c. Grants-in-aid

Jurisdictions with superior fiscal capabilities-the States and the Federal Government-have assumed a greater and greater responsi bility for financing the Nation's domestic programs. This notwithstanding the remarkable absolute increase in State and local government expenditures shown in the previous table. The limited State and local resources make Federal aid essential if national objectives are to be achieved equitably. The urban mass transportation assistance program is based on this principle and the expansion of the program proposed by the committee bill follows this premise.

THE FEDERAL ROLE

Few deny the extreme national interest and vitality and welfare of our cities. Also most realize that the direct economic and social interdependence among out rural and urban populace is such that aid to urban mass transit will yield mutual benefit to the broadest spectrum of our population.

The mounting problems of our cities are aggravated by the shortcomings of our urban transportation systems. City planning agencies and elected officials must be encouraged to consider broad ranges of alternatives in transportation. Only if Federal funding of alternative solutions is equitable will there be a reasonable prospect of valid and stable solutions-solutions which will provide not only improved transportation for the affluent but also make available adequate transportation at reasonable cost to the old, the handicapped, the very young, and the poor.

While Federal-State-local revenue sharing proposals, if adopted, will undoubtedly alleviate State and local fiscal problems somewhat, it must be remembered that there are numerous other demands on these funds once they are available. Rural areas will demand a substantial share of any shared revenue and other urban systems-schools, water, sanitary sewer, and solid waste disposal, health and welfare, among others--will be clamoring for shares of any new revenues available to the States and cities. The committee believes this potential resource will not materially reduce the need for the recommended expansion of the Federal urban mass transportation assistance program.

The committee understands that the Department is attempting to identify long-term objectives and more immediate specific goals as well as criteria and priorities for administering this greatly expanded assistance program, particularly in the capital grants area. These efforts should receive primary attention. The Federal program should be designed and administered to bring about real improvements in the quality of the urban environment as well as in the quality of public transportation services. The committee realizes that the success of those efforts depend to a considerable extent on the success of our cities in defining the more general goals and priorities for urban growth and how transportation can be used to reach these goals.

METHODS OF FINANCING

Loans and loan guarantees

The emergency Federal assistance program enacted in 1961 offered financial assistance to States and local public agencies for capital

improvements in mass transportation systems solely in the form of loans. These loans were to be on terms identical with the terms of other public facility loans authorized by the Public Facility Loan program enacted in the Housing Act Amendment of 1955. Under this authority, loans totalling $6.1 million were consummated.

During these years it became clear that loans, even direct Federal loans on highly favorable terms, would not adequately meet the grave financial problems faced by most transit systems. The cost of the money obtained was not materially less to municipal governments and other local public agencies than the cost of tax-exempt general obligation bonds sold in the private market. In addition revenue bonds, backed only by the revenues of transit systems to be improved with the proceeds of such bonds are clearly prohibitive in cost. At hearings held in 1962 on Federal mass transportation assistance legislation, testimony clearly showed that there was virtually no market for transit revenue bonds on reasonable terms because of the generally poor earnings prospects of the transit industry.

The same disadvantages exist regarding a Federal guarantee of interest and even of interest plus part of the principal or local transit bonds. The Treasury Department and Bureau of the Budget also objected to a Federal guarantee of tax-exempt municipal securities. These agencies have maintained that the addition of a Federal guarantee to tax-exempt State and local securities would have an adverse effect on the competitive position of the Federal Government in the money market.

This committee and the Congress thus, concluded that loan financing could not be a total solution to the problem of financing urban mass transportation improvements. The committee did recommend, however, that borrowing should be utilized to the fullest extent practicable. It, therefore, adopted and refined the 1962 proposal to limit. Federal assistance to those project costs that could not be met for prospective system revenues, i.e., to "net project costs". From total project costs, in accordance with the requirements of the 1964 act, there must be subtracted those costs of the proposed capital improvements that can reasonably be financed from system revenues. Such initial costs are typically financed through the sale of revenue bonds by the local transit agency.

The 1964 act further provides that at least one-third of the remaining cost or "net project cost" must be contributed by the local sponsoring agency or applicant. This portion may be provided by the local agency (e.g., the municipal government) from current tax revenues or other available resources, but more often it is financed by the sale of general obligation bonds. Clearly, every possibility of debt financing has been exploited to hold down the expenditures of the Federal Government. The 1964 act explicitly prohibits resort by applicants to Federal loans to finance the local share of project costs. These arrangements will continue under this proposed legislation. General fund financing

The legislation recommended by the committee looks to the general fund for support. In other respects, however, the financial arrangements would be similar to those of the successful Federal-Aid Highway program: (1) The program is for a long term (12 years). (2) The

program level would be substantially increased; $3.1 billion would be authorized immediately for the first 5 years and the intent of Congress to provide $10 billion over the 12-year period would be made explicit. Each year the Secretary of Transportation would be required to report to the Congress on the status of the program and every other year he would be required to seek an additional 2-year authorization so that authority would always exist for an ongoing program of from 4 to 5 years. (3) Financing would be through contract authority, permitting the obligation of funds subject to annual expenditure ceilings made explicit in the bill and Appropriation Committee review. The committee is confident that this approach will insure a continuing flow of Federal funds to assist local communities wishing to revive, modernize and expand public transportation services as one element of a program of comprehensive urban development. The basic purpose of this proposed legislation is to provide local public agencies engaged in transportation investment planning with the same confident expectation that necessary Federal support will be forthcoming as has made possible the effective planning and development operations of State highway departments.

EXPLANATION OF THE BILL

FINDINGS AND PURPOSE

Section 1 of the bill, citing the rapid urbanization and the continued dispersal of population and activities within urban areas, sets forth the congressional finding that the ability of all citizens to move quickly and at a reasonable cost has become an urgent national problem. It also declares that new directions in the Federal assistance programs for urban mass transportation are imperative to achieve safe, efficient and convenient transportation compatible with soundly planned urban areas, and pledges a Federal commitment of at least $10 billion over a 12-year period to encourage confident and continuing local planning and provide greater flexibility in program administration.

The stated purpose of the bill is to create a partnership which would permit the local community, through Federal financial assistance, to exercise the initiative necessary to satisfy its urban mass transportation requirements.

ADVANCE ACQUISITION OF REAL PROPERTY

Eligibility for assistance

Section 2 of the bill would amend section 3 of the Urban Mass Transportation Act of 1964, which contains the basic provisions for the capital grant and loan program, to add a new program of loans for the advance acquisition of real property. Loans and grants would continue to be authorized only to States, local public bodies, and agencies thereof, to assist in financing the acquisition, construction, reconstruction and improvement of facilities and equipment for use, by operation or lease, or otherwise, in mass transportation service in urban areas, and in coordinating such service with highways and other transportation in urban areas. The definition of "eligible facilities and equipment" would not be changed.

Section 3(a) of the Urban Mass Transportation Act of 1964 would be amended to authorize the Secretary of Transportation to make loans for the acquisition of real property upon a determination that the real property is reasonably expected to be required in connection with an urban mass transportation system and that it will be used for that purpose within a reasonbale period to time. This determination would be in lieu of a finding that the particular State or local public body, or agency thereof, has or will have the legal, financial and technical capacity to carry out an urban mass transportation capital improvement project and satisfactory continuing control over the use of the assisted capital facilities or equipment. Of course, it would be necessary that the Secretary be assured that the applicant has legal authority to incur indebtedness for acquisition of the real property for urban mass transportation purposes.

Amendments to section 3(a) of the act would require each capital grant and loan application to be submitted to the Governor of each State affected concurrently with the filing of the application. If within 30 days thereafter the Governor submits comments on the application, they must be considered by the Secretary before he takes final action on the application.

Section 3(b) of the act, as amended by the bill, would authorize these loans to be made to States, local public bodies, and agencies thereof, to finance the acquisition of real property for use as rights-ofway, station sites, and related purposes (which might include parking lots and access roads) on urban mass transportation systems, including the net cost of property management and any relocation payments required by section 7 of the act. The cost of property management would include those costs required for maintenance of the real property in condition for its intended future use or for other use appropriate during the interim, less any revenue received from such interim uses. Each loan agreement must provide for the beginning of actual construction of urban mass transportation facilities on the acquired property within a period of not more than 10 years following the fiscal year in which the loan agreement is executed. The loan agreement must also provide the if that acquired real property or interests in real property are not to be used for the purpose for which the real property was acquired, an appraisal will be made to determine the current value of the property. The determinations as to use and appraised value of the real property would be made by the Secretary, and these determinations would be required within 10 years following the fiscal year which the loan agreement was executed. Two-thirds of any increase in value over the original cost of the real property would be required to be paid to the Secretary. Loans for the acquisition of real property under this subsection must be made payable within 10 years from the date of the loan agreement or on the date a grant agreement for the actual construction of facilities on the acquired real property is made, whichever is earlier. Money received by the Secretary under this subsection must be credited to miscellaneous receipts of the Treasury.

A further requirement, with respect to loans under amended section 3(b) of the act, is that the applicant must furnish a copy of its application to the comprehensive planning agency of the community affected

concurrently with the submission of the application to the Secretary. If the comprehensive planning agency submits comments to the Secretary, within 30 days from its receipt of the application, the Secretary would be required to consider the comments before taking final action on the application.

Section 2 of the bill adds a new subsection (c) to section 3 of the act which would provide that no loan shall be made for projects for which a grant is made under section 3, except grants for relocation payments and grants for projects involving real property where the real property has been or is to be acquired with a Federal loan under section 3(b). The present subsection (c) of section 3, relating to private mass transportation companies and employees affected by Federal financial assistance for specified purposes, would be redesignated as subsection (e). PUBLIC HEARINGS

Section 2 of the bill would add a new subsection (d) to section 3 of the act which would require any State or local public body, or agency thereof, which makes applications for grants or loans under that section for the acquisition, construction or improvement of facilities or equipment which will substantially affect a community or its public transportation service, to certify to the Secretary that it has held public hearings or afforded the opportunity for such hearings, and that it has considered the economic and social effects of the project. for which the application for financial assistance is made and the impact of the project on the environment, and has found that the project to be assisted is consistent with any plans for the comprehensive development of the urban area. The applicant must also include with its certification to the Secretary a copy of the transcript of any public hearings that have been held.

LOAN AUTHORIZATION

The changes made by section 2 of the bill would also eliminate the provisions of existing section 3(b) of the Urban Mass Transportation Act of 1964, which authorize the use of Treasury borrowing pursuant to section 203 of the Housing Amendments of 1955 to obtain funds. for the loans authorized by section 3 of the act. Since the Congress has appropriated funds for this purpose, Treasury borrowing has not been used. Upon enactment of the bill funds for loans will be obtained pursuant to appropriations authorized by section 3(b) of the bill.

Deletion of section 3(b) of the act would also remove restrictions and limitations set forth in paragraphs (1), (2), and (3) of section 202(b) of the Housing Amendments of 1955. In lieu of such restrictions and limitations, section 2 of the bill would authorize the Secretary to prescribe the terms and conditions upon which loans as well as grants would be made. For example, the Secretary might require a loan applicant to establish a uniform system of accounts and to provide certain regular financial reports during the period of repayment of the loan. The committee expects that the Secretary will be satisfied that the terms and conditions of the loan are adequate to reasonably assure its repayment.