Ask the Scholar

Document scope · 1 page
doc
Scholar
Ask about this object, its catalog metadata, its source description, or the page inventory. For page-specific OCR and visual context, open one of the page chats.

Scholar Source Context

Document identity
localId
1554469
label
FY 1976 - 12/20/74 - Labor, HUD, EPA, NASA
core
doc
dtoType
document
pageCount
1
Source metadata
id
1554469
contentType
document
title
FY 1976 - 12/20/74 - Labor, HUD, EPA, NASA
collections
White House Special Files Unit Files
Budget Review Decision Papers
subjects
National Aeronautics and Space Administration. 10/1/1958-
Environmental Protection Agency. Office of Enforcement. (2/1/1975 - 7/1/1981)
Federal budget
imageCount
1
hasImages
yes
source
import
hasTranscription
no
Source extras
naId
1554469
coverageEndDate
logicalDate
1974-12-31
month
12
year
1974
coverageStartDate
logicalDate
1974-12-01
month
12
year
1974
levelOfDescription
fileUnit
recordType
description
ocrSource
nara-archive
Single page context
seq
1
pageIndex
0
type
document
mediaId
5f9cd47ff1e1f0a6
ocrText
The original documents are located in Box 8, folder "FY 1976 - 12/20/74, Labor, HUD, EPA, NASA" of the White House Special Files Unit 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 Gerald Ford donated to the United States of America his copyrights in all of his unpublished writings in National Archives collections.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 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. Best Possible Scan from Poor Quality Original 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 Best Possible Scan from Poor Quality Original 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 Best Possible Scan from Poor Quality Original 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 Best Possible Scan from Poor Quality Original -?- 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 Best Possible Scan from Poor Quality Original -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 Best Possible Scan from Poor Quality Original 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 Best Possible Scan from Poor Quality Original 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 Best Possible Scan from Poor Quality Original 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 Best Possible Scan from Poor Quality Original 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 Best Possible Scan from Poor Quality Original 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 Best Possible Scan from Poor Quality Original -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 Best Possible Scan from Poor Quality Original 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.