premiums, and that, from a tactical standpoint, increases
must be coupled with revision of the basic 203(b) premium which is
presently in the works.
Staffing
The Secretary is seeking an end-of-year employment ceiling of 15,559 in
1976.
CVAD recommends a 1976 ceiling of 15,287. The difference between this
level and the Secretary's request results from:
Our belief that temporaries, rather than FTP's, should be
relied upon to handle the defect claims resulting from the
new legislation.
Our programmatic judgment that staffing requested for the
environmental area can be reduced by simplifying HUD's
environmental policies.
HUD's failure to justify the sharp increases in workload
projected for 1976 in the equal opportunity area.
New Communities Program
NO
Budget Impact
1975
1976
1977
($ in millions)
Bonds
0
Bonds
0
Bonds
0
Presidential Allowance
369
.8
389
-1
389
-2
HUD Appeal
369
.8
474
-1
559
-2
OMB Recommendation
369
.8
389
-1
389
-2
Presidential Allowance: Temporarily suspend new approvals under the New
Communities Program during 1976, and allow additional guarantee commit-
ments for existing projects only after strict criteria have been developed
and approved.
HUD Appeal: Show up to two new approvals in the 1976 Budget.
HUD Arguments
Suspension may cause legal problems as well as moral ones since appli-
cants have invested significant amounts in planning costs in expectation
of participating in the HUD program and in relying on HUD's preliminary
reviews and approvals.
A suspension would probably be construed as a forerunner of termination,
and would hinder the Department's efforts to negotiate with developers
and financial institutions to provide additional financial assistance
to existing projects.
The pipeline has been reduced substantially due to stringent review
criteria recently implemented. This administrative tightening should
reduce the number of guarantee applications that will be received
during 1976, and achieve much the same results as a suspension.
A suspension, rather than administrative tightening, is more likely to
generate mandating since important members of Congress support the New
Communities Program.
OMB Staff Comments
GERALD FORD
Existing new community projects are in serious financial difficulty.
In part, this is due to approval of certain marginal projects because
the applicants had invested significant amounts in planning costs,
and implicit commitments had been made to developers by HUD staff.
There may be moral problems created from a suspension resulting from
implicit commitments given to developers by HUD staff; however, there
is no basis for legal problems if such implicit commitments are not
fulfilled.
2
Tightening of administrative requirements may reduce the demand for
new projects and could possibly achieve the same goal as a suspension,
if enforced strictly by the Department. However, management of exist-
ing projects remains the key problem in the program, and New Community
staff time should be devoted to devising work-out solutions for
existing projects.
OMB Recommendation: OMB staff believe the financial status of existing
projects is serious enough to warrant temporary suspension of the New
Communities Program. The review that is required on these projects in
order to determine whether additional guarantee commitments should be
made is sufficient to justify an announced suspension of new activity.
HUD's argument that the same goal could be achieved administratively
has some merit. However, historical experience argues against the
probable success of this approach. An open door for inquiries about
the program has consistently led to implicit commitments by HUD staff
to applicants of future approval.
FORD & LIBRAR 038830
NO
Research and Technology
(in millions of dollars)
Budget Impact
1975
1976
1977
Obligations/Outlays
Oblig.
0
Oblig.
0
Oblig.
0
Presidential Allowance
57
56
65
58
65
60
HUD Appeal
57
56
75
71
75
74
OMB Recommendation
57
56
65
58
65
60
Presidential Allowance: Increase the 1976 program level to $65 million.
HUD Appeal: Increase the 1976 program level to $75 million.
HUD Arguments
Additional studies requested by OMB when added to ongoing research needs
and, coupled with studies that the Secretary wants to do, and certain
studies that Congress has mandated, may be excessive requirements within
the $65 million level.
Congress has traditionally reduced the Administration's budget requests
for research activities, and there is no reason to expect a change in
FY 1976.
HUD's Research program has been reduced disproportionately as compared
to similar social research programs in other agencies.
OMB Comments
Rough estimates of HUD's minimum research requirements in 1976 breakdown
as follows:
($ in millions)
Ongoing Research (base)
48.5
(includes all congressionally
mandated studies)
Secretarial Studies
3.3
OMB Requested Studies
1.0
Total
52.8
A brief look at HUD's Research program, as compared with other domestic
agency research programs, on a percentage basis:
1974 and 1975
1975 and 1976
HUD
-12%
+14%
HEW
-9
+1
EPA
-25
+7
Agriculture
--
+2
Transportation
-26
+19
National Science Foundation
+3
+8
2
OMB Recommendation: OMB staff believe that a $65 million program level
is sufficient to permit HUD to meet all prior year commitments, congression-
ally mandated studies and special studies initiated by the Secretary and OMB.
These needs are roughly estimated at approximately $53 million.
FORD LIBRARY
Community Development Loan Guarantees
July 1 - - Sept. 30,
Budget Impact
1974
1975
1976
1976
($ in millions)
BA
0
BA
0
BA
0
BA
0
Presidential Allowance
-
-
-
-
-
-
-
-
HUD Appeal:
HUD Estimate
-
-
-
-
-
-
-
-
OMB Estimate
-
-
-
-
10
10
2
2
OMB Recommendation
-
-
-
-
-
-
-
..
Presidential Allowance: No loan guarantees should be issued under the Community
Development Block Grant Program.
HUD Appeal: Loan guarantees should be approved, but without any marketing
assistance from HUD.
HUD Arguments
The guarantee provision is unattractive enough that few will be applied for
and a minimal staff effort will be required.
No budget savings would result from suspension of the guarantee provision,
since the required safeguards are sufficient to prevent outlays in the
case of defaults (which HUD does not expect).
HUD, with OMB's consent, agreed to a loan guarantee program in order to
secure legislative support for the Community Development Block Grant
Program from the U.S. Conference of Mayors/League of Cities.
Suspension would constitute a failure to keep our word, and may tempt
Congress to mandate a loan guarantee provision with greater outlay
potential than the HUD proposed provision with its safeguards.
OMB Staff Comments
CVAD staff finds no programmatic justification for assisting localities in
avoiding State-imposed debt ceilings. Loan guarantees would further divert
capital from other sectors of the economy to a sector supported by $2.5
billion in Federal grants. The HUD appeal does not address these program-
matic considerations.
The HUD argument that there are "no budget savings" to be realized is based
either on no defaults occurring or repayments being realized before the end
of the fiscal year. If a default occurs near the end of a fiscal year, it
will show up as an outlay, even though the collateral requirements insure
repayment to HUD in future years.
2
The HUD arguments addressing budget impact do not take into account
staffing. There will have to be outlays for staff expenses if the
guarantee provision is implemented.
The HUD appeal position does not involve direct loans and marketing
assistance resulting in less outlay potential than with direct loans
and marketing assistance.
CVAD Recommendation: On programmatic grounds, we recommend maintaining the
Presidential allowance. CVAD staff is not in a position to judge the accuracy
of the Secretary's political analysis. The political price for suspending the
guarantee provision may indeed be too much for the small outlay saving.
LIBRARY &
5D-
Comprehensive Planning Grants (Section 701)
July 1 - Sept. 30,
Budget Impact
1974
1975
1976
1976
($ in millions)
NC
0
NC
0
NC
0
NC
0
Presidential Allowance
75
101
50
110
50
60
-
12
HUD Appeal
-
-
-
-
-Open-
-
Open
OMB Proposal
-
-
-
-
-Open-
-
Open
Presidential Allowance: Reduce the 1975 program level to $50 million and maintain
that level in 1976.
HUD Appeal: The Department proposes that the 1976 program level remain open
pending Presidential decisions on Federal land-use policy and consolidation
of Federal planning assistance programs.
HUD Arguments
HUD expects decisions to be made on land-use policy and planning assistance
consolidation prior to submission of the Budget, and these decisions could
have important implications for 701 funding.
Continuation at the $50 million level in 1976 will contradict previous
Administration statements that the 701 program would be in addition to
the Community Development Block Grant Program. This would open the
Administration to the argument that it gives with one hand and takes
with the other.
The reduced level would require cutbacks in activities dealing with Federal
base closings, planning for energy conservation, and improving State and
local management.
OMB Staff Comments
Presidential decisions on land-use policy and planning assistance consolida-
tion could change the scope of the 701 planning program (either expanded or
contracted).
If decisions on these two pending issues do come before the Budget submission,
CVAD will have time to change the Budget to reflect the Presidential decisions.
The decisions may not come before the Budget is presented to Congress. In
that case, the Budget will have to be transmitted without reflecting the
pending Presidential decisions.
2
Because of the uncertainty of Presidential decisions, CVAD staff will
postpone a response to HUD's programmatic arguments. There will
probably be disagreement between HUD and OMB staff analyes even after
Presidential decisions, however.
CVAD Recommendation: We recommend leaving the 701 program budget decisions
open until the point the Budget must be locked up. If that point is reached
before the Presidential decisions on land-use policy and planning assistance
consolidation are made, we recommend presenting the 701 Budget on the basis
of the Presidential allowance.
FORD LIBRARY & GERALD
Mortgage Insurance Premiums
Budget Impact
1975
1976
1977
($ in millions)
BA
BO
BA
BO
BA
B0
Presidential Allowance
750
750
550
550
400
400
HUD Appeal
+ 0
+18
+18
+26
+26
OMB Recommendation
+ 0
+ 0
+ 0
+ 0
+ 0
Presidential Allowance
Change all mortgage insurance premiums to make each insurance program
actuarially-sound.
HUD Appeal: Allow the premiums on the profitmaking programs to be revised but
do not change the premiums on the actuarially-unscund programs.
HUD Arguments
It would be highly premature to change premiums under the unsound
programs and reflect this in the Budget prior to completion of HUD
studies, now underway, to determine actuarially-sound premiums by program.
HUD could not defend premium changes in public.
Legislation may be necessary to make some programs actuarially-sound.
The proposed policy would have an adverse social impact, since poor
families would be required to pay higher premiums.
Announcement should be made outside the budget and after careful review
with interested private parties and Congress.
Savings would be nil in 1975, and relatively minor in 1976.
OMB Staff Comments
HUD staff acknowledges that the studies of single family programs have been
conducted, and that staff estimates of actuarially-sound premiums are avail-
able by major program. Less firm estimates of actuarially-sound premiums
are available for the complicated multifamily programs. A major study of
premiums will be completed this year
Annual premiums can be raised to 1% without statutory change.
It is clear that the 1/2 percent premium is inadequate in many programs and
would have to be raised to make the programs actuarially-sound regardless
of whether or not definitive studies exist. Premiums could always be re-
adjusted later based on more data or better analyses.
Since new "front-loaded" premiums are soon going to be implemented for
the basic homeownership program and a new coinsurance program, it would
be consistent to raise premiums under the deficit programs now. If the
unprofitable program premiums are not changed with the profitable program
premiums, changing them later on would be far more difficult.
The complex implementation issue--raising premiums under programs that aid
lower income families--involves political, not programmatic considerations.
Terminating this indirect subsidy is consistent with recent policy to
emphasize cash, rather than in-kind assistance for the poor. The costs
and benefits of those insurance programs are also being studied by HUD.
OMB Staff Recommendations
CVAD staff continues to recommend that each major insurance program be made
actuarially-sound. We recommend doing so, however, only to the extent per-
mitted by existing law (that is, up to 1%); we would not recommend seeking
new legislation. The issue is as much a resource allocation problem as the
funding level for block grants. The announcement should be made in the con-
text of the Federal Budget where budget trade-offs are clearly visible and
where this action can be best justified. Moreover, from a tactical stand-
point, an increase in premiums should be linked with revisions in the basic
premium rather than be announced separately. Technical implementation
issues could be resolved soon after budget delivery. Implementation issues
could be carefully reviewed with interested parties and Congress. HUD would
announce all premium levels at one time before FY 1976 began.
MD/HCA staff recommends that insurance written by FHA be "financially sound"
beginning in FY 1976. Require HUD to submit, prior to FY 1976, a detailed
options paper that addresses a full range of remedial actions including
premium revision. Actions to be considered in the HUD review would include:
underwriting, events insured against, premium rates and structure, reserves
and rebate policies, the grouping of programs within insurance funds, and
risk grouping within programs:
Raising premiums is not the only nor necessarily the best way to
make FHA programs financially sound. Other actions, such as raising
underwriting standards, changing the premium structure, and intensi-
fying mortgagee surveillance may have equal or greater significance in
achieving financial soundness on a program by program basis. Also,
raising premiums on future insurance written could have less immediate
budgetary impact than taking effective remedial steps to reduce defaults
and losses related to existing insurance in force.
Raising insurance premiums to actuarially-sound rates in many of the un-
sound programs would exceed statutory limits. Without legislation,
several programs would have to be terminated if an actuarially-sound
test were applied. Even with legislation, higher rates could make these
programs uneconomic for owners and sponsors. In such cases, we may want
to face directly the possibility of terminating programs.
No decision, such as increasing premiums, should be announced now in a
way that would preclude consideration of subsidizing insurance programs
with capital contributions (appropriations) or grouping unsound pro-
grams with presently sound programs.
According to David DeWilde (Acting Commissioner) FHA is not prepared
to implement actuarially-sound premium rates. FHA's study of premiums,
as well as HUD's study of the unsubsidized insurance programs, will
not be completed until the end of the fiscal year.
Staffing
15,700
Budget Impact
1975
1976
(numbers of positions)
FTP
Other
Total
FTP
Other
Other
HUD Request
15,356
2,121
17,477
15,656
1,874
17,530
Presidential Allowance.
14,829
2,121
16,950
14,829
1,874
16,703
HUD Appeal
15,214
2,121
17,335
15,559
1,874
17,433
OMB Recommendation #1
14,829
2,221
17,050
15,287
1,974
17,261
OMB Recommendation #2
15,021
2,121
17,142
15,287
1,974
17,261
Presidential Allowarce: Set a FTP staffing ceiling of 14,829 in 1975 and 1976
reflecting CVAD estimates of HUD workload in 1976. The 1975 level was set at
14,829. even though workload estimates indicated a lower level for 1975, to pre-
vent a "sawtooth" effect in staffing levels.
HUD Appeal: On the basis of reestimates of workload and a new estimate for
processing claims for property defects not included in the original HUD request,
FTP levels of 15,214 and 15,559 are requested for 1975 and 1976 respectively.
HPMC-FHA Staffing
HUD has revised its estimate of mortgage insurance activity indicating
a reduction of 200 positions. from its original HPMC requests for 1975
and 1976.
HUD's current annualized rate of mortgage insurance activity will put
the Department closer to OMB estimates for the end of 1975 than HUD
estimates.
The original request, however, did not include staff estimates for
processing defects claims, a workload resulting from new authorizing
legislation. HUD estimates 110,000 defect claims in 1976. The HUD
estimate is for 200 FTP positions, offsetting the drop in mortgage
processing activity.
FORD LIBRARY
CVAD staff finds the defect claims workload estimate to be excessive.
The processing of defects claims will not be an ongoing activity.
The Administration strongly opposed the defects provision and accepted a
limited authorization as a compromise. Extensive staffing would encourage
maximum use of the provision.
OMB Staff Recommendation - We recommend accepting HUD's revised estimate
for mortgage insurance processing with the reduction of 200 FTP positions.
We do not recommend substituting the 200 FTP positions for defects claims
processing. We recommend 100 temporary positions for that activity in
1975 and 1976 because it will not be an ongoing activity.
CPD Staffing
HUD is appealing for its original 1976 request for Relocation, Environmental,
and Planning Management staffs which were cut by the Presidential allowance.
HUD argues the staff is necessary to properly implement the new block
grant program and the 701 planning program, even though categorical
activity is declining. HUD also identifies non-community development
responsibilities for the Relocation and Environmental staffs.
Using HUD estimates of workload and productivity the staffing requests
for CPD are justified.
However, the workload is based on maximum estimates of block grant
applications, which CVAD staff does not concur with. Also, HUD estimates
do not take into account reduced program levels for 701 planning in 1976.
Pending policy decisions on land use and planning assistance consolidation
could dictate changes in 701 staffing in the future.
OMB Staff Recommendation - On the basis of better information, we recom-
mend restoring 45 FTP positions cut by the Presidential allowance but not
the full 90 positions as proposed by HUD.
FHEO Staffing
HUD is appealing for its full 1976 request for FHEO staff.
HUD's claim is based on a workload estimate from current annualized
activity.
Information from the same period in 1974 would have overestimated actual
1974 activity by 25%.
HUD and CVAD staff can find no agreement on 1976 workload estimates for
FHEO activity.
OMB Staff Recommendation - We recommend 465 FTP positions for FHEO,
5 above the Presicential allowance, 27 below the HUD appeal.
HM and PDR Staffing
HUD did not make specific appeals of the Presidential allowances for
these two areas, which were below the original 1976 HUD requests.
Departmental Summary
CVAD staff analysis of the HUD appeal yields an FTP level of 14,829 and 2,221
other positions for a total of 17,050 in 1975. HUD FTP staffing is currently
very close to this 1975 level. This would be an addition of 100 temporary
positions over the Presidential allowance for 1975. Analysis of the appeal
yields 15,287 FTP and 1,974 other positions for a total of 17,261 in 1976.
This would be 458 FTP positions and 100 temporary positions above the Presi-
dential allowance. These are the staffing estimates resulting from CVAD
workload estimates.
These estimates would lead to a sawtooth effect in FTP levels for HUD,
however--15,021 on board at the end of 1974, a 14,829 ceiling in 1975, and
a 15,287 ceiling in 1976. This effect is bad for HUD staff morale and is
opposed by the Secretary. An alternative to eliminate this effect would
be to maintain an FTP ceiling of 15,021 in 1975 and eliminate the 100
temporary positions added. The result would be an FTP of 15,021 and 2,121
other positions for a total of 17,142 in 1975. This alternative level would
allow HUD to hire around 200 more FTP staff than is currently on board.
FORD
NO
Counseling Services
1974
1975
1976
Budget Impact
BA
0
BA
0
BA
0
Presidential Allowance
--
--
--
--
--
--
HUD Appeal
--
--
2
.5
2
2.5
OMB Recommendation
--
--
--
--
--
--
Presidential Allowance: Do not initiate a new Counseling program, but
continue an experimental counseling activity in the Research program.
HUD Appeal: Initiate a $2 million Counseling program in 1976.
HUD Arguments
The 1974 Housing Act mandates counseling services for Section 235
homebuyers.
A HUD evaluation study provides data which concludes that default and
delinquency counseling is cost-effective. HUD estimates that foreclosures
under the FHA Fund could be reduced by some $36.5 million in the long term.
Increasing defaults in the Section 235 program, because of current economic
conditions, may cause congressional pressure for this program to grow.
OMB Comments
A description of the proposed Counseling program has never been provided
to OMB.
Counseling services required to meet the congressional mandate can be met
within the Experimental Research Program.
The same HUD evaluation study cited by the Secretary indicates that
counseling is not cost-effective from the Treasury's standpoint if
authority is not rolled over (Note: Authority to use recaptured
authority will lapse during the second month of FY 1976.).
In any event, the evaluation study does not provide reliable evidence
of counseling's efficacy; in fact, the study itself states that the
conclusions "should be viewed with caution."
-- Although the findings are statistically significant at the 90% level
of confidence, the sample included only four cities and, thus, was
not representative of a national universe;
-- Moreover, in two of the four cities, no positive benefits resulting
from counseling could be found;
-- The study measured only the kind of counseling provided in those
four cities for a short span of time;
2
-- Persons who refused counseling, or could not be reached, were
more successful in overcoming defaults than those counseled
(in other words, the study may tell us more about the referral
process than it does about counseling itself).
For the very reasons cited by the Secretary, the Congress is likely to
increase any Administration budget request for Counseling.
Initiation of a HUD-funded identifiable Counseling program (regardless
of whether or not it is a new categorical or part of "235") will make
a new group of agencies dependent upon Federal money. Weaning them
will be as successful as it has been in 701, Public Housing, and social
services.
OMB Recommendation: OMB staff believes that the findings of the evaluation
study can only be applied to those cities (in fact, only two of the four
cities) included in that study. HUD recognizes the weaknesses of that
effort and has initiated an extended study to improve the reliability of
the data. Even if this study had been conclusive, history would argue
against the initiation of a new program to meet a very limited, short-term
need. Once started, Federal programs tend to grow and be maintained long
after the original purpose has been met. We recommend that HUD design the
Experiemental Counseling Program in a fashion that fulfills the congressional
mandate.
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DEPARTMENT
of
-
THE SECRETARY OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, D. 20410
DEC 11 1974
The President
The White House
Washington, D.C. 20500
Dear Mr. President:
Consistent with the direction you have given on a number of occasions,
and in Ing with 0.00 role DE meticing in the events leading
to our recent Conference 01 Infletion, this Copartment's 1970 budget
request Was developed with one overriding constraint in mind: that
outlays and staffing must be and will be held to an absolute minimum.
To a great extent the passage of the Housing and Community Development
Act of 1974 and certain other steps that are being taken to revitalize
the nation's badly depressed housing industry create strong pressures
that tend to move us in the opposite direction. Nevertheless, in my
judgment wewwere largely successful in striking a sound balance between
program stability and political viability on one hand, and budgetary
restraint on the other.
We have now been advised by representatives from the Office of Management
and Budget of the outcome of their discussions with you relative to our
budget request. Because I believe so strongly in the importance of our
mutual goal of controlling federal expenditures, I will not appeal the
largest and perhaps the most sensitive cut made in this budget - a further
reduction of $150 million in our $2.7 billion request for community
development block grants in fiscal year 1976. As you know, the legislation
you signed in August authorized a funding level of $3.0 billion for the
second year. As you also know, our communities and states are having
their own severe budget problems. However, I believe the Administration
can handle the predictable adverse Congressional reaction on the grounds
of fiscal responsibility. In short, there is a significant benefit that
makes this battle worthwhile.
On the other hand, a number of issues remain that are relatively
insignificant in terms of our 1976 budget request--$21 million in total
above the now Fions--hut extremely significant from a programatic
also
FORD LIBRARY : QERALD
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2
OMB runs an unacceptably high risk of provoking Congressional action
which will mondate much higher program levels then would otherwise have
been acceptable, thereby turning a relatively minor item into a major
budgetary problem. Thus I have no choice but to appeal such items
directly to you.
The individual items are described in more detail in the attachments to
this letter.
Respectfully,
Change T. Lyrn
A. Staffing
B. New Communities Guarantees
C. Research and Technology
D. Community Development Loan Guarantees
E. Comprehensive Planning Grants (Section 701)
F. Counseling Services
G. Actuarial Soundness of FHA Mortgage Insurance Programs
TONO . LIBRARY
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Statting
OMB Proposal
OMB has recomended a CUL in stailing in both 1975 and 1976:
OMB Reduction In
Budget
Budget
Subtricasion
ONE Reduction
Authority
Outlays
(Dollars in Millions)
1975
15,356
-527
...
$ -1.9
1976
15,656
-827
$-2.7
- 12.2
Department Appeal
The OMB reduction VIIII licensed, primarily, on ONS re-estimates of the Depart-
1. FHA Appll artims. staff numbers are based substantially upon
workload resulting from the receipt of PHA insurance applications.
From a peak of over 1,490,000 applications in 1971, the volume of
work declined substantially. 100 has attempted to adjust its overall
staff levels to reflect this declining volume. In fact, in the
current budget submission along, a further cut of 425 positions WHS
made from the FY75 level submitted to Congress. Reductions below this
level will give further support to those who argue that FHA is being
undermined and ought to be made a separate agency outside of HUD.
The data on unit application receipts follow:
1975
1976
OMB Re-estimate
550,000
800,000
Current HUD estimate
640,000 1
833,000 1
1. Exclusive of property deficiency claims.
The levels estimated by the OMB were developed based upon activity in
July and August prior to the increase in FHA mortgage amounts effective
August 22, 1974. Those data are clearly out of date. The current
annualized rate of activity is only slightly below the current estimate
of full year activity for 1975, verifying HUD's 1975 estimate. HUD's
current 1976 estimate is based on a conservative economic analysis of
likely activity.
Although 1109's current entimate of FHA applications is lower than the
ortginet a staffing reduction of shout 200
the
processim
This
will
registro
estimate
in
FORD ALBRATA
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-?-
2. Equal organizamity. Statting in this area is based on the mumbers of
complaines processed and reviews: initiated. ONB does not dispate
the 1810 sorkland Factor per complaint and review. The data follow:
Current
ONB
FLUD
Re-Entimate
Estimate
Complaints:
Expensive Order 11246
150
235
Title VLIT
2,872
3,835
Title VI
250
500
Total Complaints
3,272
4,570
AFFT valor Evins
NA
300
Brown Children's INSURANCE He amountant FACH of
BED - 0.00 for 1976 vontil
us below the current the
iner 0722 1,000 mie projected by UUD for 1976 1. have:
upon bistorical treads.
ONB aid not indicate vin Invel of affirmative marketing reviews they
felt has proper--only that the estimated level--a 140 percent increase
over 1974-vas too high. The reviews, however, would cover, on a spot-
check basis, less than 10 percent of approved plans-a minimal level of
enforcement in fair housing.
3. Community Planning and Development. The issue revolves around workload
in three areas--eavironmental reviews, planning and management, and
relocation. OMB, while not presenting their re-estimates, questions
the need for continuing the current staffing levels.
1974
1975
1976
Environment
Special clearances and environmental impact
statements (FIS)
2,670
3,082
2,702
Abbreviated application reviews under new
Block Grant program
3,200
3,450
Granters assisted and programs monitored
under new Block Grant program.
375
1,000
Total Workload
2,670
6,657
7,152
FORD
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-1-
Planning
Number at applications, programs monitored,
and programs expleted
2,314
2,460
2,546
Relax
Roview actions
1,000
3,500
3,450
Cities monitored
1,623
1,373
2,648
It is estential that the administration of the new Block Grant program
be carried out properly or it will lose support. The above figures
show that worklon! will increase substantially in the areas cited by
ONB. This 1n 002 of the factors that Ted to our appoal last
Sepsent for an higher level than that currently set Forth in
⑉⑉ - To evdnes the Level would meriously
CEN : - and the alp the confiden
'''
HIV
- LIBRAR
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Attachment. N
New Commenities Process
Proposal
The budget would expressly provide that approval of additional new
comunity guarantee commitments is being suspended during 1976.
Budget Impact
The Tevels of guarantee commitments under consideration are:
1010
Range ⑉
(61)
Currer
1976
1975
1976
Preir
(Dothers in
New Guarantee Commitments:
Authorized number
1
2
0-1
...
...
Amount
$32.0
...
$85.0
...
$0-$50.6
Amended Commitsion
$11.0
$32.0
$20.0
$20.0
$20.0
Outlays
*
*
*
*
*
*There are no direct budget outlay impacts from the guarantee commitments.
Future outlay inpacts are difficult to estimate. Although the rules
provide that the guarantee is to be covered 1 110% in asset value, it is
impossible to know what potential losses WOL
=.
Department Appeal
1. There will be significant legal pro'
.' in addition to moral
ones, in suspending the program when applicat nave invested significant
sund--ranging from $500,000 to $1,000,000 in planning costs, exclusive of
land assembly costs--in expectation of participation in the HUD program
and in reliance on HUD's preliminary reviews and approvals. We believe that
the Federal government could avoid the potential charges of renaging or bad
faith by preserving the possibility for up to two new approvals in the
budget.
2. The action would probably be construed as a "suspension"--and
the forerumer of termination. Such action would severely hinder current
netions of the Department to negotiate with owners, devélopers and financial
institutions to provide additional financial assistance to projects having
SPRETY Circussial difficult 1.00 Banks and notential investors would believe
FORD is LIBRARY 078870
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2
at world nationally the
tirmetal risk of thes with espect to 8337 million.
3. Over the past eighteen months 07 eve Clr Department has
taken action to subject applications to TO and rigorous
criteria. The six projects renaining in the application pipeline
receim after at major purying of the pipeline during 1974. These
remaining projects will be subjected to is continuing rigorous review
and refinement process to insure financial viability, managment
capability and potential to achieve the ptatubery and regulatory
objectives. As n result of 1143 Lightenter received no Cull
the Int 17 MPI 11 Birty B chat PHY
in
4. h total rather than pet internative tightening with
concurred reductions in activity, is MODE likely ED generate mandating
since such important nechers of Congress as Reps. Horton, Conable, Mahon
and Ashley and Senz. Mmphrey, Talt, and McClellon consider this
program to be a buy part of LUD activity.
FORD
&
GERALD
LIBRARY
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Research and Technology
COM Propiem]
The OMB proposed a 1976 program level of $05 million as opposed to the
Department's request of $75 million. A deferral notice proposing to
defer $8 million of the 1975 appropriation to 1976 has also recently
been submitted to the Congress.
Budget Impact
Dept.
Actual
Entimate
Request
ONB
1974
1975
1976
Mark
Appeal
(Dat) in Thone
Program level
$60,769
$57,507 of
$75,000
$65,000
$75,000
Budget authority.
65,000
65,000
75,000
57,000
67,000 b/
Outlays
58,382
56,000
71,000
58,000
66,000
a/
Originally budgeted at $65,507 prior to the recent decision to
defer $8 million.
b/ Assumes approval of $8 million deferred from 1975.
Department Appeal
1. The Secretary wishes to do research on:
--Mortgage credit and understanding basic housing production and
financing.
-Non-financial assistance for consumers in the housing market.
-Improve management of communities.
OMB has requested research, also, on:
Operating subsidies for local housing authorities.
--A review of mortgage insurance activities.
The Congress has directed that research be carried out in:
Lead been
Best Possible Scan from Poor Quality Original
2
In addition, the Congress has mandated establishment of the
National Institute of Building Science (NIDS) and a solar
energy research program. To avoid a supplemental appropriation,
it may be possible in 1976 to use a relatively small amount of
research funds to initiate these activities and still comply
with the Congressional munites.
2. About $48.5 million would be needed in 1976 just to continue
ongoing research programs and carry out the Congressionally
mandated research.
The ONE world Leave $16.5 million to carry out
the other research General J alove. The Consens has
never allowed the luil only L request. and choco is Du reason to
believe that it will 110. mgata cut the estimate by $5 million LO
$10 million. Such 2 reduction from the ONB figure would further
leave only S5-$10 million for all new Items in point 1 above.
3. We have been advised that other agencies with comparable social
research programs did not sustain cutbacks as severe as that
recommended for HUD. CMB should justify this disproportionate
treatment on the basis of cost effectiveness.
FORD
BIT
GLRA
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Community Development Loan Guarantees
The Proposal
The legislation authorizing the new Community Development block grant program
includes a provision authorizing loan guarantees for land acquisition.
ONB has proposed that the Fiscal Year 1976 Budget reflect an administrative
suspension of this provision.
Budget Impact
There are no budget savings resulting from an administrative suspension of the
loan guarantee provision.
Department Position
1. Tradicionally, the orlinn renowal program allowed comunities to
borron to Finance Land acquisition under their projects, such borrowings
to be repaid through proceds from Inne sales and Federal grants.
2. In the shift from the categorical urban renewal program to the new
block grant program, legislative support by the U.S. Conference of
Mayors/Rational League of Cities was conditioned upon retention of
some direct loan or loan guarantee program.
3. HUD, with OMB's knowledge and consent, negotiated the loan provision
in the new legislation with a specially designated representative of
the Conference/League. These negotiations achieved a loan provision
which minimizes budget outlays because ---
-- it is a guarantee program, not a direct loan program.
-- it is likely to be little used because --
local credit must be pledged.
Federal appropriations (block grants) must be available, and
are made only on an annual basis.
project financing activity must be carried out by the community,
not through HUD as has been the case in the past.
the Rep. Gonzales provision, prohibiting benefits to private
developers, has the practical effect of nullifying the
operability of the provision.
11
Tisal
word
and
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Attachment E
Comprehensive Planning Crants (Section 701)
ONB Proposal
ONB proposes a program level of $50 million for each of Fiscal years 1975
and 1976. The 1976 level would be funded utilizing carryover 1975 funds
of $50 million from amounts deferred during the current fiscal year. A
deferral message for 1975 has been submitted to the Congress.
Budget Impact
Dept.
1974
1975
Request
OMB
Actual
Estimate
1976
Mark
Appeal
(Dollars
in Millions)
Program level
$75.0
$50.00
$150.0
$50.0
Open
Budget authority
75.0
100.0
150.0
...
Open
Outlays
101.3
110.0*
115.0
60.0
Open
*Represents revised program level and outlay estimates based on proposed
deferral of $50 million of FY 1975 budget authority.
GERALO B. FORD LIBRARY
Department Appeal
The Department recommends that the 1976 program level remain open pending
decisions on Federal land use policy and the consolidation of Federal planning
assistance programs.
1. We expect a decision to be made prior to the State of the Union Message
and the submission of the Budget to the Congress on either land use
policy, planning program consolidations, or both. Since the 701 pro-
gram can take in land use planning or provide the core for a consol-
idation, the budget amount should be left open until the policy decisions
are made.
2. The Administration has argued that the Section 701 comprehensive
planning program would be in addition to the benefits provided
under the Community Development Block Grant program of the new 1974
Act. Indeed, the Administration has indicated that 701 funds could
be used to prepare applicants for the new Community Development Block
Grant program. To show a reduced program level now would open the
Administration-and validly so-to the argument that what ve nive
with the right hami, 10 take away with the 10ft hundred company
criticion with respect to general revenue charing."
a. The reduction would require cut-backs in planning activities of
grantees covering the the tispince
Federal base clossings, state and Toead plassing too energy consectution,
and Improved state and local government
Best Possible Scan from Poor Quality Original
Attachment 11
Counteling Services
ONB Proposal
The appropriation to fund default and delinquency counseling services to
homeowners subsidized under the Section 235 Homeownership Assistance Program
would not be allowed.
Budget Innact
Actual Estimate Request OMB
1974
1975
1976
Mark
Appeal
(Dollars in Millions)
Program level and
The Department's request
bioligat authority..
. . .
...
$2.0
...
$2.0 would represent potentic
long term cost savings
Octlay
$1.5
$.4
.5
...
.5 of $36.5 million.
Department Anneal
The Department proposes to implement a small $2 million program in 1976 pursuant
Lo the HDD Act of 1968 as amended by 1974 legislation which mandates counseling
in the Section 235 program.
The benefits of such a program would be:
R.FORD
--A potential cost savings of some $36.5 million, on the basis of a HUD cost-
effectiveness study, since foreclosures under the FHA insurance fund would
SERALD
be reduced.
--A counseling program would serve to reduce or eliminate Congressional
criticism for not having a program - the lack of counseling, it is charged,
was one of reasons for the failure of the subsidized housing programs.
OMB proposes that the program not be implemented because:
-Information currently available on the effectiveness of counseling is
inadequate to justify a new categorical program.
--As no new commitments are being made under Section 235, some alternative
means of providing counseling must be developed.
Apart From the problem that ve have not been informed what information is
inadequate, the Department questions 038's assumptions and réasons becauset
THE Name is - Monably reliable to show the cost
of - commeting.
suggested to offs, buts,
from
to
235
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-2-
3. The counseling program deals directly with losses due to foreclosures
and payments, which otherwise are uncontrollable. OMB in ignoring its
own admonitions to Departments to take steps to deal with the mounting
level of uncontrollable outlays.
4. Moreover, Congressional pressure will grow for this program in view
of increasing defaults because of current economic conditions.
FORD is LIBRARY 038870
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S
Actuard 117 Sound Martange Insurance Programs
OMB Proposal
OMB apparently proposes that the FY 1976 budget reflect a decision that all
FHA mortgage insurance progress will he carried out on an actuarially sound
basis and that premiums will be adjusted accordingly.
Budget Impact
There would be no impact on budget outlays in FY 1975 and only a relatively
minor impact in by 1976.
Department Angeal
1. The Department is nerively pursuing studies to ancertain the potential
soundness of an actuarial rate structure on each program in the four
FUA fundo. No anticipate that the results of these studies would be
available by the end of the fiscal year. It is highly premature to
Insist that such structure he implemented at once and reflected in the
1976 budget.
2. We do not know fully what OMB has in mind. We do know that all the
complex issues that would be involved in such a decision have not been
assessed as of this point in time. For example, it is quite possible
that legislation would be required in some cases since the premium rates
could exceed existing statutory limitations.
3. Such an announcement should be made outside of the context of the
Federal budget, and then only after it has been carefully reviewed with
interested parties in the private sector as well as in Congress.
THE WHITE HOUSE
WASHINGTON
MEMORANDUM FOR: THE PRESIDENT
FROM:
ROY L. ASH
SUBJECT:
EPA Appeals of 1976 Presidential Budget
Decisions
The Environmental Protection Agency has appealed five
Presidential decisions on the 1976 Budget. Administrator Train's
letter is attached at Tab A. The five issues for your
consideration are summarized below.
I. State Control Agency Grants
These grants partially fund the administrative expenses
of State pollution control agencies. The initial
Presidential decision was to maintain a level of $91 million
for grants to State agencies for both 1975 and 1976.
(This would be accomplished by deferring the FY 1975
Congressional increase of $10 million, and providing
$81 million in new budget authority in FY 1976.)
GERALD FORD LIBRARY
EPA requests $109 million for FY 1976, an increase of
$18 million from the FY 1975 President's Budget level of
$91 million, and $8 million over the anticipated 1975
appropriation of $101 million. EPA wants to increase
the program because it believes the grants will induce
States to assume or continue to perform tasks under laws
that EPA would otherwise have to perform. There is strong
constituent and Congressional support for EPA's position.
The FY 1975 budget decision included a publicly announced
plan to begin phasing out the grants in FY 1976 in
furtherance of New Federalism principles. Our position
has been that direct payments by a Federal agency to its
counterparts at the State and local levels bypasses elected
officials with the consequence that non-Federal employees
become more responsive to the policy control of the
Federal Government than they do to the policy control of
State and local governments. Your $300 billion 1975 budget
plan proposes to defer the $10 million Congressional
addition for control agency grants. The Presidential
3
nearly $2 billion already appropriated for this
purpose is sufficient. Funds for reimbursement,
as opposed to construction grant allotments,
will not provide for new facilities, or contribute
to improvement of water quality. On the other
hand, if Congress should add funds to the budget
OMB would not object.
Agency Recommendation: $700 million
OMB Recommendation:
$0 (Reaffirm initial Presidential
decision)
III. Areawide Waste Treatment Planning Grants
These grants provide 100 percent Federal funding for
regional waste management plans. The initial Presidential
decision was to provide $15 million for this program with
50-50 cost sharing. EPA requests $75 million with
retention of 100 percent Federal funding. EPA claims
that $75 million is necessary to provide funds for
critical areas, and that 100 percent Federal funding
is necessary to induce localities to undertake this
planning. $150 million has already been provided for
this program which should be sufficient to fund high
priority areas if properly allocated. The benefits
of this program are questionable, especially if
localities are unwilling to provide any matching funds.
Agency Recommendation: $75 million (100 percent Federal
funding)
OMB Recommendation: $15 million (50-50 cost sharing)
(Reaffirm initial Presidential decision)
IV. Land Use
EPA has indicated that many of its programs have direct
implications on land-use. Therefore, the agency feels
that it is imperative that EPA establish a small staff
office within the Office of the Administrator to
coordinate the agency's policies and activities impacting
on land use.
4
The Administration's position has been that, pending
the establishment of a national land use policy, a
visible Office of Land Use may conflict with the
Administration's final position and could affect
the ultimate outcome of proposed legislation.
Specifically, the creation of the office could be
perceived by the Congress, and the public, as an
Administration policy of designating EPA as the
agency with primary responsibility for land-use.
This, in turn, might provide EPA with additional
support to impress the Congress and the public with
a need to regulate land on the basis of environmental
criteria.
Agency Recommendation: Create the Office of Land Use
OMB Recommendation:
The Administrator of EPA should be
permitted to hire the one individual
currently under consideration.
However, no additional staff should
be permitted and no separate,
identifiable Office of Land Use
should be established.
V.
Water Supply
Administrator Train is seeking commitment for a FY 1975
Supplemental Request and a FY 1976 Budget Amendment
for implementation of the new Safe Drinking Water Act.
In discussions with Mr. Train, I have emphasized that a
FY 1975 Supplemental is unnecessary, as full implementation
of the law will take place over a period of several years.
An allowance has been made of 30 positions and $2 million
in the FY 1976 budget in addition to the present program
of 173 positions and $8.2 million.
Agency Recommendation: Commitment for a FY 1975 Supplemental
Request
OMB Recommendation: Make no commitment; present resources
are sufficient
UNITED
STATES
AGENCY
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
PROTECTION
WASHINGTON, D.C. 20460
DEC18 1974
THE ADMINISTRATOR
Dear Mr. President:
At the forthcoming meeting with you on our FY 1976 budget, I would
like to discuss the following five items:
1. State Pollution Control Agency Grants:
State and local agencies bear a major and increasing
responsibility for meeting Federally mandated requirements
in the air and water pollution control and abatement programs.
Recognizing that these are Federal responsibilities, States
are unwilling to assume them unless a substantial portion of
the cost is defrayed by the Federal Government. If not assumed
at the State and local level, the responsibilities by law must
be assumed by EPA, in which case the resource requirements of
EPA would increase dramatically.
It is my firm conviction that if we are to obtain a
standing commitment by the States to assume these Federal
responsibilities, the Administration must make an expressed
commitment not to phase-out the program. Secondly, I believe
an increase of $18 million in financial support of these
agencies is needed. This is only 50% of the increase we
believe is fully justified based on workload. Further, it
would represent only a very modest increase in budget
authority over that provided by the Congress in FY 1975,
rather than a decrease of about $10 million now proposed.
While a small increment, it would signal the Administration's
support of State efforts and the desire for a productive
Federal-State relationship in achieving key environmental
goals.
2. Construction Grants:
I believe that the proposal I made for a 5-year $25 billion
waste treatment grant program is realistic and consistent with
what Congress is likely to enact. If $4 billion is made avail-
able for FY 1976 only, I believe that program reforms stand
little chance for enactment since Congress will want to deal
2
with both a financing program as well as programmatic changes.
Even if program reforms are transmitted this year, I cannot
agree with the recommendations made by OMB. We are working
closely with the Congressional Committees, State and local
governments and other groups to develop program reforms that
would reduce the total Federal commitment with minimal dis-
ruption. I believe this process can lead to a sensible waste
treatment program whether it is submitted this year or next.
Although the recommendation to suspend funding of
further reimbursables would not adversely impact EPA's
program, communities across the country have been led to
believe these funds would be made available soon. It is
important that we discuss this action in terms of its impact
on State and local governments.
3. Area-wide Waste Treatment Management Planning Grants:
These grants to local agencies are a means of evaluating
all sources of water pollution in a given area and developing
a cost-effective plan for dealing with the total pollution
problem. This program represents the only meaningful tool
at our disposal to control non-point sources (e.g. sediment,
pesticide run-off). Our currently authorized funds have
allowed us to make grants to only about one-third of all
areas requiring this type of planning effort, and only four-
teen of the 25 largest cities. For FY 1975, the budget
provides for a program of $120 million. I propose $75
million be allowed for this program in FY 1976 to provide
support to an additional 66 areas, including 5 more large
cities.
4. Land Use:
I have announced the creation of a small staff office
to coordinate Agency policy. and plans for those EPA activities
impacting on land use. Since many of our programs have direct
implications for land use, it is imperative that I be in a
position to deal with this issue in an integrated, unified
manner. We are not requesting additional funds or positions
for this purpose.
5. Water Supply:
I am most pleased with your signing of the water supply
bill As you know, there is 3 great deal of interest in this
legislation and its implementation. At the present time,
3
EPA has but token resources available for undertaking this
new responsibility and I anticipate the immediate need for
substantial increases to permit adequate follow-through at
both the Federal and State levels. We will shortly trans-
mit a specific request to OMB, but I want to bring the matter
to your attention at this time.
I look forward to meeting with you to discuss the above items in
greater detail.
Respectfully,
Russell E. Train
The President
The White House
Washington, D. C. 20500
TALKING POINTS FOR A MEETING WITH
ADMINISTRATOR TRAIN ON THE FY 1976 EPA BUDGET
1. Control Agency Grants
FY 1976 level is $91.5 million ($10 million to
be deferred into FY 1976 from FY 1975
Congressional increase; $81.5 million new budget
authority in FY 1976).
The agency wants to increase this by $36 million.
In FY 1975 allowance letter, OMB stated these
grants were to begin to be phased-out in FY 1976.
The agency states that if these grants are
reduced, EPA will not be able to induce State
governments to accept increased delegation of
administrative tasks.
OMB Position: Program grants represent a
mechanism to funnel funds from a Federal agency
to its counterpart at the local level, bypassing
elected officials. If program grants are
reduced, some tasks will not be performed. The
likelihood of a Federal takeover of local and
State functions is minimal.
2.
Construction Grants
A. Allotment Level
$4 billion is planned for allotment in FY 1976.
$2, $3, and $4 billion was allotted in fiscal
years 1973, 1974, and 1975 respectively.
The agency wants the FY 1976 allotment increased
from $4 billion to $5 billion arguing that we
need a $5 billion program as a "sweetener" for
legislative program reforms.
OMB Position: $1 billion more in FY 1976
allotment is not the determing factor in getting
program reform legislation through the Congress,
and probably more than the agency and the
pollution abatement construction industry can
hand's efficiently in any event.
2
B.
Reimbursable Payments
$1.9 billion has been appropriated for
reimbursements; this amount would have been
sufficient to cover executive branch commitments;
however, Congress changed the allocation
formula creating new requirements.
EPA is requesting an additional $700 million to
provide payments under the new allocation
system.
OMB Position:
-- With total payments of $1.9 billion, States
and municipalities will not be adversely
impacted.
-- Reimbursement payments do not result in
new construction activity, nor do they
contribute to improvements in water
quality.
-- If Congress should add additional
appropriations for reimbursements, the
Administration would not object.
3. Planning Grants (Section 208 Water Act)
The Act authorizes grants to local and State
agencies for the purpose of preparing
comprehensive plans for the treatment of
wastewater generated in contiguous political
jurisdictions.
In FY 1975, the Act provided $150 million in
contract authority for the development of
areawide plans. This amount is in addition
to the planning funds provided through the
construction grant program.
Unlike the contract authority provided for
sewage treatment plants, we had no legal
basis for withholding these funds. Consequently,
planned obligations in FY 1975 are $120 million
with a Federal share of 100 percent, which
reduces to 75 percent in ГУ 1976.
3
The agency wants an additional $75 million in
FY 1976, with retention of 100 percent Federal
funding.
OMB Position:
-- Nearly $150 million will have been obligated
in fiscal years 1974 and 1975 with 100 percent
Federal funding. The most critical areas
would be funded if priority system were adopted.
-- EPA already funds wastewater treatment planning
with construction grants, and funds statewide
non-point source planning through control agency
grants.
-- A major thrust of these plans is in land-use
planning. The Administration has not yet
decided on agency roles in land-use planning.
-- Recommend $15 million at 50-50 cost sharing to
fund any remaining critical areas.
5.
Safe Drinking Water
$2 million and 30 positions have been added to
the FY 1976 budget request to meet the requirements
generated by the new law.
The above increase is in addition to EPA base
program of 173 positions and $8.2 million.
The agency has stated that it needs a supplemental
in FY 1975 and will probably press for a firm
commitment to send a supplemental after they have
reviewed their resource requirements.
OMB Position:
-- No commitment should be made to send supplemental.
-- A strong signal should be given that this is
not the year for supplementals, particularly
for bills with which we had problems.
EPA should also be told that we aren't interested
11: financing Federal enforcement efforts without
L first giving local governments time to act.
274839 FORD
4
4. Land-Use
Previous to EPA's FY 1976 budget submission,
Administrator Train announced that he was
establishing a land-use policy office in his
immediate office.
OMB passback stated that he could hire the one
person he was planning to make the head of the
office, but (1) he was not to expand the staff
and (2) he was not to set up a separate office
pending an Administration position on agency
roles in land-use planning.
Administrator Train believes he needs one central
office to coordinate various EPA programs and that
OMB is meddling at too low a level.
OMB Position: Hire one person if there is an
outstanding commitment to do so. Do not set
up a land-use office.
THE WHITE HOUSE
WASHINGTON
MEMORANDUM FOR THE PRESIDENT
FROM: Roy L. Ash
SUBJECT: NASA's Appeal of FY 1976 Budget Decision to Defer
the ERTS-C Satellite
Dr. Fletcher has requested that you reconsider your decision
to defer for at least a year the initiation of a third Earth
Resources Applications satellite (ERTS-C). The satellite
was authorized in the FY 1975 budget at the initiative of
Congress, but no funds were specifically appropriated for
the project. Were ERTS-C to be approved in the FY 1976
budget, NASA would absorb the $14 million in BA and $11
million in outlays for ERTS-C within its current 1976
allowance. Future year funding of about $40 million--over
the next two years--would be required to complete the
satellite.
The initial decision not to include funds for ERTS-C in the
FY 1976 budget was based principally on the view:
- that a convincing case had not been made by NASA to support
the need for continuity of data in an experimental earth
resources survey program.
- that by accepting ERTS-C in the FY 1976 budget, we would
be recognizing de facto the need for data continuity and
therefore set the stage for additional larger and more
expensive ($150 million) follow-on satellites in FY 1977
and subsequent years.
Deferring ERTS-C would also provide additional time to better
clarify some complex issues related to the appropriateness
of the technology being developed by NASA and the needs of
potential users of ERTS-type data for both experimental and
operational applications. Thus, the major OMB policy concern
is to prevent a premature commitment by the United States
to the establishment of an operational satellite system for
remote-sensing of earth resources data.
NASA's appeal: Dr. Fletcher's attached letter argues that
the effect of not including funds for ERTS-C in the FY 1976
FORD is LIBRARY DERALD
2
budget would be to cancel a project approved by the Congress
in the FY 1975 budget. (This point is open to interpretation
as discussed below--no funds were specifically appropriated
for ERTS-C nor have any funds yet been spent to begin work
on the satellite.) He also argues that without ERTS-C, "both
experimental and beneficial uses of earth resources satellites
would be halted indefinitely after 1977" (OMB also takes
issue with this position).
Dr. Fletcher's letter then goes on to argue that:
- ERTS-C should be initiated now because he believes that
the economic potential of the ERTS program is very large
(particularly in relation to agriculture);
- the technology will be an important international asset
for the U.S.;
- congressional support is very strong for the program; and
- continuity of satellite data is considered essential to
establish the potential value of remote-sensing technology.
He also makes the point that a commitment to go ahead with
ERTS-C would not necessarily commit the Administration to
making a decision next year on whether to commit to a future
operational system. (We agree but have other concerns--see below)
Analysis: We cannot accept Dr. Fletcher's argument that not
including ERTS-C in the FY 1976 budget would have the effect
of terminating NASA's experimental development of earth
resources technology.
It is perhaps a semantic distinction whether we would be
"cancelling" or "deferring" ERTS-C by not initiating work
on the satellite now.
- There is no ambiguity about congressional intent that
the satellite should be initiated as soon as possible
(in FY 1975).
- There is ground for legal interpretation as to whether
funds were actually appropriated for ERTS-C in FY 1975,
and whether a decision not to go ahead would require a
rescission action (OMB counsel has indicated that no
funds have actually been appropriated for ERTS-C).
Dr. Fletcher's statement that without ERTS-C work would be
"halted indefinitely" after 1977 is quite misleading in
our view:
QERALD R.FORD LIBRARY
3
- NASA has a large on-going program (about $50 million
per year) related to the development of remote-sensing
technology and the ground-based activities required to
translate satellite data into useful information.
- These activities will be continued even without ERTS-C
(and they are considered the most critical developmental
aspect of remote-sensing technology).
- Nearly four years of satellite data from the first two
ERTS satellites is expected to be available for analysis
by 1977.
Although NASA has recently developed some large estimates of
potential dollar benefits to be gained from a future operational
ERTS-type system, NASA's economic analyses have not been
critically reviewed nor have the basic technological demon-
strations of satellite capabilities yet been completed. The
international benefits claimed may also be promising, but
again these capabilities have not yet been demonstrated.
Furthermore, it should be emphasized that all of these
potential benefits are related to a postulated operational
system, and in the context of this longer term issue, it
is important that other technologies than ERTS should also
be considered.
With respect to the large potential benefits to agriculture
now claimed for ERTS-type satellite, the Department of
Agriculture has demurred on what the dollar value of such
benefits might actually be, but Agriculture has strongly
supported NASA's proposal to conduct a joint experimental
test of ERTS capabilities for agricultural forecasting on
a world-wide basis. In this latter connection, the Department
of Agriculture has taken the position that ERTS-C will be
required in 1977 for the completion of the Large Area Crop
Inventory Experiment (LACIE). Despite the position taken
by Agriculture on this requirement, OMB is not convinced that
a strong case has been made to support the launch of ERTS-C
in 1977 in order to complete the crop-forecasting experiment.
Congressional support, particularly in NASA's authorizing
committees, appears to be strongly favorable to ERTS and
may in fact be sufficient to push the Administration to move
faster in developing ERTS technology, than we believe is
desirable.
FORD LIBRARY
On the need for data continuity and the implications for
future years of approving ERTS-C now, we continue to disagree
with NASA's position. We do not believe that NASA has made
a convincing case that a continuous stream of satellite data
is necessary to prove the experimental capabilities of ERTS
technology; or that major harm to the program would result
4
from deferring a decision on ERTS-C until the FY 1977 budget.
We are concerned, moreover, that by committing to an ERTS-C
now we might be establishing a precedent which would have
the effect of backing us into a de facto operational ERTS
system.
Recommendation: On balance, we believe that deferral of
ERTS-C is the appropriate action in FY 1976 and that the
Administration should continue to resist congressional
pressures which could result in a premature commitment to
an operational earth resources satellite system.
Attachment
AND
DEPARTICS
SPACE
17 11
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
NATIONAL
ADMINISTRATION
WASHINGTON, D.C. 20546
U.S.A
December 5, 1974
OFFICE OF THE ADMINISTRATOR
The President
The White House
Washington, D.C. 20500
Dear Mr. President:
RL
I respectfully urge you to reconsider the policy decision
reported to us by OMB to cancel NASA's Earth Resources Survey
Satellite (ERTS-C) which was authorized in the FY 1975 legis-
lation.
ERTS-C is NASA's next step for continuing technical development
and experimental uses of earth resources satellites. Without
ERTS-C, both experimental and beneficial uses of earth resources
satellites would be halted indefinitely after 1977, the end of
the expected useful life of ERTS-B.
In your reconsideration of this matter, the following points
are basic:
1. Benefits. The experimental earth resources survey
program holds the greatest promise of any of the many applica-
tions of space for direct, major, near-term, economic, and
political returns to the U.S. from our R&D investments in space.
Measurable benefits to the U.S. economy alone have been estimated
to range in the hundreds of millions of dollars per year from
the aggressive exploitation of this technology. These benefits
stem directly from the better management of the nation's agri-
cultural, rangeland, water, and other terrestrial resources that
is made possible by the improved information flow that only space
systems can provide technically or economically.
2. International. The ERTS program is creating and main-
taining significant international political values for the U.S.
We are able to take a leadership role in providing "self help"
benefits to the rest of the world. The developing foreign user
communities that rely upon a healthy U.S. earth resources program
2
can also provide valuable leverage in support of U.S. foreign
policy. Without the continuity of ERTS-C, these relationships
would erode and could be exploited by others.
Four foreign nations have already invested in ERTS data acquisition
stations to permit their direct use of ERTS data; two others have
indicated they are about to do so very soon; seven others in Asia,
Africa, and Europe are likely to do so if ERTS-C is authorized.
Each such ground station represents a potential of $5 million or
more for U.S. industrial sales overseas, as well as a source of
user charges the U.S. will collect for access to the satellite
data.
At the recent Rome Food Conference, Secretary Kissinger announced
the experimental interagency program to improve global crop
estimates that will begin next January with ERTS-B. If this is
as successful as we expect, ERTS-C will allow the U.S. to provide
accurate baseline crop information for the world on a continuing
basis--a visible, positive contribution to the world-wide food
problem.
3. Continuity. These economic and political benefits from
an earth resources survey program can come about only if satellite
data are available without significant interruption. Some
immediate benefits are achieved by direct use of data from ex-
perimental satellites like ERTS-C. The greater future benefits
depend on enabling those who make the critical natural resource
decisions to gain experience with, and confidence in, this new
source of management information. The experimental program must
have continuity to provide the users of information with the
assurance of its long-term availability to warrant their invest-
ment in learning how best to employ these unique space capa-
bilities. Without the continuity provided by an ERTS-C, at best
there will be a two or more year delay in program progress
toward steady-state returns of great value; at worst, the loss
of program momentum will leave the earth resources field open
to exploitation by other nations with a consequent loss to the
U.S. of those benefits.
4. Congressional. Many members of Congress have strongly
supported the ERTS program and its continuity. ERTS-C was
authorized in the FY 1975 legislation and its termination now
would be very difficult to defend and certain to result in
3
Congressional opposition. Legislation has been introduced by
Senator Moss with nine bipartisan cosponsors and by Representa-
tive Symington with sixteen bipartisan cosponsors requiring the
Administration to provide for continuity of ERTS activity; if
ERTS-C is supported in your FY 1976 budget, such legislation
becomes moot and no confrontation need arise between the
Administration and the Congressional supporters of ERTS.
5. Future Options. A decision to proceed with an experi-
mental ERTS-C now does not commit the Administration to a
decision on a future operational system next year. Considerable
further experimentation, experience, and demonstration are
needed before a decision on any new system could be properly
made on the basis of facts. This point is further elaborated
in my letter to Mr. Zarb of the OMB, attached.
I request the opportunity of discussing these points more fully
with you and answering any questions you may have. I am per-
sonally convinced that the $11 million to be spent on ERTS-C in
FY 1976 and the $40 million in future years are as important as
any in the nation's space program. A decision that would have
the effect of cutting off a principal area of practical benefits
from space warrants the fullest consideration in light of the
many implications I have summarized above.
Most respectfully,
James C. Fletcher
Administrator
Enclosure
(
THE WHITE HOUSE
WASHINGTON
December 20, 1974
MEMORANDUM FOR THE PRESIDENT
This afternoon you will be meeting with Roy Ash
and Jim Fletcher of NASA to consider the ERTS-C
project which is a satellite program used in agri-
cultural and related purposes and to discuss its
impact on the world food situation.
The money involved is $11 million which NASA
says they can fund without having to request an
appropriation.
There is very substantial Hill interest in this.
Jack Marsh
OF THE INTERIOR THE INTERIOR
United States Department of the Interior
OFFICE OF THE SECRETARY
March 3, 1849
WASHINGTON, D.C. 20240
December 20, 1974
Dear Mr. President:
As you know, the Earth Resources Satellite program, which is jointly
conducted by the U.S. Geological Survey and NASA, is of great interest
to me. I have recently discussed its future with Jim Fletcher of NASA.
I understand that Roy Ash has recommended that funding for ERTS-C, the
third in the series of satellites, should not be included in the FY 1976
NASA budget, though the possibility remains open of funding in later
years.
While I do not question Roy's recommendation on the timing of funds for
ERTS-C, I would like to emphasize my view that the basic technology
of the Earth Resources Technology Satellite is promising, and should
continue to be developed. A benefit-cost study we have just completed
indicates that remote earth observation can be of real value in both
private and public resource management. I therefore hope that we can
resume development of the ERTS system as soon as the fiscal situation
permits.
Respectfully,
Secretary Xog of Mostors the Interior
The President
The White House
Washington, D.C. 20500
NASA
National Aeronautics and
Space Administration
Washington, D.C
20546
December 19, 1974
Office of the Administrator
The President
The White House
Washington, D.C. 20500
Dear Mr. President:
I want to alert you to my special concerns with the decision
cancelling the ERTS-C earth resources satellite which will be
reconsidered in our meeting with Roy Ash Friday afternoon.
As a nation, we have rightly been bold (and successful) in
large-scale "way out" advances in space, such as going to the
moon and exploring the planets. I am concerned that we may be
overly cautious when it comes to the much smaller efforts needed
to follow through to get practical benefits from our large in-
vestment in space.
Cancellation or deferral of ERTS-C in the FY 1976 budget would
build in a cutoff in the single most promising area of space
applications just at the time we are beginning the first large-
scale demonstrations in the program. Without ERTS-C we will not
be in a position to follow up the success we expect, for example,
in the joint NASA-Agriculture crop forecasting experiment which,
as Secretary Kissinger reported in Rome, could lead to an accurate
method of forecasting major food production on a worldwide basis.
Very rewarding experiments of importance to Interior and other
Federal and State agencies would also be dead-ended in advance.
This is no longer a budget issue; NASA will absorb the $11 million
needed in FY 1976 and can agree not to advocate a major expansion
in the program next year.
ERTS-C has strong bipartisan advocacy in Congress (and in the
States). Cancellation would produce an unnecessary confrontation
and put NASA and the Administration in a position we could not
defend on the merits.
Respectfully,
James C. Fletcher
Administrator
or OPPORATION
THE SECRETARY OF TRANSPORTATION
WASHINGTON, D.C. 20590
CANADA
AMERICA
STATES
on
December 20, 1974
MEMORANDUM FOR THE PRESIDENT
SUBJECT 1976 Budget/Policy Decisions
With one exception, the Department and your Executive Office are now
in agreement on the appropriate fiscal year 1976 budget requests for
our various activities. This exception -- the Executive Office
recommendation to eliminate the Department's research into high
speed levitated technology -- is not really a major budget decision
(FY 1976 and future annual requirements are under $10-12 million).
Rather, it involves a policy decision to eliminate the United States
Government from any effective research into a potentially valuable
future technology.
We believe this decision is extremely shortsighted. This technology
could provide significant advantages in speed, ride comfort, noise
pollution, and maintenance costs over conventional rail systems.
However, this technology also has potential payoff for improving our
conventional rail systems, especially propulsion systems.
Having significantly reduced the scope and pace of the previously
planned Federal effort in this area to reflect the results of Depart-
mental socioeconomic analysis of this program, I believe the remaining
program represents a minimal, well-conceived effort. I request approval
of this effort for inclusion in the FY 1976 Budget.
With regard to the Northeast Corridor rail upgrading program, the
Department will provide a complete proposal to the Executive Office
in the near future. Appropriate budget adjustments could be made in
concert with an Administration policy decision regarding this important
initiative.
Chill
Claude S. Brinegar
17
Issue Paper
Department of Transportation
1976 Budget
Issue #4: Tracked Levitated Vehicle Research
OMB
(Dollars in millions)
1975
1976
1977
1974
DOT
OMB
DOT
DOT
OMB
DOT
OMB
Actual
Request
Rec.
Request
Allow
Appeal
Rec.
Request
Rec.
PL
8.6
5.9
4.2
10.6
0.1
+10.5
-
11.0
0.1
0
5.2
4.0
2.3
4.5
0.1
+ 4.4
-
8.0
0.1
Statement of Issue
Should we continue to fund Track Levitated Vehicle (TLV) Research)?
Background
During the 1975 budget review, a decision was made to terminate TLV. The
Secretary appealed, and funding of TLV was approved pending the completion
of a study of economic and social effects of implementing such a system.
Findings of Study:
- Economic viability within 20 years is low.
- Advantages relative to other modes are not demonstrated.
- Nevertheless, study called for continued program in promising
levitation technology.
Alternatives
#1. Continue the TLV research program. (DOT request)
#2. Terminate TLV in 1975. $100K per year to monitor TLV efforts
in other countries. (OMB recommendation)
DOT request: Program consists of research on two kinds of TLV systems:
"Air Cushion" and "Maglev" (magnetically levitated). Both operate on
special guideways.
DOT considers vehicle levitation to be a promising technology, offering
potential payoff in high and low speed applications. Expected to reduce
maintenance cost because of minimum friction.
Would allow DOT to take advantage of large sunk cost (over $40 million since
1966). Should keep pace with TLV work in other countries, in case the tech-
nology proves useful.
18
OMB Recommendation
TLV does not offer significant advantage over existing technology.
- In low speed range (0-150 mph) conventional rail is less
costly, more energy-efficient, and can operate on existing
rights of way. Possibility of lower TLV maintenance cost
is more than offset by high initial investment. Germans
reportedly are discontinuing TLV research in this speed
range.
- In higher speed range (150-300 mph) aviation provides the
most viable alternative. Infrastructure is already in place.
Wide bodied jets and other improvements expected to provide
sufficient capacity for this market in the forseeable future.
Technical problems in the higher speed range are substantial.
For instance, entering a tunnel at high speed would lead to
sudden deceleration, due to compression of air.
- The only case in which DOT cites potential economic viability
for TLV is in the Northeast Corridor, and then under such
questionable assumptions as 1) complete replacement of air
travel by TLV and 2) saturation of high speed rail line (cur-
rently being planned).
TLV investment would be very costly to the Federal Government, both in short
and long term:
- $50M development cost through 1980.
- Pressures for Federal implementation in long term. At
least $3 billion for Northeast Corridor alone (1971 dollars).
Pueblo test center 1976 budget is decreased from $13 million (DOT request) to
$11 million, to reflect overall effect of TLV termination on the mission of the
center.
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"ocrText": "The original documents are located in Box 8, folder \"FY 1976 - 12/20/74, Labor, HUD,\nEPA, NASA\" of the White House Special Files Unit Files at the Gerald R. Ford Presidential\nLibrary.\nCopyright Notice\nThe copyright law of the United States (Title 17, United States Code) governs the making of\nphotocopies or other reproductions of copyrighted material. Gerald Ford donated to the United\nStates of America his copyrights in all of his unpublished writings in National Archives collections.\nWorks prepared by U.S. Government employees as part of their official duties are in the public\ndomain. The copyrights to materials written by other individuals or organizations are presumed to\nremain with them. If you think any of the information displayed in the PDF is subject to a valid\ncopyright claim, please contact the Gerald R. Ford Presidential Library.\nDigitized from Box 8 of the White House Special Files Unit Files at the Gerald R. Ford Presidential Library\nMEMORANDUM OF PRESIDENTIAL HANDWRITING\nFILE CODE\nDATE:\n12/19/74\nSUBJECT:\nMeeting with Roy Ash, 12/20/74, to hear and decide appeals\nfrom previous Presidential FY 76 budget decisions by Departments\nof Labor, HUD, and by EPA and NASA\nRECOMMENDED\nLETTER\nMEMO\nPHONE CALL\nNEWS SUMMARY\nNEWS CLIPPING\nOTHER\nBRIEFING PAPER\nBERALD R. LIBRARY FORD\nTO:\nTHE PRESIDENT\nFROM:\nROY ASH\nNOTE: Above removed from Special Files Box #4\nCHECKMARK ONLY\nSENSITIVE - NO HANDWRITING\nTHE WHITE HOUSE\nWASHINGTON\nDecember 19, 1974\nMEETING WITH ROY L. ASH\nFriday, December 20, 1974\n2:00 p.m. (60 minutes)\nOval A Office\nFrom: Roy L. Ash\nI. PURPOSE\nTo hear and decide appeals from previous Presidential\nFY 76 budget decisions by the Departments of Labor,\nand Housing and Urban Development, and by EPA and NASA.\nII. BACKGROUND, PARTICIPANTS, AND PRESS PLAN\nA. Background: The FY 76 budget submissions of the\nDepartments of Labor and Housing and Urban Develop-\nment and of EPA and NASA have been considered by\nthe President and initial Presidential decisions\non the key issues have been reached. This meeting\nwill provide the affected Cabinet Officers and\nAgency Heads to appeal these previous Presidential\ndeterminations.\nB. Participants: Roy L. Ash, Paul O'Neill, and\nDale McOmber\n2:00 p.m. - Secretary Brennan\n2:15 p.m. - Secretary Lynn\n2:30 p.m. - Administrator Train & Frank Zarb\n2:45 p.m. - Administrator Fletcher & Frank Zarb\nC. Press Plan: David Kennerly photo\nIII. TALKING POINTS\nA. Secretary Brennan, what is the first issue you would\nlike to raise as a part of your appeal?\nORIGINAL IN PRESIDENTIAL\nHANDWRITING FILE\nGREATED FORD LIGRARY\n(\n- 2 -\nB. Secretary Lynn, would you begin with the first\nmatter you would like to appeal?\nC. Administrator Train, would you begin by describing\nthe substance of your appeal for us?\nD. Administrator Fletcher, what is the first issue we\nshould review in considering your appeal?\nFORD & LISSARY GERALD\nTra.\nDept.\nTHE WHITE HOUSE\nWASHINGTON\nDECISION\nMEMORANDUM FOR THE PRESIDENT\nFROM:\nROW-L. ASH\nSUBJECT: DOL Appeal of 1976 Presidential Decisions\nThe Department of Labor has appealed three of your initial\n1976 budget decisions:\n1.\nComprehensive Manpower Assistance, for which DOL recommends\ncontinuation of the 1974 BA level of 2.4 billion in 1976,\nregardless of the outcome of other temporary jobs legisla-\ntion. OMB recommends a return to the original 1975\nbudgeted level of $2.05 billion, arguing that temporary\njob legislation, not this account, should be used to\nhandle unemployment increases. You had delayed your initial\ndecision until Congress had acted on pending jobs legislation.\n2. Grants to States for Unemployment Insurance and Employment\nServices. You initially decided to include $1,060 million\neach for 1975 and 1976. DOL has appealed for $1,334\nmillion for 1976 to handle expected cost increases and\nan average unemployment rate of 6.5%. Since the appeal,\nOMB and DOL have agreed to seek a 1975 supplemental of\n$200 to $250 million, to be available through 1976, to\ncover the pending emergency unemployment compensation\nbills and other workload increases. OMB believes this\nwill be sufficient with the $1,060 million we recommend\nto cover legitimate needs through 1976. If not, additional\nsupplementals could be sought in 1976.\n3. Occupational Safety and Health Administration (OSHA). You\ninitially decided not to include in DOL's personnel ceiling\nthe 180 compliance officers added by the Congress in 1975.\nDOL appeals this decision primarily on political grounds, -\nthat it was part of a compromise that avoided restrictions\non OSHA inspections of small business. OMP recommends not\nallowing the 180 until DOL develops an integrated Federal/State\nenforcement system. A deferral or rescission will be necessary.\nGLEALO FORU LIBSARY\n2\nSection III of the appeal letter discusses some lesser problems\nDOL has with the initial decisions. We understand DOL agrees\nthat these problems can be settled between DOL and OMB.\nAttachment A is a summary table comparing your initial decisions,\nthe DOL appeal, and the current OMB recommendation. It also\nincludes our current joint recommendation on financing pending\nlegislation. The estimate for uncontrollables will be\nsubstantially higher when unemployment assumptions are set.\nAttachment B is a brief summary of the items at issue. Attachment\nC is DOL's full appeal.\nGERALD FORD VIBRARY\nBest Possible Scan from Poor Quality Original\n1976 Budget -- Summary Table\nDepartment of Labor\n(In millions of dollars)\n1975\n1976\nInitial\nDOL\nOMB\nInitial\nDOL\nCMB\nProgram\nActual\nDecision\nAppeal\nRecom.\nDecision\nAppeal\nRecom.\nUI and Other\nBA\n8,005\n8,340\n8,340\n8.340\n8,701\n8,701\n8,701\nUncontrollables\nBO\n5,710\n8,536\n8,536\n8,536\n8,722\n8,722\n8,722\nPending Logislation\nPublic cobs and\nBA\n2,700\n4.000 4,000\n-\nUne playment\nDO\n1,211\n1,6501/1,350]/\n1,549\n2,1501/2,1501/\nCompensation\nControllable Programs\nComprehensive Man-\nBA\n2,266\n2,304\n2,394\n2,394\n2,0505\n2,400\n2,050\npower Assistance\nBO\n1,450\n2,790\n2,790\n2,790\n2,512\n2,687\n2,512\nGrants to States for BA\n64\n64\n64\n64\n71\n89\n71\nUnemployment Insur- BC\n892\n1,060\n1,051£ 1,0513/\n1,060\n1,334\n1,060\nance and Employment\nServices\nOccupational Safety\nBA\n70\n101\n102\n101\n102\n105\n102\nand Health Adminis- BO\n69\n101\n102\n101\n102\n105\n102\ntration\nAll Other\nBA\n576\n470\n470\n470\n605\n605\n605\nBO\n1,185\n661\n661\n661\n614\n614\n614\nTotal\nBA\n10,981\n14,129\n15,370\n15,369\n11,529\n11,900\n11,529\nBO\n9,306\n14,350\n14,990\n14,989\n14,559\n15,612\n15,160\n1/\nInitial estimates. Will be revised substantially when unemployment rate\nassumptions are set.\n2/\nPending action on NEAA\n\" Created\nFORD LIBRARY is 038870\nAttachment B\n1976 Budget\nDepartment of Labor\nComprehensive Manpower Assistance\n(In millions of dollars)\n1976\n1974\n1975\nInitial\nDOL\nOMB\nActual\nDecisions\nDecisions\nAppeal\nRecom.\nBA\n2,266\n2,400\n2,050\n2,400\n2,050\nO\n1,450\n2,790\n2,512\n2,687\n2,512\nInitial Decision\nThis account finances training and employment programs under\nthe Comprehensive Employment and Training Act (CETA). The\ninitial decision was based on three factors: (1) the major\nprogram resources for combating the effects of high unemploy-\nment is to be NEAA type legislation; (2) there is no evidence\non program impact to warrent increases for CETA; and (3) the\ndelays in start-up in 1975 indicate substantial carryover to\n1976 that has the effect of preventing sharp declines in\nprogram levels despite the BA reduction.\nDOL Appeal\nThe Secretary believes it is politically unwise to reduce BA\nin this account. The Congress and the public could view it as\nfailing to respond to worsening economic conditions, particu-\nlarly for youth, minorities, and the disadvantaged, regardless\nof the NEAA type programs.\nOMB Recommendation\nThere are no new programmatic grounds for increasing BA. Outlay\nestimates as well as enrollments continue to run well below the\n1975 plan, indicating that carry forward into 1976 may be even\nhigher than current projections. Additional funds could not\nsignificantly increase the volume of service provided until late\n1976 or early 1977. OMB and DOL are both recommending $1 billion\nfor the public jobs bill expected to be passed by Congress for\nthe remainder of fiscal year 1975. This or a similar program will\nindubitably be extended if unemployment remains high next year.\n2\nThe $2.05 billion level should be retained for the FY 76\nbudget. The Secretary should direct congressional attention\nto the actual program level as reflected in the outlay estimates.\nThe NEAA approach should continue to be the primary resource\nfor offsetting the impact of high unemployment.\nFORD is LIBRARY 028470\nBest Possible Scan from Poor Quality Original\nAttachment 1.\n1976 Budget\nDepartment of Labor\nGrants to States for Employment and\nUnemployment Insurance Services\n(In millions of dollars)\n1975\n1976\n1974\nInitial\nInitial\nDOL\nOMB\nActual\nDecision\nDecision\nAppeal\nRecommendation\n0b1./0\n892\n1,060\n1,000\n1,334\n1,060\nInitial Decision\nThe into Presidenti all devision provided for a level program for\nFY 75 AND BY 76 X needs diversion of the Employment\nService to uning claims processing - the\ntraditional practice.\nDOL Appeal\nThe Department of Labor accepted the FY 75 funding level including\ndiversion and requests an additional $274 million in FY 76 based\non an unemployment rate of 6.5% and a 12% increase in costs.\nOMB Recommendation\nOMB recommends a program level for both FY 75 and FY 76 to meet\nanticipated claims loads with a 78 mandatory cost increase rather\nthan the 12% requested. OMB and DOL both recommend a $200 million\nsupplemental for 1975, to remain available through 1976, both to\nhandle the special unemployment compensation programs expected to\nbe enacted by Congress and to serve as a contingency against other\nworkload increases which cannot be handled by the regular 1975 and\n1976 appropriations. These amounts should be adequate, but if not,\nfurther supplementals can be requested in 1976.\nFORD is LIBRARY 03\nAttachment B\n1976 Budget\nDepartment of Labor\nOccupational Safety and Health Administration\n(In millions of dollars)\n1975\n1976\n1974\nInitial\nDOL\nOMB\nInitial\nDOL\nOMB\nActual\nDecision\nAppeal\nRecom.\nDecision\nAppeal\nRecom.\nBA\n$70.1\n$100.8\n$102.0\n$100.8\n$102.2\n$105.2\n$102.0\nO\n$69.3\n$100.8\n$101.6\n$101.6\n$102.2\n$105.2\n$102.0\nEOY\nPers.\n1596\n1705\n1885\n1705\n1677\n1857\n1677\nInitial Decision\nContinue 1975 budgeted Federal program level with some overhead\nreductions and expand the amount available for State grants.\nL Appeal\nAccept the 1975 congressional increase of 180 additional compliance\nofficers (making a total of 1,100), and continue at this level\nthrough 1976. DOL argues that acceptance of the 180 is needed to\nblock congressional attempts to exclude small business from OSH Act\ncoverage. DOL also claims that initial decision provides insufficient\nBA to finance approved program level.\nOMB Recommendation\nRetain previous allowance for personnel (920 compliance officers)\npending DOL development of an integrated Federal/State system to use\nOSHA enforcement resources to achieve maximum reduction in accidents\nand illnesses. This will require submission of a rescission or\ndeferral to the Congress of approximately $2 million. Retain 1976 BA\nallowance for now, but we will adjust as necessary as soon as DOL is\nready to show us how the allowance is insufficient.\nIf DOL insists that an increase in the budgeted compliance officer\nlevel is absolutely necessary to avoid opening the OSH Act to unwanted\namendments, a small increase of approximately 30 compliance officer\npositions could be allowed.\nGERALD R. FORD\nAttachment C\nU.S. DEPARTMENT OF LABOR\nOFFICE OF THE SECRETARY\nWASHINGTON\nDecember 10, 1974\nMEMORANDUM FOR THE PRESIDENT\nSubject: Department of Labor 1976 Budget\nThe Department of Labor's appeal from some of the many\ndecisions made on its FY 1976 budget is in three parts,\nthe first dealing with employment and counter-cyclical\neconomic programs; the second with labor standards;\nand the third with how we manage the Department. Before\ngetting into the specifics, I want to emphasize that\nthese appeals are made in recognition of the need for\nbudgetary restraint. In fact, we have not appealed\nmany items even though they have great merit. However,\nwe do need additional resources to deal with unemployment\nand some of the problems that have arisen under OSHA.\nWe also need greater flexibility in managing the resources\nof the Department.\nI. Employment and Counter-cyclical Economic Programs:\nDecisions on the funding of CETA have been deferred,\napparently on the theory that if NEAA or some other\npublic service employment program is enacted, CETA\nfunding can be reduced. Given the present economic\nsituation and the projections for calendar 1975\nand beyond, such a reduction appears not only unwise\npolitically, but, more importantly, would constrain\nour ability under Title I of CETA to deal with\nspecific State and local problems that are sure to\nGERALD FORD VIGRARY\narise, particularly as they relate to the needs of\nyouth, minorities and disadvantaged. Therefore,\nthe Department requests that CETA be funded at at\nleast $2.4 billion in FY 1976, the same as for 1975.\n- 2 -\nAdditional authorizations for emergency public employment\nprograms should not be made at the expense of this base\ntraining and employment program.\nThe tentative decisions would also require a diversion\nof resources from the Employment Service into the\nhandling of unemployment insurance claims. Such an\naction reflects a misconception of the role and\nfunction of the Employment Service. The notion that\nthe Employment Service is purely for job placement\nand that its role disappears when jobs are scarce\nis not only wrong but also is destructive of the\nDepartment's ability to provide needed services to\nworkers in hard times. The result of this decision\nwould be to reduce drastically efforts to match the\nunemployed with available jobs. The importance of\nthe Employment Service, particularly in hard times,\nhas been highlighted by a recent consent decree filed\nin the D.C. Federal District Court which will require\nthe Employment Service to expend additional millions\nof dollars on a full range of services for migrant\nworkers. This decree resulted from a conclusion by\nthe Court that the Employment Service had not provided\nthose services to which all segments of the population,\nincluding migrants, are entitled as a matter of law.\nVery candidly, a diversion of existing resources,\nwithout supplementation, will make the Department\nvulnerable to additional such legal actions.\nIn short, we feel that we need a total of $1,057 million\nfor ES and UI grants in FY 1975 and $1,334 for 1976\nbased on a 6.5 percent unemployment rate, and more if\nthe rate becomes significantly higher. This funding\nlevel should tie directly to the insured unemployment\nlevel projected in your Economic Report.\nII. Labor Standards:\nCongress provided 180 new positions for compliance\nactivities for FY 1975 under the Occupational Safety\nFORD & LIBRARY GERALD\n- 3 -\nand Health Act, and allowed $5 million of existing\nfunds to be spent through the States to provide\nconsultation services to small businesses. The\npresent decisions would not provide any employment\nceiling for the 180 positions this fiscal year\n($3.2 million). Only our agreement with the Congress\nto provide such services forestalled efforts this\nyear to exempt small firms employing millions of\nworkers. In addition, while we are able to finance\nconsultation services this year, it can only be done\nnext year at the expense of providing funds to the\nStates to meet their developmental commitments under\napproved plans. Without these funds and personnel\nceiling, it will be impossible to meet our commit-\nment to the States, the Congress, and Workers.\nIn an effort to cooperate in holding the line, we\nare foregoing, for the moment, three other important\nlabor standards thrusts: a slight expansion in\nthe older workers program under the Age Discrimination\nin Employment Act; a supplemental to meet the heavy\nworkloads under the recent amendments to the Fair\nLabor Standards Act; and more training and consultation\nservices under OSHA designed to meet Congressional\ncriticism. However, you should be apprised that\nthe need for services in these areas may become SO\nacute as to force us to come back on one or more\nof these items in the near future.\nIII. Management of the Department:\nWe do have some management problems which we have\nbeen trying to work out with OMB. It seems only\nreasonable that the overall personnel ceiling for\nFORD LIBRARY\nthe Department can be spread as we deem necessary\nand that adequate funds to support our distribution\nwill be granted in the appropriate program areas.\nAlso, we are assuming that OMB will help obtain a\nspeedy resolution of the apparent conflict with the\n- 4 -\nDepartments of Agriculture and Interior over 350\npositions formerly supporting the Job Corps.\nUnfortunately, some of OMB's proposed decisions will\nimpinge upon our ability to run the Department in\nan efficient and effective manner.\nFor example, the Pension Benefit Guaranty Corporation\nhas been subsumed within the Department of Labor for\nbudgetary purposes. Congressional intent is clear\nthat the Corporation should be independent, with\nequal participation on the Policy Board by the Secretaries\nof Labor, Commerce, and Treasury. This tentative\ndecision would make the Corporation subject to budgetary\nacts visited generally on the Department of Labor. The\nother members of the Policy Board join me in conveying\ntheir strong feeling that the Corporation should be\nshown in the independent offices' section of the budget.\nIt is also proposed to pay a greater than warranted\nshare of Departmental expenses from one of the\naccounts of the unemployment insurance trust fund\nin order to save general revenues. Although we are\nexploring this with OMB, the condition of the fund\nis such that very little diversion is possible.\nFinally, we believe it important to have our Solicitor's\nOffice as a separate appropriation account rather than\nbeing lumped into Departmental management. The\nDepartment of Labor is the second largest law enforcement\nbody in the Executive Branch. The Solicitor's Office\nis absolutely crucial to the success of the law\nenforcement efforts of the Department. Both the\nAdministration and the Congress ought to have the\nbenefit of being able to identify clearly the law\nenforcement implications and consequences of their\nbudget decisions by direct reference to the Solicitor's\nOffice, rather than indirectly by considering the\nSolicitor's Office under the general \"management\noverhead\" umbrella.\nFOPO\n- 5 -\nI look forward to discussing these items with you so\nthat you can better understand why I feel it necessary\nto appeal the decisions discussed above.\nThe Sunnain\nSecretary of Labor\nHUD\nLIGHARY\nFORD\n&\nTHE WHITE HOUSE\nWASHINGTON\nDEC 1 374\nACTION\nMEMORANDUM FOR: THE PRESIDENT\nFROM:\nROY\nF.\nASH\n15/\nSUBJECT\nSUBSIDIZED HOUSING PROGRAM LEVEL\nThe Department of Housing and Urban Development is\nrecommending that the 1976 Budget include 406,000 units of\nsubsidized housing. The 1975 Budget authorized 400,000\nunits in FY 1975; however, HUD currently estimates that no\nmore than 200,000 units will be approved.\nThe attached memorandum and supporting table have been\njointly prepared by OMB and HUD staff setting forth the\nmajor considerations which affect the issue.\nIn summary, Secretary Lynn believes authorization for\n406,000 units is necessary in the interest of \"continuing\nan acceptable climate on the Hill\" so that the Administra-\ntion can continue to achieve progress on other desired\nprograms, and to avoid the risks of having Congress mandate\nhigher expenditures under the Section 8 program or use of\nthe old subsidy programs. I recommend that the number of\nunits approved should be as low as politically feasible,\nand in no case greater than 200,000 units. My recommenda-\ntion is based on the belief that any level of activity\nwill be criticized as inadequate in some quarters, but\nthat political support for the program cannot be linked to\nany particular commitment level. I believe that the esti-\nmated direct Federal costs of the Section 8 program (annual\n--$1,093 for existing housing and $2,044 for new construction;\nlifetime--$8 billion per 100,000 units) are excessive and\nwould seriously limit your ability to phase in welfare reform,\nsuch as HEW's proposed Income Supplementation plan. These\ncosts coupled with other program defects outweigh any politi-\ncal advantages of a high level of activity. Your decision\non this issue should be made within the broader context of\nwhere does the Administration go with respect to Income\nAssistance across the board.\nAttachment\n8415 FORD\nDEC 16 1974\nMEMORANDUM FOR: THE PRESIDENT\nFROM:\nJames T. Lynn\nSecretary of Housing and Urban Development\nRoy L. Ash\nDirector, Office of Management and Budget\nSUBJECT:\nSubsidized Housing Program Level\nStatement of Issue\nHow many units of subsidized housing should HUD be authorized\nto approve under the Section 8 (Lower Income Assistance)\nprogram in fiscal years 1975 and 1976?\nBackground\nThe 1975 Budget proposed the approval of subsidies for 300,000\nunits under the revised leasing program, recently superseded\nby the Section 8 Lower-Income Housing Assistance Program. The\nBudget, as printed, provided only \"for an additional 200,000\nunits\" for FY 1975. Between the time the Budget was printed\nand the figures were announced, President Nixon decided to\nprovide for an additional 100,000 units for FY 1975. This\ndecision was based, in large part, upon the necessity of pro-\nviding assistance for lower income families at a level, as\ninformally communicated by key Majority Members, acceptable to\nthe Congress. Indeed, there was a tacit understanding that if\nthe Administration showed its good faith at the 300,000-unit\nlevel, key Majority Members would do all in their power to see\nthat the housing program design and community development block\ngrant program followed the general lines of the Administration\nproposal. Those Members fulfilled their promise.\nIn addition to the 300,000 units for FY 1975, 116,000 units\nunder the revised leasing program originally budgeted for\nFY 1974, but not approved, were carried over into FY 1975, for\na total FY 1975 authorization of 416,000 units. The contract\nFORD\n2\nauthority needed for the 416,000-unit production level was\nprovided by the Congress pursuant to an Administration request\nin the Housing and Community Development Act of 1974. Finally,\n108,000 units representing the balance of units for bona fide\ncommitments under the suspended housing programs were carried\ninto FY 1975.\nUnits actually approved under HUD subsidized housing programs\nin recent years follow:\n1970\n1971\n1972\n1973\n1974\n393,900\n400,900\n426,900\n105,500\n30,100\nThe lower levels of commitment in fiscal years 1973 and 1974.\nhave resulted in runout cost reductions in the range of about\n$18.5 billion.\nAlternatives\n1.\nContinue the 400,000 authorized unit level under the\nSection 3 program in FY 1976, requiring an additional\n200,000 units of authorization in view of an estimated\n200,000-unit carryover from FY 1975, and provide an\nadditional 6,000 units for Indian housing under the\nConventional Public Housing Program (HUD recommendation).\n2.\nReduce the authorized unit level in 1975 to the lowest\nlevel politically feasible, but in no case more than\n200,000 units (excluding bona fide commitments) for all\nprograms and maintain it at that level in 1976 (OMB\nrecommendation).\nThe budget impact of each alternative is shown in Attachment A.\nProgram Analysis\nAlternative levels of subsidized housing approvals can be\nanalyzed from four different standpoints: (1) the housing\nneeds of low-income families, (2) supply and demand conditions\nin the homebuilding industry, (3) costs of Section 8 units, and\n(4) political realities.\n(1) Consumer Needs\nEstimates of \"housing needs\" of lower income families range\nfrom 4 million units (the number of occupied units lacking com-\nplete plumbing) to over 11 million units. Clearly, a gap in\nFOR\n3\nunits required cannot be met in the near future at either of\nthe alternative production levels.\nHUD and OMB agree that inadequate housing is basically\nan income problem, rather than a supply problem. However,\nthe Department believes that housing subsidies are warranted,\npending a policy decision on a better solution.\nHUD argues that--as a bridge, both theoretically and\npolitically, to direct cash assistance--the new Section 8\nprogram is an improvement over the suspended subsidy programs\n(albeit certainly no panacea) :\n- The role of private owners is expanded to include\nmanagement and maintenance of units.\n- Tenants are able to select the unit in which they\nchoose to live.\n- The term of the subsidy payment is limited to 20\nyears for private owners.\n- The program permits more emphasis on use of existing\nhousing stock rather than on new construction, sub-\nstantially decreasing costs and eliminating tax\npreferences associated with new construction.\n- The program can encourage economic integration.\n- Benefits are more directly related to need.\n- State and local government participation is increased.\n- The program permits more flexible financing since\nhousing may be financed conventionally, by public\nbodies or under FHA mortgage insurance programs.\n- The program encourages direct competition between\nprivate developers and local housing authorities\n60 that better site selection and lower development\ncosts will result.\n- Subsidy requirements are limited to fair market rent\nin any arca, rather than being open ended as they\nwere in the suspended programs.\nOMB believes in-kind subsidies are an inefficient means\nfor addressing the problems of low-income families, since they\nlimit choices between housing and other goods. Moreover, a\nHUD-commissionel opinion survey found that even though poor\nhousing conditions were found to be \"serious\" by 35% of low-\nincome families and 51% of minorities, such conditions ranked\nlower on the low-income population's list of serious neighbor-\nhood problems, than such problems as drug addiction, trans-\nportation, and crime. In addition, ONE believes the Section 3\nprogram represents only a small improvement over the previous\nsubsidy programs that have bean suspended since January, 1973,\nand will have these defects:\n- Benefits would be distributed inequitably in that\nonly a small fraction of eligible families (at\n400,000 units, only 1.55 of the approximately 23\nmillion families with qualifying incomes) will\nreceive bonofits.\nThe costs of the program will be substantial\nrelative to the benefits perceived by the\nassisted family. In fact, under the rent\nsupplement program, to which the new construc-\ntion feature of Section S bears a strong\nresemblance, HUD found that only 435 of Federal\nexpenditures were perceived as a direct benefit\nby the low-income recipient.\n- To the extent new construction is emphasized,\nlow-income families will not have freedom to\nchoose their own unit.\n(2) Stimulation of the Housing Market\nThe production of new subsidized housing units can be\nrationalized in terms of the need to offset depressed housing\nmarket conditions.\nHUD and OMB agree that some portion of federally sub-\nsidized housing units come at the expense of unsubsidized units,\nso that the net addition to total starts is less than the number\nof units subsidized. (The Federal Home Loan Sank Board staff\nestimated that, during a period when mortgage money was reason-\nably available, only 14 out of every 100 subsidized starts\nrepresent a net addition to total starts.)\nTo the extent that Section 3 does stimulate additional\nactivity in the housing suctor, actual construction will not\nbegin for some time. For instance, construction on units\napproved during FY 1975 will begin, at the carliest, in the\nSpring, 1976. Similarly, actual construction on units approved\nFORD\nGERALD\nlimit choices between housing and other goods. Moreover, a\nHUD-commissionel opinion survey found that even though poor\nhousing conditions were found to be \"serious\" by 35% of low-\nincome families and 51% of minorities. such conditions ranked\nlower on the low-income population's list of serious neighbor-\nhood problems, than such problems as drug addiction, trans-\nportation, and crime. In addition, ONE balieves the Section 3\nprogram represents only a small improvement over the previous\nsubsidy programs that have bean suspended since January, 1973,\nand will have these defects:\n- Benefits would be distributed inequitably in that\nonly a small fraction of eligible families (at\n400,000 units, only 1.55 of the approximately 23\nmillion families with qualifying incones) will\nreceive bonofits.\nThe costs of the program will be substantial\nrelative to the benefits perceived by the\nassisted family. In fact, under the rent\nsupplement program, to which the new construc-\ntion feature of Section S bears a strong\nresemblance, HUD found that only 435 of Federal\nexpenditures were perceived as a direct benefit\nby the low-income recipient.\n- To the extent new construction is emphasized,\nlow-income families will not have freedom to\nchoose their own unit.\n(2) Stimulation of the Housing Market\nThe production of new subsilized housing units can be\nrationalized in terms of the need to offset depressed housing\nmarket conditions.\nHUD and OMB agree that some portion of federally sub-\nsidized housing units come at the expense of unsubsidized units,\nso that the net addition to total starts is less than the number\nof units subsidized. (The Federal Home Loan Sank Board staff\nestimated that, during a period when mortgage money was reason-\nably available, only 10 out of every 100 subsidized starts\nrepresent a not addition to total starts.)\nTo the extent that Section 3 does stimulate additional\nactivity in the housing suctor, actual construction will not\nbegin for some time. For instance, construction on units\napproved during FY 1375 will begin, at the carliest, in the\nSpring, 1976. Similarly, actual construction on units approved\nFORD i LIBRARY GERALD\nGERALD\n5\nin FY 1976 will begin later in FY 1976, at the earliest.\nHowever, most industry members have taken the position\npublicly that the decrease in total starts is attributable\nin large part to the decrease in units approved in Federal\nsubsidized programs.\nAlthough the housing market is currently depressed,\nthe Troika forecasts a natural upturn in housing starts to a\nlevel of. 2 million units by mid-1976. A high level of\napprovals during FY 1975 and 1976 could possibly contribute\nto overstimulation of the market by the time of actual con-\nstruction, as it did in CY 1972.\n(3) Costs of Section 8 Units\nCosts under the Section 8 program can be looked at\nfrom three standpoints:\na. on a per unit basis\nThe existing component of the Section 8 program\nis a less costly alternative than the new construction compo-\nnent, and comes closer to the goal of minimizing the role of\nthe Federal Covernment in the operation of local programs.\nOn the other hand, the more expensive new construction\ncomponent continues HUD's involvement in review and approval\nof plans, as under the suspended housing programs. A comparison\nof per unit cost for both existing and new Section 8 units, as\nwell as HUD's experimental housing allowance program and an\nearlier program, are shown below:\nComparison of Annual Per Unit Housing Assistance Costs\nTenant\nLocal\nContrib.\nTotal\nAgency\n(family (4) ;\nAnnual Rent\nAdminis-$5,000 an-\nShopping\nDirect\nPayment\ntrative nual\nIncentive\nCost to\nCosts\nincome\nSavings\nGovt.\nDirect Cash\nAssistance\n$2,067\n$203\n$1,250\n$106\n$ 914\nSec. 8 -\nExisting\n$2,067\n$223\n$1,100\n$ 97\n$1,083\nNew\n$3,144\nFee may\n$1,100\nn/a\n$2,044\nbe allow-\ned, but\nnot yet\ndotermined\nSec. 236\nwith Rent\nSupplement\n$3,144\nn/a\n$1,038\nn/a\n$2,106\nFORD LIBRARY & SERATO\n6\nb.\nShort-term budget impact\nAttachment A illustrates the budget impact of\nalternative levels of subsidized housing approvals.\nExisting units approved for subsidy result in\noutlays more quickly than newly constructed units, despite\nthe lower average annual subsidy per existing unit.\nThe attachment also shows the cost per 100,000\nunits, using different mixes of new and existing units.\nC. Lifetime costs\nEach 100,000 units approved under the Section 8\nprogram are estimated to cost approximately $8 billion over\nthe life of the contracts (assuming approvals are split 75%\nnew/25% existing, and that the average contract runs 26.25\nyears). In addition, Section 8 units can be insured under\ncertain FHA and other Federal mortgage insurance programs,\nthus increasing the contingent Federal liability.\nd. Political Realities\nHUD believes that, Administration promises\nhaving been made to key Members of the Congress, they ought to\nbe kept--certainly for FY 1975 and, because the new Section 8\nprogram will not get rolling until FY 1976, through that year\nas well. Failure to keep our word, combined with the present\nlow level of housing starts will, in HUD's view, result in a\nmandating of the Section 8 program, or the old suspended pro-\ngrams, or both. During the current year, serious attempts\nwere made to mandate these programs in the Housing and Community\nDevelopment Act of 1974, HUD's basic appropriation and the\nsupplemental appropriation needed to fund the Community Develop-\nment Block Grant Program. In each instance, the ability of\nthe Administration to have the mandating provision deleted was\nbased upon its \"good faith\" to move ahead on the Section 8 pro-\ngram at the budget levels it had promised.\nOMB acknowledges that the subsidized housing programs enjoy\nsubstantial political support, but believes that this support\ncannot be linked to any particular commitment lovel. Any\nlevel will be criticized as inadequate in some quarters. An\nindividual builder, on the other hand, is only interested in\n7\nhow many units he gets approved, not the national total.\nWhile his chances are greater at a higher level of commit-\nments than a lower level, this is equally true at 100,000,\n200,000, or 400,000 units.\nSecretary Lvnn's Recommendation: Alternative #1. The\nSecretary's request is based largely on \"continuing an\nacceptable climate on the Hill\" so that continued progress\ncan be made toward programs, such as direct income assistance,\ndesired by the Administration and so that the risks of man-\ndated higher expenditures and mandated use of the old subsidy\nprograms or Section 8 can be avoided. Given the depressed\nstate of the housing industry and the drastically reduced\nsubsidized housing commitment level in FY 1975 and most of\nFY 1974, he believes such mandating is not just possible but\nvery probable. Further, Secretary Lynn believes that our\nprogrammed level of over 400,000 units for FY 1975 was in\nsubstantial part responsible for the passage of the 1974\nHousing and Community Development Act in acceptable form and\nthat, particularly since we will not commit anywhere near that\nfigure in 1975, a reduction from 400,000 as the authorized\nlevel for FY 1976 would be construed as bad faith in the\nCongress. He proposes to move to what he calls an \"inventory\"\nconcept in budgeting for the Section 8 program for FY 1976.\nUnder this concept, the request for new budget authority would\nbe for only 200,000 additional units but the text of the Budget\nwould make it clear that this is to permit an approval level\nof approximately 400,000 units inasmuch as it is estimated\nthat about 200,000 units of the FY 1975 authorization will\ncarry over. In his judgment, the passage of additional time\nfrom the date of suspension of the old programs and enactment\nof the new Act, decisions on direct cash assistance and, most\nimportantly, assuming, as expected, that housing starts are\nrecovering reasonably well in calendar 1975--particularly in\nthe last half, a much better climate for logical decision-\nmaking on the FY 1977 budget will prevail.\nDirector Ash's Recommendation: OMB believes that the number\nof units approved should De as low as politically feasible,\nand in no case should exceed 200,000 units. Given the anti-\ncipated 200,000 carryover from FY 1975 this would mean no\nrequest for new authority for FY 1976. The program defects\nidentified above, coupled with the high cost, argue for a low\nlevel of activity under this program. A low level of authorized\nunits would also promote quality processing, assuming personnel\nFARD CIBRARY\n8\nlevels were not reduced proportionately, and preserve the\nAdministration's flexibility to set future year unit approval\nlevels, based on existing conditions in a given year. In the\nshort term, Secretary Lynn's inventory concept is not neces-\nsarily unreasonable, since HUD lacks the capacity to meet the\n400,000 unit goal during 1975, and perhaps in 1976 as well.\nHowever, effectively by FY 1977, a real base of 400,000 units\nwill be established. Once established, this level will be\ndifficult to withdraw from, even if a \"demand\" (income assist-\nance) approach is eventually implemented. The demand from the\nconstruction industry for production assistance will not be\nsatisfied by income assistance to eligible consumers, 60 any\nproduction level may become a future floor.\nAttachment\nDecision: Approve HUD recommendation\nApprove OMB recommendation\nOther (see me)\nFORD\nEXECUTIVE OFFICE OF THE PRESIDENT\nOFFICE OF MANAGEMENT AND BUDGET\nDATE: December 16, 1974\nWASHINGTON, D.C. 20503\nLY TO\n(TN OF:\nCVA:Housing Branch\nSUBJECT: The HUD Appeal\nMr. O'Neill\nSecretary Lynn has appealed the decisions on seven items included in\nhis 1976 Budget estimates. The amounts at issue in 1976 are shown\nbelow:\nObligations\nOutlays\nPres.\nHUD\nCVAD\nPres.\nHUD\nCVAD\nMark\nAppeal\nRecom.\nMark\nAppeal\nRecom.\n(in\nmillions\nof dollars)\nNew Communities\nN/A\nN/A\nN/A\n-1\n-1\n-1\nResearch and Technology\n65\n75\n65\n58\n71\n58\nCommunity Development Loan\nGuarantees (OMB Est.)\nN/A\nN/A\nN/A\n--\n10\n--\nComprehensive Pianning\n50\nOpen\nOpen\n60\nOpen\nOpen\nCounseling\n--\n2\n--\n--\n2\n--\nMortgage Insurance Premiums\nN/A\nN/A\nN/A\n-18\n--\n-18\nStaffing:\nAmount\n167\n177\n¡72\n167\n177\n172\nFTP's\n14,829 15,559 15,287\nEach of the items is discussed in a separate issue paper attached to this\nmemorandum. The issues are summarized below.\nNew Communities\nThe Secretary believes HUD should have the authority to make additional\nguarantee commitments so it can:\nHonor moral commitments.\nFOND\nAvoid defaults on existing projects.\nForestall a congressionally mandated program.\nCVAD continues to believe an immediate suspension is warranted in order\nto avoid increasing the contingent liability further until it can be\nshown that there is some advantage to doing so.\nResearch and Technology\nThe Secretary argues for the original $75 million program on the grounds\nthat:\n2\nOngoing projects, coupled with congressionally mandated and\nOMB-requested studies, would consume an excessive portion\nof the $65 million mark.\nCongress will cut the request further, and HUD's Research\nprogram already has suffered more than research programs\nin other agencies.\nCVAD believes that $65 million can cover the ongoing and requested studies\nand still leave $12 million for new initiatives.\nCommunity Development Loans\nSecretary Lynn believes HUD should have the authority to guarantee loans\nbecause failure to implement this provision would:\nDamage the Administration's credibility.\nCreate enormous political problems.\nProduce no real advantage since the program is unattractive\nenough to keep most recipients away.\nCVAD continues to see no programmatic justification for loan guarantees.\nComprehensive Planning Grants\nThe Secretary and CVAD agree that a final decision on \"701\" funding\nshould await a Presidential decision on land use and planning consolida-\ntion. In the event a decision is delayed beyond the point where the\nbudget must be locked up, CVAD recommends straight lining the program\nat $50 million.\nCounseling\nThe Secretary believes that a HUD evaluation study demonstrates the cost-\neffectiveness of counseling, and this, coupled with a congressional\nmandate, warrants a $2 million Counseling program in 1976.\nCVAD recommends against a separate appropriation for Counseling on the\ngrounds that:\nThe HUD study does not provide anything approaching a\nreliable basis for concluding that counseling is cost-\neffective (a view shared by many at HUD).\nSERALD FORD LIBRARY\nFederally funded counseling will make a new group of agencies\ndependent on Federal money, thus creating yet another lobby\nfor ever-increasing amounts of Federal institutional support.\n3\nMortgage Insurance Premiums\nThe Secretary recommends against any increase in premiums because:\nThere has not been sufficient staff work to permit a\ndefense of higher premiums.\nThe adverse impact on low-income families would bring\npolitical costs which exceed the relatively small outlay\nsavings.\nCVAD believes that enough staff analysis has already been done to\njustify higher premiums, and that, from a tactical standpoint, increases\nmust be coupled with revision of the basic 203(b) premium which is\npresently in the works.\nStaffing\nThe Secretary is seeking an end-of-year employment ceiling of 15,559 in\n1976.\nCVAD recommends a 1976 ceiling of 15,287. The difference between this\nlevel and the Secretary's request results from:\nOur belief that temporaries, rather than FTP's, should be\nrelied upon to handle the defect claims resulting from the\nnew legislation.\nOur programmatic judgment that staffing requested for the\nenvironmental area can be reduced by simplifying HUD's\nenvironmental policies.\nHUD's failure to justify the sharp increases in workload\nprojected for 1976 in the equal opportunity area.\nNew Communities Program\nNO\nBudget Impact\n1975\n1976\n1977\n($ in millions)\nBonds\n0\nBonds\n0\nBonds\n0\nPresidential Allowance\n369\n.8\n389\n-1\n389\n-2\nHUD Appeal\n369\n.8\n474\n-1\n559\n-2\nOMB Recommendation\n369\n.8\n389\n-1\n389\n-2\nPresidential Allowance: Temporarily suspend new approvals under the New\nCommunities Program during 1976, and allow additional guarantee commit-\nments for existing projects only after strict criteria have been developed\nand approved.\nHUD Appeal: Show up to two new approvals in the 1976 Budget.\nHUD Arguments\nSuspension may cause legal problems as well as moral ones since appli-\ncants have invested significant amounts in planning costs in expectation\nof participating in the HUD program and in relying on HUD's preliminary\nreviews and approvals.\nA suspension would probably be construed as a forerunner of termination,\nand would hinder the Department's efforts to negotiate with developers\nand financial institutions to provide additional financial assistance\nto existing projects.\nThe pipeline has been reduced substantially due to stringent review\ncriteria recently implemented. This administrative tightening should\nreduce the number of guarantee applications that will be received\nduring 1976, and achieve much the same results as a suspension.\nA suspension, rather than administrative tightening, is more likely to\ngenerate mandating since important members of Congress support the New\nCommunities Program.\nOMB Staff Comments\nGERALD FORD\nExisting new community projects are in serious financial difficulty.\nIn part, this is due to approval of certain marginal projects because\nthe applicants had invested significant amounts in planning costs,\nand implicit commitments had been made to developers by HUD staff.\nThere may be moral problems created from a suspension resulting from\nimplicit commitments given to developers by HUD staff; however, there\nis no basis for legal problems if such implicit commitments are not\nfulfilled.\n2\nTightening of administrative requirements may reduce the demand for\nnew projects and could possibly achieve the same goal as a suspension,\nif enforced strictly by the Department. However, management of exist-\ning projects remains the key problem in the program, and New Community\nstaff time should be devoted to devising work-out solutions for\nexisting projects.\nOMB Recommendation: OMB staff believe the financial status of existing\nprojects is serious enough to warrant temporary suspension of the New\nCommunities Program. The review that is required on these projects in\norder to determine whether additional guarantee commitments should be\nmade is sufficient to justify an announced suspension of new activity.\nHUD's argument that the same goal could be achieved administratively\nhas some merit. However, historical experience argues against the\nprobable success of this approach. An open door for inquiries about\nthe program has consistently led to implicit commitments by HUD staff\nto applicants of future approval.\nFORD & LIBRAR 038830\nNO\nResearch and Technology\n(in millions of dollars)\nBudget Impact\n1975\n1976\n1977\nObligations/Outlays\nOblig.\n0\nOblig.\n0\nOblig.\n0\nPresidential Allowance\n57\n56\n65\n58\n65\n60\nHUD Appeal\n57\n56\n75\n71\n75\n74\nOMB Recommendation\n57\n56\n65\n58\n65\n60\nPresidential Allowance: Increase the 1976 program level to $65 million.\nHUD Appeal: Increase the 1976 program level to $75 million.\nHUD Arguments\nAdditional studies requested by OMB when added to ongoing research needs\nand, coupled with studies that the Secretary wants to do, and certain\nstudies that Congress has mandated, may be excessive requirements within\nthe $65 million level.\nCongress has traditionally reduced the Administration's budget requests\nfor research activities, and there is no reason to expect a change in\nFY 1976.\nHUD's Research program has been reduced disproportionately as compared\nto similar social research programs in other agencies.\nOMB Comments\nRough estimates of HUD's minimum research requirements in 1976 breakdown\nas follows:\n($ in millions)\nOngoing Research (base)\n48.5\n(includes all congressionally\nmandated studies)\nSecretarial Studies\n3.3\nOMB Requested Studies\n1.0\nTotal\n52.8\nA brief look at HUD's Research program, as compared with other domestic\nagency research programs, on a percentage basis:\n1974 and 1975\n1975 and 1976\nHUD\n-12%\n+14%\nHEW\n-9\n+1\nEPA\n-25\n+7\nAgriculture\n--\n+2\nTransportation\n-26\n+19\nNational Science Foundation\n+3\n+8\n2\nOMB Recommendation: OMB staff believe that a $65 million program level\nis sufficient to permit HUD to meet all prior year commitments, congression-\nally mandated studies and special studies initiated by the Secretary and OMB.\nThese needs are roughly estimated at approximately $53 million.\nFORD LIBRARY\nCommunity Development Loan Guarantees\nJuly 1 - - Sept. 30,\nBudget Impact\n1974\n1975\n1976\n1976\n($ in millions)\nBA\n0\nBA\n0\nBA\n0\nBA\n0\nPresidential Allowance\n-\n-\n-\n-\n-\n-\n-\n-\nHUD Appeal:\nHUD Estimate\n-\n-\n-\n-\n-\n-\n-\n-\nOMB Estimate\n-\n-\n-\n-\n10\n10\n2\n2\nOMB Recommendation\n-\n-\n-\n-\n-\n-\n-\n..\nPresidential Allowance: No loan guarantees should be issued under the Community\nDevelopment Block Grant Program.\nHUD Appeal: Loan guarantees should be approved, but without any marketing\nassistance from HUD.\nHUD Arguments\nThe guarantee provision is unattractive enough that few will be applied for\nand a minimal staff effort will be required.\nNo budget savings would result from suspension of the guarantee provision,\nsince the required safeguards are sufficient to prevent outlays in the\ncase of defaults (which HUD does not expect).\nHUD, with OMB's consent, agreed to a loan guarantee program in order to\nsecure legislative support for the Community Development Block Grant\nProgram from the U.S. Conference of Mayors/League of Cities.\nSuspension would constitute a failure to keep our word, and may tempt\nCongress to mandate a loan guarantee provision with greater outlay\npotential than the HUD proposed provision with its safeguards.\nOMB Staff Comments\nCVAD staff finds no programmatic justification for assisting localities in\navoiding State-imposed debt ceilings. Loan guarantees would further divert\ncapital from other sectors of the economy to a sector supported by $2.5\nbillion in Federal grants. The HUD appeal does not address these program-\nmatic considerations.\nThe HUD argument that there are \"no budget savings\" to be realized is based\neither on no defaults occurring or repayments being realized before the end\nof the fiscal year. If a default occurs near the end of a fiscal year, it\nwill show up as an outlay, even though the collateral requirements insure\nrepayment to HUD in future years.\n2\nThe HUD arguments addressing budget impact do not take into account\nstaffing. There will have to be outlays for staff expenses if the\nguarantee provision is implemented.\nThe HUD appeal position does not involve direct loans and marketing\nassistance resulting in less outlay potential than with direct loans\nand marketing assistance.\nCVAD Recommendation: On programmatic grounds, we recommend maintaining the\nPresidential allowance. CVAD staff is not in a position to judge the accuracy\nof the Secretary's political analysis. The political price for suspending the\nguarantee provision may indeed be too much for the small outlay saving.\nLIBRARY &\n5D-\nComprehensive Planning Grants (Section 701)\nJuly 1 - Sept. 30,\nBudget Impact\n1974\n1975\n1976\n1976\n($ in millions)\nNC\n0\nNC\n0\nNC\n0\nNC\n0\nPresidential Allowance\n75\n101\n50\n110\n50\n60\n-\n12\nHUD Appeal\n-\n-\n-\n-\n-Open-\n-\nOpen\nOMB Proposal\n-\n-\n-\n-\n-Open-\n-\nOpen\nPresidential Allowance: Reduce the 1975 program level to $50 million and maintain\nthat level in 1976.\nHUD Appeal: The Department proposes that the 1976 program level remain open\npending Presidential decisions on Federal land-use policy and consolidation\nof Federal planning assistance programs.\nHUD Arguments\nHUD expects decisions to be made on land-use policy and planning assistance\nconsolidation prior to submission of the Budget, and these decisions could\nhave important implications for 701 funding.\nContinuation at the $50 million level in 1976 will contradict previous\nAdministration statements that the 701 program would be in addition to\nthe Community Development Block Grant Program. This would open the\nAdministration to the argument that it gives with one hand and takes\nwith the other.\nThe reduced level would require cutbacks in activities dealing with Federal\nbase closings, planning for energy conservation, and improving State and\nlocal management.\nOMB Staff Comments\nPresidential decisions on land-use policy and planning assistance consolida-\ntion could change the scope of the 701 planning program (either expanded or\ncontracted).\nIf decisions on these two pending issues do come before the Budget submission,\nCVAD will have time to change the Budget to reflect the Presidential decisions.\nThe decisions may not come before the Budget is presented to Congress. In\nthat case, the Budget will have to be transmitted without reflecting the\npending Presidential decisions.\n2\nBecause of the uncertainty of Presidential decisions, CVAD staff will\npostpone a response to HUD's programmatic arguments. There will\nprobably be disagreement between HUD and OMB staff analyes even after\nPresidential decisions, however.\nCVAD Recommendation: We recommend leaving the 701 program budget decisions\nopen until the point the Budget must be locked up. If that point is reached\nbefore the Presidential decisions on land-use policy and planning assistance\nconsolidation are made, we recommend presenting the 701 Budget on the basis\nof the Presidential allowance.\nFORD LIBRARY & GERALD\nMortgage Insurance Premiums\nBudget Impact\n1975\n1976\n1977\n($ in millions)\nBA\nBO\nBA\nBO\nBA\nB0\nPresidential Allowance\n750\n750\n550\n550\n400\n400\nHUD Appeal\n+ 0\n+18\n+18\n+26\n+26\nOMB Recommendation\n+ 0\n+ 0\n+ 0\n+ 0\n+ 0\nPresidential Allowance\nChange all mortgage insurance premiums to make each insurance program\nactuarially-sound.\nHUD Appeal: Allow the premiums on the profitmaking programs to be revised but\ndo not change the premiums on the actuarially-unscund programs.\nHUD Arguments\nIt would be highly premature to change premiums under the unsound\nprograms and reflect this in the Budget prior to completion of HUD\nstudies, now underway, to determine actuarially-sound premiums by program.\nHUD could not defend premium changes in public.\nLegislation may be necessary to make some programs actuarially-sound.\nThe proposed policy would have an adverse social impact, since poor\nfamilies would be required to pay higher premiums.\nAnnouncement should be made outside the budget and after careful review\nwith interested private parties and Congress.\nSavings would be nil in 1975, and relatively minor in 1976.\nOMB Staff Comments\nHUD staff acknowledges that the studies of single family programs have been\nconducted, and that staff estimates of actuarially-sound premiums are avail-\nable by major program. Less firm estimates of actuarially-sound premiums\nare available for the complicated multifamily programs. A major study of\npremiums will be completed this year\nAnnual premiums can be raised to 1% without statutory change.\nIt is clear that the 1/2 percent premium is inadequate in many programs and\nwould have to be raised to make the programs actuarially-sound regardless\nof whether or not definitive studies exist. Premiums could always be re-\nadjusted later based on more data or better analyses.\nSince new \"front-loaded\" premiums are soon going to be implemented for\nthe basic homeownership program and a new coinsurance program, it would\nbe consistent to raise premiums under the deficit programs now. If the\nunprofitable program premiums are not changed with the profitable program\npremiums, changing them later on would be far more difficult.\nThe complex implementation issue--raising premiums under programs that aid\nlower income families--involves political, not programmatic considerations.\nTerminating this indirect subsidy is consistent with recent policy to\nemphasize cash, rather than in-kind assistance for the poor. The costs\nand benefits of those insurance programs are also being studied by HUD.\nOMB Staff Recommendations\nCVAD staff continues to recommend that each major insurance program be made\nactuarially-sound. We recommend doing so, however, only to the extent per-\nmitted by existing law (that is, up to 1%); we would not recommend seeking\nnew legislation. The issue is as much a resource allocation problem as the\nfunding level for block grants. The announcement should be made in the con-\ntext of the Federal Budget where budget trade-offs are clearly visible and\nwhere this action can be best justified. Moreover, from a tactical stand-\npoint, an increase in premiums should be linked with revisions in the basic\npremium rather than be announced separately. Technical implementation\nissues could be resolved soon after budget delivery. Implementation issues\ncould be carefully reviewed with interested parties and Congress. HUD would\nannounce all premium levels at one time before FY 1976 began.\nMD/HCA staff recommends that insurance written by FHA be \"financially sound\"\nbeginning in FY 1976. Require HUD to submit, prior to FY 1976, a detailed\noptions paper that addresses a full range of remedial actions including\npremium revision. Actions to be considered in the HUD review would include:\nunderwriting, events insured against, premium rates and structure, reserves\nand rebate policies, the grouping of programs within insurance funds, and\nrisk grouping within programs:\nRaising premiums is not the only nor necessarily the best way to\nmake FHA programs financially sound. Other actions, such as raising\nunderwriting standards, changing the premium structure, and intensi-\nfying mortgagee surveillance may have equal or greater significance in\nachieving financial soundness on a program by program basis. Also,\nraising premiums on future insurance written could have less immediate\nbudgetary impact than taking effective remedial steps to reduce defaults\nand losses related to existing insurance in force.\nRaising insurance premiums to actuarially-sound rates in many of the un-\nsound programs would exceed statutory limits. Without legislation,\nseveral programs would have to be terminated if an actuarially-sound\ntest were applied. Even with legislation, higher rates could make these\nprograms uneconomic for owners and sponsors. In such cases, we may want\nto face directly the possibility of terminating programs.\nNo decision, such as increasing premiums, should be announced now in a\nway that would preclude consideration of subsidizing insurance programs\nwith capital contributions (appropriations) or grouping unsound pro-\ngrams with presently sound programs.\nAccording to David DeWilde (Acting Commissioner) FHA is not prepared\nto implement actuarially-sound premium rates. FHA's study of premiums,\nas well as HUD's study of the unsubsidized insurance programs, will\nnot be completed until the end of the fiscal year.\nStaffing\n15,700\nBudget Impact\n1975\n1976\n(numbers of positions)\nFTP\nOther\nTotal\nFTP\nOther\nOther\nHUD Request\n15,356\n2,121\n17,477\n15,656\n1,874\n17,530\nPresidential Allowance.\n14,829\n2,121\n16,950\n14,829\n1,874\n16,703\nHUD Appeal\n15,214\n2,121\n17,335\n15,559\n1,874\n17,433\nOMB Recommendation #1\n14,829\n2,221\n17,050\n15,287\n1,974\n17,261\nOMB Recommendation #2\n15,021\n2,121\n17,142\n15,287\n1,974\n17,261\nPresidential Allowarce: Set a FTP staffing ceiling of 14,829 in 1975 and 1976\nreflecting CVAD estimates of HUD workload in 1976. The 1975 level was set at\n14,829. even though workload estimates indicated a lower level for 1975, to pre-\nvent a \"sawtooth\" effect in staffing levels.\nHUD Appeal: On the basis of reestimates of workload and a new estimate for\nprocessing claims for property defects not included in the original HUD request,\nFTP levels of 15,214 and 15,559 are requested for 1975 and 1976 respectively.\nHPMC-FHA Staffing\nHUD has revised its estimate of mortgage insurance activity indicating\na reduction of 200 positions. from its original HPMC requests for 1975\nand 1976.\nHUD's current annualized rate of mortgage insurance activity will put\nthe Department closer to OMB estimates for the end of 1975 than HUD\nestimates.\nThe original request, however, did not include staff estimates for\nprocessing defects claims, a workload resulting from new authorizing\nlegislation. HUD estimates 110,000 defect claims in 1976. The HUD\nestimate is for 200 FTP positions, offsetting the drop in mortgage\nprocessing activity.\nFORD LIBRARY\nCVAD staff finds the defect claims workload estimate to be excessive.\nThe processing of defects claims will not be an ongoing activity.\nThe Administration strongly opposed the defects provision and accepted a\nlimited authorization as a compromise. Extensive staffing would encourage\nmaximum use of the provision.\nOMB Staff Recommendation - We recommend accepting HUD's revised estimate\nfor mortgage insurance processing with the reduction of 200 FTP positions.\nWe do not recommend substituting the 200 FTP positions for defects claims\nprocessing. We recommend 100 temporary positions for that activity in\n1975 and 1976 because it will not be an ongoing activity.\nCPD Staffing\nHUD is appealing for its original 1976 request for Relocation, Environmental,\nand Planning Management staffs which were cut by the Presidential allowance.\nHUD argues the staff is necessary to properly implement the new block\ngrant program and the 701 planning program, even though categorical\nactivity is declining. HUD also identifies non-community development\nresponsibilities for the Relocation and Environmental staffs.\nUsing HUD estimates of workload and productivity the staffing requests\nfor CPD are justified.\nHowever, the workload is based on maximum estimates of block grant\napplications, which CVAD staff does not concur with. Also, HUD estimates\ndo not take into account reduced program levels for 701 planning in 1976.\nPending policy decisions on land use and planning assistance consolidation\ncould dictate changes in 701 staffing in the future.\nOMB Staff Recommendation - On the basis of better information, we recom-\nmend restoring 45 FTP positions cut by the Presidential allowance but not\nthe full 90 positions as proposed by HUD.\nFHEO Staffing\nHUD is appealing for its full 1976 request for FHEO staff.\nHUD's claim is based on a workload estimate from current annualized\nactivity.\nInformation from the same period in 1974 would have overestimated actual\n1974 activity by 25%.\nHUD and CVAD staff can find no agreement on 1976 workload estimates for\nFHEO activity.\nOMB Staff Recommendation - We recommend 465 FTP positions for FHEO,\n5 above the Presicential allowance, 27 below the HUD appeal.\nHM and PDR Staffing\nHUD did not make specific appeals of the Presidential allowances for\nthese two areas, which were below the original 1976 HUD requests.\nDepartmental Summary\nCVAD staff analysis of the HUD appeal yields an FTP level of 14,829 and 2,221\nother positions for a total of 17,050 in 1975. HUD FTP staffing is currently\nvery close to this 1975 level. This would be an addition of 100 temporary\npositions over the Presidential allowance for 1975. Analysis of the appeal\nyields 15,287 FTP and 1,974 other positions for a total of 17,261 in 1976.\nThis would be 458 FTP positions and 100 temporary positions above the Presi-\ndential allowance. These are the staffing estimates resulting from CVAD\nworkload estimates.\nThese estimates would lead to a sawtooth effect in FTP levels for HUD,\nhowever--15,021 on board at the end of 1974, a 14,829 ceiling in 1975, and\na 15,287 ceiling in 1976. This effect is bad for HUD staff morale and is\nopposed by the Secretary. An alternative to eliminate this effect would\nbe to maintain an FTP ceiling of 15,021 in 1975 and eliminate the 100\ntemporary positions added. The result would be an FTP of 15,021 and 2,121\nother positions for a total of 17,142 in 1975. This alternative level would\nallow HUD to hire around 200 more FTP staff than is currently on board.\nFORD\nNO\nCounseling Services\n1974\n1975\n1976\nBudget Impact\nBA\n0\nBA\n0\nBA\n0\nPresidential Allowance\n--\n--\n--\n--\n--\n--\nHUD Appeal\n--\n--\n2\n.5\n2\n2.5\nOMB Recommendation\n--\n--\n--\n--\n--\n--\nPresidential Allowance: Do not initiate a new Counseling program, but\ncontinue an experimental counseling activity in the Research program.\nHUD Appeal: Initiate a $2 million Counseling program in 1976.\nHUD Arguments\nThe 1974 Housing Act mandates counseling services for Section 235\nhomebuyers.\nA HUD evaluation study provides data which concludes that default and\ndelinquency counseling is cost-effective. HUD estimates that foreclosures\nunder the FHA Fund could be reduced by some $36.5 million in the long term.\nIncreasing defaults in the Section 235 program, because of current economic\nconditions, may cause congressional pressure for this program to grow.\nOMB Comments\nA description of the proposed Counseling program has never been provided\nto OMB.\nCounseling services required to meet the congressional mandate can be met\nwithin the Experimental Research Program.\nThe same HUD evaluation study cited by the Secretary indicates that\ncounseling is not cost-effective from the Treasury's standpoint if\nauthority is not rolled over (Note: Authority to use recaptured\nauthority will lapse during the second month of FY 1976.).\nIn any event, the evaluation study does not provide reliable evidence\nof counseling's efficacy; in fact, the study itself states that the\nconclusions \"should be viewed with caution.\"\n-- Although the findings are statistically significant at the 90% level\nof confidence, the sample included only four cities and, thus, was\nnot representative of a national universe;\n-- Moreover, in two of the four cities, no positive benefits resulting\nfrom counseling could be found;\n-- The study measured only the kind of counseling provided in those\nfour cities for a short span of time;\n2\n-- Persons who refused counseling, or could not be reached, were\nmore successful in overcoming defaults than those counseled\n(in other words, the study may tell us more about the referral\nprocess than it does about counseling itself).\nFor the very reasons cited by the Secretary, the Congress is likely to\nincrease any Administration budget request for Counseling.\nInitiation of a HUD-funded identifiable Counseling program (regardless\nof whether or not it is a new categorical or part of \"235\") will make\na new group of agencies dependent upon Federal money. Weaning them\nwill be as successful as it has been in 701, Public Housing, and social\nservices.\nOMB Recommendation: OMB staff believes that the findings of the evaluation\nstudy can only be applied to those cities (in fact, only two of the four\ncities) included in that study. HUD recognizes the weaknesses of that\neffort and has initiated an extended study to improve the reliability of\nthe data. Even if this study had been conclusive, history would argue\nagainst the initiation of a new program to meet a very limited, short-term\nneed. Once started, Federal programs tend to grow and be maintained long\nafter the original purpose has been met. We recommend that HUD design the\nExperiemental Counseling Program in a fashion that fulfills the congressional\nmandate.\nBest Possible Scan from Poor Quality Original\nDEPARTMENT\nof\n-\nTHE SECRETARY OF HOUSING AND URBAN DEVELOPMENT\nWASHINGTON, D. 20410\nDEC 11 1974\nThe President\nThe White House\nWashington, D.C. 20500\nDear Mr. President:\nConsistent with the direction you have given on a number of occasions,\nand in Ing with 0.00 role DE meticing in the events leading\nto our recent Conference 01 Infletion, this Copartment's 1970 budget\nrequest Was developed with one overriding constraint in mind: that\noutlays and staffing must be and will be held to an absolute minimum.\nTo a great extent the passage of the Housing and Community Development\nAct of 1974 and certain other steps that are being taken to revitalize\nthe nation's badly depressed housing industry create strong pressures\nthat tend to move us in the opposite direction. Nevertheless, in my\njudgment wewwere largely successful in striking a sound balance between\nprogram stability and political viability on one hand, and budgetary\nrestraint on the other.\nWe have now been advised by representatives from the Office of Management\nand Budget of the outcome of their discussions with you relative to our\nbudget request. Because I believe so strongly in the importance of our\nmutual goal of controlling federal expenditures, I will not appeal the\nlargest and perhaps the most sensitive cut made in this budget - a further\nreduction of $150 million in our $2.7 billion request for community\ndevelopment block grants in fiscal year 1976. As you know, the legislation\nyou signed in August authorized a funding level of $3.0 billion for the\nsecond year. As you also know, our communities and states are having\ntheir own severe budget problems. However, I believe the Administration\ncan handle the predictable adverse Congressional reaction on the grounds\nof fiscal responsibility. In short, there is a significant benefit that\nmakes this battle worthwhile.\nOn the other hand, a number of issues remain that are relatively\ninsignificant in terms of our 1976 budget request--$21 million in total\nabove the now Fions--hut extremely significant from a programatic\nalso\nFORD LIBRARY : QERALD\nBest Possible Scan from Poor Quality Original\n2\nOMB runs an unacceptably high risk of provoking Congressional action\nwhich will mondate much higher program levels then would otherwise have\nbeen acceptable, thereby turning a relatively minor item into a major\nbudgetary problem. Thus I have no choice but to appeal such items\ndirectly to you.\nThe individual items are described in more detail in the attachments to\nthis letter.\nRespectfully,\nChange T. Lyrn\nA. Staffing\nB. New Communities Guarantees\nC. Research and Technology\nD. Community Development Loan Guarantees\nE. Comprehensive Planning Grants (Section 701)\nF. Counseling Services\nG. Actuarial Soundness of FHA Mortgage Insurance Programs\nTONO . LIBRARY\nBest Possible Scan from Poor Quality Original\nStatting\nOMB Proposal\nOMB has recomended a CUL in stailing in both 1975 and 1976:\nOMB Reduction In\nBudget\nBudget\nSubtricasion\nONE Reduction\nAuthority\nOutlays\n(Dollars in Millions)\n1975\n15,356\n-527\n...\n$ -1.9\n1976\n15,656\n-827\n$-2.7\n- 12.2\nDepartment Appeal\nThe OMB reduction VIIII licensed, primarily, on ONS re-estimates of the Depart-\n1. FHA Appll artims. staff numbers are based substantially upon\nworkload resulting from the receipt of PHA insurance applications.\nFrom a peak of over 1,490,000 applications in 1971, the volume of\nwork declined substantially. 100 has attempted to adjust its overall\nstaff levels to reflect this declining volume. In fact, in the\ncurrent budget submission along, a further cut of 425 positions WHS\nmade from the FY75 level submitted to Congress. Reductions below this\nlevel will give further support to those who argue that FHA is being\nundermined and ought to be made a separate agency outside of HUD.\nThe data on unit application receipts follow:\n1975\n1976\nOMB Re-estimate\n550,000\n800,000\nCurrent HUD estimate\n640,000 1\n833,000 1\n1. Exclusive of property deficiency claims.\nThe levels estimated by the OMB were developed based upon activity in\nJuly and August prior to the increase in FHA mortgage amounts effective\nAugust 22, 1974. Those data are clearly out of date. The current\nannualized rate of activity is only slightly below the current estimate\nof full year activity for 1975, verifying HUD's 1975 estimate. HUD's\ncurrent 1976 estimate is based on a conservative economic analysis of\nlikely activity.\nAlthough 1109's current entimate of FHA applications is lower than the\nortginet a staffing reduction of shout 200\nthe\nprocessim\nThis\nwill\nregistro\nestimate\nin\nFORD ALBRATA\nBest Possible Scan from Poor Quality Original\n-?-\n2. Equal organizamity. Statting in this area is based on the mumbers of\ncomplaines processed and reviews: initiated. ONB does not dispate\nthe 1810 sorkland Factor per complaint and review. The data follow:\nCurrent\nONB\nFLUD\nRe-Entimate\nEstimate\nComplaints:\nExpensive Order 11246\n150\n235\nTitle VLIT\n2,872\n3,835\nTitle VI\n250\n500\nTotal Complaints\n3,272\n4,570\nAFFT valor Evins\nNA\n300\nBrown Children's INSURANCE He amountant FACH of\nBED - 0.00 for 1976 vontil\nus below the current the\niner 0722 1,000 mie projected by UUD for 1976 1. have:\nupon bistorical treads.\nONB aid not indicate vin Invel of affirmative marketing reviews they\nfelt has proper--only that the estimated level--a 140 percent increase\nover 1974-vas too high. The reviews, however, would cover, on a spot-\ncheck basis, less than 10 percent of approved plans-a minimal level of\nenforcement in fair housing.\n3. Community Planning and Development. The issue revolves around workload\nin three areas--eavironmental reviews, planning and management, and\nrelocation. OMB, while not presenting their re-estimates, questions\nthe need for continuing the current staffing levels.\n1974\n1975\n1976\nEnvironment\nSpecial clearances and environmental impact\nstatements (FIS)\n2,670\n3,082\n2,702\nAbbreviated application reviews under new\nBlock Grant program\n3,200\n3,450\nGranters assisted and programs monitored\nunder new Block Grant program.\n375\n1,000\nTotal Workload\n2,670\n6,657\n7,152\nFORD\nBest Possible Scan from Poor Quality Original\n-1-\nPlanning\nNumber at applications, programs monitored,\nand programs expleted\n2,314\n2,460\n2,546\nRelax\nRoview actions\n1,000\n3,500\n3,450\nCities monitored\n1,623\n1,373\n2,648\nIt is estential that the administration of the new Block Grant program\nbe carried out properly or it will lose support. The above figures\nshow that worklon! will increase substantially in the areas cited by\nONB. This 1n 002 of the factors that Ted to our appoal last\nSepsent for an higher level than that currently set Forth in\n⑉⑉ - To evdnes the Level would meriously\nCEN : - and the alp the confiden\n'''\nHIV\n- LIBRAR\nBest Possible Scan from Poor Quality Original\nAttachment. N\nNew Commenities Process\nProposal\nThe budget would expressly provide that approval of additional new\ncomunity guarantee commitments is being suspended during 1976.\nBudget Impact\nThe Tevels of guarantee commitments under consideration are:\n1010\nRange ⑉\n(61)\nCurrer\n1976\n1975\n1976\nPreir\n(Dothers in\nNew Guarantee Commitments:\nAuthorized number\n1\n2\n0-1\n...\n...\nAmount\n$32.0\n...\n$85.0\n...\n$0-$50.6\nAmended Commitsion\n$11.0\n$32.0\n$20.0\n$20.0\n$20.0\nOutlays\n*\n*\n*\n*\n*\n*There are no direct budget outlay impacts from the guarantee commitments.\nFuture outlay inpacts are difficult to estimate. Although the rules\nprovide that the guarantee is to be covered 1 110% in asset value, it is\nimpossible to know what potential losses WOL\n=.\nDepartment Appeal\n1. There will be significant legal pro'\n.' in addition to moral\nones, in suspending the program when applicat nave invested significant\nsund--ranging from $500,000 to $1,000,000 in planning costs, exclusive of\nland assembly costs--in expectation of participation in the HUD program\nand in reliance on HUD's preliminary reviews and approvals. We believe that\nthe Federal government could avoid the potential charges of renaging or bad\nfaith by preserving the possibility for up to two new approvals in the\nbudget.\n2. The action would probably be construed as a \"suspension\"--and\nthe forerumer of termination. Such action would severely hinder current\nnetions of the Department to negotiate with owners, devélopers and financial\ninstitutions to provide additional financial assistance to projects having\nSPRETY Circussial difficult 1.00 Banks and notential investors would believe\nFORD is LIBRARY 078870\nBest Possible Scan from Poor Quality Original\n2\nat world nationally the\ntirmetal risk of thes with espect to 8337 million.\n3. Over the past eighteen months 07 eve Clr Department has\ntaken action to subject applications to TO and rigorous\ncriteria. The six projects renaining in the application pipeline\nreceim after at major purying of the pipeline during 1974. These\nremaining projects will be subjected to is continuing rigorous review\nand refinement process to insure financial viability, managment\ncapability and potential to achieve the ptatubery and regulatory\nobjectives. As n result of 1143 Lightenter received no Cull\nthe Int 17 MPI 11 Birty B chat PHY\nin\n4. h total rather than pet internative tightening with\nconcurred reductions in activity, is MODE likely ED generate mandating\nsince such important nechers of Congress as Reps. Horton, Conable, Mahon\nand Ashley and Senz. Mmphrey, Talt, and McClellon consider this\nprogram to be a buy part of LUD activity.\nFORD\n&\nGERALD\nLIBRARY\nBest Possible Scan from Poor Quality Original\nResearch and Technology\nCOM Propiem]\nThe OMB proposed a 1976 program level of $05 million as opposed to the\nDepartment's request of $75 million. A deferral notice proposing to\ndefer $8 million of the 1975 appropriation to 1976 has also recently\nbeen submitted to the Congress.\nBudget Impact\nDept.\nActual\nEntimate\nRequest\nONB\n1974\n1975\n1976\nMark\nAppeal\n(Dat) in Thone\nProgram level\n$60,769\n$57,507 of\n$75,000\n$65,000\n$75,000\nBudget authority.\n65,000\n65,000\n75,000\n57,000\n67,000 b/\nOutlays\n58,382\n56,000\n71,000\n58,000\n66,000\na/\nOriginally budgeted at $65,507 prior to the recent decision to\ndefer $8 million.\nb/ Assumes approval of $8 million deferred from 1975.\nDepartment Appeal\n1. The Secretary wishes to do research on:\n--Mortgage credit and understanding basic housing production and\nfinancing.\n-Non-financial assistance for consumers in the housing market.\n-Improve management of communities.\nOMB has requested research, also, on:\nOperating subsidies for local housing authorities.\n--A review of mortgage insurance activities.\nThe Congress has directed that research be carried out in:\nLead been\nBest Possible Scan from Poor Quality Original\n2\nIn addition, the Congress has mandated establishment of the\nNational Institute of Building Science (NIDS) and a solar\nenergy research program. To avoid a supplemental appropriation,\nit may be possible in 1976 to use a relatively small amount of\nresearch funds to initiate these activities and still comply\nwith the Congressional munites.\n2. About $48.5 million would be needed in 1976 just to continue\nongoing research programs and carry out the Congressionally\nmandated research.\nThe ONE world Leave $16.5 million to carry out\nthe other research General J alove. The Consens has\nnever allowed the luil only L request. and choco is Du reason to\nbelieve that it will 110. mgata cut the estimate by $5 million LO\n$10 million. Such 2 reduction from the ONB figure would further\nleave only S5-$10 million for all new Items in point 1 above.\n3. We have been advised that other agencies with comparable social\nresearch programs did not sustain cutbacks as severe as that\nrecommended for HUD. CMB should justify this disproportionate\ntreatment on the basis of cost effectiveness.\nFORD\nBIT\nGLRA\nBest Possible Scan from Poor Quality Original\nCommunity Development Loan Guarantees\nThe Proposal\nThe legislation authorizing the new Community Development block grant program\nincludes a provision authorizing loan guarantees for land acquisition.\nONB has proposed that the Fiscal Year 1976 Budget reflect an administrative\nsuspension of this provision.\nBudget Impact\nThere are no budget savings resulting from an administrative suspension of the\nloan guarantee provision.\nDepartment Position\n1. Tradicionally, the orlinn renowal program allowed comunities to\nborron to Finance Land acquisition under their projects, such borrowings\nto be repaid through proceds from Inne sales and Federal grants.\n2. In the shift from the categorical urban renewal program to the new\nblock grant program, legislative support by the U.S. Conference of\nMayors/Rational League of Cities was conditioned upon retention of\nsome direct loan or loan guarantee program.\n3. HUD, with OMB's knowledge and consent, negotiated the loan provision\nin the new legislation with a specially designated representative of\nthe Conference/League. These negotiations achieved a loan provision\nwhich minimizes budget outlays because ---\n-- it is a guarantee program, not a direct loan program.\n-- it is likely to be little used because --\nlocal credit must be pledged.\nFederal appropriations (block grants) must be available, and\nare made only on an annual basis.\nproject financing activity must be carried out by the community,\nnot through HUD as has been the case in the past.\nthe Rep. Gonzales provision, prohibiting benefits to private\ndevelopers, has the practical effect of nullifying the\noperability of the provision.\n11\nTisal\nword\nand\nBest Possible Scan from Poor Quality Original\nAttachment E\nComprehensive Planning Crants (Section 701)\nONB Proposal\nONB proposes a program level of $50 million for each of Fiscal years 1975\nand 1976. The 1976 level would be funded utilizing carryover 1975 funds\nof $50 million from amounts deferred during the current fiscal year. A\ndeferral message for 1975 has been submitted to the Congress.\nBudget Impact\nDept.\n1974\n1975\nRequest\nOMB\nActual\nEstimate\n1976\nMark\nAppeal\n(Dollars\nin Millions)\nProgram level\n$75.0\n$50.00\n$150.0\n$50.0\nOpen\nBudget authority\n75.0\n100.0\n150.0\n...\nOpen\nOutlays\n101.3\n110.0*\n115.0\n60.0\nOpen\n*Represents revised program level and outlay estimates based on proposed\ndeferral of $50 million of FY 1975 budget authority.\nGERALO B. FORD LIBRARY\nDepartment Appeal\nThe Department recommends that the 1976 program level remain open pending\ndecisions on Federal land use policy and the consolidation of Federal planning\nassistance programs.\n1. We expect a decision to be made prior to the State of the Union Message\nand the submission of the Budget to the Congress on either land use\npolicy, planning program consolidations, or both. Since the 701 pro-\ngram can take in land use planning or provide the core for a consol-\nidation, the budget amount should be left open until the policy decisions\nare made.\n2. The Administration has argued that the Section 701 comprehensive\nplanning program would be in addition to the benefits provided\nunder the Community Development Block Grant program of the new 1974\nAct. Indeed, the Administration has indicated that 701 funds could\nbe used to prepare applicants for the new Community Development Block\nGrant program. To show a reduced program level now would open the\nAdministration-and validly so-to the argument that what ve nive\nwith the right hami, 10 take away with the 10ft hundred company\ncriticion with respect to general revenue charing.\"\na. The reduction would require cut-backs in planning activities of\ngrantees covering the the tispince\nFederal base clossings, state and Toead plassing too energy consectution,\nand Improved state and local government\nBest Possible Scan from Poor Quality Original\nAttachment 11\nCounteling Services\nONB Proposal\nThe appropriation to fund default and delinquency counseling services to\nhomeowners subsidized under the Section 235 Homeownership Assistance Program\nwould not be allowed.\nBudget Innact\nActual Estimate Request OMB\n1974\n1975\n1976\nMark\nAppeal\n(Dollars in Millions)\nProgram level and\nThe Department's request\nbioligat authority..\n. . .\n...\n$2.0\n...\n$2.0 would represent potentic\nlong term cost savings\nOctlay\n$1.5\n$.4\n.5\n...\n.5 of $36.5 million.\nDepartment Anneal\nThe Department proposes to implement a small $2 million program in 1976 pursuant\nLo the HDD Act of 1968 as amended by 1974 legislation which mandates counseling\nin the Section 235 program.\nThe benefits of such a program would be:\nR.FORD\n--A potential cost savings of some $36.5 million, on the basis of a HUD cost-\neffectiveness study, since foreclosures under the FHA insurance fund would\nSERALD\nbe reduced.\n--A counseling program would serve to reduce or eliminate Congressional\ncriticism for not having a program - the lack of counseling, it is charged,\nwas one of reasons for the failure of the subsidized housing programs.\nOMB proposes that the program not be implemented because:\n-Information currently available on the effectiveness of counseling is\ninadequate to justify a new categorical program.\n--As no new commitments are being made under Section 235, some alternative\nmeans of providing counseling must be developed.\nApart From the problem that ve have not been informed what information is\ninadequate, the Department questions 038's assumptions and réasons becauset\nTHE Name is - Monably reliable to show the cost\nof - commeting.\nsuggested to offs, buts,\nfrom\nto\n235\nBest Possible Scan from Poor Quality Original\n-2-\n3. The counseling program deals directly with losses due to foreclosures\nand payments, which otherwise are uncontrollable. OMB in ignoring its\nown admonitions to Departments to take steps to deal with the mounting\nlevel of uncontrollable outlays.\n4. Moreover, Congressional pressure will grow for this program in view\nof increasing defaults because of current economic conditions.\nFORD is LIBRARY 038870\nBest Possible Scan from Poor Quality Original\nS\nActuard 117 Sound Martange Insurance Programs\nOMB Proposal\nOMB apparently proposes that the FY 1976 budget reflect a decision that all\nFHA mortgage insurance progress will he carried out on an actuarially sound\nbasis and that premiums will be adjusted accordingly.\nBudget Impact\nThere would be no impact on budget outlays in FY 1975 and only a relatively\nminor impact in by 1976.\nDepartment Angeal\n1. The Department is nerively pursuing studies to ancertain the potential\nsoundness of an actuarial rate structure on each program in the four\nFUA fundo. No anticipate that the results of these studies would be\navailable by the end of the fiscal year. It is highly premature to\nInsist that such structure he implemented at once and reflected in the\n1976 budget.\n2. We do not know fully what OMB has in mind. We do know that all the\ncomplex issues that would be involved in such a decision have not been\nassessed as of this point in time. For example, it is quite possible\nthat legislation would be required in some cases since the premium rates\ncould exceed existing statutory limitations.\n3. Such an announcement should be made outside of the context of the\nFederal budget, and then only after it has been carefully reviewed with\ninterested parties in the private sector as well as in Congress.\nTHE WHITE HOUSE\nWASHINGTON\nMEMORANDUM FOR: THE PRESIDENT\nFROM:\nROY L. ASH\nSUBJECT:\nEPA Appeals of 1976 Presidential Budget\nDecisions\nThe Environmental Protection Agency has appealed five\nPresidential decisions on the 1976 Budget. Administrator Train's\nletter is attached at Tab A. The five issues for your\nconsideration are summarized below.\nI. State Control Agency Grants\nThese grants partially fund the administrative expenses\nof State pollution control agencies. The initial\nPresidential decision was to maintain a level of $91 million\nfor grants to State agencies for both 1975 and 1976.\n(This would be accomplished by deferring the FY 1975\nCongressional increase of $10 million, and providing\n$81 million in new budget authority in FY 1976.)\nGERALD FORD LIBRARY\nEPA requests $109 million for FY 1976, an increase of\n$18 million from the FY 1975 President's Budget level of\n$91 million, and $8 million over the anticipated 1975\nappropriation of $101 million. EPA wants to increase\nthe program because it believes the grants will induce\nStates to assume or continue to perform tasks under laws\nthat EPA would otherwise have to perform. There is strong\nconstituent and Congressional support for EPA's position.\nThe FY 1975 budget decision included a publicly announced\nplan to begin phasing out the grants in FY 1976 in\nfurtherance of New Federalism principles. Our position\nhas been that direct payments by a Federal agency to its\ncounterparts at the State and local levels bypasses elected\nofficials with the consequence that non-Federal employees\nbecome more responsive to the policy control of the\nFederal Government than they do to the policy control of\nState and local governments. Your $300 billion 1975 budget\nplan proposes to defer the $10 million Congressional\naddition for control agency grants. The Presidential\n3\nnearly $2 billion already appropriated for this\npurpose is sufficient. Funds for reimbursement,\nas opposed to construction grant allotments,\nwill not provide for new facilities, or contribute\nto improvement of water quality. On the other\nhand, if Congress should add funds to the budget\nOMB would not object.\nAgency Recommendation: $700 million\nOMB Recommendation:\n$0 (Reaffirm initial Presidential\ndecision)\nIII. Areawide Waste Treatment Planning Grants\nThese grants provide 100 percent Federal funding for\nregional waste management plans. The initial Presidential\ndecision was to provide $15 million for this program with\n50-50 cost sharing. EPA requests $75 million with\nretention of 100 percent Federal funding. EPA claims\nthat $75 million is necessary to provide funds for\ncritical areas, and that 100 percent Federal funding\nis necessary to induce localities to undertake this\nplanning. $150 million has already been provided for\nthis program which should be sufficient to fund high\npriority areas if properly allocated. The benefits\nof this program are questionable, especially if\nlocalities are unwilling to provide any matching funds.\nAgency Recommendation: $75 million (100 percent Federal\nfunding)\nOMB Recommendation: $15 million (50-50 cost sharing)\n(Reaffirm initial Presidential decision)\nIV. Land Use\nEPA has indicated that many of its programs have direct\nimplications on land-use. Therefore, the agency feels\nthat it is imperative that EPA establish a small staff\noffice within the Office of the Administrator to\ncoordinate the agency's policies and activities impacting\non land use.\n4\nThe Administration's position has been that, pending\nthe establishment of a national land use policy, a\nvisible Office of Land Use may conflict with the\nAdministration's final position and could affect\nthe ultimate outcome of proposed legislation.\nSpecifically, the creation of the office could be\nperceived by the Congress, and the public, as an\nAdministration policy of designating EPA as the\nagency with primary responsibility for land-use.\nThis, in turn, might provide EPA with additional\nsupport to impress the Congress and the public with\na need to regulate land on the basis of environmental\ncriteria.\nAgency Recommendation: Create the Office of Land Use\nOMB Recommendation:\nThe Administrator of EPA should be\npermitted to hire the one individual\ncurrently under consideration.\nHowever, no additional staff should\nbe permitted and no separate,\nidentifiable Office of Land Use\nshould be established.\nV.\nWater Supply\nAdministrator Train is seeking commitment for a FY 1975\nSupplemental Request and a FY 1976 Budget Amendment\nfor implementation of the new Safe Drinking Water Act.\nIn discussions with Mr. Train, I have emphasized that a\nFY 1975 Supplemental is unnecessary, as full implementation\nof the law will take place over a period of several years.\nAn allowance has been made of 30 positions and $2 million\nin the FY 1976 budget in addition to the present program\nof 173 positions and $8.2 million.\nAgency Recommendation: Commitment for a FY 1975 Supplemental\nRequest\nOMB Recommendation: Make no commitment; present resources\nare sufficient\nUNITED\nSTATES\nAGENCY\nUNITED STATES ENVIRONMENTAL PROTECTION AGENCY\nPROTECTION\nWASHINGTON, D.C. 20460\nDEC18 1974\nTHE ADMINISTRATOR\nDear Mr. President:\nAt the forthcoming meeting with you on our FY 1976 budget, I would\nlike to discuss the following five items:\n1. State Pollution Control Agency Grants:\nState and local agencies bear a major and increasing\nresponsibility for meeting Federally mandated requirements\nin the air and water pollution control and abatement programs.\nRecognizing that these are Federal responsibilities, States\nare unwilling to assume them unless a substantial portion of\nthe cost is defrayed by the Federal Government. If not assumed\nat the State and local level, the responsibilities by law must\nbe assumed by EPA, in which case the resource requirements of\nEPA would increase dramatically.\nIt is my firm conviction that if we are to obtain a\nstanding commitment by the States to assume these Federal\nresponsibilities, the Administration must make an expressed\ncommitment not to phase-out the program. Secondly, I believe\nan increase of $18 million in financial support of these\nagencies is needed. This is only 50% of the increase we\nbelieve is fully justified based on workload. Further, it\nwould represent only a very modest increase in budget\nauthority over that provided by the Congress in FY 1975,\nrather than a decrease of about $10 million now proposed.\nWhile a small increment, it would signal the Administration's\nsupport of State efforts and the desire for a productive\nFederal-State relationship in achieving key environmental\ngoals.\n2. Construction Grants:\nI believe that the proposal I made for a 5-year $25 billion\nwaste treatment grant program is realistic and consistent with\nwhat Congress is likely to enact. If $4 billion is made avail-\nable for FY 1976 only, I believe that program reforms stand\nlittle chance for enactment since Congress will want to deal\n2\nwith both a financing program as well as programmatic changes.\nEven if program reforms are transmitted this year, I cannot\nagree with the recommendations made by OMB. We are working\nclosely with the Congressional Committees, State and local\ngovernments and other groups to develop program reforms that\nwould reduce the total Federal commitment with minimal dis-\nruption. I believe this process can lead to a sensible waste\ntreatment program whether it is submitted this year or next.\nAlthough the recommendation to suspend funding of\nfurther reimbursables would not adversely impact EPA's\nprogram, communities across the country have been led to\nbelieve these funds would be made available soon. It is\nimportant that we discuss this action in terms of its impact\non State and local governments.\n3. Area-wide Waste Treatment Management Planning Grants:\nThese grants to local agencies are a means of evaluating\nall sources of water pollution in a given area and developing\na cost-effective plan for dealing with the total pollution\nproblem. This program represents the only meaningful tool\nat our disposal to control non-point sources (e.g. sediment,\npesticide run-off). Our currently authorized funds have\nallowed us to make grants to only about one-third of all\nareas requiring this type of planning effort, and only four-\nteen of the 25 largest cities. For FY 1975, the budget\nprovides for a program of $120 million. I propose $75\nmillion be allowed for this program in FY 1976 to provide\nsupport to an additional 66 areas, including 5 more large\ncities.\n4. Land Use:\nI have announced the creation of a small staff office\nto coordinate Agency policy. and plans for those EPA activities\nimpacting on land use. Since many of our programs have direct\nimplications for land use, it is imperative that I be in a\nposition to deal with this issue in an integrated, unified\nmanner. We are not requesting additional funds or positions\nfor this purpose.\n5. Water Supply:\nI am most pleased with your signing of the water supply\nbill As you know, there is 3 great deal of interest in this\nlegislation and its implementation. At the present time,\n3\nEPA has but token resources available for undertaking this\nnew responsibility and I anticipate the immediate need for\nsubstantial increases to permit adequate follow-through at\nboth the Federal and State levels. We will shortly trans-\nmit a specific request to OMB, but I want to bring the matter\nto your attention at this time.\nI look forward to meeting with you to discuss the above items in\ngreater detail.\nRespectfully,\nRussell E. Train\nThe President\nThe White House\nWashington, D. C. 20500\nTALKING POINTS FOR A MEETING WITH\nADMINISTRATOR TRAIN ON THE FY 1976 EPA BUDGET\n1. Control Agency Grants\nFY 1976 level is $91.5 million ($10 million to\nbe deferred into FY 1976 from FY 1975\nCongressional increase; $81.5 million new budget\nauthority in FY 1976).\nThe agency wants to increase this by $36 million.\nIn FY 1975 allowance letter, OMB stated these\ngrants were to begin to be phased-out in FY 1976.\nThe agency states that if these grants are\nreduced, EPA will not be able to induce State\ngovernments to accept increased delegation of\nadministrative tasks.\nOMB Position: Program grants represent a\nmechanism to funnel funds from a Federal agency\nto its counterpart at the local level, bypassing\nelected officials. If program grants are\nreduced, some tasks will not be performed. The\nlikelihood of a Federal takeover of local and\nState functions is minimal.\n2.\nConstruction Grants\nA. Allotment Level\n$4 billion is planned for allotment in FY 1976.\n$2, $3, and $4 billion was allotted in fiscal\nyears 1973, 1974, and 1975 respectively.\nThe agency wants the FY 1976 allotment increased\nfrom $4 billion to $5 billion arguing that we\nneed a $5 billion program as a \"sweetener\" for\nlegislative program reforms.\nOMB Position: $1 billion more in FY 1976\nallotment is not the determing factor in getting\nprogram reform legislation through the Congress,\nand probably more than the agency and the\npollution abatement construction industry can\nhand's efficiently in any event.\n2\nB.\nReimbursable Payments\n$1.9 billion has been appropriated for\nreimbursements; this amount would have been\nsufficient to cover executive branch commitments;\nhowever, Congress changed the allocation\nformula creating new requirements.\nEPA is requesting an additional $700 million to\nprovide payments under the new allocation\nsystem.\nOMB Position:\n-- With total payments of $1.9 billion, States\nand municipalities will not be adversely\nimpacted.\n-- Reimbursement payments do not result in\nnew construction activity, nor do they\ncontribute to improvements in water\nquality.\n-- If Congress should add additional\nappropriations for reimbursements, the\nAdministration would not object.\n3. Planning Grants (Section 208 Water Act)\nThe Act authorizes grants to local and State\nagencies for the purpose of preparing\ncomprehensive plans for the treatment of\nwastewater generated in contiguous political\njurisdictions.\nIn FY 1975, the Act provided $150 million in\ncontract authority for the development of\nareawide plans. This amount is in addition\nto the planning funds provided through the\nconstruction grant program.\nUnlike the contract authority provided for\nsewage treatment plants, we had no legal\nbasis for withholding these funds. Consequently,\nplanned obligations in FY 1975 are $120 million\nwith a Federal share of 100 percent, which\nreduces to 75 percent in ГУ 1976.\n3\nThe agency wants an additional $75 million in\nFY 1976, with retention of 100 percent Federal\nfunding.\nOMB Position:\n-- Nearly $150 million will have been obligated\nin fiscal years 1974 and 1975 with 100 percent\nFederal funding. The most critical areas\nwould be funded if priority system were adopted.\n-- EPA already funds wastewater treatment planning\nwith construction grants, and funds statewide\nnon-point source planning through control agency\ngrants.\n-- A major thrust of these plans is in land-use\nplanning. The Administration has not yet\ndecided on agency roles in land-use planning.\n-- Recommend $15 million at 50-50 cost sharing to\nfund any remaining critical areas.\n5.\nSafe Drinking Water\n$2 million and 30 positions have been added to\nthe FY 1976 budget request to meet the requirements\ngenerated by the new law.\nThe above increase is in addition to EPA base\nprogram of 173 positions and $8.2 million.\nThe agency has stated that it needs a supplemental\nin FY 1975 and will probably press for a firm\ncommitment to send a supplemental after they have\nreviewed their resource requirements.\nOMB Position:\n-- No commitment should be made to send supplemental.\n-- A strong signal should be given that this is\nnot the year for supplementals, particularly\nfor bills with which we had problems.\nEPA should also be told that we aren't interested\n11: financing Federal enforcement efforts without\nL first giving local governments time to act.\n274839 FORD\n4\n4. Land-Use\nPrevious to EPA's FY 1976 budget submission,\nAdministrator Train announced that he was\nestablishing a land-use policy office in his\nimmediate office.\nOMB passback stated that he could hire the one\nperson he was planning to make the head of the\noffice, but (1) he was not to expand the staff\nand (2) he was not to set up a separate office\npending an Administration position on agency\nroles in land-use planning.\nAdministrator Train believes he needs one central\noffice to coordinate various EPA programs and that\nOMB is meddling at too low a level.\nOMB Position: Hire one person if there is an\noutstanding commitment to do so. Do not set\nup a land-use office.\nTHE WHITE HOUSE\nWASHINGTON\nMEMORANDUM FOR THE PRESIDENT\nFROM: Roy L. Ash\nSUBJECT: NASA's Appeal of FY 1976 Budget Decision to Defer\nthe ERTS-C Satellite\nDr. Fletcher has requested that you reconsider your decision\nto defer for at least a year the initiation of a third Earth\nResources Applications satellite (ERTS-C). The satellite\nwas authorized in the FY 1975 budget at the initiative of\nCongress, but no funds were specifically appropriated for\nthe project. Were ERTS-C to be approved in the FY 1976\nbudget, NASA would absorb the $14 million in BA and $11\nmillion in outlays for ERTS-C within its current 1976\nallowance. Future year funding of about $40 million--over\nthe next two years--would be required to complete the\nsatellite.\nThe initial decision not to include funds for ERTS-C in the\nFY 1976 budget was based principally on the view:\n- that a convincing case had not been made by NASA to support\nthe need for continuity of data in an experimental earth\nresources survey program.\n- that by accepting ERTS-C in the FY 1976 budget, we would\nbe recognizing de facto the need for data continuity and\ntherefore set the stage for additional larger and more\nexpensive ($150 million) follow-on satellites in FY 1977\nand subsequent years.\nDeferring ERTS-C would also provide additional time to better\nclarify some complex issues related to the appropriateness\nof the technology being developed by NASA and the needs of\npotential users of ERTS-type data for both experimental and\noperational applications. Thus, the major OMB policy concern\nis to prevent a premature commitment by the United States\nto the establishment of an operational satellite system for\nremote-sensing of earth resources data.\nNASA's appeal: Dr. Fletcher's attached letter argues that\nthe effect of not including funds for ERTS-C in the FY 1976\nFORD is LIBRARY DERALD\n2\nbudget would be to cancel a project approved by the Congress\nin the FY 1975 budget. (This point is open to interpretation\nas discussed below--no funds were specifically appropriated\nfor ERTS-C nor have any funds yet been spent to begin work\non the satellite.) He also argues that without ERTS-C, \"both\nexperimental and beneficial uses of earth resources satellites\nwould be halted indefinitely after 1977\" (OMB also takes\nissue with this position).\nDr. Fletcher's letter then goes on to argue that:\n- ERTS-C should be initiated now because he believes that\nthe economic potential of the ERTS program is very large\n(particularly in relation to agriculture);\n- the technology will be an important international asset\nfor the U.S.;\n- congressional support is very strong for the program; and\n- continuity of satellite data is considered essential to\nestablish the potential value of remote-sensing technology.\nHe also makes the point that a commitment to go ahead with\nERTS-C would not necessarily commit the Administration to\nmaking a decision next year on whether to commit to a future\noperational system. (We agree but have other concerns--see below)\nAnalysis: We cannot accept Dr. Fletcher's argument that not\nincluding ERTS-C in the FY 1976 budget would have the effect\nof terminating NASA's experimental development of earth\nresources technology.\nIt is perhaps a semantic distinction whether we would be\n\"cancelling\" or \"deferring\" ERTS-C by not initiating work\non the satellite now.\n- There is no ambiguity about congressional intent that\nthe satellite should be initiated as soon as possible\n(in FY 1975).\n- There is ground for legal interpretation as to whether\nfunds were actually appropriated for ERTS-C in FY 1975,\nand whether a decision not to go ahead would require a\nrescission action (OMB counsel has indicated that no\nfunds have actually been appropriated for ERTS-C).\nDr. Fletcher's statement that without ERTS-C work would be\n\"halted indefinitely\" after 1977 is quite misleading in\nour view:\nQERALD R.FORD LIBRARY\n3\n- NASA has a large on-going program (about $50 million\nper year) related to the development of remote-sensing\ntechnology and the ground-based activities required to\ntranslate satellite data into useful information.\n- These activities will be continued even without ERTS-C\n(and they are considered the most critical developmental\naspect of remote-sensing technology).\n- Nearly four years of satellite data from the first two\nERTS satellites is expected to be available for analysis\nby 1977.\nAlthough NASA has recently developed some large estimates of\npotential dollar benefits to be gained from a future operational\nERTS-type system, NASA's economic analyses have not been\ncritically reviewed nor have the basic technological demon-\nstrations of satellite capabilities yet been completed. The\ninternational benefits claimed may also be promising, but\nagain these capabilities have not yet been demonstrated.\nFurthermore, it should be emphasized that all of these\npotential benefits are related to a postulated operational\nsystem, and in the context of this longer term issue, it\nis important that other technologies than ERTS should also\nbe considered.\nWith respect to the large potential benefits to agriculture\nnow claimed for ERTS-type satellite, the Department of\nAgriculture has demurred on what the dollar value of such\nbenefits might actually be, but Agriculture has strongly\nsupported NASA's proposal to conduct a joint experimental\ntest of ERTS capabilities for agricultural forecasting on\na world-wide basis. In this latter connection, the Department\nof Agriculture has taken the position that ERTS-C will be\nrequired in 1977 for the completion of the Large Area Crop\nInventory Experiment (LACIE). Despite the position taken\nby Agriculture on this requirement, OMB is not convinced that\na strong case has been made to support the launch of ERTS-C\nin 1977 in order to complete the crop-forecasting experiment.\nCongressional support, particularly in NASA's authorizing\ncommittees, appears to be strongly favorable to ERTS and\nmay in fact be sufficient to push the Administration to move\nfaster in developing ERTS technology, than we believe is\ndesirable.\nFORD LIBRARY\nOn the need for data continuity and the implications for\nfuture years of approving ERTS-C now, we continue to disagree\nwith NASA's position. We do not believe that NASA has made\na convincing case that a continuous stream of satellite data\nis necessary to prove the experimental capabilities of ERTS\ntechnology; or that major harm to the program would result\n4\nfrom deferring a decision on ERTS-C until the FY 1977 budget.\nWe are concerned, moreover, that by committing to an ERTS-C\nnow we might be establishing a precedent which would have\nthe effect of backing us into a de facto operational ERTS\nsystem.\nRecommendation: On balance, we believe that deferral of\nERTS-C is the appropriate action in FY 1976 and that the\nAdministration should continue to resist congressional\npressures which could result in a premature commitment to\nan operational earth resources satellite system.\nAttachment\nAND\nDEPARTICS\nSPACE\n17 11\nNATIONAL AERONAUTICS AND SPACE ADMINISTRATION\nNATIONAL\nADMINISTRATION\nWASHINGTON, D.C. 20546\nU.S.A\nDecember 5, 1974\nOFFICE OF THE ADMINISTRATOR\nThe President\nThe White House\nWashington, D.C. 20500\nDear Mr. President:\nRL\nI respectfully urge you to reconsider the policy decision\nreported to us by OMB to cancel NASA's Earth Resources Survey\nSatellite (ERTS-C) which was authorized in the FY 1975 legis-\nlation.\nERTS-C is NASA's next step for continuing technical development\nand experimental uses of earth resources satellites. Without\nERTS-C, both experimental and beneficial uses of earth resources\nsatellites would be halted indefinitely after 1977, the end of\nthe expected useful life of ERTS-B.\nIn your reconsideration of this matter, the following points\nare basic:\n1. Benefits. The experimental earth resources survey\nprogram holds the greatest promise of any of the many applica-\ntions of space for direct, major, near-term, economic, and\npolitical returns to the U.S. from our R&D investments in space.\nMeasurable benefits to the U.S. economy alone have been estimated\nto range in the hundreds of millions of dollars per year from\nthe aggressive exploitation of this technology. These benefits\nstem directly from the better management of the nation's agri-\ncultural, rangeland, water, and other terrestrial resources that\nis made possible by the improved information flow that only space\nsystems can provide technically or economically.\n2. International. The ERTS program is creating and main-\ntaining significant international political values for the U.S.\nWe are able to take a leadership role in providing \"self help\"\nbenefits to the rest of the world. The developing foreign user\ncommunities that rely upon a healthy U.S. earth resources program\n2\ncan also provide valuable leverage in support of U.S. foreign\npolicy. Without the continuity of ERTS-C, these relationships\nwould erode and could be exploited by others.\nFour foreign nations have already invested in ERTS data acquisition\nstations to permit their direct use of ERTS data; two others have\nindicated they are about to do so very soon; seven others in Asia,\nAfrica, and Europe are likely to do so if ERTS-C is authorized.\nEach such ground station represents a potential of $5 million or\nmore for U.S. industrial sales overseas, as well as a source of\nuser charges the U.S. will collect for access to the satellite\ndata.\nAt the recent Rome Food Conference, Secretary Kissinger announced\nthe experimental interagency program to improve global crop\nestimates that will begin next January with ERTS-B. If this is\nas successful as we expect, ERTS-C will allow the U.S. to provide\naccurate baseline crop information for the world on a continuing\nbasis--a visible, positive contribution to the world-wide food\nproblem.\n3. Continuity. These economic and political benefits from\nan earth resources survey program can come about only if satellite\ndata are available without significant interruption. Some\nimmediate benefits are achieved by direct use of data from ex-\nperimental satellites like ERTS-C. The greater future benefits\ndepend on enabling those who make the critical natural resource\ndecisions to gain experience with, and confidence in, this new\nsource of management information. The experimental program must\nhave continuity to provide the users of information with the\nassurance of its long-term availability to warrant their invest-\nment in learning how best to employ these unique space capa-\nbilities. Without the continuity provided by an ERTS-C, at best\nthere will be a two or more year delay in program progress\ntoward steady-state returns of great value; at worst, the loss\nof program momentum will leave the earth resources field open\nto exploitation by other nations with a consequent loss to the\nU.S. of those benefits.\n4. Congressional. Many members of Congress have strongly\nsupported the ERTS program and its continuity. ERTS-C was\nauthorized in the FY 1975 legislation and its termination now\nwould be very difficult to defend and certain to result in\n3\nCongressional opposition. Legislation has been introduced by\nSenator Moss with nine bipartisan cosponsors and by Representa-\ntive Symington with sixteen bipartisan cosponsors requiring the\nAdministration to provide for continuity of ERTS activity; if\nERTS-C is supported in your FY 1976 budget, such legislation\nbecomes moot and no confrontation need arise between the\nAdministration and the Congressional supporters of ERTS.\n5. Future Options. A decision to proceed with an experi-\nmental ERTS-C now does not commit the Administration to a\ndecision on a future operational system next year. Considerable\nfurther experimentation, experience, and demonstration are\nneeded before a decision on any new system could be properly\nmade on the basis of facts. This point is further elaborated\nin my letter to Mr. Zarb of the OMB, attached.\nI request the opportunity of discussing these points more fully\nwith you and answering any questions you may have. I am per-\nsonally convinced that the $11 million to be spent on ERTS-C in\nFY 1976 and the $40 million in future years are as important as\nany in the nation's space program. A decision that would have\nthe effect of cutting off a principal area of practical benefits\nfrom space warrants the fullest consideration in light of the\nmany implications I have summarized above.\nMost respectfully,\nJames C. Fletcher\nAdministrator\nEnclosure\n(\nTHE WHITE HOUSE\nWASHINGTON\nDecember 20, 1974\nMEMORANDUM FOR THE PRESIDENT\nThis afternoon you will be meeting with Roy Ash\nand Jim Fletcher of NASA to consider the ERTS-C\nproject which is a satellite program used in agri-\ncultural and related purposes and to discuss its\nimpact on the world food situation.\nThe money involved is $11 million which NASA\nsays they can fund without having to request an\nappropriation.\nThere is very substantial Hill interest in this.\nJack Marsh\nOF THE INTERIOR THE INTERIOR\nUnited States Department of the Interior\nOFFICE OF THE SECRETARY\nMarch 3, 1849\nWASHINGTON, D.C. 20240\nDecember 20, 1974\nDear Mr. President:\nAs you know, the Earth Resources Satellite program, which is jointly\nconducted by the U.S. Geological Survey and NASA, is of great interest\nto me. I have recently discussed its future with Jim Fletcher of NASA.\nI understand that Roy Ash has recommended that funding for ERTS-C, the\nthird in the series of satellites, should not be included in the FY 1976\nNASA budget, though the possibility remains open of funding in later\nyears.\nWhile I do not question Roy's recommendation on the timing of funds for\nERTS-C, I would like to emphasize my view that the basic technology\nof the Earth Resources Technology Satellite is promising, and should\ncontinue to be developed. A benefit-cost study we have just completed\nindicates that remote earth observation can be of real value in both\nprivate and public resource management. I therefore hope that we can\nresume development of the ERTS system as soon as the fiscal situation\npermits.\nRespectfully,\nSecretary Xog of Mostors the Interior\nThe President\nThe White House\nWashington, D.C. 20500\nNASA\nNational Aeronautics and\nSpace Administration\nWashington, D.C\n20546\nDecember 19, 1974\nOffice of the Administrator\nThe President\nThe White House\nWashington, D.C. 20500\nDear Mr. President:\nI want to alert you to my special concerns with the decision\ncancelling the ERTS-C earth resources satellite which will be\nreconsidered in our meeting with Roy Ash Friday afternoon.\nAs a nation, we have rightly been bold (and successful) in\nlarge-scale \"way out\" advances in space, such as going to the\nmoon and exploring the planets. I am concerned that we may be\noverly cautious when it comes to the much smaller efforts needed\nto follow through to get practical benefits from our large in-\nvestment in space.\nCancellation or deferral of ERTS-C in the FY 1976 budget would\nbuild in a cutoff in the single most promising area of space\napplications just at the time we are beginning the first large-\nscale demonstrations in the program. Without ERTS-C we will not\nbe in a position to follow up the success we expect, for example,\nin the joint NASA-Agriculture crop forecasting experiment which,\nas Secretary Kissinger reported in Rome, could lead to an accurate\nmethod of forecasting major food production on a worldwide basis.\nVery rewarding experiments of importance to Interior and other\nFederal and State agencies would also be dead-ended in advance.\nThis is no longer a budget issue; NASA will absorb the $11 million\nneeded in FY 1976 and can agree not to advocate a major expansion\nin the program next year.\nERTS-C has strong bipartisan advocacy in Congress (and in the\nStates). Cancellation would produce an unnecessary confrontation\nand put NASA and the Administration in a position we could not\ndefend on the merits.\nRespectfully,\nJames C. Fletcher\nAdministrator\nor OPPORATION\nTHE SECRETARY OF TRANSPORTATION\nWASHINGTON, D.C. 20590\nCANADA\nAMERICA\nSTATES\non\nDecember 20, 1974\nMEMORANDUM FOR THE PRESIDENT\nSUBJECT 1976 Budget/Policy Decisions\nWith one exception, the Department and your Executive Office are now\nin agreement on the appropriate fiscal year 1976 budget requests for\nour various activities. This exception -- the Executive Office\nrecommendation to eliminate the Department's research into high\nspeed levitated technology -- is not really a major budget decision\n(FY 1976 and future annual requirements are under $10-12 million).\nRather, it involves a policy decision to eliminate the United States\nGovernment from any effective research into a potentially valuable\nfuture technology.\nWe believe this decision is extremely shortsighted. This technology\ncould provide significant advantages in speed, ride comfort, noise\npollution, and maintenance costs over conventional rail systems.\nHowever, this technology also has potential payoff for improving our\nconventional rail systems, especially propulsion systems.\nHaving significantly reduced the scope and pace of the previously\nplanned Federal effort in this area to reflect the results of Depart-\nmental socioeconomic analysis of this program, I believe the remaining\nprogram represents a minimal, well-conceived effort. I request approval\nof this effort for inclusion in the FY 1976 Budget.\nWith regard to the Northeast Corridor rail upgrading program, the\nDepartment will provide a complete proposal to the Executive Office\nin the near future. Appropriate budget adjustments could be made in\nconcert with an Administration policy decision regarding this important\ninitiative.\nChill\nClaude S. Brinegar\n17\nIssue Paper\nDepartment of Transportation\n1976 Budget\nIssue #4: Tracked Levitated Vehicle Research\nOMB\n(Dollars in millions)\n1975\n1976\n1977\n1974\nDOT\nOMB\nDOT\nDOT\nOMB\nDOT\nOMB\nActual\nRequest\nRec.\nRequest\nAllow\nAppeal\nRec.\nRequest\nRec.\nPL\n8.6\n5.9\n4.2\n10.6\n0.1\n+10.5\n-\n11.0\n0.1\n0\n5.2\n4.0\n2.3\n4.5\n0.1\n+ 4.4\n-\n8.0\n0.1\nStatement of Issue\nShould we continue to fund Track Levitated Vehicle (TLV) Research)?\nBackground\nDuring the 1975 budget review, a decision was made to terminate TLV. The\nSecretary appealed, and funding of TLV was approved pending the completion\nof a study of economic and social effects of implementing such a system.\nFindings of Study:\n- Economic viability within 20 years is low.\n- Advantages relative to other modes are not demonstrated.\n- Nevertheless, study called for continued program in promising\nlevitation technology.\nAlternatives\n#1. Continue the TLV research program. (DOT request)\n#2. Terminate TLV in 1975. $100K per year to monitor TLV efforts\nin other countries. (OMB recommendation)\nDOT request: Program consists of research on two kinds of TLV systems:\n\"Air Cushion\" and \"Maglev\" (magnetically levitated). Both operate on\nspecial guideways.\nDOT considers vehicle levitation to be a promising technology, offering\npotential payoff in high and low speed applications. Expected to reduce\nmaintenance cost because of minimum friction.\nWould allow DOT to take advantage of large sunk cost (over $40 million since\n1966). Should keep pace with TLV work in other countries, in case the tech-\nnology proves useful.\n18\nOMB Recommendation\nTLV does not offer significant advantage over existing technology.\n- In low speed range (0-150 mph) conventional rail is less\ncostly, more energy-efficient, and can operate on existing\nrights of way. Possibility of lower TLV maintenance cost\nis more than offset by high initial investment. Germans\nreportedly are discontinuing TLV research in this speed\nrange.\n- In higher speed range (150-300 mph) aviation provides the\nmost viable alternative. Infrastructure is already in place.\nWide bodied jets and other improvements expected to provide\nsufficient capacity for this market in the forseeable future.\nTechnical problems in the higher speed range are substantial.\nFor instance, entering a tunnel at high speed would lead to\nsudden deceleration, due to compression of air.\n- The only case in which DOT cites potential economic viability\nfor TLV is in the Northeast Corridor, and then under such\nquestionable assumptions as 1) complete replacement of air\ntravel by TLV and 2) saturation of high speed rail line (cur-\nrently being planned).\nTLV investment would be very costly to the Federal Government, both in short\nand long term:\n- $50M development cost through 1980.\n- Pressures for Federal implementation in long term. At\nleast $3 billion for Northeast Corridor alone (1971 dollars).\nPueblo test center 1976 budget is decreased from $13 million (DOT request) to\n$11 million, to reflect overall effect of TLV termination on the mission of the\ncenter."
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