Abandonment Disaster Demonstration Relief Act of 1975

it possible for them to assume some of the risks and some of the role that has to be done. I don't think the Government can do it by itself. I think the professional builder has to have a roll here; and again, it's a profitable role. The projects have to be large enough to warrant the professional builder's coming in.

Now, I understand very, very clearly the term "sweet equity" that was used here. Obviously, there has to be some position for someone who will come in and who will live in that house and who will rebuild it.

There is a man in the audience here, a fellow by the name of Dick Davis. Dick and I have worked together for now 25 years. He lives in south Los Angeles, and he is what one might call a slum landlord. He owns five houses that he fixed up by himself and rents for a profit. By working on weekends and in evening, he's put these together, and he rents them. Now, I suggest he knows a little bit more about how to fix up some of these houses than most of the people that purport to represent major efforts in this area. He's done it himself; and if time permits, I'd like the Senator and the panel to be able to ask him some pertinent questions on how to do it and why he does it. I did ask him why he didn't continue. He said, "There is no profit. It's worthless doing."

Thank you. I hope you can implement some of these efforts and make this program work, because it's needed badly.

Senator CRANSTON. Thank you very, very much.

If we have an opportunity and time permits, I certainly would like to speak with him.

[Complete statement follows:]

STATEMENT OF HERMAN H. RAPPAPORT, BEVERLY HILLS, CALIF.

I recently checked an existing housing project in Compton. A few years ago there were 500 homes. Today, a third of these have been torn down, another third is boarded up. Only one third is presently occupied. The obvious solution to reduce the cash drain, is to tear it all down.

But the possibilities I saw in this one 62-acre tract led me to some thoughts that bear on Senate Bill 1988. The objectives of the bill are excellent. How it's carried out is the question.

The federal government has poured millions in South Los Angeles housing in the last 10 years. Most is in foreclosure. Private housing is being boarded up or torn down every day. Watts is worse off today, by every standard, than it was 10 years ago. Government programs, by themselves, do not work. For Rehab programs we need experienced builders and private capital, as well as local leaders and government. Unless some new force can bring all these together, housing rehab won't work. Senate Bill 1988 proposes to spend millions of dollars to put abandoned housing back on the market; a drop in the bucket compared to what is needed. On the other hand, it can be more than necessary if we use common sense. In fact, maybe what we need is a Clearing House of Common Sense.

You see, today's experts have displaced common sense. We're told that urban problems are so complex that only specialists can handle them. Unfortunately, each expert only sees his own small specialty and there's no one to put things together; no one with enough experience to separate facts from double talk. Facts can be simple to recognize. Los Angeles has 10,000 board-up houses; half of its construction workers are unemployed; there is a desperate need for low-cost housing; and, last, there are dozens of government programs that might apply, from HUD to D.O.T., from MESBIC to SBA, you name it. Yet experienced builders and private capital won't get involved. The risks outweight the potential profit. Even government agencies like HUD and FNMA

won't get involved. This bill, as far as I know, is the first focus by Washington on rehab housing. But rehab housing needs total commitment,

Just about every government program that I've seen consists of two elements-government and local leaders. Each program seems designed to drive out the private sector, the mortgage lender, the builder-and that's where the experience is.

There is a man sitting in the audience he has been a friend of mine and worked with me for 25 years. Dick Davis lives in South Los Angeles. He is an investor in Watts, and a landlord. Mr. Davis bought several substandard houses, fixed them up, and he rents them out for profit. When I asked Mr. Davis why he didn't buy more he said tnat he didn't like to lose money! Any rehab program that doesn't offer an experienced man like Dick Davis any incentive to invest his time and money, just can't work.

Anyone who has tried to make a living fixing up old houses will tell you it is one of the most risky construction jobs that there is. It takes know-how. The one-house-at-a-time carpenter has a tough time bringing costs down. There just aren't too many Dick Davis' around. You can't gear up to do a proper job without volume and, of course, 10,000 boarded-up houses can't be put back 5 or 10 at a time; and when the government sells houses a few at a time, for token amounts to neighborhood non-profit foundations, that is probably the most inefficient way to rehab housing that I can imagine. I'm told one government-owned company that bought houses for $8,000 or so each, spent $3,000 in improvement costs, and is losing money at a sales price of $22,000. I wonder how much each house really cost the government? So much for experience. Proper management has to bring back the conventional lender as well, and end redlining. This decision not to lend in areas with bad loans means economic and social death.

Senate Bill 1988 is directed primarily to government exposure loans and insurance. Ignoring private distress, housing will reinfect any neighborhood. Why can't we help free up loans on foreclosed housing in redlined districts by insisting that such funds be reinvested in the same districts?

I'm sure that Savings and Loans representatives can speak much more eloquently of their industry, just as the local leaders can of their needs, but I'd like to add a few words.

Local leadership is today's catch phrase. If it has experience, is creative and can influence the private sector, fine. If it is a political expedient-not so fine. I can't speak about other fields, but in urban redeveloping and rehab housing, local leadership needs help.

If I were real sick, I'd call in the best doctor I could afford-white, black or green. And I certainly wouldn't let a beginner learn anatomy on me.

One man-one vote may be a great political slogan, but small inexperienced neighbornood groups haven't been able to do very much in rebuilding programs. The problem is especially important in Los Angeles County which is a collection of small neighborhoods and independent towns. Rehab programs can't allow each city to be in a business for itself. Los Angeles has one regional agency, Urban Affairs, geared to work out rehab programs. Any demonstration program should be through Urban Affairs. The cost of momma and poppa agencies is prohibitive.

Senate Bill 1988 calls abandonment a contagious disease-an excellent analogy. We can't leave neighborhood pocket sores to fester and reinfect the entire system.

I know that "abandoned housing" is the subject of this hearing. But housing, considered by itself, is shortsighted. People need jobs to pay the rent or mortgage; they need transportation; they need family security, etc. Only a creative partnership of the private sector with government will solve the total problem. Los Angeles just can't afford another 10 years of sliding downhill. Senator CRANSTON. Mr. Crissman, will you give us your statement? Mr. CRISSMAN. Thank you, Senator Cranston.

STATEMENT OF RICHARD CRISSMAN

S. 1988 looks like a practical piece of business to me. I made an economic model of a pilot project using Los Angeles County data and numbers. My project had about $52 million of total investment

and about $42 million of housing that were sold out of it, leaving a permanent investment or a long-term investment of around $10 million.

I tried to calculate the benefits to the community in which that development would occur. I calculate that there is about $2.6 million annually of tax benefits to the total project that I envisioned, and that the subventions-that is, the return to local government of State taxes-add to that by another $6,000 annually to make a return to the community, which were to use the Neighborhood Protection Corp. device, of $3.2 million annually. To have long-term investment left in such a project of $10 million would seem to me a perfectly proper kind of federal stimulation.

I think the NPC can show the way for private lenders. I'm pretty sure that good housing does not beget good social conditions.

On the other hand, almost all of the cities in the United States have substantial areas of their communities where the neighborhoods are at the absolute balance between a couple of more restorations to make them whole and a couple of fewer will tip them over into an unrecoverable condition.

This act is aimed at neighborhoods in unrecoverable condition; but it can show, I think, through the demonstration project, how lenders, by blanketing a neighborhood with support-as the Bank of America has done in Los Angeles County in one neighborhood-can restore the balance of a neighborhood, but it has to be a blanket kind of investment.

For example, Chicago has about two-thirds of its neighborhoods at that moment of balance; Los Angeles has about a third; Newark is 95 percent; Paterson is 100 percent, to speak of the East.

There will be an opposition to this bill, I'm sure, by those who say that there should not be another Federal agency. The fact is in my view that there are no agencies that can do this. HUD has made a great many mistakes, and they certainly should not be permitted to select the initial project under this bill. They don't know how. They don't have the equipment to do it or the staff.

In fact, HUD should probably be limited in all of its operations except to have three stamps: one of which says insured; the other says deficient interest documentation; and the third which says rejected.

Senator CRANSTON. That is a great suggestion.

Mr. CRISSMAN. The National Corporation for Housing Services has been an excellent source of capital for low-income housing. They own about 23,000 units, all are in good condition, and they have an excellent reputation. They, however, are not a community developer. They are only a financial intermediary.

Savings and loans, which have service corporations, have been quite creative with their corporations; however, we are well aware that if they were to concentrate assets to the extent required in an NPC project, they would be severely criticized by the FSLIC.

Pension funds, my friend suggest, would be a good vehicle for investment in inner-city areas. Not so. The new pension fund legislation requires them to make investments only in insured mortgages. Senator CRANSTON. Did you have a question, Mr. Buckley.

Mr. BUCKLEY. I just wanted to ask, if the FHA were insuring the property, what would be wrong?

Mr. CRISSMAN. I think it would be fine, and they do make substantial investments in FHA loans.

Mr. BUCKLEY. In recent studies by the Harvard-MIT Joint Center on Urban Studies, it has indicated that pension funds do not invest very heavily in mortgages, but they have invested in the stock market much more than they should have.

Mr. CRISSMAN. Well, my company services 350-odd million for pension funds on FHA loans. We consider them a very good source. Mr. BUCKLEY. Then why do you not accept pension funds as a likely source of money?

Mr. CRISSMAN. Except under revised FHA- if you can get them back to the three-stamp operation, fine, but I think that is a major

task.

Mr. BUCKLEY. You would agree that pension funds would be a good source of capital?

Mr. CRISSMAN. Yes; but not as present things exist.

Neighborhood housing service organizations are sponsored by the Federal Home Loan Bank Board through an advisory service. I think that the neighborhood housing services-block groups or whatever they are called are a necessary ingredient to NPC programs, but they are not a substitute for it as someone has suggested. NPC need not be another bureaucracy.

I think these objections concern me greatly in seeing whether the bill can pass or not. My belief is that most institutions are process oriented. Their staff and their senior people are much concerned that every piece of paper gets into the right file and most especially that the personnel files are clean; that is no way to do housing.

Housing organizations—and in fact, most organizations—must be product oriented.

It's my recommendation that this agency be staffed only by persons whose objective is the product of restored housing and restored tax base and therefore, restored communities. There are a lot of cheap people who can keep track of things, but there are very few people who can get a product.

Turning to the use of debt instruments as set forth in the act, it appears to me that they address that directly-that part of the act to one of the very great national issues. There is almost no long-term capital market to be seen in the future. It's a terribly unsettled situation. Until this is restored, I think it's going to be difficult to market anything beyond the initial authorization of long-term debt insurance.

I would suggest, however, that even in this initial phase that FDIC- and FSLIC-insured institutions be required to accept these debentures in exchange for abandoned housing which they own; otherwise, it seems to me that NPC is at the mercy of the Treasury as to finding of this money.

The savings and loans, which may in fact have partly contributed to the difficulties of the advance of abandoned houses on their books, get cash, when in fact they might just as well have the debt securities; particularly if they yielded any like market rates that seems

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and about $42 million of housing that were sold out of it, leaving a permanent investment or a long-term investment of around $10 million.

I tried to calculate the benefits to the community in which that development would occur. I calculate that there is about $2.6 million annually of tax benefits to the total project that I envisioned, and that the subventions-that is, the return to local government of State taxes-add to that by another $6,000 annually to make a return to the community, which were to use the Neighborhood Protection Corp. device, of $3.2 million annually. To have long-term investment left in such a project of $10 million would seem to me a perfectly proper kind of federal stimulation.

I think the NPC can show the way for private lenders. I'm pretty sure that good housing does not beget good social conditions.

On the other hand, almost all of the cities in the United States have substantial areas of their communities where the neighborhoods are at the absolute balance between couple of more restorations to make them whole and a couple of fewer will tip them over into an unrecoverable condition.

This act is aimed at neighborhoods in unrecoverable condition; but it can show, I think, through the demonstration project, how lenders, by blanketing a neighborhood with support as the Bank of America has done in Los Angeles County in one neighborhood-can restore the balance of a neighborhood, but it has to be a blanket kind of investment.