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Philip W. Buchen Files
Philip Buchen's General Subject Files
subjects
Poland
Export-Import Bank of the United States. (03/13/1968 - )
Administration goals and achievements
Minimum wage
Coffee
Economics
Legislation
Taxation
Inflation (Finance)
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Ships
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The original documents are located in Box 10, folder "Economy - General (2)" of the
Philip Buchen Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 10 of the Philip Buchen Files at the Gerald R. Ford Presidential Library
Economic
Policy Borre
THE WHITE HOUSE
WASHINGTON
October 10, 1975
MEMORANDUM FOR:
L. WILLIAM SEIDMAN
THROUGH:
PHILIP BUCHEN P.
FROM:
KENNETH LAZARUS
fe
SUBJECT:
Reactivation of the Suspended
Homeownership Subsidy Program
Counsel's Office has reviewed your draft memorandum for the
President on the referenced subject. We interpose no objection
to the recommendation of Secretary Hills.
We would note, however, that at the present time, GAO is the
only plaintiff in the suit challenging the impoundment of these
funds. In this posture, it is our understanding that the
Solicitor General is of the opinion that the Government has
a 50-50 chance to prevail in the suit based on the available
constitutional defense to the effect that law enforcement is a
core Executive function beyond the powers of GAO. We are
not aware of any private citizen who has indicated an interest
in joining as private litigant in challenging this action.
However, should the impoundment be attacked by an aggrieved
private party, we would concur in the judgment reflected in
your memorandum to the effect that the Government's chances
for success are remote and the possibility for additional losses
through litigation are real.
FORD is DERALD LIBRARY
THE WHITE HOUSE
WASHINGTON
October 10, 1975
MEMO FOR:
PHIL BUCHEN
FROM:
KEN LAZARUS
Ke
I discussed this matter with Roger Porter on
Wednesday, October 8th. He indicated that
Bill Seidman would like to have a brief
statement of our views on the matter despite
the fact that it would not be reflected in the
memo to the President which went in on that date.
FORM
THE WHITE HOUSE
WASHINGTON
October 10, 1975
MEMO FOR:
PHIL BUCHEN
FROM:
KEN LAZARUS
I discussed this matter with Roger Porter on
Wednesday, October 8th. He indicated that
Bill Seidman would like to have a brief
statement of our views on the matter despite
the fact that it would not be reflected in the
memo to the President which went in on that date.
rec'd 4:20
THE WHITE HOUSE
WASHINGTON
October 7, 1975
MEMORANDUM FOR JOHN O. MARSH
PHILLIP BUCHEN
ROBERT T. HARTMANN
FROM:
L. WILLIAM SEIDMAN
has
SUBJECT:
Reactivation of the Suspended Homeownership
Subsidy Program
The Economic Policy Board has reviewed a proposal by Secre-
tary Hills to release $264.1 million of impounded budget
authority to reactivate an administratively modified Section
235 Homeownership Assistance Program.
I would appreciate your comments and recommendation on the
attached memorandum on this issue by 3:00 p.m. Wednesday,
October 8.
Thank you very much.
GERALD FORD LIBRARY
THE WHITE HOUSE
WASHINGTON
MEMORANDUM FOR THE PRESIDENT
SUBJECT:
Reactivation of the Suspended Homeownership
Subsidy Program
The Economic Policy Board has reviewed a proposal by Secretary
Hills to release $264.1 of impounded budget authority to re-
activate an administratively modified Section 235 Homeownership
Assistance Program.
This memorandum outlines the current legal status of the im-
pounded funds, the proposed administrative modifications, the
budget and economic impact of reactivating the program, and re-
quests your decision on the proposal to reactivate the program.
Background
The original Section 235 Homeownership Program provides families
at 80 percent of the median income or less with an opportunity
to purchase homes by reducing the interest rate on their mort-
gages down to 1 percent, but requires the homeowner to contri-
bute 20 percent of his adjusted gross income to amortization.
Thus, as the recipient family's income increases, the subsidy
decreases, and may finally terminate.
In January 1973, the Nixon Administration suspended the Section
235 program and impounded the unused Section 235 contract auth-
ority.
The Comptroller General filed a suit on April 15, 1975 claim-
ing that the Section 235 impoundment is subject to the provi-
sions of the Budget Control Act which require the immediate
obligation of the impounded funds.
It is the belief of the Attorney General, HUD's General Coun-
sel and the Solicitor General that the Administration will not
win this suit and that the Administration will be forced to
reactivate the 235 program.
FORD LIBRARY
2
HUD Proposed Administrative Modifications
Secretary Hills believes that many of the identified defects
in the "old" Section 235 program can be administratively reme-
died. She proposes an administratively revised program which
would:
-- subsidize the mortgage interest rate down to 5%, instead
of down to 1% SO as to limit the program to moderate in-
come families who were most successful under the prior
program;
-- require a 3% down payment and buyer assumption of closing
costs, which would result in approximately a $2,000 in-
vestment, instead of $200 as in the old program.
-- require geographic allocation of units; and
-- require dispersal of assisted units to prevent largely
subsidized subdivisions and to encourage scattered-site
development.
These administrative changes would effectively limit the pro-
gram to moderate income families in the $9,000 to $12,000
range as opposed to the previous orientation of the old pro-
gram which concentrated benefits on families in the $5,000 to
$7,000 income range.
The new program would focus on an income group which is more
likely to experience increases in income that would result
in families working their way out of the program than previously.
Moreover, these moderate income families are from a segment of
the market who traditionally have been successful homeowners,
but are now priced out of the market by high interest rates
and recent escalations in housing prices.
A more detailed background paper prepared by Secretary Hills
is attached at Tab A.
Budget Impact
The Secretary's proposal would involve the use of $264.1 million
in contract authority. This would obligate the Federal govern-
ment to a maximum potential payment of $7.9 billion over the
next 30 years. Because many families, through increases in
their income, will work themselves out of subsidy or will sell
their homes before the end of the mortgage term, it is estimated
QUERARY
3
that there will only be $1.9 billion in actual expenditures,
the great bulk occurring during the first 15 years of the
program. Outlays are estimated as follows (in millions of $) :
1976
TQ
1977
1978
Lifetime Estimate
0
0
39.6
109.8
1,925
Reactivation would also require the addition of 362 people to
the HUD rolls in 1976 and 725 people in 1977.
Economic Impact
The housing industry's recovery is fragile and slow. The pro-
jected level of 1.2 million total housing starts for 1975 is
lower than in 1974, which was considered a dismal year for the
industry. Unemployment in the residential construction industry
is running about 20 percent.
Secretary Hills' proposal would involve commitments for 100,000
new units annually, beginning in calendar year 1976. This
would produce approximately 85,000 Section 235 starts during
that year.
There is strong disagreement regarding the magnitude of the
economic impact that would result from a reactivation of the
program. There is currently substantial unused labor and mater-
ial capacity in the housing industry, a considerable volume of
available mortgage funds, and a very low level of construction.
The homes which would be built under a reactivated program are
priced in a range where there has been little construction ac-
tivity. Accordingly, Secretary Hills believes that a reacti-
vated Section 235 would produce almost entirely starts which
would not have occurred without the program.
OMB and CEA question the assumption that the supply of mortgage
credit will continue to be in excess as HUD projects. Conse-
quently, they believe that most of the Section 235 starts would
come at the expense of unsubsidized starts, limiting the amount
of stimulus.
Issue: Should the Administration reactivate an administratively
modified Section 235 Homeownership Assistance program?
Option A: Reactivate a modified Section 235 Homeownership
Assistance program.
FORD
4
Advantages of reactivating a modified Section 235 program.
The GAO impoundment suit could be settled, avoiding a
court-ordered reimplementation of the program. HUD
believes that under a court-ordered reimplementation of
the program most of the administrative modifications
could be made except for the crucial increase in the
mortgage interest rate from 1% to 5%.
HUD believes that the program will pay for itself by gen-
erating an increase in net GNP, tax revenues, and construc-
tion industry jobs over the next four to five years.
Reactivating the program responds to homebuilding industry
complaints that the Administration is callous to the plight
of the industry during a period of depressed housing pro-
duction.
Reactivating the program provides an opportunity for
moderate-income families now priced out of the market
to buy their own homes.
The 34-month dispute with the Congress would be diffused,
and Congressional interest in new deep subsidy programs
for homeownership could be blunted.
This program would cost approximately 40 percent less per
unit than the per unit cost under the "old" Section 235
program which offered a 1% mortgage.
The President could take credit for the administrative
changes which transform the program into a workable home-
ownership subsidy for moderate-income homeowners.
Option B: Continue suspension of the 235 program and continue
litigating the law suit.
Advantages of continuing suspension of the 235 program.
Reactivation of the program would increase federal spend-
ing by $39.6 million in FY 1977 and $109.8 million in
FY 1978. Outlays over the term of the contract are esti-
mated at $1.9 billion.
Reactivation would require 362 additional HUD staff in
FY 1976 and another 363 additional HUD staff in FY 1977
for a total increase of 725 personnel.
FORD
OMB and CEA believe the program would have an insignifi-
cant impact on the level of housing starts, GNP and unem-
5
ployment in 1976, since in their view, most of the units
receiving the subsidy would have been built anyway.
Like existing housing subsidy programs, a reactivated Sec-
tion 235 is inequitable in that it would reach only a small
portion of the families who are legally eligible for assis-
tance and, like the current tandem plan, it could generate
resentment among nonrecipients with the same or higher in-
comes who are forced to pay the market interest rate.
If the reactivated program proves successful, it could be
extremely difficult to terminate and could result in leg-
islative pressure for a permanent continuation of the pro-
gram.
Reactivation of 235 involves potential legislative pres-
sure to extend the program to rehabilitated or existing
housing as a result of realtors' interest.
Subjects the Administration to criticism for having sus-
pended the program only to reimplement it two years later.
However, changes in the program would counter this poten-
tial criticism.
Decision
Option A
Reactivate a modified Section 235 Homeowner-
ship Assistance program.
Supported by:
Option B
Continue suspension of the Section 235 program
and continue litigating the law suit.
Supported by:
DEPARTMENT OF
HOUSING * P AND URBAN
THE SECRETARY OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, D.C.. 20410
September 26, 1975
MEMORANDUM FOR:
L. William Seidman, Executive Director
Economic Policy Board
FROM:
Carla A. Hills
CArd
SUBJECT:
Reactivation of the Suspended
Homeownership Subsidy Program
On April 15, 1975, the Comptroller General filed suit
to compel the obligation of $291.7 million of impounded
budget authority to carry out Section 235, as amended, of
the National Housing Act.
HUD recommends release of the impounded funds and re-
activation of an administratively modified Section 235
Homeownership Assistance Program.
FORD
CERALO
EXECUTIVE SUMMARY
The housing industry's recovery is fragile and slow.
The projected level of total housing starts for 1975 is
1.2 million, or 59% of, the number in 1973 and fewer than
in 1974, which was considered a dismal year for the
industry. Unemployment in the residential construction
industry is running about 20%.
Partial causes of the lagging recovery in the housing
industry are high interest rates and recent rises in housing
costs, which have priced an increasingly large segment of
American families out of the market. In 1965, 44% of
American families could afford the median-priced new single-
family home; today that proportion is only 31%.
In January 1973, the Nixon Administration suspended
the Section 235 program and impounded $253.5 million of
unutilized Section 235 contract authority.
The Section 235 homeownership program provides families
at 80% of median income or less with an opportunity to pur-
chase homes by reducing the interest rate on their mortgages
down to 1%, and requiring the homeowner to contribute 20%
of his adjusted gross income to amortization. As family
income increases, the subsidy decreases and finally ceases.
The GAO has filed suit seeking the release of impounded
Section 235 funds, and it is the belief of HUD's General
Counsel, trial counsel in the Civil Division of the Department
of Justice and the Solicitor General that the GAO is likely
to prevail.
HUD believes that it can remedy administratively many
of the identified defects in the Section 235 program.
Accordingly, it recommends reimplementation of Section 235
but instead of subsidizing the mortgage interest rate down
to 1%, it proposes to limit the interest subsidy to 5%, to
require a 3% down payment, and to implement greater geographic
dispersal of units.
FORD
-2-
The immediate budgetary effect of this proposal would
be the obligation of $291.7 million in contract authority
unutilized as of July 31, 1975. Outlays would occur primarily
in 1977 and 1978. The total run-out cost should not exceed
$1.8 billion over 15 years.
The funds impounded will subsidize 348,000 units, largely
incremental in nature. This level of construction will pro-
vide 213,000 construction jobs. A net GNP increase of $12.8
billion is projected, providing increased revenues of almost
$2.6 billion.
The advantages and disadvantages of reactivation of the
Section 235 program are as follows:
Pros
Permits the GAO impoundment suit to be settled,
avoiding the embarrassment of losing that suit.
Avoids a court ordered reimplementation of Section
235 at a later time, when (hopefully) the housing
sector is less in need of a stimulant to new
construction.
Avoids a court ordered reimplementation of Section
235 which might preclude us from implementing
proposed administrative revisions to improve the
program.
Impacts positively on starts in a period of de-
pressed housing production and during the six
months immediately preceding the election.
Responds to the homebuilding industry's demands
for a quick stimulus to the single-family sector.
Increases the opportunity for homeownership for
many of those moderate income families priced out
of the market by recent rapid rises in housing
costs.
-3-
Costs approximately 40% less per unit than the
per unit cost of the earlier 1% mortgage 235
program.
Costs significantly less than assistance for a
similar family under the Section 8 rental assis-
tance program or a GNMA 5% tandem mortgage.
Adds a moderate income homeownership opportunity
program to HUD's tools to aid the housing sector.
Enables the Administration to take credit for the
administrative changes which transform the program
into a workable homeownership subsidy for moderate
income homeowners.
Defuses a thirty-four month dispute with Congress.
Decreases Congressional desire for a new interest
subsidy program.
Cons
Requires outlays of $39.6 million in 1977, and
$109.8 million in 1978.
Involves run-out costs of $1.8 billion.
Requires additional staff in 1976 of 362, in
1977 of 725, and in 1978 of 725.
Involves potential legislative pressure for a
permanent continuation of the program, if re-
visions prove successful.
Involves potential legislative pressure to extend
the program to rehabilitated or existing housing,
as a result of realtors' interest.
May subject the Administration to criticism for
having suspended the program only to reimplement
it two years later, but changes in program would
counter this potential criticism.
- -4-
Recommendation
HUD recommends that an administratively altered Section
235 homeownership program be activated immediately and that
the impounded funds be obligated.
FORD & QERALD LIBRARY
-5-
Single-Family Housing Outlook
I.
BACKGROUND
A.
Housing Industry Conditions
The recovery in the housing sector is fragile and
slow:
(AT A SEASONALLY
PERCENT CHANGE
ADJUSTED ANNUALIZED RATE)
JUNE
JULY
AUG
FROM YEAR AGO
Total Starts*
1,088
1,238
1,260
-5.8
Single-family Starts
879
927
977
-0.8
New single-family
565
521
+2.4
houses sold
Total units
1,076
1,092
-27.2
under construction
Single-family units
541
558
-9.4
under construction
Housing production has been discouraged by high
interest rates, escalating housing prices, and a lack
of consumer confidence.
The rapid savings inflows of the last spring and
early summer have slowed, tending to confirm the fears
of many lending institutions that interest rates will
rise during the coming months.
*Although the multi-family sector is even more badly depressed
than single-family construction, this paper addresses itself
only to the latter.
LIBRARY GERALD R. FORD
-6-
Construction lending has dropped, totalling 25%
less in June 1975 than in June of last year. Single-
family construction lending dropped 15%.
Between 1971 and 1974, the median price of a new
home jumped more than one-third, and between 1973 and
1974, it increased 10.5%. A decade ago, 44% of
American families' had sufficient income to purchase
the median price new home, as compared with 31% today *
A gross income of over $18,400 is required to support
a mortgage of $23,000, whereas the median income for
a family of four is now only $12,836. This growing
gap between housing and real incomes precludes home-
ownership for an increasing segment of American families.
B.
Housing Industry Outlook
It appears that in the next twelve months interest
rates may well rise and that housing costs will not drop
sufficiently to increase the opportunities for homeowner-
ship for middle America.
We are projecting 1,200,000 total starts and 850,000
single-family starts for calendar year 1975. For 1976,
we are projecting 1,400,000 total starts and 1,000,000
single-family starts. The below chart compares these
projections to housing production levels for recent years.
(projected)
(projected)
1972
1973
1974
1975
1976
Total Starts
2,379
2,058
1,353
1,200
1,400
Single-family Starts
1,311
1,133
889
850
1,000
(in thousands)
*A Legislative Reference Service report estimates that only
15% of American families can afford the median priced new
single-family home today.
FORD
LIBRARY
-7-
II.
THE SECTION 235 PROGRAM
A. History
The Section 235 Lower-Income Homeownership Program
was suspended in January, 1973. The United States
Court of Appeals for the District of Columbia Circuit
sustained the suspension and the impoundment of un-
expended program 'funds in Commonwealth V. Lynn, 501 F. 2d
848 (CADC 1974).
B.
Background of the GAO Lawsuit
On July 12, 1974, the provisions of Title X of
the Budget Impoundment and Control Act became effective.
On October 4, 1974, the President sent a message to
Congress which contained a deferral of obligational
authority for the Section 235 program in the amount
of $264, 117, 000. The message indicated that the
President had been informed by the Attorney General
that the Budget Control Act was not applicable to
impoundments pre-dating the effective date of the
Act and that the 235 deferral was being reported for
informational purposes only.
On November 6, 1974, the Comptroller General
submitted a message to Congress purporting to re-
classify the Section 235 deferral as a rescission
on the grounds that since the statutory authority
to obligate 235 funds expired on August 22, 1975,
the purported deferral was a "de facto" rescission.
Under the Act, if applicable, Congress can dis-
approve a rescission by inaction, but one House must
pass a deferral resolution in order to disapprove a
deferral of funds. In view of the doubt regarding
the Comptroller General's authority to reclassify a
deferral as a rescission, on March 13, 1975, the
Senate passed a resolution disapproving the 235 defer-
ral (S. Res. 61). Under Title X, the President has
45 days to begin expending funds after he becomes
legally obligated to do so, and if he fails to abide
by the Act's requirements, the Comptroller General
may bring suit 25 days thereafter.
is
FORD
GERALD
LIBRARY
-8-
The Comptroller General has brought such a suit
(Staats V. Ford, Civ. No. 75-0551, D.C.D.C., filed
April 15, 1975) claiming that the Section 235 impound-
ment is subject to the provisions of the Budget Control
Act, which require the immediate obligation of the
impounded funds.
District Judge, June Green, on August 20, 1975,
entered an interlocutory order that the impounded
Section 235 funds be obligated, albeit not expended, so
that the program funds would not terminate on August
22, 1975, when the statutory authority terminated. HUD
complied. That order is now on appeal.
HUD's General Counsel, trial counsel in the Civil
Division of the Department of Justice and the Solicitor
General believe that the GAO is likely to prevail in
this litigation.
C.
Description of the 235 Program
The Section 235, Lower-Income Homeownership
Program, by which direct cash payments are provided
to a lender on behalf of a lower-income family to
enable it to purchase a home, was substantially
amended in the Housing and Community Development Act
of 1974. It now provides that:
--
the payments can reduce amortization
costs to as low as 1%;
--
the homeowner must pay a minimum of
20% of adjusted income toward regular
monthly payments;
---
the homeowner must pay a minimum of
3% of the purchase price as a down
payment;*
These provisions represent amendments to the 235 program
contained in Section 211 of the Housing and Community
Development Act of 1974.
LIBRARY GERALD R. FORD
-9-
--
the mortgage ceilings are $21,600
($25,200 in high cost areas) or
$25,200 ($28,800 in high cost areas)
for a family with 5 or more persons; *
and
--
to be eligible a family's adjusted
income must not exceed 80% of median
income for the area. *
D.
Strengths of the Section 235 Program
HUD's evaluation of the 235 program in Housing
in the Seventies identified several strengths.
(1) The program did provide lower but partic-
ularly moderate income families with the
stabilizing influence of an opportunity
for homeownership. (We have no homeowner-
ship program today.)
(2) The program was useful for minority families
and marginally increased the geographic
dispersion of inner-city inhabitants to
suburban areas, thereby contributing to the
racial heterogeneity of some communities.
(3) Construction costs for 235 units were no
higher than for similar conventional houses,
partially because a Section 235 house is
not actually designated as such until an
eligible buyer is certified. Thus, the
builder tended to build competitively.
(4) Section 235 has a relatively low first-
year cost and a long run-out period.
(5) Fifty thousand families of the 450,000
beneficiaries of the program worked them-
selves out of subsidy and became self-
sufficient homeowners.
FORD
*These provisions represent amendments to the 235 program
GERALD
contained in Section 211 of the Housing and Community
Development Act of 1974.
-10-
E.
Criticisms of the Section 235 Program
The Section 235 program was suspended in January,
1973 for programmatic and budgetary reasons. The
programmatic reasons are identified in Housing in the
Seventies, pages 104-110.
(1) There was perceived horizontal inequity
in that only one out of fifty income-
eligible families obtained those home-
ownership benefits. However, this type
of inequity is inherent in every subsidy
program where the number of beneficiaries
almost always exceeds available funding.
(2) There was a perceived vertical inequity
problem in that beneficiaries with higher
incomes received greater subsidies because
they tended to purchase more expensive
homes and the subsidy is a percentage of
mortgage interest.
(3) There was a perceived geographical inequity
as a result of low statutory mortgage limits
and differences in regional construction
costs which resulted in an over-concentration
of subsidized units in low costs areas such
as the South.
(4) Concern was expressed that the program had
a substitution effect in that subsidized
starts reduced the availability of mortgage
funds and building resources for non-
subsidized starts.
(5) Concern was expressed that the minimum down
payment of $200 did not create sufficient
incentive in the purchasers to care for their
property. (Section 211 of the Housing and
Community Development Act of 1974 increased
the minimum down payment to 3% of purchase
price which corrects this concern.)
FORD & CERALO LIBRARY
-11-
(6) Finally, there has been a significant
problem with defaults on 235 mortgages,
particularly with respect to existing
housing and large subdivisions. Cur-
rently, defaults coupled with our losses
on acquired mortgages are running at a
rate that makes the program actuarily
unsound.
F.
Proposed Administrative Revisions of 235
There are several ways in which the perceived
deficiencies in the 235 program could be ameliorated.
(1) A screening process to select homeowners
likely to work themselves out of subsidy
range would significantly help to avoid
defaults and minimize ultimate run-out
costs. A recently reported experiment
in the San Francisco area has proved ex-
tremely successful in avoiding delinquencies.
(2) A minimum down payment of 3% of the purchase
price up to $25,000 and 5% of excess, with
the purchaser to pay full closing costs,
would give most homeowners a $2,000 or more
cash investment in their homes and focus
the program more on moderate-income families,
which was the group which succeeded under
the prior 235 program.
(3) Specifying 5% as the lowest interest rate
to which the mortgage would be subsidized
instead of the old 1% floor would:
(a) Limit participation to a higher income
group which succeeded under the pre-
vious program, while leaving almost
6 million families within the eligible
income range.
(b) Decrease the interest differential
between 235 and other FHA home pur-
chasers and thereby decrease the
preceived inequity of the subsidy
is
FORD
SERALD
LIBRAST
-12-
(c) Narrow the subsidy so that the fund-
ing would be available for more units.
Assuming an average mortgage of
$23,000 at a 9-1/2% market rate, the
available $291.7 million would sup-
port 203,000 units at 1% but 348,000
units at 5%. The effect of a sub-
sidy to 5% is demonstrated in the
below table showing the gross income
required to support a $23,000 mortgage
at 9-1/2% and 5%, respectively.
Rate
Monthly Payment
Gross Income
5
134.25
$12,300
9-1/2
200.95
$18,411
Since the median income for an American
family in 1974 was $12,836 a 5% subsidy
brings a modest home within the reach
of the average American family.
(4) Restricting 235 funds to new construction
would maximize the immediate impact on
housing starts.
(5) Restricting 235 funding to the lesser of
20 homes or 30% of the total units in a
subdivision would avoid the large 235
financed subdivisions which gave rise to
the most severe problems in the old 235
program. This restriction might also
encourage non-subsidized housing starts
by, in effect, assuring a developer of a
relatively quick sale of 30% of his stock
when he built a subdivision.
is
FORD
GERALD
LIBRARY
-13-
(6) Utilization of 235 would require compli-
ance with Section 213 of the 1974 Housing
and Community Development Act, which
requires the allocation of 235 assistance
to be on a geographical formula basis and
in conformance with housing assistance
plans. Thus, geographical inequities
of the old 235 program could be mitigated
and local governments could be given some
control to assure more rational location
of 235 construction.
G.
Effects of Reimplementation
(1) Timing. If regulations were published
simultaneously for effect and comment,
Section 235, with the suggested changes,
could be implemented in 30 to 45 days.
Processing of larger scale developments
would take 90 to 120 days. Hence, the
program would be having its greatest
effect on starts in the early spring
of 1976.
(2) Housing Starts. At the recommended 5%
interest rate, the available $291.7
million would cover 348,000 units. It
is unlikely there would be significant
substitution for unsubsidized starts,
because the program would reach families
now squeezed out of the market.
(3) Jobs and GNP. The construction of 348,000
units would provide 213,000 jobs and
$12.8 billion in increased GNP. The GNP
translates into $2.6 billion in increased
revenues.
(4) Total Costs. Releasing the impounded
Section 235 funding would involve $264
million of contract authority this year.
In terms of actual outlays, because all
funded units will be new, it is likely
that there would be only minimal outlays
GERALD FORD LIBRARY
-14-
in FY 1976 -- followed by outlays of $39.6
million in FY 1977 and $109.8 million in
FY 1978.
Based on previous experience with Section
235, we calculated the total potential run-
out cost of the program over 15 years to be.
approximately $1.8 billion, although the
theoretical maximum run-out cost over 30
years would be $8.7 billion, assuming no
increases in recipient's incomes. The
higher interest rate and prepurchase screen-
ing envisioned should insure that more of
the recipients will work themselves out of
the subsidy than under the program as pre-
viously implemented, further reducing the
run-out cost.
The additional staff years required are 362
in 1976, 725 in 1977, and 725 in 1978.
(5) Cost Comparisons. Section 235 provides
housing to moderate income families at about
half the annual subsidy cost of the current-
ly operable Section 8 Lower-Income Rental
Assistance Program.
The annual Federal subsidy for a family of
four with a gross income of $8,800 in a unit
costing $25,000 is $1,619 under Section 8,
$1,339 under the old Section 235 program,
and $953 in the revised Section 235 program.
Because a Section 235 subsidy terminates when
the recipient family's income increases to a
given level, a Section 235 5% homeownership
program is less expensive, on a per unit basis,
than a GNMA tandem program involving 5% mort-
gages. For example, a 5% tandem plan for
60,000 units would cost approximately $395
million as compared to $178 million for the
same number of units subsidized to 5% under
Section 235.
is
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OPTION
Whether or not to activate the Section 235 Lower-Income
Homeownership Program with the administrative changes
discussed above.
Pros
Permits the GAO impoundment suit to be settled,
avoiding the embarrassment of losing that suit.
Avoids a court ordered reimplementation of Section
235 at a later time, when (hopefully) the housing
sector is less in need of a stimulant to new
construction.
Avoids a court ordered reimplementation of Section
235 which might preclude us from implementing
proposed administrative revisions to improve the
program.
Impacts positively on starts in a period of de-
pressed housing production and during the six
months immediately preceding the election.
Responds to the homebuilding industry's demands
for a quick stimulus to the single-family sector.
Increases the opportunity for homeownership for
many of those moderate income families priced out
of the market by recent rapid rises in housing
costs.
Costs approximately 40% less per unit than the
per unit cost of the earlier 1% mortgage 235
program.
Costs significantly less than assistance for a
similar family under the Section 8 rental assis-
tance program or a GNMA 5% tandem mortgage.
Adds a moderate income homeownership opportunity
program to HUD's tools to aid the housing sector.
R.
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Enables the Administration to take credit for
the administrative changes which transform
the program into a workable homeownership
subsidy for moderate income homeowners.
Defuses a thirty-four month dispute with
Congress.
Decreases Congressional desire for a new interest
subsidy program.
Cons
Requires outlays of $39.6 million in 1977, and
$109.8 million in 1978.
Involves run-out costs of $1.8 billion.
Requires additional staff in 1976 of 362, in
1977 of 725, and in 1978 of 725.
Involves potential legislative pressure for a
permanent continuation of the program, if re-
visions prove successful.
Involves potential legislative pressure to
extend the program to rehabilitated or existing
housing, as a result of realtors' interest.
May subject the Administration to criticism for
having suspended the program only to reimplement
it two years later, but changes in program would
counter this potential criticism.
RECOMMENDATION
HUD recommends that Section 235 be reactivated as
modified immediately and the impounded funds obligated.
FORD
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?
THE WHITE HOUSE
WASHINGTON
October 15, 1975
MEMORANDUM FOR:
JIM CONNOR
THROUGH:
PHIL BUCHEN
T.W.B.
FROM:
KEN LAZARUS
SUBJECT:
Seidman's Draft Memo of 10/11/75
re Future Relations with the
International Labor Organization (ILO)
This office has reviewed the subject Memorandum for the President
with attachments. We agree with the unanimous recommendation
of Secretaries Kissinger, Morton and Dunlop that the United
States should give a two-year notice of intent to withdraw from
the International Labor Organization. We also share the
reservations of the Department of State, both as to the length
of the letter and its specificity regarding the issues of concern
to the United States.
On the technical level, we would point out that the second sentence
of the first paragraph of the letter should reflect the fact that
the transmittal is being made "pursuant to Article 1, Paragraph
5 of the Constitution of the Organization as amended".
Attachment
FORD
LIBRARY
THE WHITE HOUSE
ACTION MEMORANDUM
WASHINGTON
LOG NO.:
Date:
October 14, 1975
Time:
FOR ACTION:
CC (for information):
Phil Buchen
Jack Marsh
FROM THE STAFF SECRETARY
DUE: Date:
Time:
October 15, 1975
2 P.M.
SUBJECT:
L. William Seidman's memo 10/11/75
re Future Relations with the International
Labor Organization (ILO)
ACTION REQUESTED:
For Necessary Action
X For Your Recommendations
Prepare Agenda and Brief
Draft Reply
X
For Your Comments
Draft Remarks
REMARKS:
FORD is LIBRARY 076839
PLEASE ATTACH THIS COPY TO MATERIAL SUBMITTED.
If you have any questions or if you anticipate a
delay in submitting the required material, please
Jim Connor
telephone the Staff Secretary immediately.
F or the President
THE WHITE HOUSE
WASHINGTON
October 11, 1975
MEMORANDUM FOR THE PRESIDENT
FROM:
L. WILLIAM SEIDMAN gos
SUBJECT:
Future Relations with the International Labor
Organization (ILO)
The attached memorandum from Secretary Dunlop summarizes the
unanimous recommendation of Secretaries Kissinger, Morton
and Dunlop that the U.S. should give a two-year notice of
intent to withdraw from the International Labor Organization
(ILO)
FCRD is LIBRARY
U.S. DEPARTMENT OF LABOR
OFFICE OF THE SECRETARY
WASHINGTON
MEMORANDUM FOR THE PRESIDENT
SUBJECT: Future Relations with the International Labor
Organization (ILO)
After consultation with Secretaries Kissinger and
Morton, I am submitting for your information the
following considerations concerning our future relations
with the ILO.
The ILO was established to specify by conventions
international labor standards and to improve working
conditions, create employment, and promote human rights.
It also carries out technical assistance programs in
less developed countries.
The ILO is older than most UN specialized agencies;
it was founded in 1919. AFL President Samuel Gompers
chaired the Commission which drafted the ILO constitution
at the Paris Peace Conference. The United States joined
in 1934. We pay 25 percent of the ILO budget, or
$11,000,000 in 1975. The ILO is unique among international
agencies in that it is tripartite. The U. S. tripartite
Delegation to the annual Conference, which traditionally
concerns itself with the development of labor standards,
is composed of two delegates from the Government and one
each from the AFL-CIO and the Chamber of Commerce of
the United States. The two Government delegates normally
come from the Department of Labor and Department of State
with an alternate from the Department of Commerce. The
United States has a Government seat (filled by the
Department of Labor) on the tripartite Governing Body,
which acts as a board of directors in providing instructions
and guidance to the Director General. The U. S. worker
delegate from the AFL-CIO, and the U. S. employer delegate
from the U. S. Chamber have been elected to three year
terms as Worker and Employer members of the Governing
Body by their respective groups of the ILO Conference.
Government, workers, and employers participate autonomously
and vote separately, but the U. S. Government can continue
to participate effectively only if U. S. Workers and
Employers continue to support the Organization.
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When the ILO Conference in June 1975 granted observer
status to the Palestine Liberation Organization, the U. S.
Workers walked out of the Conference and the Employers, to-
gether with the Government Delegation acting on instructions
from Secretaries Kissinger and Dunlop, left for the balance
of the day. The ILO action on the PLO was the latest event
in a trend toward politicizing the ILO, diverting it from
substantive work. The annual Conference spends too much
time on political issues. Totalitarian states persistently
seek to weaken the role of Workers and Employers, and the
ILO itself seems indifferent to Communist bloc violations
of its Conventions on Freedom of Association and Forced
Labor.
The AFL-CIO Executive Council has now called on the
U. S. Government to give the constitutionally required
two-year notice of intent to withdraw from the ILO. The
AFL-CIO Convention subsequently adopted a resolution calling
for a reassessment of U. S. membership in the ILO. Until
such a notice is transmitted, the AFL-CIO will not support
payment of dues to the Organization and has pressured both
Houses of Congress to cut off Department of State
appropriations for these dues. Joint House Senate Conferees
have opted for the House version which suspends payments
for the last half of 1975.
An earlier crisis was reached in 1970 when Congress,
stimulated in part by the AFL-CIO, cut off ILO dues for
two years after the ILO appointed a Russian to a high-level
position in the Secretariat. Although the funds cutoff was
mildly successful in reducing political attacks, many
countries considered that by failure to pay dues we had
violated our treaty obligations.
The only means provided in the ILO Constitution to
terminate membership is the issuance of a two-year notice
of intent to withdraw. Should a notice be issued, the
U. S. could press for reforms and, if satisfied, would be
able to abort the action at any time within the two-year
period.
i
FORD
Issue: In arriving at our unanimous recommendation
that the U. S. should give the two-year notice of
intent to withdraw, the following advantages and
GERALD
disadvantages were considered.
Advantages:
- The U. S. Government cannot continue effectively to
participate if future U. S. Worker and/or Employer
participation is in doubt. The AFL-CIO has made it
clear that it will not support further dues payments
- 3 -
to the ILO until a letter of intent to withdraw
is issued. The concerned committees of the U. S.
Chamber agree with sending a letter of intent, and
the position of the Chamber as to the timing of
the letter will be decided by its Executive
Committee in late October or early November.
- The interim period will provide an opportunity
for labor and management, working with the
Government, to develop a vigorous program of
activities to reverse the objectionable trands in
the ILO, and to ensure the U. S./ILO policy is
reviewed continuously at high levels in State, Labor,
and Commerce.
- A letter of intent is the only way we can establish
a terminal date for US assessments, should we actually
withdraw in two years.
- The letter may make the ILO, as well as other UN
agencies, more amenable to reforms suggested by the
U.S.
Disadvantages:
- U. S. Workers, Employers, and Government have never
committed adequate resources for ILO work; a letter
of withdrawal could be regarded as premature.
- U. S. influence in support of our main objectives--
such as preserving tripartism and human rights -- may
diminish with the prospect of U. S. withdrawal, since
the U. S. would in effect be a lame duck. In such
circumstances, our adversaries could benefit.
- Some ILO Member States may resent the letter which
they may regard as a bluff.
- A letter of intent to withdraw from one UN agency
may have a domino effect on Congressional attitudes
toward membership in other UN agencies.
Tab A provides a draft of the letter of intent to
withdraw developed by the Departments of Labor and
Commerce. The Department of State has reservations
both as to the length of the letter and its
FORD
specificity regarding the issues of concern to the
United States. We will continue our consultations
to resolve these differences within the next two
weeks.
- 4 -
1. Congressional Consultations.
Consultations with appropriate members of the Senate
and the House, to inform them in advance of the decision
to issue a letter of intent to withdraw and the reasons
therefor, will be undertaken by the Departments of State,
Commerce and Labor.
2. Timing the letter of intent will be sent before the
next session of the ILO Governing Body convenes on November
10. The precise timing will be worked out by the Secretary
of State in consultation with the Secretaries of Commerce
and Labor.
3. Intensified U. S. Participation.
It is imperative to assemble a high level consultative
committee to develop an ILO action program. Such a
committee would not only deal with the US/ILO policy but
would ultimately advise you on withdrawal.
While the committee is being formed, there are a
number of actions we can take with existing staff; for
example establishing a close consultative network with
like-minded member states to arrive at joint positions
on issues before the ILO and closer consultation with
the ILO Director General and his office.
SECRETARY OF
LABOR
Attachment Tab A
FORD LIGRA
The Director General
International Labor Office
Geneva, Switzerland
Dear Mr. Director General:
This letter constitutes notice of the intention of the United
States to withdraw from the International Labor Organization in two
years. It is transmitted pursuant to Article 1, Paragraph 5 of the
Constitution of the Organization. Worker and employer organiza-
tions in the United States have been fully consulted.
This action is taken with deep regret. That regret is the
more profound in the light of the close association of the United States
with significant milestones in the Organization's history and development.
Among these are AFL President Samuel Gompers' Chairmanship of the
Commission which drafted the ILO Constitution in 1919; the Declaration
of Philadelphia in 1944, which reaffirmed the Organization's funda-
mental principles and reformulated its aims and objectives to guide
its role in the postwar period; the revision of the ILO Constitution in
1945-46 and its affiliation with the United Nations as its first
Specialized Agency in 1946; and the provision of greatly expanded
technical assistance to Member States during the leadership of an
American Director General.
The participation of the United States Government and United
States worker and employer organizations in the ILO has reflected this
Nation's historical support for the promotion of social justice
throughout the world by the improvement of labor conditions and by
- 2 -
the raising of living standards of all workers. This participation
has been based on the belief that the goals of social justice can best
be attained through the unique tripartite structure embodied in the ILO.
Unfortunately, the work of the International Labor Organization
is being diverted from its original aims and objectives, and from its
commitment to tripartism, by the increasing politicization of the
Organization and a consequent diversion from substantive work; by the
erosion of the autonomous role of workers and employers in tripartite
representation and decision making processes; by the declining respect
in the Organization for those fundamental human rights which are central
to the Organization's concerns and responsibilities; and by the growing
disregard for the principles of due process in the pursuit of basic
human rights.
The International Labor Office and the Member States of the
Organization have been aware, at least since 1970, that these trends
have reduced the enthusiasm with which the United States has supported
the ILO. It is likely, however, that the basis and depth of the growing
disenchantment have not been adequately understood or appreciated.
Now that these trends and our resultant concern have reached the
point that we have decided it is time to give this two-year notice
of intent to withdraw, it is only fair to theother Member States and
the International Labor Office that we should include in this notifica-
tion information on the reasons which have led to our decision.
In this context, the following issues and trends are of
particular concern.
-3-
1. The Increasing Politicization of the Work of the Organization
In recent years the ILO has become increasingly and excessively
involved in issues, reflecting the political ferment among nations, which
are beyond the competence of and at times beyond the mandate of the
Organization. The ILO does have a legitimate and necessary interest in
certain issues which have political ramifications. It has major
responsibility, for example, for international action to promote and
protect fundamental human rights, particularly in respect of freedom
of association, the abolition of forced labor, and trade union rights.
These are central to its concerns.
International politics is not the main business of the ILO.
Questions involving political relations between individual Member States
and proclamations of economic ideology should be left to the United
Nations and other international agencies where their consideration is
more relevant to those organizations' responsibilities. Such
irrelevant issues divert the attention of the ILO from improving the
working, economic, and social conditions of the workers; that is,
from questions where the tripartite structure of the ILO gives the
Organization a unique advantage over the other, wholly governmental,
organizations of the UN family.
2. The Erosion of Tripartite Representation
We are greatly concerned at the acquiescence by many members to
the erosion of employer and worker rights (consciously provided for by
the ILO Constitution to assure the separate representation of their
-4-
interests within the unique structure of the Organization) in favor
of a political doctrine which would limit the rights of workers and
employers to choose their own representatives.
The erosion of the autonomy of the non-Government Groups has gained
strength since the Conference in 1959 adopted procedures under which
the authority of the Employer Group, regarding the determination of its
representation on tripartite committees of the Conference, was reduced.
A dangerous attack on group autonomy is now taking place in the Working
Party on Structure, where a formula for the arithmetic regional dis-
tribution of Government seats on the Governing Body has been proposed.
This would bring non-governmental representation closer to regional
governmental aspirations and objectives, and so splinter employer and
worker interests as to effectively remove the influence of the non-
Government Groups as such from the ILO.
The United States believes that if this trend continues, the ILO
will cease to function as a tripartite organization in which the two non-
governmental partners can reflect their separate interests in the
development of policies and programs to advance the welfare of workers.
3. The "Double Standard" on Basic Human Rights
FORD
The ILO Conference for years has practiced a double standard in
LIBRA
the application of the ILO's basic human rights Conventions on Freedom
of Association and Forced Labor, condemning the violation of human rights
in some Member States but not others. This seriously undermines the
credibility of the ILO's support of freedom of association which is so
central to its tripartite structure and limits the e fectiveness with
-5-
which the ILO can promote and uphold the principle of freedom of asso-
ciation among its Member States. It adds credence to the proposition
that these human rights indeed are not universally applicable, but are
subject to different interpretations for States with different social
and economic systems.
4. Disregard of Due Process
The ILO until recent years has had an enviable record of objectivity
and due process in its examination of alleged violations by its Member
States of basic human rights under the purview of the ILO. The Constitution
of the ILO provides for such procedures in respect of representations
and complaints that a ratifying Member State is not securing the effective
observance of any Convention which it has ratified (Articles 24-34). In
addition, the ILO established, in conjunction with the UN, fact-finding
and conciliation machinery to examine allegations of violation of trade
union rights.
In recent years, however, the ILO Conference increasingly has
adopted resolutions condemning individual Member States which are the
political target of the moment, in utter disregard of ILO machinery
for objective examination and due process.
This trend is accelerating. It gravely damages the ILO and its
capacity effectively and seriously to pursue its aims and objectives
in the human rights field. It has serious consequences for the ILO
and for the whole future of its work relating to human rights.
The United States believes that such changes would further politicize
the ILO, but we are not able to assess the degree of that impact
-6-
until we have examined provisions adopted in their stead. It is
a certainty, however, that the retention of the ten non-elective
government seats in exchange for the adoption of a formula for the
regional allocation of Governing Body seats would to no degree reduce
the adverse consequences as viewed by the United States.
To summarize, the ILO which this Nation has so strongly supported,
appears to be losing interest in effectively advancing its basic aims
and objectives and to be increasingly used in a way which serves the
interests of neither the workers for which the Organization was
established, nor of the United States as a Member of the Organization.
If these unfortunate trends continue, if the ILO fails in the next
two years to reestablish its fidelity to its original principles, the
United States will with great reluctance have no choice but to carry
through with the intention enunciated in this letter to withdraw
from further participation in the ILO.
Sincerely,
Secretary of State
FORD
THE WHITE HOUSE
MEMORANDUM
WASHINGTON
LOG NO.:
x.
Date:
October 31, 1975
Time:
FOR ACTION:
CC (for information):
Phil Buchen
Jim Cannon
Jack Marsh
FROM THE STAFF SECRETARY
DUE: Date:
Time:
TODAY - October 31
2 P. M.
SUBJECT:
L. William Seidman Memo of October 30, 1975
re U.S. Participation in a New International
Coffee Agreement
ACTION REQUESTED:
For Necessary Action
X For Your Recommendations
Prepare Agenda and Brief
Draft Reply
X
For Your Comments
Draft Remarks
REMARKS:
As the memo indicates - the International
Coffee Agreement negotiations
resume in London on Monday - November 3 -
The decision paper must go to the President today
Your cooperation in responding is appreciated.
No objection.
FORD
Dudley Chapman
b.c.
PLEASE ATTACH THIS COPY TO MATERIAL SUBMITTED.
IE you have any questions or if you anticipate a
delay in submitting the required material, please
K. R. COLE, JR.
telephone the Staff Secretary immediately.
For the President
THE WHITE HOUSE
WASHINGTON
October 30, 1975
MEMORANDUM FOR THE PRESIDENT
FROM:
L. WILLIAM SEIDMAN Lus
A memorandum, prepared in coordination with the Department of
State and the Council of Economic Advisers, on the negotiating
position the U.S. delegation should be instructed to take at
the International Coffee Agreement negotiations which resume
in London on November 3 is attached.
The Department of State has requested a decision on this matter
as soon as possible. I shall be glad to discuss the paper with
you if you wish.
LIBRA
THE WHITE HOUSE
WASHINGTON
October 30, 1975
MEMORANDUM FOR THE PRESIDENT
FROM:
L. WILLIAM SEIDMAN
Lus
SUBJECT:
U.S. Participation in a New International Coffee
Agreement
Negotiations for a new International Coffee Agreement (ICA)
resume in London November 3. This will be the sixth and pre-
sumably the last meeting of the negotiation group. At the
July negotiations, agreement in principle was reached on many
of the main concepts and key operating provisions of a new
ICA, including automatic suspension of export quotas when prices
rise by an agreed amount in a given period. This point was a
basic U.S. negotiating objective. Most other provisions are
similar to the ICA's of 1962 and 1968, which the United States
supported. Proposals of some producer countries to build re-
serve stocks were rejected. The major issue unresolved in
July was the division of market share allotments among producers.
Since the July meeting, a disastrous frost in the coffee grow-
ing regions of Brazil has changed the outlook for the next
several years to one of tight supply and high coffee prices.
Nevertheless, world interest in concluding an agreement re-
mains strong. The State Department shares this interest in
continued international cooperation on coffee matters. State
considers it important for foreign relations reasons that we
maintain a close and constructive relationship with the 42 pro-
ducing countries in Latin America, Africa, and Asia.
The State Department has proposed that the United States play
an active role in the final negotiations, based on its view
that there will be important international political gains
and that consumer interests are protected in the operation
of the agreements. Specifically, in light of the effects of
the Brazilian frost on prospective supply conditions, State
proposes to revise the understanding reached in July. It is
proposed that the Agreement enter into force in October 1976
with export quotas suspended and that export quotas remain
suspended until the production situation returns to normal as
reflected by significantly lower prices.
2
The CEA and some other agencies oppose an active U.S. role
in the negotiations. The CEA view is that the State position
accepts as given the system of export controls, and attempts
only to ameliorate the adverse effects of imposing the controls
in the first few years. The gains are not worth acquiescing
in the basic mechanism of quotas operated by export controls.
The CEA view is that ICA is a cartel agreement that will likely
have strong adverse economic and political effects within the
United States.
History of the International Coffee Agreement
The 1962 and 1968 agreements were designed to contribute to the
stabilization of prices without either lowering or increasing
long run price averages. Both agreements experienced diffi-
culty during periods of short supplies, but the shortages
developing late in 1972 were so severe that producer and con-
sumer interests could not be reconciled in continued operation
of the quota system.
Since 1972, the Coffee Organization has continued to function
as a forum for negotiation and for the collection of statistics.
Fifty-eight countries belong to the International Coffee Organi-
zation, including 42 producing and 16 importing nations. The
United States has maintained a role in ICO in order to "protect
our interests in any future coffee negotiations." (The Ninth Annual
Report of the President to Congress on the ICA.)
The Proposed New Coffee Agreement
In order to restore price stability in coffee, each producing
country would be allotted a quota of world exports. Quotas
would be in effect when the price of coffee fell over a six
month period, by a percentage to be decided upon. The imposition
of quotas is intended to restrain exports and therefore put a
floor under coffee prices. Quotas would be enforced by a system
of export controls.
Year-by-year operations under the agreement would set the aggre-
gate amount of coffee to be exported and the division of quotas
among the exporting countries. The proposal leaves the determi-
nation of annual quotas to the Council. Country shares in
exports would be partially reallocated annually in proportion
to each country's share in world stocks.
At the present time, all but a very few representatives of the
U.S. coffee industry believe continued producer/consumer
3
cooperation in a new ICA to be in the best interests of the
U.S. The Senate, Tuesday, October 29, gave its advice and
consent to a one year extension of the current Agreement to
permit negotiation of a new Agreement by a vote of 94 to 0.
State Department Views Supporting the Proposed New Coffee
Agreement
The U.S. has played an active and constructive role thus far
in the negotiation for a new Agreement. In April, the U.S.,
after a full interagency review and approval by the substantive
agencies concerned (Treasury, Commerce, USDA, and State),
tabled a proposal which became the basis for further negoti-
ations and which was largely incorporated into an Agreement in
principle reached in July. The only major issue not resolved
was the division of market shares among producers.
Because of the disastrous Brazilian frost last July, the world
is facing two or three years of tight coffee supplies and rela-
tively high prices. We thus wish to propose a standby mechan-
ism, to become operative only if prices drop precipitously.
This will assure:
-- the absence of restrictions on supply in the next two or
three years;
-- an incentive to growers (primarily Brazilian) to replant
coffee trees (because they will be assured against a sharp
drop in prices in later years)
At the same time there is consumer protection in our proposals
because of:
-- the absence of quotas when prices are high;
-- the flexibility of quotas (no specific price levels are
specified in advance); and
-- the provision for allocation of some part of the quota on
the basis of stocks (assuring that quotas are backed by
real coffee).
Our foreign policy interest in coffee is extremely high. Coffee
is of major concern to 43 producing countries. More than 14
countries in Latin America and Africa, including Brazil,
Colombia and the Ivory Coast, earn more than 20 percent of their
export earnings from coffee. For some of the poorer countries
coffee is of even greater importance (Burundi 89 percent, El
Salvador 38 percent, Ethiopia 30 percent).
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4
It is essential to our credibility both as regards commodity
policy and relations with the Third World that the U.S. be
seen to be playing an active and constructive role in these
negotiations. Because of differences between Brazil on the one
hand and the small African and Latin producers on the other hand
over the division of quotas, the negotiations could yet falter.
If we indicate opposition to an agreement or take a passive
attitude after our earlier positive stance, we will bear the
onus for the failure of the negotiations.
For these reasons it is essential that we be given the nego-
tiating flexibility to put forward proposals which would indi-
cate U.S. readiness to support an agreement, fully consistent
with our consumer interests.
CEA Criticisms of the Proposed Agreement
Commodity agreements fall into two classes -- buffer stock
agreements and export control agreements. Buffer stock agree-
ments, such as the U.S. proposed in wheat, even out price
fluctuations without raising the price level. Export control
mechanisms such as in coffee prevent prices from falling in
periods of abundant supply but do not prevent them from rising
in times of short supply. This characteristic follows from the
lack of an inventory in an export control policy. To be sure
when export controls are imposed, exporters will store more
coffee, SO that on the average there will be more coffee
available to supply to the market when price rises. However,
the amounts stored under this policy have not been enough to
prevent significant price increases engendered by crop losses.
The proposed agreement is not likely to be able to prevent
price increases from crop losses in the future without an
explicit inventory policy.
In the current situation a freeze in Brazil has just occurred
and prices have risen accordingly from 60¢ to $1.00 per pound.
Although prices have dropped back to 80c per pound, the concern
is that the agreement would slow down the usual gradual price
reduction to more normal levels over the next several years.
The smaller producers would like to continue to expand their
market share relative to the older, established exporters,
notably Brazil. The operation of the agreement could curtail
their growth and thereby induce the long-run supply adjustments.
This would tend to prevent prices from falling as much as they
otherwise would 4-5 years hence.
The effects of the agreement on domestic U.S. consumers are
difficult to predict. But there are severe problems of the
OF
LIBRARY
5
appearance of cartel price increases in any case. The large
price increases following the loss of the Brazilian crop will
be reflected in retail price increases in the next few months
of 20 to 30 cents per pound. Responsibility for the increases
will be placed on ICA, even if inaccurately. There would be
exceptional problems of explaining our renewed membership to
domestic food retailers and consumers at a time when coffee
prices are rising rapidly.
In the long run, effective operation of the coffee agreement
would likely prevent prices from falling below the 60¢ per
pound level in effect early this year, and would not prevent
runups of prices beyond 90¢ per pound when there is a crop loss.
It is CEA's view that taking a strong position in November
would move the United States along to almost certain membership
in the agreement. If State is forthcoming in its recommenda-
tions, and these recommendations are accepted, then it would be
embarrassing for this country not to join the agreement. A
recommendation for active participation in November is de facto
acceptance of the final agreement. Therefore, CEA proposes
that the United States not take the additional steps that could
require the U.S. to sign this agreement. State should be
instructed to play a passive role.
Options
Option A: Instruct the U.S. delegation to present a U.S. pro-
posal for operation of the quota system.
Pro:
United States participation along these lines would de-
monstrate our concern with the problems of the coffee
exporting countries.
The proposal would continue the political benefits from
our participation.
If accepted, the proposal would prevent drastic price
increases due to artificial restrictions of exports in
the next two years.
Con:
This would be tantamount to U.S. acceptance now of the
final agreement.
The proposal will not likely prevent price increases due
to the present crop shortfalls, but it will prevent
LISTATE
price declines due to large crops.
6
Option B: Instruct the U.S. delegation to play a passive role
in the last round of negotiations.
Pro:
This provides maximum flexibility for the U.S. to re-
ject the agreement if its final form is strongly against
consumer interests.
This posture would be consistent with CEA concerns re-
garding the restrictive effects of the agreement.
Con:
The State Department proposal would minimize the occur-
rence of any artificial restriction of supplies in the
next two years.
There is some indirect incentive to build stocks in the
proposed agreement. This incentive should be fostered
by active U.S. participation.
A passive U.S. position will be regarded by others as
reflecting U.S. disinterest in the Agreement.
Option C: Instruct the U.S. delegation not to participate in
the November negotiations.
Pro:
The proposed ICA is based on export controls which are
distinctly less preferred to buffer stocks.
Will make clear at the outset our intention not to par-
ticipate in such an agreement.
Con:
By rejecting membership at this time, we would be left
without any bargaining chips to use in trying to nego-
tiate an agreement in our interest.
This approach would immediately dissipate the political
goodwill the United States has accumulated by partici-
pation in the International Coffee Organization.
7
Decision
Option A
Instruct the U.S. delegation to present a
U.S. proposal for operation of the quota
system.
Supported by: State, NSC
Option B
Instruct the U.S. delegation to play a pas-
sive role in the last round of negotiations.
Supported by: CEA, Treasury, OMB, CIEP
Option C
Instruct the U.S. delegation not to parti-
cipate in the November negotiations.
LIBRAGY
November 26, 1975
To:
Trudy
From: Eva
Mr. Buchen said he goes
along with Option 3.
FORD is OFFICE LIBRARY
THE WHITE HOUSE
WASHINGTON
Date 4/26
TO: Phil Buchen
FROM: DUDLEY CHAPMAN
Recommend: No objection
(I think OpTion 3
would make The President
Look more reasonable,
The obvious reason for
option 2 is to create
the appearunce of
pressureon Congress, +I
doubt that we should
address That judgment.)
THE WHITE HOUSE
ACTION MEMORANDUM
WASHINGTON
LOG NO.:
Date:
November 26, 1975
Time:
FOR ACTION:
CC (for information):
Phil Buchen
Jim Cannon
Bob Hartmann
Jack Marsh
FROM THE STAFF SECRETARY
DUE: Date:
Wednesday, 11/26
Time:
c.o.b.
SUBJECT:
L. William Seidman memo 11/25/75
re Withholding Rate Strategy
ACTION REQUESTED:
X
For Necessary Action
For Your Recommendations
Prepare Agenda and Brief
Draft Reply
X For Your Comments
Draft Remarks
REMARKS:
Prompt action on this matter is needed . - your
comments would be appreciate by c.o.b. today.
Thanks.
PLEASE ATTACH THIS COPY TO MATERIAL SUBMITTED.
If you have any questions or if you anticipate a
FORD is LIBRARY GERALD
delay in submitting the required material, please
K. R. COLE, JR.
telephone the Staff Secretary immediately.
For the President
THE WHITE HOUSE
WASHINGTON
November 25, 1975
MEMORANDUM FOR THE PRESIDENT
FROM:
L. WILLIAM SEIDMAN
sws
SUBJECT:
Withholding Rate Strategy
The current income tax withholding rates are scheduled to ex-
pire on December 31, 1975 and revert to the higher rates in
effect before May 1, 1975.
Employers must know soon what withholding tables to use ef-
fective January 1, 1976. Employers with computerized payroll
systems generally require a minimum of 30 days to implement
new rates and tables; employers which are not computerized,
about 45 days.
Reversion to the pre- May 1, 1975 rates or to new lower rates
on January 1 will result in most employers being out of com-
pliance with the law. Good faith efforts by employers to
comply under such conditions, however, would be accepted as sub-
stantial compliance with the law.
The timing of congressional action on tax legislation is uncer-
tain. It is conceivable that final action by both houses could
be completed by the second week in December. Debate on a spend-
ing ceiling and on separation of a tax cut from tax reform might
delay action. Congressional action early in December on a tax
cut without a spending ceiling would allow time for a veto and
congressional reconsideration. Action dragging on further into
December, in the face of the planned Christmas recess, diminish-
es our maneuverability.
Options
Option 1: Take no further action except continued reiteration
of your position that action on a tax reduction must
be accompanied by a spending ceiling.
This keeps the focus on Congress and relies on the minority lead-
ership, working with the Administration, to continue to press
hard for a spending ceiling. Moreover, it keeps your options
2
open. However, should an impasse result and withholding rates
rise January 1, it could be charged that employers and the pub-
lic were not given adequate advance warning of the consequences.
Option 2: Approve Treasury issuing a press release alerting
employers and the public that unless Congress acts,
increased rates will take effect January 1. Issue
a White House statement warning of the consequences
of inaction and reiterating the need for a spending
ceiling.
This strategy permits the IRS to provide advance guidance to
employers to meet contingencies. It alerts the public to the
consequences of inaction by Congress on your tax reduction and
spending restraint program and dramatizes your commitment to
favorable action on that program. However, escalation of the
issue could increase public pressure on Congress to maintain
the present withholding rates without accompanying legislation
mandating a spending ceiling.
Option 3: Propose that Congress, after returning from its
Thanksgiving recess, enact a simple 30-day exten-
sion (until January 31) of present withholding
rates to allow more time to consider your tax re-
duction and spending restraint program and to give
employers adequate notice of future changes in
withholding rates.
A simple extension of the present withholding rates can be en
acted at any time prior to January 1. Proposing an extension
of the present rates now would likely weaken our position in
pressing for enactment of the tax reduction and spending re-
straint program prior to the Christmas recess.
Recommendation
The Economic Policy Board Executive Committee unanimously recom-
mends that you approve Option 2.
Max Friedersdorf concurs with this recommendation.
Approve
Disapprove