A-65368, JANUARY 17, 1936, 15 COMP. GEN. 619

A-65368: Jan 17, 1936

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TO THE RATE THE UNITED STATES IS REQUIRED TO PAY ON ITS BONDED INDEBTEDNESS. IS NOT AUTHORIZED. THE RATES MAY BE FIXED WITHOUT INCLUSION OF THE VALUE OF THE LANDS EMPLOYED IN THE CONSTRUCTION OF THE PARTICULAR PROJECT IF PROVISION IS MADE FOR INCLUDING IN SUCH RATES A FAIR ANNUAL INTEREST RETURN ON THE VALUE OF THE LAND. THIS ESTIMATE ALSO SHOWS THE AVERAGE RENTAL PER ROOM PER MONTH WHICH WOULD HAVE TO BE CHARGED TO AMORTIZE THE PROJECT WITHIN A SIXTY-YEAR PERIOD AND TO PAY TO THE GOVERNMENT 3 PERCENT INTEREST ON THE MONEY WHICH IT HAS INVESTED IN THE PROJECT. A SURVEY OF THE RENTALS PAID IN THIS AREA PRIOR TO THE GOVERNMENT'S ACQUISITION OF TITLE SHOWS THAT THE AVERAGE MONTHLY RENTAL PER ROOM WAS $3.08.

A-65368, JANUARY 17, 1936, 15 COMP. GEN. 619

FEDERAL LOW-COST HOUSING PROJECTS - FIXING OF RENTAL RATES THE FIXING OF LOW-COST HOUSING RENTAL RATES WHICH WOULD NOT BRING IN A NET RETURN ON THE MONEY INVESTED IN THE PROPERTY EQUAL, AT LEAST, TO THE RATE THE UNITED STATES IS REQUIRED TO PAY ON ITS BONDED INDEBTEDNESS, IS NOT AUTHORIZED, BUT THE RATES MAY BE FIXED WITHOUT INCLUSION OF THE VALUE OF THE LANDS EMPLOYED IN THE CONSTRUCTION OF THE PARTICULAR PROJECT IF PROVISION IS MADE FOR INCLUDING IN SUCH RATES A FAIR ANNUAL INTEREST RETURN ON THE VALUE OF THE LAND.

COMPTROLLER GENERAL MCCARL TO THE FEDERAL EMERGENCY ADMINISTRATOR OF PUBLIC WORKS, JANUARY 17, 1936:

THERE HAS BEEN RECEIVED YOUR LETTER OF SEPTEMBER 10, 1935, WITH ENCLOSURES, AS FOLLOWS:

IN CONNECTION WITH THE PROPOSED OPERATION OF THE TECHWOOD PROJECT IN ATLANTA, GEORGIA, IT BECOMES NECESSARY TO FIX THE RENTS TO BE CHARGED TO THE TENANTS OF THAT PROJECT. FOR YOUR INFORMATION AND IN ORDER THAT YOU MAY CLEARLY UNDERSTAND THE FINANCIAL SITUATION IN CONNECTION WITH THIS PROJECT, I AM ENCLOSING AN ESTIMATE OF THE FINAL COST OF THIS PROJECT TO THE GOVERNMENT WHEN CONSTRUCTION HAS BEEN COMPLETED. THIS ESTIMATE ALSO SHOWS THE AVERAGE RENTAL PER ROOM PER MONTH WHICH WOULD HAVE TO BE CHARGED TO AMORTIZE THE PROJECT WITHIN A SIXTY-YEAR PERIOD AND TO PAY TO THE GOVERNMENT 3 PERCENT INTEREST ON THE MONEY WHICH IT HAS INVESTED IN THE PROJECT.

A SURVEY OF THE RENTALS PAID IN THIS AREA PRIOR TO THE GOVERNMENT'S ACQUISITION OF TITLE SHOWS THAT THE AVERAGE MONTHLY RENTAL PER ROOM WAS $3.08. THIS RENTAL DID NOT INCLUDE REFRIGERATION, LIGHT, AND OTHER SERVICES WHICH THE GOVERNMENT WILL FURNISH. THIS IS $6.29 LESS THAN THE AMOUNT REQUIRED TO AMORTIZE THE INVESTMENT UNDER THE ESTIMATE ENCLOSED.

THE PURPOSE OF THE ACT AUTHORIZING THE CONSTRUCTION OF THIS PROJECT WAS TO ELIMINATE SLUMS AND TO PROVIDE SUITABLE HOUSING FOR PERSONS OF LOW INCOME. THE FIRST PURPOSE HAS BEEN EFFECTUALLY ACCOMPLISHED BY THE REMOVAL OF THE OLD BUILDINGS AND THE SECOND PURPOSE CAN BE ACCOMPLISHED ONLY BY SETTING A RENTAL FIGURE WHICH WE BELIEVE WILL BE WITHIN THE MEANS OF PERSONS OF LOW INCOME. THERE IS ENCLOSED A COPY OF A MEMORANDUM ON THE METHOD OF FIXING RENTALS, PREPARED BY THE DIRECTOR OF HOUSING AND SUBMITTED TO THE ADMINISTRATOR ON JUNE 1, AND A FURTHER MEMORANDUM ON THE SUBJECT PREPARED ON JULY 10. THE MEMORANDUM OF JUNE 1 WAS PRESENTED TO THE PRESIDENT, WHO AGREED WITH THE CONCLUSIONS REACHED THEREIN. YOU WILL NOTE THAT THE PRESIDENT IN COMMENTING UPON IT GOES EVEN FURTHER THAN THE DIRECTOR OF HOUSING WHEN HE VOICES THE OPINION THAT NO PROVISION SHOULD BE MADE TO AMORTIZE THE COST OF THE LAND WHICH WAS PURCHASED. AN ESTIMATE OF OPERATING COSTS FOR THE TECHWOOD PROJECT HAS BEEN PREPARED BASED ON THE PRINCIPLES SET FORTH IN THIS MEMORANDUM. THIS OPERATING COST SHOWS THE NECESSITY OF OBTAINING AN AVERAGE MONTHLY RENTAL OF $6.30 PER ROOM. FEEL THAT THE PREMISES MAY BE RENTED TO PERSONS IN THE LOW INCOME BRACKET BY FIXING $6.31 AS THE AVERAGE MONTHLY RENTAL PER ROOM.

THE NATIONAL INDUSTRIAL RECOVERY ACT AUTHORIZED THE RENTING OR LEASING OF THE PREMISES, BUT SETS NO LIMITATION UPON THE AMOUNT TO BE CHARGED FOR RENT, AND I FEEL, PARTICULARLY IN VIEW OF THE PURPOSES OF THAT ACT, THAT I MAY ESTABLISH THE RENT AT SUCH FIGURE AS I DETERMINE SHALL BEST ACCOMPLISH THOSE PURPOSES. BEFORE DOING SO, HOWEVER, I DESIRE YOUR OPINION AS TO WHETHER OR NOT THERE IS ANY LIMITATION WHICH WOULD PROHIBIT ME FROM FIXING THE RENT FOR THIS OR ANY OTHER HOUSING PROJECT AT SUCH FIGURE AS WOULD BEST ACCOMPLISH THE PURPOSE OF LOW COST HOUSING, OR WHETHER I AM COMPELLED BY LAW TO ESTABLISH SUCH FIGURE AS WILL AMORTIZE THE MONEYS INVESTED.

AS A PART OF THE PROGRAM ADOPTED BY THE NATIONAL INDUSTRIAL RECOVERY ACT OF JUNE 16, 1933, WITH A VIEW TO ACCOMPLISHING INDUSTRIAL RECOVERY, THE CONGRESS AUTHORIZED, BY SECTION 202 (D) THEREOF, INCLUSION IN THE "COMPREHENSIVE PROGRAM OF PUBLIC WORKS" BY SAID SECTION PROVIDED FOR, ,CONSTRUCTION, RECONSTRUCTION, ALTERATION, OR REPAIR UNDER PUBLIC REGULATION OR CONTROL OF LOW-COST HOUSING AND SLUM CLEARANCE PROJECTS," AND THE TECHWOOD PROJECT, IN ATLANTA, GA., APPEARS ONE INVOLVING IN SOME MEASURE, BOTH ELEMENTS--- CLEARANCE OF AN UNSIGHTLY NEIGHBORHOOD BY ERECTION, AS A GOVERNMENT PROJECT, THE DWELLINGS HERE INVOLVED AND PROPOSED NOW TO BE RENTED--- AND IN SUCH CONNECTION SECTION 203 (A) (3) OF SAID ENACTMENT AUTHORIZED THE PRESIDENT THROUGH THE FEDERAL EMERGENCY ADMINISTRATOR OF PUBLIC WORKS OR SUCH OTHER AGENCIES AS HE MIGHT CREATE, TO ACQUIRE THE LANDS NECESSARY FOR ANY SUCH PROJECT, TO SELL ANY PROPERTY SO CONSTRUCTED OR QUIRED,"OR TO LEASE ANY SUCH PROPERTY WITH OR WITHOUT THE PRIVILEGE OF PURCHASE: .' THERE APPEARS NOTHING CONTAINED IN SAID ENACTMENT OR IN ANY STATUTE AMENDATORY THEREOF PRESCRIBING THE BASIS FOR THE RENTING OF SUCH PROPERTY.

THE REFERRED-TO MEMORANDUM OF JUNE 1, 1935, PREPARED BY THE DIRECTOR OF HOUSING, IS ACCOMPANIED BY A TABULATED STATEMENT SHOWING COSTS OFLAND, CONSTRUCTION, ARCHITECTS' SERVICES, ETC., AND ESTIMATED MAINTENANCE AND OPERATING COSTS AS FOLLOWS:

TABLE

ESTIMATED OPERATING COSTS, TECHWOOD, ATLANTA, GA. (WITHOUT DORMITORIES)

BASED ON COST OF $2,635,540 WITHOUT GRANT

CAPITAL COSTS

LAND --------------------------------------------------- $480,621.40

BUILDING CONSTRUCTION ----------------------------------1,956,166.59

ARCHITECT'S FEE ---------------------------------------- 88,430.00

CARRYING CHARGES ( 1 1/2 PERCENT OF LAND AND BUILDINGS) 36,880.00

OPERATING CAPITAL ( 1/2 PERCENT OF LAND AND BUILDINGS) - 12,810.00

CONTINGENCIES ------------------------------------------ 60,632.01

TOTAL COST OF PROJECT ----------------------------2,635,540.00

ANNUAL EXPENSES

INTEREST AND AMORTIZATION, 3.64 PERCENT ---------------- 95,933.65

OPERATION EXPENSE--- APARTMENTS (41.40 P.R.P.Y.) ------- 87,933.60

RESERVE FOR REPLACEMENT (6.26 P.R.P.Y.) ---------------- 13,296.24

EXTRA SERVICE (ELEC. FOR STORES, APARTMENTS, AND

OFFICES ( ------------------------------------- 16,500.00

GARAGES (186 AT $6.45) --------------------------------- 1,199.70

STORES AND OFFICES (16,500 SQ. FT. AT 25 CENTS) -------- 4,125.00

MUNICIPAL SERVICE CHARGE (5 PERCENT OF INCOME) --------- 9,400.00

INSURANCE ---------------------------------------------- 3,500.00

SUBTOTAL ----------------------------------------- 231,888.19

RESERVE (3 PERCENT OF SUBTOTAL) ------------------------ 6,956.64

TOTAL ESTIMATED ANNUAL EXPENSES ------------------ 238,844.83

ESTIMATED RENTAL EQUALS $112.45 PER ROOM PER YEAR.

ESTIMATED RENTAL EQUALS $9.37 PER ROOM PER MONTH.

2,124 ROOMS, 604 APARTMENTS.

THIS STATEMENT INDICATES THAT IN ORDER TO AMORTIZE THE PROJECT ON A 60- YEAR AND ACTUAL PROJECT COST BASIS IT WILL BE NECESSARY TO FIX THE RENTAL, PER ROOM, AT $9.37 PER MONTH.

ANOTHER TABULATED STATEMENT, APPARENTLY PREPARED IN THE SAME CONNECTION AND BY THE SAME OFFICIAL BUT BASED UPON A 45 PERCENT GRANT OF ALL PROJECT COSTS, INCLUDING LAND COSTS, AND OMITTING AMORTIZATION OF THE REMAINING 55 PERCENT OF LAND COSTS, IS AS FOLLOWS:

TABLE

CAPITAL COSTS

LAND --------------------------------------------------- $480,621.40

BUILDING CONSTRUCTION ---------------------------------- 1,956,166.59

ARCHITECT'S FEE ---------------------------------------- 88,430.00

CARRYING CHARGES ( 1 1/2 PERCENT OF LAND AND BUILDINGS) 36,880.00

OPERATING CAPITAL ( 1/2 PERCENT OF LAND AND BUILDINGS) - 12,810.00

CONTINGENCIES ------------------------------------------ 60,632.01

TOTAL COST OF PROJECT ----------------------------- 2,635,540.00

FINANCING

TOTAL COST OF PROJECT ---------------------------------- 2,635,540.00

LESS 45 PERCENT ---------------------------------------- 1,185,990.00

1,449,550.00

LESS 55 PERCENT OF $480,621.40 ------------------------- 264,700.00

MORTGAGE LOAN ------------------------------------------ 1,184,850.00

55 PERCENT OF LAND ------------------------------------- 264,700.00

45 PERCENT OF TOTAL COST ($2,635,540.00) --------------- 1,185,990.00

TOTAL COST OF PROJECT ------------------------------ 2,635,540.00

ANNUAL EXPENSES

INTEREST AND AMORTIZATION, 3.64 PERCENT OF MTGE. LOAN -- 43,128.54

LAND RENT, 3 PERCENT OF $264,700.00 -------------------- 7,941.00

OPERATION EXPENSE--- APARTMENTS (41.40 P.R.P.Y.) ------- 87,933.60

RESERVE FOR REPLACEMENT (6.26 P.R.P.Y.) ---------------- 13,296.24

EXTRA SERVICE (ELEC. FOR STORES, APARTMENTS AND OFFICES) 16,500.00

GARAGES (186 AT $6.45) --------------------------------- 1,199.70

STORES AND OFFICES (16,500 SQ. FT. AT 25 CENTS) -------- 4,125.00

MUNICIPAL SERVICE CHARGE (5 PERCENT OF INCOME) --------- 9,400.00

INSURANCE ---------------------------------------------- 3,500.00

SUBTOTAL ------------------------------------------- 187,024.08

RESERVE (3 PERCENT OF SUBTOTAL) ------------------------ 5,610.72

TOTAL ESTIMATED ANNUAL EXPENSES -------------------- 192,634.80

ESTIMATED RENTAL EQUALS $75.68 PER ROOM PER YEAR.

ESTIMATED RENTAL EQUALS $6.31 PER ROOM PER MONTH.

2,124 ROOMS, 604 APARTMENTS.

THIS TABULATION INDICATES THAT ON SUCH BASIS IT WILL BE NECESSARY TO FIX THE RENTAL, PER ROOM, AT $6.31 PER MONTH.

IT IS SUGGESTED BY THE SUBMISSION THAT THE PURPOSE OF THE ENACTMENT IS TO ELIMINATE SLUMS AND PROVIDE SUITABLE HOUSING FOR PERSONS OF LOW INCOME, AND THAT THE LATTER OBJECT CAN BE ACCOMPLISHED ONLY BY FIXING RENTALS WITHIN THE MEANS OF PERSONS OF LOW INCOMES, AND YOU STATE---

I FEEL THAT THE PREMISES MAY BE RENTED TO PERSONS IN THE LOWER INCOME BRACKET BY FIXING $6.31 AS THE AVERAGE MONTHLY RENTAL PER ROOM.

IT SEEMS TO HAVE BEEN THE PRIMARY PURPOSE OF THE NATIONAL INDUSTRIAL RECOVERY ACT TO CREATE EMPLOYMENT AND REVIVE INDUSTRY, AND AS ONE MEANS TO SUCH END THERE WAS AUTHORIZED A COMPREHENSIVE PROGRAM OF PUBLIC WORKS INCLUDING PROJECTS OF SLUM-CLEARANCE AND LOW-COST HOUSING. WHILE THUS RECOGNIZED AS PROJECTS THAT WOULD LIKELY PROVIDE EXTENSIVE EMPLOYMENTS AND UTILIZATION OF THE PRODUCTS OF INDUSTRY--- AND BY THEIR SELECTION FOR INCLUSION IN THE PROGRAM THEIR DESIRABILITY WAS ALSO RECOGNIZED--- THERE HAS BEEN FOUND NOTHING IN THE ENACTMENT OR IN ANY LAW SUBSEQUENTLY ENACTED INDICATING AN INTENT THAT ADMINISTRATION OF COMPLETED PROJECTS--- SALE OR RENT--- SHOULD BE ON A BASIS CONTEMPLATING ULTIMATE LOSS--- FOR INSTANCE, THAT SALES SHOULD BE PLANNED AT PRICES BELOW ACTUAL COSTS TO THE GOVERNMENT. THE AUTHORITY WAS FOR "LOW-COST" PROJECTS, AND APPARENTLY THE SECONDARY BENEFIT CONTEMPLATED--- THE BENEFIT OVER AND ABOVE THAT TO BE DERIVED FROM THE EXTENSIVE EMPLOYMENTS AND BENEFITS TO INDUSTRY INVOLVED-- - WAS THAT THROUGH CAREFUL PLANNING AND QUANTITY PRODUCTION DESIRABLE DWELLINGS COULD BE PRODUCED AT SUCH LOW COSTS AS TO BE WITHIN THE REACH OF THOSE OF LOW INCOME. BUT, AS STATED, NOTHING APPEARS INDICATING A LEGISLATIVE PURPOSE TO PROVIDE FREE HOUSING OR OPERATIONS DESIGNED TO BE BELOW ACTUAL COSTS. THEN, TOO, AS HEREINBEFORE SUGGESTED, APPARENTLY THERE IS NOTHING THAT WOULD NECESSARILY LIMIT ENJOYMENT OF BELOW-COST RENTALS TO THOSE OF LOW INCOME, AND NO REASON SUGGESTS ITSELF WHY THOSE WHO CAN AFFORD TO PAY A RENTAL PRODUCING A FAIR RETURN ON ACTUAL COSTS SHOULD PAY LESS AT THE EXPENSE OF THE GOVERNMENT.

IT WOULD SEEM THAT UNLESS THE CONGRESS SHOULD PRESCRIBE SOME OTHER BASIS FOR THE RENTAL OF COMPLETED PROJECTS, SUCH AS THE TECHWOOD PROJECT, THERE IS APPLICABLE THE GENERAL PRINCIPLE STATED IN PACIFIC HARDWARE CO. V. UNITED STATES, 49 CT.CLS. 327, 335, THAT:

IT IS UNQUESTIONABLY TRUE THAT AN OFFICIAL OF THE GOVERNMENT IS NOT AUTHORIZED TO GIVE AWAY OR REMIT A CLAIM DUE THE GOVERNMENT. THIS RULE IS GROUNDED IN A SOUND PUBLIC POLICY AND IS NOT TO BE WEAKENED.

SUCH RULE HAS BEEN APPLIED IN NUMEROUS OTHER CASES, INCLUDING UNITED STATES V. AMERICAN SALES CO., 27 FED./2D) 389, AFFIRMED 32 FED./2D) 141, CERTIORARI DENIED 280 U.S. 574. THE FIXING OF RENTAL RATES WHICH WOULD NOT BRING IN A NET RETURN ON THE MONEY INVESTED IN THE PROPERTY EQUAL, AT LEAST, TO THE RATE THE UNITED STATES IS REQUIRED TO PAY ON ITS BONDED INDEBTEDNESS WOULD APPARENTLY BE GIVING AWAY THE PROPERTY OF THE UNITED STATES--- AND POSSIBLY TO TENANTS WELL ABLE TO PAY SUFFICIENT RENT TO RESULT IN AN INCOME ON THE INVESTMENT EQUAL, AT LEAST, TO THE RATE OF INTEREST PAID BY THE UNITED STATES ON ITS BONDED INDEBTEDNESS. IN THIS CONNECTION THERE IS NOT UNDERSTOOD THE BASIS FOR SUGGESTING--- AND AS APPEARS EMPLOYED IN THE MEMORANDUM OF JULY 10, 1935, SUPRA, IN ARRIVING AT THE COSTS FOR ULTIMATE COLLECTION OR FOR CONSIDERATION IN FIXING SALES PRICES OR RENTALS--- A 45 PERCENT GRANT. THIS WOULD SEEM TO CONTEMPLATE AN ARBITRARY CHARGING OFF OF NEARLY ONE-HALF OF FIRST COSTS. THERE WAS NOT POINTED OUT IN THE SUBMISSION--- AND THIS OFFICE HAS NOT FOUND IN THE LAW--- AUTHORITY FOR SUCH COURSE.

NO REASON IS SEEN FOR OBJECTION IF IN FIXING RENTAL RATES FOR COMPLETED FEDERAL HOUSING PROJECTS, AS HERE INVOLVED, THE VALUE OF THE LANDS EMPLOYED IS OMITTED FROM ANY AMORTIZATION PLAN ADOPTED, IF, HOWEVER, PROVISION IS MADE THEREIN FOR INCLUDING IN SUCH RENTAL RATES A FAIR ANNUAL INTEREST RETURN ON THE VALUE OF SUCH LAND--- THE ACTUAL COST THEREOF WHERE ACQUIRED FOR CONSTRUCTION OF THE PARTICULAR PROJECT.

WITH RESPECT TO THE ITEMS OF "MUNICIPAL SERVICE CHARGE" AND "INSURANCE," MENTIONED IN THE MEMORANDA, SUPRA, ATTENTION IS INVITED TO THE DECISION OF THIS OFFICE TO YOU UNDER DATE OF OCTOBER 10, 1935, A 65343, 15 COMP. GEN. 295, AND TO THE FACT THAT IT IS NOT A PRACTICE OF THE GOVERNMENT TO INSURE FEDERAL PROPERTY.

IT NECESSARILY FOLLOWS THAT THE RESPONSE TO YOUR QUESTION MUST BE THAT IN THE PRESENT STATE OF THE LAW THERE EXISTS NO AUTHORITY FOR THE FIXING OF RENTALS AT SUCH LOW RATES AS WILL VIOLATE THE PRINCIPLE STATED IN PACIFIC HARDWARE CO. V. UNITED STATES, SUPRA. ..END :