As stated the legislation had two objectives. Soon after the bill was signed, a political battle began to determine which of the two objectives should be considered the priority.
Some of the people supporting federal subsidies for slum clearance wished to see this money devoted to “a gigantic program of urban reconstruction and community planning” but others stated the aims of Congress in passing the measure were merely to remedy the unsafe and unsanitary housing conditions and the acute shortage of decent, safe and sanitary dwellings for families of low-income that are injurious to the health, safety, and morals of the citizens of the nation. ” (Gelfand, 1975, p.
121) There were ones who believed that the federal government has a role to play in local housing issues as opposed to those who contended that the federal government did not have a role in local housing issues but is obliged to stimulate the private sector economy. A local authority may borrow from the United States Housing Authority up to 90 per cent of the funds necessary to develop a project. The other 10 per cent will have to be found elsewhere, provided the local authority wishes to obtain, in addition, the federal subsidy without which low-rental housing would be impossible.
Since the federal government may accept less than first mortgage security, borrowing 10 per cent locally should not be too difficult. There was, however, another condition for federal subsidy. The states or communities must themselves supply a 20 per cent capital grant or 20 per cent of the annual contributions provided by the Act, depending upon the form of subsidy they elect to receive from the federal government. (Hunt, 2005) Annual contributions will undoubtedly be much the easier for states or localities to provide.
Since these may be made in the form of tax remissions or exemptions instead of in cash, they should not prove a serious obstacle, at least to large communities. If a community would elect to make a 20 per cent capital grant, it may do so in the form of cash, land, or the capitalized value of community facilities, tax remissions, or tax exemptions. To carry out the provisions of the Act, Congress had authorized appropriations of $26,000,000 for the fiscal year ending June 30, 1938, and bond issues over a three-year period of $500,000,000 from the proceeds of the bonds, the subsidies paid from appropriations.
In order to insure low rents and low-income tenancy, a five-to-one income rent ratio (six-to-one in the case of large families) was written into the act, and various restrictions were placed upon construction costs. Although not serious enough to prevent building, the definite limitation on construction costs and the income of tenants would better not have been written into law. Both were matters in which a high degree of flexibility would seem desirable to meet highly variable conditions in various parts of the country.
Moreover, the rent a family paid bears no mathematical relationship to its other needs, and if very low rentals were achieved the formula would automatically reduce the maximum income permitted to a point where a family, after paying its rent, would have insufficient income to live on. Finally, the Authority had adequate powers to insure the low-rent character of projects without such a provision. These included the right, upon breach of agreement to maintain low rents, to raise the interest rate on loans, to declare the unpaid principle due at once, or to terminate annual contributions. (von Hoffman, 2000)