Amicus Brief — Harris v. Ross

Supreme Court, U. S.

FILED

IN THE NOV 7% 1977

Supreme Court of the Unite Seadenper ecm

‘

'

October Term, 1977

Nos. 76-1234 and 76-1261

PATRICIA R. HARRIS, SECRETARY OF HOUSING AND

URBAN DEVELOPMENT, ET AL.,

vs.

Petitioners,

BARBARA ROSS, ET AL.,

Respondents,

PATRICIA R. HARRIS, SECRETARY OF HOUSING AND

URBAN DEVELOPMENT, ET AL.,

vS.

HILDA ABRAMS, ET AL.,

Petitioners,

Respondents.

On Writs of Certiorari to the United States Courts

of Appeals for the Fourth and Ninth Circuits,

Brief for Nationwide Tenant Class in Underwood vy. Hills, State-

wide Tenant Class in Dubose v. Hills, the National Tenants

Organization, People United to Save Humanity, and the Na-

tional Conference of Catholic Charities, as Amici Curiae.

JAMES C. STURDEVANT,

JOHN A, DZIAMBA,

DENNIS J. O'BRIEN,

Connecticut Legal Services, Inc.,

P.O. Box 358, 35 Village Street,

Rockville, Connecticut 06066,

JOHN E. McDERMOTT,

MARY S. BURDICK,

PATRICIA M. TENOSO,

Western Center on Law and Poverty, Inc.,

3535 West Sixth Street,

Los Angeles, California 90020,

FLORENCE WAGMAN ROISMAN,

RENO, ROISMAN AND SHAPIRO,

1025 15th Street, N.W., Suite 500,

Washington, D.C. 20025,

JOAN E. PILVER,

RAYMOND RICHARD NORKO,

Legal Aid Society for Hartford County,

525 Main Street,

Hartford, Connecticut 06103,

Attorneys for Amici Curiae.

Parker & Son, Inc., Law Printers, Los Angeles. Phone 724-6622

Argument

A.

SUBJECT INDEX

Page

Entesest Of Annick Commbme nciossccedccecsscssseumnecns 1

Issues to Be Addressed in the Brief Amici Curiae

sinenaseenssnssessieieissatienessestiadiassanebslsesiiaanna tea +

Samagasy CC ALE ..cccicicinssssisnnscsnnsndaiaanaaaia 5

saecenvecesanstgsiiipsletiiiipinadidmahiaaaaaannn 7

I.

Congress Has Been Struggling for Years to Pre-

vent HUD From Usurping Control of Section

296 Torti FOGG oscccccsciiccisciccseen 7

Il.

The Secretary of HUD’s Refusal to Pay Operat-

ing Subsidies Is Unjustifiable -.............0......... 20

The Secretary’s Initial Excuses Are Un-

SONG cxntsceneeiuinnnnn 20

1. The Reserve Fund Is Immediately

Available and Must Be Used to Pay

Operating Subsidies -....................... 21

2. HUD’s Policy Distaste for the Op-

erating Subsidy Program is Irrelevant

siscsopaisesctmnitsomilensnsitiisiby tenn eslselelaeEs nnn 25

The Secretary’s Subsequent Excuses Are

Ailne UROERUIIRUO - occccsccecscsemetereeeen 28

1. The Language of the Operating Sub-

sidy Provisions Is Mandatory .......... 28

2. The Secretary Cannot Lawfully

Refuse to Allocate Any Contract

Authority for Operating Subsidies .... 31

ii.

Page

3. Section 8 Is Not an Adequate Sub-

stitute for the Operating Subsidy

POOIOID seevessnericcnsiitaistaiansaaiaaaie

4. The Operating Subsidy Program

Would Substantially Benefit Tenants

Without Unduly Burdening HUD or

PUOROCT COWTIEE ccctniissessascocizcettascensavad

III.

These Cases No Longer Warrant Review by This

IIT onncciicessenessteinsannesaneuninasenraonaemssienieemani

III wi covcccodncckasnaccdnassésvcssicsnevussuietieuaaalenee

INDEX TO EXHIBITS

Exhibit A. Affidavit of Carla A. Hills ............0000....

Exhibit B. Hearings before a Subcommittee of the

Committee on Appropriations, House of Repre-

sentatives, Ninety-Fourth Congress, Second Ses-

Rental Housing Assistance Program (Sec. 236)

Pertinent Program Highlights.

Exhibit C. U.S. Department of Housing and Urban

Development Housing Transmittal ......................

Exhibit D. Affidavit of James J. Tahash ................

35

38

42

44

7

lii.

TABLE OF AUTHORITIES CITED

Cases Page

Abrams v. Hills, 415 F.Supp. 550 (C.D. Cal.

1975), aff'd, 547 F.2d 1062 (9th Cir. 1976)

Sadia ales'ibsopiabdeatesbieannatiaauts ida 4, 12, 21, 22, 42, 43, 44

American Iron and Steel Institute v. E.P.A., 526

Ba WEE Ce Ge BOSD ovenesicncencccssocessvconenns 38,

Battles Farm v. Hills, 414 F.Supp. 521 (D.D.C.

1976), appeal pending, No. 76-1641 (D.C. Cir.)

Campbell v. United States Dep’t of Housing &

Urban Development, CV No. 75-471 (N.D. Ohio

UE Wa Siccctsc dain ovtnceesonntan enoea dou vehdsacecnusebyeenibdsaaes

Carberry v. Hills, CV No. 76-521-F (D. Mass.

Be ET = Sp RS etic RRR Rite ee iete os Pete D

Commonwealth of Pennsylvania v. Lynn, 501 F.2d

em Mee. Ge, BGP O onc vcceccn cts. 7, 8, 27, 29,

Continental Air Lines, Inc. v. C.A.B., 551 F.2d

es A REED osdcccnsspnncesendnisamodacesnees 38,

Dawson v. U.S. Dept. of Housing & Urban De-

velopment, 428 F.Supp. 328 (N.D. Ga. 1976),

appeal pending, No. 77-1382 (Sth Cir.) ..............

District of Columbia v. Sweeney, 310 U.S. 631

(RRA RNASE Re OEE NEURO on cee T eR ee eaten 43,

Dubose v. Hills, 405 F.Supp. 1277 (D. Conn.

1975), 420 F.Supp. 399 (D. Conn. 1976),

appeal pending Nos. 76-6107 and 76-6181 (2d

oe RE etre t, 2, 12, Zi, 22, 24, 23, 28, 29,

Dussault v. Hills, CV No. 76-147 (D.N.H., May 23,

ge Ry edicia te eR RAED Re Od LR NO CA

39

40

12

12

32

39

44

30

iv.

Page

Gertsch v. Hills, 414 F.Supp. 15 (D. Utah 1976) .. 12

Gibson v. Harris, No. 77-0488-R (E.D. Va., Sept.

ETE OP sclaiciniasadkoeacatacroishiintanebbensietiilgiawromuaaveie: 12

Guadamuz v. Ash, 368 F.Supp. 1233 (D.D.C.

TIE” ‘csli'ach-cedaatiand pat iui aa ensaiieemneseumabninetoensabie’ 19, 41

Haas v. Harris, No. 77-0235 (D.R.I., Aug. 11,

gb ENA EEE IE TRE Ri eee ROE RAPT OO oo ee 12

Harrison vy. Hills, CV No. 74-938 (W.D. Pa. 1975)

SAE: AERATOR EY et Io eR ENT PORES ORD EIT OER 12

Hills v. Underwood, No. A-259, O.T. 1976 ............

BER © ES 2 ae Pd REE 38, 39, 40, 41

Kendall v. United States ex rel. Stokes, 37 U.S. (12

BIE FID en Saecasnocnapicctsasiocamnnsicensbcadainiiinilens 19

Layne & Bowler Corp. v. Western Well Works, Inc.,

RIED becasccnvikessasdnasibadnceeipiiicibiisanunin 43

Lefort v. Hills, No. 76-0286 (D.R.I., Nov. 19,

SERIE > a cabsabinnisesnsibtansietasentaneliDasireeilinmisauniaginnnseadnaasialonplenhites 12

Moorer v. Department of Housing & Urban Dev.,

417 F.Supp. 1261 (W.D. Mo. 1976), aff’d., ........

| , 46 US.L.W. 2155 (8th Cir. Sept.

BEET snenbieniintahdicnasbesésenndsbuiniiibeniiagnabaiatpseunnantinnss 4

Parker Square Tenants Ass’n v. The Dep’t of Hous-

ing & Urban Development, CV No. 75CV-577-

Wed CW. BI TIO) ccccnerviccicnsescsenecersecsmsssonese 12

People ex rel. Bakalis v. Weinberger, 368 F.Supp.

PE IG TE UPTO Kcscnssnciicscenadstcténdsnasestlobensenmnsen 20

Philbrook v. Glodgett, 421 U.S. 707 (1975) .......... 30

Rice v. Sioux City Cemetery, 349 U.S. 70 (1955) .. 43

Page

Ross v. Community Services, Inc., 396 F.Supp. 278

(D. Md. 1975), 405 F.Supp. 831 (D. Md. 1975)

aff'd. mem. 544 F.2d 514 (4th Cir. 1976) ......

And ie diddincaidan-attaninhivhdnlalbndanasenntacinscininencetaahent i2, 21,

Securities and Exchange Commission v. Chenery,

Me OP CNTY cecerinncsccasntenaninitaastneneenmntananses

Sicuro v. Hills, 415 F.Supp. 553 (C.D. Cal. 1976),

appeal pending, No. 76-2872 (9th Cir.) ............

Sioux Valley Empire Electric Ass’n, Inc. v. Butz,

367 F.Supp. 686 (D.S.D. 1973), aff'd, 504 F.2d

EIR: SEMIN D inicienciesncnsinsssictincieenieninineecesiiaine

Taunton Gardens Co. v. Hills, 421 F.Supp. 524

(D. Mass. 1976), aff'd 557 F.2d 877 (lst Cir.

SII ° conti cicamescquicel-qusediissaiiuieinitnicsnsiesciissinicinlasanioasiontion

Train v. Colorado Public Interest Research Group,

Inc., 426 U.S. 1, 96 S.Ct. 1938 (1976) ..............

Underwood v. Harris, 429 U.S. 892 (1976) ..1, 39,

Underwood v. Hills, 414 F.Supp. 526 (D.D.C.

1976) appeal pending Nos. 76-1603 and 76-

| alll 5 1, 2, 21, 34,

United States v. American Trucking Assns., 310

Ge |

United States v. United Mine Workers of America,

BOD US. BSB (IDET) ......0000......cccccccnccnncecscccesconse

Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S.

BIEN citinicitnsiestniminanisnionaeacencenaasianinanindesenmnninnliinn

24

39

12

29

40

Vi.

Congressional Materials

Page

122 Cong. Rec. S 10775 (daily ed. June 26, 1976)

EERE EEE EEE EERE EERE HERE EERE EH EERE EERE REE me

I Ai lithidhiddahantentedokestcocomerevenssasenterssanccee 14,

123 Cong. Rec. H 4287 (daily ed. May 11, 1977)..

123 Cong. Rec. H 10103 (daily ed. Sept. 26,

eR ecaiianenistsessonsieensiiiesnssakiecesnseseavcevess

RN ee intarencinerccshanassnneriscreccnasesansesse 19,

123 Cong. Rec. S 2054 (daily ed. Feb. 2, 1977) ....

123 Cong. Rec. S 9042 (daily ed. June 7, 1977)

123 Cong. Rec. S 9043 (daily ed. June 7, 1977) ..

123 Cong. Rec. S 9045 (daily ed. June 7, 1977)

123 Cong. Rec. S 9046 (daily ed. June 7, 1977)

tise el nceiahachianeaseresetvenconsesacnersass 16, 17, 18,

Department of Housing and Urban Development—

Independent Agencies Appropriations For 1977:

Hearings Before a Subcommittee of the Commit-

tee on Appropriations, House of Representatives,

94th Cong. 2d Sess., Part 6: Department of

Housing and Urban Development ......................

H. Rep. No. 93-1139, 93rd Cong. 2d Sess. 7 (1974)

PTETTTT ITT TTT ee ee ee eee

Vii.

Page

S. Rep. No. 93-693, 93rd Cong. 2d Sess. (1974);

rptd. at 3 U.S. Code, Cong. & Admin. News

I TTT danodadadatnisicsitish opeiesabanassacentubeneenieiduicons

S. Rep. No. 93-1139, 93rd Cong. 2d Sess. (1974) ..

S. Rep. No. 93-1255, 93rd Cong. 2d Sess. (1974) ..

S. Rep. No. 94-326, 94th Cong. Ist Sess. (1975) ..

S. Rep. No. 94-749, 94th Cong. 2d Sess. (1976) ..

Miscellaneous

Housing In the Seventies, an October 6, 1973 pub.

by the Secretary of Housing and Urban Develop-

ment, at 4-20 and 4-57 ooo... cece eeceeeeeeeee 13,

“Little Accomplishment in Insuring that Proper

Rents Are Charged Under the Section 236 Rental

Assistance Housing Program.” CED-76-146, Oc-

tober 15, 1976, Government Accounting Office,

SHEE cil iid oi pisiceaalsnshathesdinnsdptenetsaeinebiaadaoneeaanbatneneeigaice

“Multi-family Property Disposition,” A Staff Study

by the United States Department of Housing and

Urban Development, October, 1975, at 1 ..........

Operating Subsidy Handbook, pp. 9-10, 14 ........ 39,

Report to the Congress by the Comptroller General,

“Major Changes are Needed in the New Leased

Housing Program,” No. CED-77-19 (Jan. 28,

ON © Scie sh ua saslacevapesannasnssduinincicusscadrantepuaemnaccsstais

“Section 8 Housing Assistance Payments Programs:

The Loan Management Set-Aside,” A Field Study

by the Department of Housing and Urban De-

velopment, January, 1977, at 28 and 37 ............

14

25

14

40

36

Viii.

Regulations Page

Code of Federal Regulations, Title 24, Sec. 236.72,

40 Federal Register 52844-45 (1975) .............. 25

Code of Federal Regulations, Title 24, Sec. 425.25.. 25

Code of Federal Regulations, Title 24, Sec. 882.110

eat ga ica ant tonasisiipnivensindicinasines 37

Code of Federal Regulations, Title 24, Sec. 886 ...... 37

Rules

United States Supreme Court Rules, Rule 19 ...... 43, 44

United States Supreme Court Rules, Rule 19(1)(b)

NAT Fasddehicbadeeteiihdubianendnetncensenesctentnniens 42

United States Supreme Court Rules, Rule 25 ............ 42

United States Supreme Court Rules, Rule 60 .......... 42

Statutes

Housing and Community Development Act of

1974, Sec. 201(a), 42 U.S.C. §1437(f) .......... 36

National Housing Act, Sec. 236 ........ 243,67, §

ines na ehias 9, 10, 12, 13, 14, 15, 16, 17, 20, 21, 22

adianasanal 24, 25, 27, 29, 30, 33, 34, 35, 37, 38, 40, 42

National Housing Act, Sec. 236(f)(3) ...................- 23

Public Law No. 93-383, 88 Stat. 633 (1974) .......... 9

Public Law No. 93-414, 88 Stat. 1095 (1974)

Public Law No. 94-375, 90 Stat. 1067 (1976) ..9, 37

Public Law No. 94-378, 90 Stat. 1095 (1976)

Public Law No. 95-128 (1977) ..2, 6, 9, 19, 21, 22, 42

Page

United States Code, Title 12, Sec. 170I1t ................ 7

United States Code, Title 12, Sec. 1715z-1 .......... 5

United States Code, Title 12, Sec. 1715z-1(a) ...... 7

United States Code, Title 12, Sec. 1715z-1(e) ........ 25

United States Code, Title 12, Sec. 1715z-1(f)(2)

United States Code, Title 12, Sec. 1715z-1(f)(3)

o-occeeeusiasecssshsisinisiesliininnnnnn annie 2, 9, 18, 29, 30,

United States Code, Title 42, Sec. 4601 -...............

United States Constitution, Art. I, Sec. VII ........ 19,

20

IN THE

Supreme Court of the United States

October Term, 1977

Nos. 76-1234 and 76-1261

PATRICIA R. HARRIS, SECRETARY OF HOUSING AND

URBAN DEVELOPMENT, ET AL.,

vs.

Petitioners,

BARBARA ROSS, ET AL., Respondents,

PATRICIA R. HARRIS, SECRETARY OF HOUSING AND

URBAN DEVELOPMENT, ET AL.,

vs.

Petitioners,

HILDA ABRAMS, ET AL., Respondents.

On Writs of Certiorari to the United States Courts

of Appeals for the Fourth and Ninth Circuits.

Brief for Nationwide Tenant Class in Underwood v.

Hills, Statewide Tenant Class in Dubose v. Hills,

the National Tenants Organization, People United

to Save Humanity, and the National Conference of

Catholic Charities, as Amici Curiae.

Interest of Amici Curiae.

The nationwide class of Section 236 tenants in Under-

wood vy. Hills,’ the statewide class of such tenants

in Connecticut in Dubose v. Hills,” the National Ten-

1Underwood v. Hills, 414 oa. 526 (D.D.C. 1976), appeal

pending Nos. 764603 and 76-1650 (D.C. Cir.), stay ordered

sub nom. Underwood v. Harris, 429 U.S. 892 (1976).

2Dubose v. Hills, 405 F.Supp. 1277 (D. Conn. 1975),

420 F.Supp. 399 (D. Conn. 1976), appeal pending Nos. 76-

6107 and 76-6181 (2d Cir.).

_ on

ants Organization, People United to Save Humanity,

and the National Conference of Catholic Charities ap-

pear as amici curiae with the consent of all parties

given in letters which have been filed with the Clerk

of this Court. The interest of each amicus is briefly

summarized below.

The class certified by the District Court in Under-

wood consists of all tenants residing in Section 236

projects in the nation—approximately 232,000 families

—who the United States Department of Housing and

Urban Development (hereinafter referred to as “HUD” )

estimates are eligible to receive operating subsidies

pursuant to 12 U.S.C. §1715z-1(f)(3) and (g). The

statewide class of tenants in Dubose consists of all

low-income people eligible for operating subsidy pay-

ments residing in one hundred and one Section 236 proj-

ects in Connecticut. The issues raised in both Under-

wood and Dubose are identical to those presented in the

instant cases—whether the Secretary of HUD is required

to implement the operating subsidy program mandated

by Congress in 1974.

The District Court in Dubose concluded that the

tenants would suffer irreparable harm if operating sub-

sidies were not paid since the named plaintiffs would

have been required to pay from 52% to 92% of

their monthly incomes for rent. The District Court

in Underwood made a similar finding and concluded

that the Secretary’s refusal to implement the operating

subsidy program would force tenants either to pay

increased rents out of funds needed to purchase other

basic necessities of life or be evicted from federal

housing built for them. 414 F.Supp., at 530-31.

The National Tenants Organization (NTO), a na-

tional organization of tenant associations, acts as a

a ee

national lobbyist for tenant activities and deals with

the issues of rental charges for low-income tenants

and the involvement of the federal government in pro-

viding adequate, affordable housing for poor peo-

ple. NTO has been and is committed to the principle

that low-income tenants be required to pay no more

than 25%-30% of their adjusted income for rent.

In view of this commitment it is very interested in

the outcome of the instant cases because the operating

subsidy program was enacted by Congress to insulate

low-income tenants from uncontrollable and skyrocket-

ing increases in property taxes and utilities.

People United to Save Humanity (PUSH) is a na-

tional organization formed to advance the rights of

minorities and low-income people. In light of its commit-

ment to the preservation of existing subsidized housing

for low-income people, PUSH has created Operation

PUSH with a national coordinator and housing director.

Also, Operation PUSH in 1977 persuaded the Secretary

of HUD to institute a national moratorium to prevent

foreclosure of federally-assisted multifamily housing

projects. Operation PUSH submitted to HUD over 100

remedies for curing mortgage loan defaults and em-

phasized the immediate need to implement existing

Congressionally enacted subsidy programs for low-

income tenants. PUSH believes the issue before this

Court in the instant cases is critical if rents in federally-

assisted housing are to be maintained at levels which

poor people can afford and if projects are to be saved

from default and foreclosure.

The National Conference of Catholic Charities is

an association of several hundred Catholic charitable

agencies located in 142 of the 153 Catholic dioceses

in the United States. The Conference and its member

—_

agencies have long been concerned with the dislocation

of low-income persons, urban renewal, and other similar

governmental programs such as the Section 236 pro-

gram which is the subject of this case.’

The amici discussed above have a genuine interest

in th> implementation of the operating subsidy pro-

gram designed by Congress to protect low-income ten-

ants from paying exorbitant rents for ever increasing

utilities and property taxes and to maintain the fiscal

viability of these projects.

Issues to Be Addressed in the Brief Amici Curiae.

The issue raised in Ross and Abrams is whether

the Secretary of the United States Department of Hous-

ing and Urban Development (hereinafter “HUD”) has

the discretion to refuse to implement the operating

subsidy program, an integral part of the Section 236

federally subsidized housing program. Operating subsi-

dies were designed by Congress to save the troubled

Section 236 housing program by subsidizing increasing

costs of property taxes and utilities, thereby keeping

rents at a level which low-income tenants could afford

and preventing project owners from being forced to

default on their mortgages. The Secretary’s failure to

pay operating subsidies, in direct contravention of Con-

gressional intent, is jeopardizing the fate of Section

236 projects across the country and is causing severe

8The Conference has appeared as an amicus in two cases

challenging HUD’s refusal to pay relocation benefits to eligible

tenants pursuant to 42 U.S.C. §4601, et seq. Moorer v. Depart-

ment of Housing & Urban Dev., 417 F.Supp. 1261 (W.D.

Mo. 1976), aff'd., ........ Sf , 46 U.S.L.W. 2155 (8th

Cir. Sept. 9, 1977), and Dawson v. U.S. Dept. of Housing

& Urban Development, 428 F.Supp. 328 (N.D. Ga. 1976),

appeal pending, No. 77-1382 (Sth Cir.).

_

hardship to hundreds of thousands of low-income ten-

ants.

Summary of Argument.

Congress in 1974 enacted the operating subsidy

provisions of 12 U.S.C. §1715z-1 to relieve tenants

and project owners of Section 236 housing from the

burden of skyrocketing costs of utilities and property

taxes. The language of the statute and its legislative

history make it plain that Congress mandated that

this subsidy program be implemented. But the Secretary

of HUD refused to pay these subsidies and has con-

tinued in her refusal despite reprimands from Congress

and despite unanimous judicial rulings that her refusal

was unlawful. Finally, in frustration, Congress took

the extraordinary step of re-enacting the operating sub-

sidy program in Pub. L. No. 95-128 to reconfirm

its intent that the program be mandatory and to compel

HUD to immediately pay operating subsidies on behalf

of tenants.

Congress is the body entrusted under our Constitution

with the authority to enact laws controlling the direction

of this country’s housing policy. Amici will demonstrate

that the Secretary of HUD has, since the creation

of the Section 236 program for low-income tenants,

sought to thwart the wiil of Congress, and that Congress

has continually rebuked the Secretary and has refused

to sanction her attempts to usurp its lawful function.

The Secretary has attempted to justify her position

with a variety of excuses, all of them without merit.

Her claim that she would prefer another kind of subsidy

program cannot justify her failure to comply with Con-

gressional directives, and her plea that she has insuf-

ficient contract authority to allow her to implement

mur aS

the program is unpersuasive. The Secretary can pay

operating subsidies directly from the excess rental re-

serve fund without the use of contract authority. There-

fore, that her Section 236 contract authority is limited

and that she chooses to allocate that contract authority

for other purposes are irrelevant. Even if the Secretary

were required to use contract authority to pay operating

subsidies, she has abused any discretion she might

have by allocating none of her contract authority for

that purpose. Instead, she has preferred to continue

to construct new projects which are doomed to fail

without the subsidies needed to save those projects

from default, and to use a substantial portion of her

contract authority for subsidies which Congress did

not authorize. Operating subsidies would provide sub-

stantial benefits to tenants, and would not be difficult

to administer. Consequently, the Secretary’s failure to

implement this subsidy program is unsupportable.

Because of the enactment of Pub. L. No. 95-128,

this Court should now dismiss the petitions for review

in these two cases as improvidently granted since these

cases will now be of no precedential value and no

longer present an issue of national housing policy which

it is necessary for this Court to resolve.

— vo

ARGUMENT.

I.

CONGRESS HAS BEEN STRUGGLING FOR YEARS TO

PREVENT HUD FROM USURPING CONTROL OF

SECTION 236 HOUSING POLICY.

Congress enacted the Section 236 program in 1968

“to assist families with incomes so low that they could

not otherwise decently house themselves. .. .” 12 U.S.C.

§i70it. Congress designed thai program “{fjor the

purpose of reducing rentals for lower income families.”

12 U.S.C. §1715z-1(a). Under Section 236, which

provides federal subsidies to private landlords to enable

them to meet the housing needs of the poor, the

Secretary of HUD is authorized to insure mortgages

of multi-family housing projects and to make interest

reduction subsidy payments to the project owners so

that tenants’ rents can be reduced accordingly. However,

because HUD officials felt that the program was not

operating well, in 1973 they suspended Section 236,

along with several other housing programs.‘

Congress’ reaction to that suspension was a sharp

and emphatic disapproval and a directive to reimple-

ment Section 236. Thus began the running battle be-

tween Congress and HUD over which of them would

control national housing policy. The Senate Reports

which accompanied the 1974 HUD Appropriations

Act® expressed the Appropriation Committee’s dissatis-

faction with the Secretary’s suspension of Section 236.

4The Secretary’s limited discretion to suspend these programs,

after a thorough study had shown they were unworkable in

operation and unsalvageable, was upheld in Commonwealth of

Pennsylvania v. Lynn, 501 F.2d 848 (D.C. Cir. 1974).

‘Pub. L. No. 93-414, 88 Stat. 1095 (1974).

a me

. . « The Committee is distressed and deeply

concerned by the Administration’s action to aban-

don our nation’s historic housing program.

The Committee feels that the Administration has

justified its actions for a variety of unsupported

reasons, Among other things, it has claimed that

the programs were not achieving the goals set

by the Congress, but by no stretch of the imagina-

tion is that correct.

The Sections 235 and 236 programs suffered from

both HUD mismanagement, and actual corruption,

rather than from any inherent defects in the pro-

grams. In cities with good HUD management,

such as Milwaukee, the program was a great suc-

cess. In cities with rampant corruption among

housing officials, it, along with other HUD pro-

grams, failed. But the failures in certain cities were

not peculiar to Sections 235 and 236 and, in fact,

these programs were not the main ones affected

or which failed, contrary to the opinion of the

Department and some judicial mistakes of fact.®

The Department blamed the programs instead of

its Own mismanagement. As a consequence of

this mismanagement, over 400 indictments have

been handed down in housing fraud cases. S.

Rep. No. 93-1091, 93rd Cong. 2d Sess. 6-7

(1974). The same statement is also found in

®Presumably this reference to “judicial mistakes of fact”

reflects disagreement with the Court’s conclusions, in Common-

wealth of Pennsylvania v. Lynn, supra, that the Section 236

program was unworkable in operation and unsalvageable even

with modifications,

a

S. Rep. No. 93-1056, 93rd Cong. 2d Sess. 6-

7 (1974).

Obviously, then, Congress disagreed with HUD’s con-

clusion that the Section 236 program should be suspend-

ed, and to force its reimplementation Congress adopted

the Housing and Community Development Act of 1974,

Pub. L. No. 93-383, 88 Stat. 633 (1974), which ex-

tended the life of the Section 236 program for two

years.” At the same time, recognizing that there were

deficiencies in the existing 236 program, Congress en-

acted the operating subsidy provisions of Section 236 in

12 U.S.C. §1715z-1(f)(3) and (g), providing subsidies

to offset increases in costs of property taxes and utilities.

Congress created these subsidies to alleviate the burden

of excessive rents imposed on tenants.” In the 1974

amendments to Section 236, Congress also provided

for “deep subsidies”. The purposes of both the deep

subsidy and operating subsidy programs are similar

—to reduce rents to qualified tenants and provide

for an economic mix within each Section 236 project

without threatening the solvency or effective manage-

ment of these projects.’”

7Congress has continued to extend the Section 236 program,

to September 30, 1977 in Section 4(a) of Pub. L. No. 94-

375, 90 Stat. 1067 (1976), and to September 30, 1978 in

Section 301(e) of Pub. L. No. 95-128 (1977).

8§. Rep. No. 93-693, 93rd Cong. 2d Sess. (1974); rptd. at

3 U.S. Code, Cong. & Admin. News 4273 (1974).

®*Pub, L. No. 93-383, 88 Stat. 633 (1974), 12 U.S.C. §1715z-

1(f)(2).

The Senate Report accompanying the Housing and Com-

munity Development Act of 1974 and introducing these changes

to the Section 236 program noted that:

This program appears as Section 502 of the proposed

Act and grows out of the existing rental housing as-

(This footnote is continued on next page)

—

The Secretary responded to the passage of the Hous-

ing and Community Development Act of 1974 by

continuing the Section 236 interest reduction program,”

but adamantly refused to implement the operating sub-

sidy program. The Secretary has persisted in this refusal

despite repeated Congressional reprimands. A strong

expression of Congressional disapproval of the Secretary

of HUD’s handling of the Section 236 program came

in 1974 when the Senate Committee on Appropriations

imposed financial sanctions on HUD.

The Committee has concurred with the House

in making significant cuts in several of the Depart-

ment’s salary and expense accounts. The Committee

believes that too often departmental personnel have

been used to obstruct rather than carry out direc-

tives of the Congress. Examples are the refusal

to fully implement the Section 202 program for

the elderly, the inability to come up with regula-

tions for the Section 802 State Housing Finance

and Development Agency Program, the failure

to deliver the housing goals report on schedule,

sistance program (section 236 of the National Housing

Act). However, while it retains features of existing law,

it also contains numerous improvements in that law so

as to be, in many ways, a new program rather than

a simple continuation of the old. It is believed that these

changes—including provisions to promote a mix of families

with more widely varying income levels and to prevent

excessive rent increases and assist sponsors in meeting

increases in operating costs beyond their control—-will help

eliminate a variety of problems and permit the program

to — more effectively in the future. §S. Rep. No.

93-693, 93rd Cong. 2d Sess. (1974); rptd. at US.

Code, Cong. & Admin. News 4273, 4302 (1974).

*tHowever, her efforts on behalf of that program were

so minimal that Congress felt compelled to withhold from the

Secretary funds for another housing program which she preferred

until she used her remaining Section 236 contract authority.

H. Rep. No. 93-1139, 93rd Cong. 2d Sess. 7 (1974).

|

the refusal to attempt to meet the housing goals,

and the continuing effort to kill the Sections 235

and 236 programs. §. Rep. No. 94-326, 94th

Cong. Ist Sess. 11-12 (1975). (Emphasis added. )

Two years later, HUD and Congress were still at

odds, and the Senate Committee on Banking, Housing

and Urban Affairs reaffirmed Congressional intent that

the Secretary pay operating subsidies.

The reserve [fund] is required under Section 236

(g) of the Act to be used for additional operating

assistance payments under the terms specified in

Section 236(f)(3). The Committee is concerned

that HUD has not yet implemented this provision

of the 1974 Act. S. Rep. No. 94-749, 94th Cong.

2d Sess. 10 (1976).

Still the Secretary did nothing and Congressional discon-

tent flared up again. Senator Sparkman expressed his

outrage at HUD’s recalcitrance.

HUD has failed to carry out [the operating subsidy

program] despite the specific legislative authority

conferred 2 years ago, despite th fact that almost

$25 million in excess charges have been returned

to HUD, and despite the fact that many projects

face financial difficulties and a number have

sought remedy under the 1974 provision.

Several courts have already stated, in cases brought

by owners of troubled projects that HUD is re-

quired to utilize the returned funds. There are

at the present time several judgments against HUD

in cases involving more than 20 projects. HUD,

however, persists in litigating rather than in obli-

gating the funds authorized under section 236(g).

wnhtion

122 Cong. Rec. S 10775 (daily ed. June 26,

1976).

At this point Congressional intent to mandate pay-

ment of operating subsidies seems clear, and every

Court to consider the issue had found the program

to be mandatory. The federal judiciary had unanimously

and repeatedly ordered the Secretary to pay operating

subsidies on behalf of tenants in Section 236 housing.”

Even in the face of this unanimous judicial command,

HUD continued to refuse to implement the operating

subsidy program, and Congress recognized that HUD,

despite repeated admonitions from Congress and the

courts, would continue to unjustifiably refuse to pay

operating subsidies. Congress therefore began debate

on new bills, and proposed amendments to them, which

would again re-enact the operating subsidy program.

That debate reflects the serious distress of the Section

12See Ross v. Community Services, Inc., 396 F.Supp. 278

(D. Md. 1975), 405 toy 831 (D. Md. 1975), affd.,

—. 544 F.2d 514 (4th Cir. 1976); Dubose v. Hills, 405

i 1277 (D. Conn. 1975), 420 ng 399 (D. Conn.

197 ), 434 F.Su upp. 227 (D. Conn. 1977), appeal pending,

Nos. 76-6107 and 76-6181 (2nd Cir.); Harrison v. Hills, CV

No. 74-938 (W.D. Pa. 1975); Campbell v. United States Dep’t

of Housing & Urban Development, CV No. 75-471 (N.D.

Ohio 1975); Abrams v. Hills, 415 F.Su upp. 550 (C.D. Cal.

1975), aff'd, 547 F.2d 1062 (9th Cir. 1976); Parker Square

Tenants Ass’n v. The Dep’t of Housing & Urban Development,

CV No. 75CV577-W-3 (W.D. Mo. 1976); Carberry v. Hills,

CV No. 76-521-F (D. Mass. 1976); Gertsch v. Hills, 414

F.Supp. 15 (D. Utah 1976); Sicuro v. Hills, 415 F.Sup

553 (C.D. Cal. 1976), appeal pending, No. 76-2872 (9th Cit):

Battles Farm v. Hills, 414 F.Supp. 521 (D.D.C. 1976), appeal

ss No. 76-1641 (D.C. Cir.); Underwood v. Hills, 414 F.

upP.. 526 (D.D.C. 1976), appeal pending, Nos. 76-1603 and

ri 650 (D.C. Cir.). See also Dussault v. Hills, CV No. 76-

147 (D.N.H., May 23, 1976); Gibson v. Harris, No. 77-

0488-R (E.D. Va., Sept. 30, 1977); Haas v. Harris, No.

77-0235 (D.R.1, Aug. 11, 1977); Lefort v. Hills, No. 76-

0286 (D.R.I., Nov. 19, 1976).

=,

236 program caused by HUD’s recalcitrance."’ For

example, Representative Hanley highlighted the default

rate in Section 236 projects:"

18QOne of a number of bills which was considered was S.

565, introduced by Senator Pearson to “require the E ent

of operating subsidies.” 123 Cong. Rec. S 2054 ( og ed.

Feb. 2, 1977). a introducing his bill Senator Pearson described

the history to date of Congress’ battle with HUD over the

operating subsidy program,

Mr. President, in 1974 the Congress amended the National

Housing Act with the intention of securing the long term

housing needs of families and elderly in lower-income brack-

ets. A substantial expression of that intention was contained

in amendments providing that operating subsidies for section

236 housing projects be made for rent increases resultin

from rising utility and tax rates. It is now 1977, an

operating subsidies have yct to be paid. And so, Mr.

President, I am today offering an amendment that simply

seeks to assure that express congressional intention in this

area is no longer thwarted.

Mr. President, the Banking, Housing and Urban Affairs

Committee was concerned, during consideration of the 1974

amendments, that rapidly rising utility and tax costs might

endanger the success of Federal housing projects. The

committee rightly feared that after an initial operating

expense level was established and rent subsidies set, that

there would be no mechanism to adjust the subsidies to

meet these rising costs.

The increases would become an evergrowing burden for

the tenants, who would then be required, in direct contra-

diction of the program’s goals, to pay much more than

25 percent of their incomes for rent. To avoid this problem

the committee proposed, and Congress passed, a provision

that authorized the Secretary of the Department of Housing

and Urban Development to pay subsidies for those rent

increases justified by increased utility and tax rates. But

the Department has not authorized such payments except

in those instances when tenants have resorted to the

courts. Id.

14Mr. Hanley’s figures on the alarming rate of default on

Section 236 mortgages confirm earlier findings in HUD’s own

studies. In 1973, HUD projected that 20% of all Section

236 projects would fail in their first ten years. Housing In

the Seventies, an October 6, 1973 publication by the Secretary

of Housing and Urban Development, at 4-20 and 4-57. A

(This footnote is continued on next page)

cnltien

. . . [D]oes anyone know how much we were

in the bag for as of September 1976, with the

236 program? We had at that time better than

50,000 units in default, accounting for almost

$900 million, in part because HUD has failed

to exercise its authority in this matter.

Incidentally, this is another interesting factor, HUD

this year asked for an increase in its risk insurance

up to $1.8 billion. Obviously the antenna is up

and it anticipates that we are going to continue

to have this kind of default.

. . « [A]lready better than 4,000 units have had

to be sold at a loss of about $49 million approxi-

mately. 123 Cong. Rec. H 4286-87 (daily ed. May

11, 1977).

Senator Brooke also addressed the default rate in

Section 236 projects.

I chaired hearings in Boston on April 18 of this

year to hear testimony on the serious problems

in HUD-assisted multi-family housing built under

the section 221 and section 236 programs.

In Boston alone, there are currently 115 projects

built under these two housing programs.

HUD has already foreclosed or assumed ownership

of about 47 of these developments, with over

1975 HUD study found that foreclosure and sale of subsidized

projects were steadily increasing. Between fiscal years 1968

and 1973, 10 projects were sold, in 1974-1975, 77 projects

were sold, and for 1976, 609 projects were either in the

process of being foreclosed upon or were estimated by HUD

to be on the brink of foreclosure. “Multi-family Property Disposi-

tion,” A Staff Study by the United States Department of Housing

and Urban Development, October, 1975, at 1.

= =

3,400 housing units. As many as 7,000 tenants

in Boston may be faced with substantial rent

increases beyond their ability to pay, or be forced

to move out of their homes. 123 Cong. Rec.

S 9043 (daily ed. June 7, 1977).

And Senator Chafee emphasized the problem of in-

creasing rents in those Section 236 programs which

were not being foreclosed on."

. . » When Congress set this up, Mr. President,

it was intended that those tenants in the 236

housing would pay 25 to 30 percent of their

adjusted monthly income for rent.

What has happened over the past several years

is that there have been such increases in local

real estate taxes and in energy costs, primarily

the cost of fuel oil, that HUD has had to approve

rather substantial increases in the rents paid by

the tenants in order for the owner of the project

to break even.

For example, in my State of Rhode Island, and

I suspect this is true elsewhere, some 70 percent

of the tenants are paying over 30 percent of

their after tax income for rents. 123 Cong. Rec.

S 9042 (daily ed. June 7, 1977).

Again, HUD’s own studies show that rental rates are

escalating in Section 236 projects. A HUD investigation of

a sample of 522 Section 236 projects showed that 81% of

the tenants had been paying more than 25% of their incomes

for rent. In projects visited in New York and Atlanta, 18%

and 20%, respectively, of the tenants in those projects had been

aying at least 75% of their incomes for rent. “Section 8

Housing Assistance Payments Programs: The Loan Management

Set-Aside,” A Field Study by the Department of Housing and

Urban Development, January, 1977, at 28 and 37.

wittiun

Senator Cranston elaborated:

HUD’s failure to implement the section 236 operat-

ing subsidy program is jeopardizing the financial

stability of the owners of 236 housing and the

future tenancy of approximately 232,000 lower-

income tenants of these projects who are entitled

to these benefits. Without the benefit of the sub-

sidy, many section 236 owners are unable to meet

rapidly increasing operating expenses which are

beyond their control, and are placed in dire finan-

cial straits . . . and the future tenants, on the

other hand, are faced with the choice of either

vacating the housing or paying rents that far exceed

25 to 30 percent of their income by cutting back

on food, medical care, clothing and other necessi-

ties of life. It has been reported to me that in

California there are section 236 tenants who pay

upwards of 90 percent of their income for rent."*

123 Cong. Rec. S 9045 (daily ed. June 7, 1977).

Senator Humphrey summarized the plight of tenants

and landlords of Section 236 projects as a result of

HUD’s failure to pay operating subsidies:

. . . [O]ver these recent years, families have

had to devote larger and larger proportions of their

family income to basic shelter costs. At some

of these projects families are spending 35, 40, and

50 percent of their monthly disposable income

for rent. Even these amounts, these rents, in project

after project, have become inadequate not only

Senator Kennedy expressed agreement: “We know that

many tenants in section 236 projects are paying as much

as 90 percent of their adjusted income for rents. These tenants

desperately need help.” 123 Cong. Rec. S. 9046 (daily ed.

June 7, 1977).

a

for making mortgage payments, but for assuring

proper maintenance. We are thus confronted by

a situation in which rents are rising inexorably

at the same time that services necessarily are declin-

ing. Project after project constructed only recently

and with the aid of our section 236 program,

are slipping into slums. 123 Cong. Rec. S 9045

(daily ed. June 7, 1977).

The debates also show that Congress had intended

from the beginning that the operating subsidy program

be mandatory and that it be implemented, and resented

being required to re-enacted legislation in order to

compel the Secretary to pay operating subsidies.

In 1974, the Congress responded to the growing

problems by adopting an operating subsidy for

236 projects. ...

And after we had done this, we were faced with

intransigence by the administration—a stolid and

unaccountable refusal to use the program. The

result was default after default... .

. . . But the problem remains that despite the

losses in court, HUD has still not implemented

the program. It is time we got some action from

HUD with this program. Remarks of Senator Hum-

phrey, 123 Cong. Rec. S 9045-46 (daily ed. June

7, 1977).

Senator Pell continued in the same vein:"

17§ee also the statements of Senator Chafee: “The act pres-

ently provides that they should do it, and HUD has refused

to do it”, and the remarks of Senator Cranston: “Congress

in 1974 enacted the Section 236 operating subsidy provision.

. . . Despite compelling indications that Congress intended

that the operating subsidy program be implemented, the former

Secretary of HUD refused to pay such subsidies except when

required to so do by court order.” 123 Cong. Rec. § 9042,

9045 (daily ed. June 7, 1977).

a an

I believe the time has come for the Senate to

reconfirm its intent that HUD activate this pro-

grain.

Mr. President, when Congress passed the operat-

ing subsidy program in 1974 it was clear that

HUD was mandated to provide operating subsidy

funds for Section 236 housing projects experienc-

ing substantial cost escalations. . . . I believe

this amendment should clear the air at long last

concerning the intent of Congress on this issue.

123 Cong. Rec. S 9046 (daily ed. June 7,

1977)."*°

The bills passed by the House and Senate were

submitted to a Conference Committee for reconciliation

and on September 26, 1977 the Conferees reported

out H.R. 6655, which amended the language of Section

236 [12 U.S.C. §1715z-1(f)(3)| from “the Secretary

is authorized to make, and contract to make, additional

assistance payments. . . .” to “The Secretary is au-

thorized to make, and shall contract to make. .. .”

123 Cong. Rec. H 10103 (daily ed. Sept. 26, 1977).

(Emphasis added).

These amendments were the culmination of Congres-

sional efforts to force the Secretary to implement the

program it had mandated three years before, and they

make it indisputable that operating subsidies are man-

1’8The Representatives and Senators who made the quoted

statements were well informed about the intent of Congress

in passing the operating subsidy provisions of the Housing

and Community Development Act of 1974. Three of the Senators

—Proxmire, Cranston, and Brooke—were conferees for the 1974

Act and one was the ranking member of the 1974 Senate

Subcommittee on Housing and Urban Affairs. That their views

are entitled to great weight is without question. See United

States v. United Mine Workers of America, 330 U.S. 258,

281 (1947).

i

datory. The Conferees stated that they intended by

these amendments to “direct the Secretary to make

additional Section 236 operating subsidy payments.”

123 Cong. Rec. H 10114 (daily ed. Sept. 26, 1977).

The bill was signed into law by President Carter on

October 12, 1977, as Pub. L. No. 95-128.

As this history demonstrates, Congress has repeatedly

demanded that operating subsidies be paid and it is

therefore the duty of the executive branch to comply.”

It is fundamental that only the Congress has the power

to make laws. “. . . The Constitution [does] not

subject [the] lawmaking power of Congress to presi-

dential . . . supervision or control. . . . The Founders

of this Nation entrusted the lawmaking power to the

Congress alone. . . .” Youngstown Sheet & Tube Co.

v. Sawyer, 343 U.S. 579, 588-89 (1952). And once

Congress has enacted a law the executive branch has

no constitutional authority to refuse to execute it. “To

contend that the obligation imposed on the President

to see the laws faithfully executed implies a power

to forbid their execution is a novel construction of

the Constitution and entirely inadmissible.” Kendall

v. United States ex rel. Stokes, 37 U.S. (12 Pet.)

522, 611 (1838).

The Secretary’s refusal to pay operating subsidies

is, in effect, an executive branch veto of a statute

duly enacted by the Congress and signed into law

by the President. It is completely inappropriate under

our system of government that this kind of back-handed

executive veto take place. Article I, Section VII of

%TOur Constitution] does most clearly . . . state that

laws, good or bad, be enacted by the congress and enforced

by the President.” Guadamuz v. Ash, 368 F.Supp. 1233, 1243

(D.D.C. 1973).

—

the Constitution of the United States provides that

following passage of a bill by both Houses of Congress,

it shall be presented to the President. If the President

approves it he shall sign it, but if not he shall return

it to the Congress, with his objections. There is no

other constitutional mechanism by which an executive

veto can occur. People ex rel. Bakalis v. Weinberger,

368 F.Supp. 721, 726 (N.D. Ill. 1973).

It is no longer possible for the Secretary of HUD

to argue that Congress granted her discretion to refuse

to implement the operating subsidy program. The Con-

gress intended that this program be mandatory when

it first enacted the statute and has tried repeatedly

over the years to compel HUD to comply with its

directives. It is time for this Court to come to the

aid of Congress and refuse to allow the Secretary

of HUD to continue to thwart the will of Congress

and deny to low-income tenants and project owners

the operating subsidies which they so desperately need.

II.

THE SECRETARY OF HUD’S REFUSAL TO PAY

OPERATING SUBSIDIES IS UNJUSTIFIABLE.

A. The Secretary’s Initiai Excuses Are Unsound.

In support of her refusal to implement the operating

subsidy program, the Secretary initially relied primarily

on two arguments set forth in affidavits filed with

the Courts below, J.A. 32-48 and 156-162. She asserted

first that she could not pay operating subsidies because

she needed additional contract authority in order to

spend the excess rental reserve fund. Second, she said

that she chose not to pay those subsidies because

she believed that they were inequitable since they only

assisted Section 236 projects.

ee

1, The Reserve Fund Is Immediately Available and Must Be

Used to Pay Operating Subsidies.

Section 236 provides that the excess rental reserve

fund is “to be used by the Secretary to make” operating

subsidy payments. 12 U.S.C. §1715z-1(g). However,

the Secretary has persistently argued that direct pay-

ments cannot be made from the reserve fund but that

the fund can be used only to liquidate contracts. This

argument has been rejected by every court to consider

it” for the many reasons set forth in the brief of re-

spondent low-income tenants. The Secretary’s per-

sistence in arguing that she is powerless to spend the

reserve fund without contract authority is sympto-

matic of her adamant refusal to carry out the will

of the legislature. The federal judiciary has unanimously

rejected the Secretary’s contention and the judgments

of these courts have been validated by Congress.

Congress never intended the use of the reserve fund

to be so limited and HUD’s recalcitrance has forced

Congress to recently reiterate its position. The Com-

mittee of Conference,” reporting out the Housing and

See, e.g., Dubose v. Hills, supra, 405 F.Supp., at 1288-

1292; 420 F.Supp. at 401-402; Ross v. Community Services,

Inc., 396 F.Supp. at 287; 405 F.Supp., at 835-836, aff'd

mem., 544 F.2d 514 (4th Cir. 1976) (per curiam); Underwood

v. Hills, supra, 414 F.Supp., at 531; Battles Farm Co. v.

Hills, supra, 414 F.Supp., at 526; Abrams v. Hills, supra, 415

F.Supp. at 553, aff'd, supra, 547 F.2d, at 1068-1069, 1071.

*1Resort to legislative history to determine Congressional

intent is appropriate even if a statute, such as Pub.L.No. 95-128,

is clear on its face:

{W]hen aid to construction of the meaning of words, as

used in the statute, is available, there certainly can be

no “rule of law” which forbids its use, however clear

the words may appear on “superficial examination”.

United States v. American Trucking Assns., 310 U.S. 534,

543-44 (1940) (footnotes omitted), quoted with approval

in Train v. Colorado Public Interest Research Group. Inc.,

426 U.S. 1, 96 S.Ct. 1938, 1942 (1976).

a -

Community Development Act of 1977, Pub. L. No.

95-128, which inter alia re-enacted the mandatory oper-

ating subsidy program, stated:

The conferees are further aware that HUD has

asserted in litigation that it does not have sufficient

contract authority to make such payments to the

full extent of monies in the reserve fund. These

amendments are intended to clarify that while

the Secretary is authorized to enter into contracts

with project owners to make such payments, no

contract authority is needed to spend the reserve

funds for operating subsidies. 123 Cong. Rec.

H 10114 (daily ed. Sept. 26, 1977). (Emphasis

added. )*”

The Secretary claims that because the amount in

the reserve fund is limited and will fluctuate, Congress

could not have intended that fund to be used to imple-

ment the operating subsidy program. Petitioners’ Brief,

at 15-16. But the Secretary is simply wrong about

that. The recent amendments to the Section 236 pro-

gram in Pub. L. No. 95-128 make it indisputable

that Congress has required that the reserve fund be

*2Pub. L. No. 94-378, 90 Stat. 1095 (1976), does not

support the Secretary’s contention that the reserve fund must

be used to liquidate contracts. Petitioners’ Brief, at 17, et seq.

That statute did not specify that the fund could only be so

used, Congress simply made any excess monies in the reserve

fund, after operating subsidies had been paid, available to liqui-

date contracts for a number of additional housing programs.

See Dubose v. Hills, supra, 420 F.Supp. 399, 403 (D. Conn.

1976); Abrams v. Hills, supra, 547 F.2d 1062, 1071-72 (9th

Cir. 1976). In any event, any support for the Secretary’s claim

that she might once have derived from Pub, L. No. 94-378 has

been eliminated by the Committee of Conference’s explicit state-

ment quoted above that contract authority is not needed to

spend the reserve fund for operating subsidies.

spent for operating subsidies.** And, in fact, the reserve

fund contains enough money to pay operating subsidies

nationwide for at least an entire year. The Secretary

admits that in December of 1976 she had $54.4 million

in that fund and that it is increasing at the rate of

$12 million a year Petitioners’ Brief, at 14 n. 15.

The accumulation since December would approximately

offset the $18 million claim which the Secretary alleges

exists against that fund. The remaining sum is more

than sufficient to pay subsidies nationwide for a full

year, since the Secretary estimates that that would

require only $43 million. Petitioners’ Brief, at 12 n.

13. Moreover, the amendments specifically contem-

plate that Congress will make future appropriations

to provide additional funding for the operating subsidy

program, since Congress amended Section 236(f)(3)

to require that the Secretary make operating subsidy

payments “to the extent of the moneys in the reserve

fund established under subsection (g) and to the further

extent of funds authorized in appropriation Acts. . . .”

Pub. L. No. 95-128, Section 206(a).

28Senator Kennedy noted that spending the reserve fund

for operating subsidies would provide “a short term partial

solution” to the problems facing HUD’s subsidized housing

programs. 123 Cong. Rec. S 9046 (daily ed. June 7, 1977).

Senator Cranston explained further: “HUD admits that there

is money available in the reserve fund to make additional

assistance payments |operating subsidies] to all section 236

projects nationwide for at least a year . . . While I recognize

that Congress and HUD will be working on a long-term and

expanded solution to this problem, including the problems of

221(d)(3) projects, certainly relief should be made available

to these [section 236] tenants while this process is going on

since funds are available specifically for that purpose.” 153 Cone

Rec. § 9045 (daily ed. June 7, 1977).

<n

The Secretary’s continuing claim that the insufficien-

cy of the reserve fund indicates that Congress did

not require the fund to be spent for operating subsidies

is further undermined by the fact that the Secretary

has taken at least two steps to deplete the fund.

First, the Secretary has altered the method by which

the excess rentals which make up the fund are collected

from Section 236 project owners. On June 6, 1975,

a mere two weeks after the Secretary was first ordered

to pay operating subsidies in Ross, supra, 396 F.Supp.

278, HUD promulgated Transmittal No. 24, which

changed the method by which Section 236 project

owners are to corapute excess rentals to be remitted

to the Secretary for deposit into the reserve fund in

a manner that diminishes the amount of those contribu-

tions. On January 15, 1976, HUD’s General Counsel

issued an opinion concluding that Transmittal No. 24

should be implemented retroactively to 1968, which

HUD estimates would result in the refund of $18

million from the reserve fund to Section 236 project

owners.”

Second, the Comptroller General of the United States

has recently reported to the Congress that HUD is

not requiring sufficient contributions into the reserve

fund and that HUD had made little progress in collect-

ing the correct rental charges from low-income tenants

since HUD was informed of this problem in 1973.

The Report concludes that:

Numerous weaknesses still exist in the way Section

236 project owners carry out their income recerti-

fications. Also, HUD has not effectively moni-

“4This opinion was issued one month after the initial prelimi-

nary injunctions requiring payment of operating subsidies were

issued in Dubose v. Hills, 405 F.Supp. 1277 (D. Conn. 1975).

= oe

tored income recertifications at projects to insure

that they are carried out in conformance with

HUD requirements and in a manner which insures

that proper rents are charged tenants in the proj-

ects and excess rents are remitted to the Federal

Government.”

These actions and inactions by the Secretary reducing

the size of the reserve fund contravene the purposes”

of the Section 236 program and directly harm low-

income tenants.

2. HUD’s Policy Distaste for the Operating Subsidy Program

Is Irrelevant.

The other reason the Secretary initially gave for

refusing to implement the operating subsidy program

was that it would only alleviate the problems facing Sec-

tion 236 projects and, because it did not resolve the dif-

ficulties of other subsidized housing programs, she pre-

ferred a broader approach to the economic problems

affecting subsidized housing. J.A. 43-48. The Secretary,

by advancing such an argument, has once again evi-

denced her intention to usurp Congress’ constitutional

The Report is entitled “Little Accomplishment in Insuring

that Proper Rents Are Charged Under the Section 236 Rental

Assistance Housing Program.” CED-76-146, October 15, 1976,

Government Accounting Office, at 16. See also 12 U.S.C.

§1715z-1(e) and 24 C.F.R. §425.25.

*6In his Report the Comptroller General also found that

many tenants paid less rent than HUD should have required

and accordingly that fewer excess rental charges were sent

to the Secretary by the project owners. It should also be

noted that in September, 1975, HUD promulgated a new regula-

tion raising the income limits for tenants of Section 236 projects

as “its solution” to the sharp increase in operating costs. See

24 C.F.R. §236.72, 40 Fed. Reg. 52844-45 (1975), cited

in Dubose, supra, 405 F.Supp., at 1288 n. 52. This “solution”

is directly contrary to the purpose of Section 236—to provide

decent housing at reduced rentals for low-income families.

—26—

authority to determine the course and direction of

our nation’s housing programs for lower-income fam-

ilies, and to substitute executive power for that of the

legislative branch.”

2'This attempt to substitute HUD’s judgment for that of

Congress is reflected in the Affidavit of H. R. Crawford, the

former Assistant Secretary for Housing Management at HUD,

filed below, in which he recites HUD’s policy arguments

that implementation of the program passed by Congress would

be “inequitable” in an attempt to justify HUD’s refusal to

pay operating subsidies.

3. The operating subsidy provisions of Section 212 of

the Housing and Community Development Act of 1974

is an attempt by Congress to address the problem of

increased operating costs in Section 236 projects by pro-

viding additional subsidies to the project owner. However,

Section 212 does not authorize additional assistance for

HUD assisted multi-family projects insured under other sec-

tions of the National Housing Act which face identical

problems.

4. Section 212 of the Housing and Community Develop-

ment Act of 1974 authorizes the payment of operating

subsidies to Section 236 project owners only to the extent

necessary to maintain the basic rental charges for tenants

at levels not in excess of 30 percent of their gross income.

Therefore, the benefit of operating subsidies flows only

to those Section 236 projects which are occupied by tenants

whose basic rental charge exceeds 30 percent of their

gross income. There are Section 236 projects in which

a majority or all of the tenants occupying its units pay

a rental charge which does not exceed 30 percent of

their gross income. Consequently, the payment of operating

subsidies will have little or no ameliorating effect upon

the economic difficulties threatening the owners of a number

of Section 236 projects.

5. The payment of operating subsidies solely to Section

236 project owners, therefore, is inequitable in providing

relief only to a small proportion of HUD assisted multi-

family projects and to an even smaller group of bene-

ficiaries—those owners of Section 236 projects whose ten-

ants have a basic rental charge exceeding 30 percent of

gross income. In view of the need for a general multi-

family default policy which will address itself to the eco-

nomic difficulties facing owners and tenants of all HUD

_

The Secretary should not be allowed to let her

policy distaste for the operating subsidy program inter-

fere with her constitutional duty to execute the laws

enacted by Congress. If an administrative agency ever

has the discretion to refuse to carry out a congres-

sionally enacted program, it is only when the program

has been found by careful study, in operation, to be

counterproductive and impossible to modify and ad-

minister in a way which would fulfill the intent of

Congress in enacting that program. See Commonwealth

of Pennsylvania v. Lynn, supra.’ In enacting the

operating subsidy program Congress intended to assist

tenants and projects owners of Section 236 housing,

and that is precisely what the program would do if

implemented. Payment of operating subsidies would,

consistent with Congressional intent, prevent uncontrol-

lable increased operating costs from being passed on

assisted multifamily projects, the Department is currently

considering a number of alternative proposals for solutions

that are more comprehensive and more equitable. J.A.

157-158.

28In Lynn, the Court sustained only the Secretary’s “narrow”

discretion, 501 F.2d at 862, to suspend hcusing programs

where those “programs have come into conflict with the overall

housing policy or the program goals set by Congress, and. . .

administrative correctives within [the Secretary’s] power to take

have not [and] will not resolve the conflict. . . .” 501 F.2d,

at 856, At the same time, the Court recognized that the Secretary

has no discretion to ignore a duly enacted and funded program

“for reasons of a . . « extrinsic to [its] operation. . . .”

501 F.2d, at 852. The Court upheld the Secretary’s suspension

of the Section 236 program after the Secretary demonstrated

that the program as it was then operated did not benefit,

but in fact may have actually harmed, the low-income people

Congress had intended to aid by that program. But the discretion

recognized in Lynn in no way justifies the Secretary's failure

to implement the operating subsidy program which would accom-

plish exactly what Congress intended—to subsidize increasing

costs of property taxes and utilities for tenants paying more

than 25%-30% of their incomes for rent. It was one thing for

the Secretary to stop making commitments to build new housing

(This footnote is continued on next page)

a

to low-income tenants.” Thus the program: must be

implemented, and the Secretary’s dislike of it is irrele-

vant.

B. The Secretary’s Subsequent Excuses Are Also

Unpersuasive.

In addition to the two initial reasons which the

Secretary gave for her refusal to pay operating subsidies,

her counsel have subsequently offered a variety of

additional justifications.

1. The Language of the Operating Subsidy Provisions Is

Mandatory.

The Secretary has sought to justify her resistance

to her mandatory duty to pay operating subsidies by

contending that the difference in authorizing language

for the deep subsidy and operating subsidy programs

indicates that, while. the deep subsidy provisions are

mandatory, the operating subsidy provisions are dis-

cretionary. |

projects that comprehensive studies showed would be doomed

to failure. It is quite another to refuse to implement a pro-

gram that Congress has determined is necessary to save exist-

ing housing projects in which vast investments of private

and public money have already been made. While the Secretary

may discontinue a program which in operation has proven

to be counterproductive, she may not refuse to implement an

as yet untried program because that refusal can only be based

on policy reasons unrelated to problems with the program

in operation.

*°As the District Court concluded in its opinion in Dubose v.

Hills, supra, one of the earliest, most comprehensive, and well

reasoned operating subsidy decisions:

Congress adopted the “operating subsidy” provisions in

response to the serious problem of operating cost increases

due to sharp rises in oil prices and local property taxes.

The program was designed to assist only “deserving” proj-

ects, and their low income residents. HUD cannot now

refuse to fund or implement the “operating subsidy” pro-

visions because they only solve the: particular problem

— a

The Secretary’s contention turns solely upon the dif-

ference between the phrase “shall make, and contract

to make” in the former’s provisions and the phrase

“authorized to make, and contract to make” in the

operating subsidy provisions. 12 U.S.C. §§1715z-1(f)

(2) and (f)(3). However, the language of both

provisions is mandatory and the Secretary’s focus solely

on the words “shall” and “authorized””’ is too narrow.

. . . [Dl]iscerning Congress’s intent to bestow

or withhold discretion to suspend the programs in

their entirety is not a simple matter of tallying

the “shalls” and “mays” and finding that the

“mays” have it. Commonwealth of Pennsylvania

v. Lynn, supra, 501 F.2d, at 854.

Even if it were appropriate to tally mays and shalls,

the operating subsidy provisions would be mandatory

because they direct the Secretary through the use of

the word “shall” to take a number of steps prior

to actual payment of operating subsidies, steps which

serve no purpose unless operating subsidies are paid.”

for which they were designed, or because they only hel

the particular population for which they were enacted.

The “operating subsidy” program does not have a counter-

roductive impact on our national housing policy merely

Socenes it does not solve all the present =! facing

HUD’s multi-family assistance programs. Surely Congress

has the power to solve a specific problem with which it is

familiar without running the risk of administrative non-

enforcement because it has not gone far enough, or not

gone in the direction considered desirable by the administra-

tive branch. 405 F.Supp., at 1290-91. (Footnote omitted.)

8°Even the word “unauthorized” has been determined to be

the language of command. Sioux Valley Empire Electric Ass’n,

Inc. v. Butz, 367 F.Supp. 686 (D.S.D. 1973), aff'd, 504

F.2d 168 (8th Cir. 1974).

81Congress created mandatory prerequisites to the payment

of operating subsidies-——including the establishment of the reserve

fund and the setting by the Secretary of initial operating expense

levels for Section 236 projects. Compliance with both of these

(This footnote is continued on next page)

=— =

Rather than counting the shalls and mays, the ap-

propriate approach is to examine the entire statute,

its purposes, and its legislative history in order to

determine the intent of Congress.” It seems irrefutable,

given the legislative history set forth in Part I of

this Brief, that Congress intended to compel the Secre-

tary to pay operating subsidies, and “. . . the overall

thrust of [the| statute is not optional.” Dubose v.

Hills, supra, 405 F.Supp., at 1283.

There are good reasons why Congress used different

language in the deep subsidy and operating subsidy

provisions of Section 236. The difference reflects the

fact there are no determinations for the Secretary to

make prior to the payment of deep subsidies. Since

deep subsidies are to be paid to 20% of the tenants

in all newly constructed Section 236 projects, Congress

simply said that the Secretary “shall” make these pay-

ments. On the other hand, before operating subsidies

can be paid the Secretary must make initial determina-

tions on eligibility (e.g., set initial operating expense

levels and determine whether costs of taxes and utilities

prerequisites is required by the plain language of Section 236.

“For each project there shall be established an initial operating

expense level. . . .” 12 U.S.C. §1715z-1(f)(3). (Emphasis

added). “The project owner shall, as required by the Secretary,

accumulate, safeguard, and periodically pay to the Secretary

all rental charges collected in excess of the basic rental charges.

Such excess charges shall be credited to a reserve fund to

be used by the Secretary to make additional assistance payments

...” 12 U.S.C. §1715z-1(g). (Emphasis added).

%2This Court has recently held that “[iJn expounding a

statute we must not be guided by a single sentence or member

of a sentence, but must look to the provisions of the whole

law, and its object and policy. . . .” Philbrook v. Glodgett,

421 U.S. 707, 713 (1975) (citations omitted). The Secretary’s

statutory authority under Section 236 cannot therefore include

the power to defeat the overall purposes of the Section 236

program or its operating subsidy provisions.

=

have increased above those levels) and must exercise

her judgment to determine whether the increases in

utilities and property taxes are reasonable and com-

parable,” i.e., whether the increased costs are due to

poor management.

While anxious to deal with [the problem of

increased costs], the Committee also of course

desired to develop a provision which would focus

upon the real problem cases, and could be tightly

administered, and would not simply reward poor

management. . . . S. Rep. No. 93-693, 93rd Cong.

2d Sess. (1974); rptd. at 3 U.S. Code, Cong.

& Admin. News 4273, 4303 (1974).

Thus, Congress directed the Secretary to make the

necessary initial determinations and then authorized

her to pay operating subsidies only to those projects

which she had found met the statutory criteria. Both

the operating and deep subsidy programs are mandatory

in nature, but Congress has, in the statutory provisions,

vested narrow discretion in the Secretary to determine

which tenants and project owners are qualified to re-

ceive the very substantial benefits which operating subsi-

dies would provide. The difference in language between

the two provisions is, therefore, without significance.

Both are equally mandatory.

2. The Secretary Cannot Lawfully Refuse to Allocate Any

Contract Authority for Operating Subsidies.

The Secretary has also made a series of arguments

which are premised on her assertion that she can only

83Additional assistance payments shall be made only if the

Secretary finds that the increase in the cost of utilities or

local property taxes is reasonable and is comparable to cost

increases affecting other rental projects in the community. 12

U.S.C. §1715z-1(f) (3).

=

pay operating subsidies through the use of contract

authority and that her contract authority would be

better used for other purposes. She argues that she

has only a limited amount of contract authority and

that Congress would prefer her to use it for the produc-

tion subsidy (the interest reduction program) and for

deep subsidies. Assuming for the purpose of argument

that the Secretary can only make operating subsidy

payments by using contract authority, her allocation

of all contract authority to those other programs and

none to operating subsidies is unsupportable and con-

trary to Congressional intent.

The Secretary claims that her decision to prefer the

production subsidy is reasonable. Yet, a previous Secre-

tary of HUD decided, after an exhaustive study, that

the production subsidy program was counterproductive

in operation and the United States Court of Appeals

for the District of Columbia Circuit found that Con-

gress had concurred in that decision. Commonwealth

of Pennsylvania v. Lynn, supra. It defies reason to

assert that the Secretary is rationally using her discre-

tion to allocate limited contract authority when she

allocates the bulk of it to the interest reduction program,

which has been found defective and unworkable,”

and none of it to the operating subsidy program, which

Congress designed to improve and salvage the interest

reduction program.

The Secretary attempts to justify her decision to

use contract authority for the production subsidy by

attributing to Congress a preference, which in fact

%4Given the default rates shown by HUD’s own studies

cited in footnote 14 supra, it is incredible that HUD should

contend it is reasonable to continue to prefer to construct

new projects which are doomed to fail rather than to subsidize

and save existing projects.

a

is nonexistent, for building new projects. The Secretary

cannot twist Congressional reprimands of HUD for

its failure to use Section 236 contract authority prompt-

ly and Congressional directions to meet the housing

needs of low income people, such as those contained

in S. Rep. Nos. 93-1139, 93rd Cong. 2d Sess. (1974)

and 93-1255, 93rd Cong. 2d Sess. (1974), into a

mandate to emphasize housing production and ignore

operating subsidies. The housing needs of poor people

are not met by the production of new housing projects

which are destined for ultimate failure and which those

people cannot afford because rents are excessive due

to escalating, unsubsidized operating costs.

The irrationality of the Secretary’s position is under-

scored by the Congressional debates which preceded

the recent re-enactment of the operating subsidy pro-

gram. Representative Badillo said:

It makes no sense for us to provide for additional

construction if we are going to stand by and

find that project after project throughout the States

ends up in financial difficulty. . . . 123 Cong.

Rec. H 4287 (daily ed. May 11, 1977).

Representative Hanley expressed agreement:

Is it not a little ridiculous to let projects deterio-

rate, let them become unfit for occupancy and

at the same time go out and construct brand

new units of housing.

. . . Again, I think it is utter nonsense if we

spend a dollar in the way of new construction

while on the other hand we let existing projects,

where the capital investment is already made, bite

the dust. That does not make sense at all. 123

Cong. Rec. H 4286-87 (daily ed. May 11, 1977).

=

The second part of the Secretary's argument that

there is insufficient Section 236 contract authority for

the operating subsidy program is that she must pay man-

datory deep subsidies rather than operating subsidies.

In the first place, even if there were insufficient funds

to pay all mandatory deep subsidies and to pay operat-

ing subsidies, some allocation of funds between the two

programs should be made. But in fact the Secretary

is not preferring only mandatory deep subsidies. She

is using a substantial portion of her available contract

authority for deep subsidies not sanctioned by Congress.

The deep subsidy program was designed to subsidize

rents for 20% of the tenants in Section 236 projects

constructed after August 22, 1974. The Secretary ad-

mitted in affidavits filed in the District Courts below

that she intended to use $2.9 million of her contract

authority for projects which were constructed prior

to August 22, 1974. J.A. 37-38. In a later affi-

davit filed in Underwood v. Hills, the amount allo-

cated to such unauthorized deep subsidies was $6.8

million, which was more than half of the total amount

allocated for all deep subsidies. See Exhibit A attached

hereto. In her brief to this Court the Secretary implies

that all deep subsidies are mandatory and that she

will spend $50 million on deep subsidies. But if she

maintains the same ratio between unauthorized and

mandatory deep subsidies, she will be allocating approx-

imately $25 million in contract authority to an

unauthorized program while refusing to pay mandatory

operating subsidies.

There is a telling inconsistency in the statements

of HUD officials about inadequacy of available con-

tract authority; since those officials have made con-

tradictory assertions before Congress and the courts.

First, HUD has contended in this Court and in all

of the lower courts which have considered this issue

that it needs more contract authority if it is to pay

operating subsidies, and that Congress’ failure to re-

lease additional contract authority indicates its approval

of HUD’s refusal to pay those subsidies. Yet the former

Secretary of HUD told Congress in 1976 that she

was paying operating subsidies and that “No additional

contract authority is required in this [Section 236]

program.”*”’ Additionally, HUD asserted before the

courts below that as of December, 1975 it needed

all of the Section 236 contract authority to fund the

interest reduction and deep subsidy programs. J.A.

32-42. But only three months later, the former Secretary

of HUD reported to the Congress that she had an

unobligated balance of $23 million in contract authority

because of the cancellation or disapproval of projects

which were not feasible.** Thus, one could not reason-

ably conclude that Congress, by failing to release addi-

tional contract authority, has knowingly validated the

Secretary’s refusal to pay operating subsidies.

3. Section 8 Is Not an Adequate Substitute for the Operating

Subsidy Program.

The Secretary has also contended that implementation

of the Section 8 program in financially distressed Sec-

tion 236 projects has obviated the need to implement

the operating subsidy program. Petitioners’ Brief, at

23 n. 22.

85See Department of Housing and Urban Development—In-

dependent Agencies Appropriations For 1977: Hearings Before

a Subcommittee of the Committee on Appropriations, House of

Representatives, 94th Cong. 2nd Sess., Part 6: Department of

Housing and Urban Development, at 351. Several pages of this

report are attached hereto as Exhibit B.

8¢7d., at 352.

pr es

But the Section 8 program which provides financial

assistance on behalf of lower-income families in the

form of rental subsidies of four separate types—‘“set

aside,” and existing, newly constructed, or substantially

rehabilitated housing,” is a wholly inadequate sub-

stitute for operating subsidies.’ Obviously, if ten-

ants and project owners had been receiving Section

8 assistance, there would have been no need for them

to repeatedly sue HUD to compel payment of operating

subsidies in an effort to obtain relief from the crushing

burden of escalating utility and tax costs.

Under the Section 8 set aside program, which is

designed to help only financially troubled projects which

are HUD-insured or HUD-held, 100% of the units

in a project may be assisted. However, set aside con-

tract authority is made available to HUD area offices,

which must determine that the infusion of Section

8 assistance will solve a project’s cash flow problems

and provide assurance of long term project viability

before such assistance can be granted. There is no

assurance that any given project, even if it satisfies

all conditions precedent, will receive asistance under

the Section 8 set aside program. More importantly,

87Section 201(a) of the Housing and Community Develop-

ment Act of 1974, 42 U.S.C. §1437(f).

38In his recent report to the Congress the Comptroller

General of the United States criticized HUD’s implementation

of the Section 8 program and concluded that it has not provided

housing to the number of low-income persons and stimulated

the number of new housing starts originally anticipated. Report

to the Congress by the Comptroller General, “Major Changes

are Needed in the New Leased Housing Program,” No. CED-

77-19 (Jan. 28, 1977). Specifically, the Comptroller General

found that HUD’s implementation of the various Section 8

rograms was too long delayed, that complex regulations and

orms deterred participation by private landlords, and that the

set aside program would not provide the same benefits as would

the operating subsidy program. /d., at 31, 33-34, and 50-53.

= =

Section 8 set aside assistance has been made available

for only 111,000 units in all HUD-insured or HUD-

held multi-family projects. 24 C.F.R. §886 ef seq.

All of those units have been allocated (See Petitioners’

Brief at 23 n. 22), and the Secretary consequently

has no more Section 8 set aside funds with which to

assist the 232,000 tenant families which she estimates

are eligible for operating subsidies.

With respect to Section 8 housing assistance for

existing units, Section 2(b)(1) of Pub. L. No. 94-

375, “The Housing Authorization Act of 1976,” pro-

vides that HUD’s allocation of contract authority for

Section 8 must conform, to the maximum extent prac-

ticable, to the Housing Assistance Plan (HAP) sub-

mitted by each locality to identify that community’s

needs for Section 8 assistance. HUD cannot allocate

contract authority based on its own independent as-

sessments of need.

Moreover, HUD regulations, 24 C.F.R. §882.110(c)

(2), provide that rental subsidy payments for rent

supplements, deep subsidies, Section 8 for existing hous-

ing, and state or local subsidies may not be made

to more than 40% of the total number of units in

each Section 236 project unless approved by the Re-

gional Administrator in hardship cases. Consequently,

at most only a fraction of the low-income tenants

qualified for operating subsidies could be aided by

these Section 8 subsidies.

Therefore, even proper and complete implementation

of the Section 8 program would not obviate the need

for the Section 236 operating subsidies mandated by

Congress. The Secretary’s substitution of her judgment

for that of Congress and her preference for another

subsidy program which provides no relief for the great

= on

majority of Section 236 tenants has had a severely detri-

mental effect on the low-income tenants for which

the Section 236 program and the operating subsidy

provisions were designed.

4. The Operating Subsidy Program Would Substantially Bene-

fit Tenants Without Unduly Burdening HUD or Project

Owners.

The Secretary’s final argument, which she asserted

for the first time in her stay application to this Court

in Hills v. Underwood, No. A-259, O.T. 1976, is

that she reasonably decided not to implement the operat-

ing subsidy program because it would be administrative-

ly inefficient and of minimal benefit to tenants. Putting

aside for the moment the merits of the Secretary's

claim that the operating subsidy program is inefficient,

this Court should consider the timing of her raising

of the claim of inefficiency. If that were indeed her

reason for not implementing the program it is incompre-

hensible that she did not present it in the District

Courts below. The inference is plain that she created

this rationale after the fact. Such post hoc rationali-

zations should be given no weight. See, e.g., Con-

tinental Air Lines, Inc. v. C.A.B., 551 F.2d 1293,

1311 n. 81 (D.C. Cir. 1977), in which the Court

declared:

“Of course, on review, we must look at the find-

ings, policies, and explanations made by the agency

itself, rather than post hoc rationalization of coun-

sel.””

The sound reasons behind this policy were expressed

by Judge Adams in American Iron and Steel Institute v. E.P.A.,

526 F.2d 1027 (3d Cir. 1975):

As a general principle, moreover, it is disturbing that

courts should consider subsequently developed information

— =

Moreover, the Secretary of HUD, in the only docu-

ment which she has to support her claim that the

operating subsidy program would be excessively costly

to administer, greatly exaggerates the dimensions of

the administrative burden imposed on HUD and project

owners.*” For example, she asserts that constant recal-

culations of increases in costs and utilities and of

tenants’ incomes are necessary. This assertion is contra-

dicted by the Secretary’s own draft instructions to proj-

ect owners which require such recalculations only when

rents are increased or when project owners who had

included utilities in their rents change their policy

and require tenants to procure and pay for their own

utilities. See draft Operating Subsidy Handbook pp.

9-10, which pages are attached hereto in Exhibit

to determine whether an administrative decision is “arbitrary,

capricious, an abuse of discretion, or otherwise not in

accordance with law.” To entertain such information may

encourage the use of the courts as mere extensions of

a continuous administrative process. It may also encourage

some administrators to issue decisions that may well be

arbitrary at the time of promulgation hoping like Micawber

that “something will turn up.” Neither of these consequences

would appear to enhance the efficiency of the courts or

the confidence of citizens in the fairness of the adminis-

trative process. 526 F.2d, at 1077 n. 22

See also Securities and Exchange Commission v. Chenery, 318

U.S. 80 (1943), on which both Judge Adams and the Court

in Continental Air Lines v. C.A.B. relied.

“The Court should note that because this document (the

Affidavit of Fred W. Pfaender submitted as Appendix G in

support of the Stay Application in Hills v. Underwood, supra)

and the facts and figures contained in it were never presented

to the District Courts below and appeared after the decisions

of those courts had already been rendered, tenants have had

no opportunity to do any discovery to determine the basis

for or accuracy of those figures. For this additional reason,

this Court should accord these claims no weight. Furthermore,

there is good reason to believe that the operating subsidy

program, in operation, is as efficient as any other federal housing

program. See Affidavit of William M. Kargman, filed in support

of Plaintiff's Application to Vacate Stay in Underwood v. Harris.

—_

C. In addition, the information required by the Secretary

for implementation of the operating subsidy program

is already available to HUD on forms designed for

other purposes. For example, see p. 14 of the draft

handbook, portions of which are included in Exhibit C,

in which HUD directs project owners to transcribe

tenants’ rents from other forms already submitted to

HUD for other purposes.

It is absolutely irrational for HUD to assert that

this subsidy is onerous for project owners when project

owners are among those suing HUD to compel payment

of operating subsidies.‘ Moreover, any costs incurred

by project owners will be passed on to tenants. Even

so, tenants would receive substantial benefits from oper-

ating subsidies, despite the Secretary’s suggestion to

the contrary. HUD estimated in September, 1976 that

the median maximum monthly operating subsidy per

unit would be $15.43, less administrative costs. HUD’s

estimates of those administrative costs have varied wild-

ly.*

In June, 1976, HUD estimated** that payment of

operating subsidies would consume $803,900 in staff

“1Battles Farm Co. v. Hills, supra, was a suit brought by the

owners of four Section 236 projects in Massachusetts; See also

Taunton Gardens Co. v. Hills, 421 or 524 (D. Mass.

1976), aff'd 557 F.2d 877 (1st Cir. 1977).

42See para. 3 of the Affidavit of Fred W. Pfaender, Director,

HUD Office of Loan Management, dated September 27, 1976,

attached as Appendix G to the Stay Application in Hills v.

Underwood, supra.

*8In fact, there is reason to believe that monthly operating

subsidies to each tenant will be far greater and administrative

costs must less than HUD estimates. See para. 3 of the Affidavit

of William M. Kargman filed in support of Plaintiff's Application

to Vacate Stay in Underwood vy. Harris.

Affidavit of James J. Tahash in Underwood v. Hills,

dated June 17, 1976 and filed in the United States Court

of Appeals for the District of Columbia Circuit as Add. M-

a

costs to project owners, which would result in a rent

increase of $2.38 a unit each year, that is, $0.18

a month. However, by September, 1976, HUD’s esti-

mated costs to project owners had increased to $1,-

050,300 in staff costs plus $9.65 million in “additional

costs” for such overhead expenses as “bookkeeping

systems, tenant files, efforts to locate eligible tenants

. . » [and] increased auditing costs and management

fees.”** Even accepting these highly questionable fig-

ures, tenants would still be receiving a total operating

subsidy of $66.2 million’ at a cost of $10.7 million,

a net gain of approximately $55 million. Those costs

do not “substantially offset any benefit tenants might

otherwise experience from payment of the subsidy”,

as HUD claims. Petitioners’ Brief, at 24.

But even if the operating subsidy program were

inefficient, it is not the Secretary’s prerogative to refuse

to enforce the law.

. . . [NJowhere does our Constitution extol the

virtue of efficiency and nowhere does it com-

mand that all our laws be fiscally wise. It does

most clearly, however, state that laws, good or

bad, be enacted by the Congress and enforced

by the President. Guadamuz v. Ash, supra, 368

F.Supp., at 1243.

Im to the Motion of the Federal Defendants-Appellants for

a Stay Pending Appeal, a portion of which is attached hereto

as Exhibit D.

‘See para. 6 of the Affidavit of Fred W. Pfaender, dated

September 27, 1976 which was filed in this Court in support

of the Stay Application in Hills v. Underwood.

46See para. 3 of the Affidavit of Fred W. Pfaender, estimating

that $662 million would be the amount of operating subsidies

due tenants for the period February 18, 1975 through August,

1976.

ities

Ill.

THESE CASES NO LONGER WARRANT REVIEW

BY THIS COURT.

The single issue presented in each of these cases

is the same—“[w]hether 12 U.S.C. (Supp. V) 1715z-

1(f)(3) requires the Secretary of Housing and Urban

Development to establish and implement an operating

subsidy program.” Abrams Pet., at 2; Ross Pet., at

2; Petitioners’ Brief, at 2. This Court granted the

petitions for writs of certiorari and consolidated these

cases on May 23, 1977."

Amici now urge this Court to dismiss the petitions

for writs of certiorari as improvidently granted pursuant

to Supreme Court Rules 19(1)(b), 25 and 60. The

construction of the operating subsidy provisions of the

Housing and Community Development Act of 1974

is no longer of significance because of their amendment

in Section 206 of Pub. L. No. 95-128. The enactment

of the operating subsidy provisions of the Housing

and Community Development Act of 1977 ensures

that the issue raised by Petitioners will never arise

again.** Furthermore, since these amendments make

it indisputable that implementation of the operating

subsidy program is mandatory effective October 1, 1977

and that the excess rental reserve fund can be expended

directly without the use of the Secretary’s Section 236

contract authority,“” a decision by this Court in the

‘Harris v. Ross, No. 76-1234, cert. granted ........ .

sian , 97 S.Ct. 2630; Harris v. Abrams, No. 76-1261, cert

granted ........ |) ae , 97 S.Ct. 2630.

*8Significantly, in Ross the judgment subject to review or-

dered the Secretary to implement the program prospectively

and all operating subsidy payments have been made. The judg-

ment in Abrams concerns only a six month claim for retroactive

operating subsidies to tenants in a single Section 236 project

now receiving housing assistance payments under the Section

8 program.

See argument supra in text accompanying footnotes 8-19

and 21-22.

. —43——

Ross and Abrams cases would be of no precedential

value.

Thus these cases no longer pose a continuing issue

of national housing policy or an important question

of federal law. This Court’s decision in Rice v. Sioux

City Cemetery, 349 U.S. 70 (1955), compels dismissal

of the writs as the proper course in these circumstances.

In Rice the issue was whether a privately owned ceme-

tery could properly defend a suit for breach of a

burial contract because the decedent was a Winne-

bago Indian and the contract restricted burial privileges

to Caucasians. Following consideration of a petition

for hearing,” the Court was informed of the passage

of a new Iowa statute which settled the issue prospective-

ly although it afforded the petitioner in Rice no relief.

Speaking through Mr. Justice Frankfurter, this Court

declared:

A federal question raised by a petitioner may

be “of substance” in the sense that, abstractly

considered, it may present an intellectually interest-

ing and solid problem. But this Court does not

sit to satisfy a scholarly interest in such cases.

Nor does it sit for the benefit of the particular

litigants. Rice, supra, 349 U.S., at 74.

Accordingly the petition for rehearing in Rice was

granted and the writ, previously granted, was

dismissed." See also District of Columbia v. Sweeney,

The lower court’s decision was initially affirmed by an

equally divided Court. 349 U.S. at 73, citing 348 U.S. 880.

51Jn Layne & Bowler Corp. v. Western Well Works, Inc.,

261 U.S. 387, 393 (1923), Mr. Chief Justice Taft explained

the reasons underlying Rule 19:

. . [I]t is very important that we be consistent in

not granting the writ of certiorari except in cases involving

principles the settlement of which is of importance to

the public as distinguished from that of the parties...

seni aa

310 U.S. 631 (1940), where certiorari was denied

“in view of the fact that the tax is laid under a statute

which has been repealed and the question is therefore

not of public importance.”

Ross and Abrams no longer present an issue of

national housing policy or of federal law which it

is necessary for this Court to decide pursuant to Rule

19 of the Supreme Court Rules, and involvement of

this Court in these cases is consequently no longer

warranted.

CONCLUSION.

The Secretary of HUD has a mandatory duty to

make operating subsidy payments on behalf of low-

income tenants and has unlawfully refused to do so.

Therefore, should this Court decide these cases on

the merits, it should affirm the judgments of the courts

of appeal.

Respectfully submitted,

JAMES C, STURDEVANT,

Joun A. DzZIAMBA,

DENNIS J. O'BRIEN,

Connecticut Legal Services, Inc.,

FLORENCE WAGMAN ROISMAN,

RENO, ROISMAN AND SHAPIRO,

JOAN E, PILVER,

RAYMOND RICHARD NoRKO,

Legal Aid Society for Hartford County,

JoHN E. McDERMoTr,

Mary S. BuRDICK,

PATRICIA M. TENOSO,

Western Center on Law and Poverty, Inc.,

Attorneys for Amici Curiae.