August 7, 1978
Page 24642
Mr. MUSKIE. Mr. President, the Senate is now considering H.R. 12936, the Department of Housing and Urban Development and Independent Agencies appropriation bill for fiscal year 1979.
I would like to comment on the relationship between the spending authority in this bill and the first concurrent resolution on the budget for fiscal year 1979. But before I begin let me say that I support this bill. It represents a balanced policy of growth in vital programs without ignoring the fiscal constraints imposed by the current economic situation and the national mood.
Under section 302(b) of the Budget Act, the Appropriations Committee divides among its subcommittees the total budget authority and outlays which it has been allocated under the budget resolution. The HUD-Independent Agencies Subcommittee allocation under section 302(b), is $73 billion in budget authority and $48.8 billion in outlays.
H.R. 12936 as reported provides budget authority of $68.5 billion. Outlays associated with this bill total $44.8 billion including $15.6 billion from prior-year authority. The bill is consistent with the first budget resolution targets. If enacted as reported, H.R. 12936 would leave $4.5 billion in budget authority and $4 billion in outlays available within the subcommittee's allocation.
There are a number of potential claims upon this remaining allocation, such as the cost of the recently passed veterans' pension reform bill and the veterans compensation improvements bill.
These two bills alone will require a total of $1.4 billion in new budget authority and $1.2 billion in outlays. Other potential claims upon the balance of the subcommittee's allocation include $0.1 billion in new budget authority and $40 million in outlays for the Environmental Protection Agency's pollution abatement and control programs; $0.2 billion in new budget authority and $0.4 billion in outlays for disaster relief programs, and $0.3 billion in budget authority and outlays for special financial assistance to local governments. The first concurrent resolution on the budget anticipated these additional requirements.
If these possible later requirements materialize, the subcommittee would still have $2.5 billion in budget authority and $2.1 billion in outlays remaining within its 302(b) allocation.
Mr. President, I have not yet mentioned a program included in this bill which could cause the HUD-Independent Agencies Subcommittee to exceed its section 302(b) outlay allocation by as much as $1.9 billion.
The HUD appropriation we are considering would authorize the President to purchase as much as $4 billion of mortgages during the next fiscal year through the Government National Mortgage Association, commonly known as "Ginny Mae." Use of this authority could increase the Federal deficit by as much as $4 billion in the coming fiscal year.
The appropriation would implement a provision of the emergency mortgage purchase program, which allows the President to purchase these mortgages if a severe credit crunch occurs in the housing credit market.
Mr. President, this provision of the HUD appropriation is unnecessary. No such credit crunch is anticipated in the coming fiscal year. Although interest rates are high throughout the economy, the Chairman of the Federal Reserve Board has said recently that he expects those interest rates to peak soon and to decline in the foreseeable future. Moreover, the Federal Home Loan Bank Board has recently taken action to assure that adequate funds will continue to flow into the savings and loan associations, even now as we approach the peak of high interest rates, to meet foreseeable demands for housing credit.
Mr. President, I would like to insert at this point in the RECORD portions of a report from the Federal Home Loan Bank Board indicating that new forms of savings certificates are attracting new funds into the savings and loan industry.
The material follows:
RECENT BANK BOARD ACTIONS TO STABILIZE AVAILABILITY OF HOUSING CREDIT
The primary reason for the establishment of the Federal Home Loan Bank System was to promote stability in housing credit. At the present time, the Bank Board has a number of very important tools by which it can influence housing.
Interest rates have been on the rise almost continually since early 1977. A number of special factors sustained the level of savings flows during the third quarter of 1977, but by the fourth quarter, savings flows begin to decline on a seasonally adjusted basis. During the first half of this year, net savings flows of S&Ls, including interest credited, has been $22.3 billion, compared to $27.8 billion during the first half of 1977, a decline of nearly 20 percent.
The drop in savings flows that has occurred has been significant but has been less than might be expected during the period when the three-month Treasury bill rate has gone from under 5 percent to over 7 percent. Clearly, the lengthening of the liability structure of S&Ls is producing a greater degree of stability in savings flows.
Only 37 percent of savings accounts of S&Ls are in passbook accounts, compared to nearly 90% in 1966. With the creation of savings certificates in recent years, the bulk of the flow into S&L accounts has been into long-term certificates. This in turn has effectively locked large deposit balances into S&Ls because of penalty rates involved in premature withdrawals.
Another important factor has been a significant increase in the use of large negotiable CDs that carry no interest rate ceilings as a means of accessing credit markets. These so-called "Jumbo" certificates have accounted for more than 10 percent of total deposit growth during the first half of this year. At the present time, "Jumbo" CDs represent almost three percent of total savings and are at record levels
The primary reason mortgage lending has been maintained at its current level is that through the advances mechanism, the Bank System has increased its loans to S&Ls by $5 billion in the first half of 1978. This was after an increase of $4½ billion in the second half of 1977. Plans at this time call for an additional $6 billion of advances by year-end if interest rates continue to rise as under our scenario. Already in July, the Bank System has loaned another $1.3 billion. This means that by year-end, our advances outstanding will have doubled since mid-1977.
The second major action taken to combat the tightening monetary condition was the reduction of the liquidity requirement from 7% to 6½ % on May 1. This action reduced the amount of securities which S&Ls are required to hold as a liquidity reserve backing their deposits. As a result of this Bank Board action, more than $2 billion of funds were made available for mortgage lending.
A third major action we have taken is through purchases of mortgages by the Mortgage Corporation. Total commitments to purchase mortgage loans by the Mortgage Corporation through June of this year amounted to $3.47 billion; total purchases accounted for $2.44 billion. Commitment sales as of June were $3.00 billion. Currently 88 percent of commitments to purchase have been to savings and loan associations, and 67 percent of sales have been outside of the S&L industry, which incidentally is up from 58 percent in 1977. Thus, on net, the Corporation has pumped $2.07 billion into associations during the first half of this year.
MONEY MARKET CERTIFICATES
In addition to these three actions, the Bank Board, in conjunction with other financial regulatory agencies, developed and introduced on June 1 a new savings certificate that is specifically designed to make S&Ls less susceptible to the ill effects of tight monetary policy.
The so-called money market certificate is a short-term certificate whose interest rate ceiling is set weekly for S&Ls at ¼ % over the discount rate on newly-issued, six-month Treasury bills. It is designed to enable S&Ls to compete with open market investments during periods when the yields on those instruments exceed the yields on traditional thrift institution certificates whose rate ceiling change infrequently. To date, the money market certificate appears to be quite successful in abating savings funds outflows.
During June and July, net new savings receipts at insured associations were about 80% larger than would have been the case if savings flow had continued at the April-May seasonally adjusted pace. This understates the impact of the new savings certificates since in all probability, savings flows would have declined from the April-May rate over the past two months without the introduction of the new accounts because of the further rise in market interest rates.
On the other hand, some of the recent flow into the new money market certificates clearly represents initial funds shifts caused by the introduction of a new and different savings instruments which will not be repeated in the future.
Data we have obtained from a sample of large associations indicates that institutions holding about 41 percent of insured associations' savings issued $4.9 billion of the money market certificates from June 1 through July 20. More complete figures in terms of coverage show an estimated $6.5 billion of these certificates issued at all thrift institutions in June. Somewhat more than 40 percent of the funds in such accounts at S&Ls is estimated to be new money (i.e., not transfers from existing accounts at the institutions).
Mr. MUSKIE. Mr. President, no public good can be served by authorizing the President to exercise this $4 billion in emergency GNMA purchase authority. In fact, the President himself has said he will not use this authority, even if we give it to him.
On the other hand, once we give him the authority, he can commit it whether or not it is actually needed without further action by Congress. And if he uses it, he could cause Federal outlays to rise during the next year up to $4 billion under the authority we are now asked to provide.
Although most of the expenditures would subsequently be recovered when the mortgages purchases were sold, we would face in 1979 additional deficits of up to the full $4 billion, for which we have not budgeted a dime.
If the President exercises the authority conferred by this provision of the HUD appropriation, a third budget resolution may be required to make room in the budget for currently foreseeable supplemental appropriations.
And it is not just a phantom threat that the President might use the authority. Just 2 years ago President Ford made the same pledge to Congress that President Carter is making now — that he would not use similar "Ginny Mae" authority even if we gave it to him. Then, just a few weeks before the November election he felt compelled to change his mind and released $2 billion of this authority. Fortunately, he did so just before we completed action on the budget resolution, so we were able to take account of his action in the congressional budget.
This time we have no such luxury. No one is proposing to include any allowance for this provision in the second, and binding, congressional budget resolution. Thus, the effect of granting this authority to the President now is to load a gun for the executive branch that could, if triggered, blow the congressional budget, increase the deficit, and require either a cut in needed appropriations or enactment of a third budget resolution.
And all of this for no good reason.
Congress simply should not surrender to the President its judgment about when this emergency assistance should be made available. Congress could appropriate this emergency assistance any time it wishes.
Should conditions change at any time, Congress could reconsider the need for mortgage assistance. A simple joint resolution could be used to authorize the President to use the GNMA authority.
And I will be first to join in support should there be a mortgage emergency. But there is none. None is foreseeable, according to the experts who are responsible for the mortgage money markets.
Mr. President, I considered offering an amendment to delete this provision from the bill in order to preserve congressional control over the timing and amount of spending under this program. However, I have discussed this matter with the distinguished floor manager of the bill, Senator PROXMIRE. He agrees with me that we can accomplish our purpose by clarifying the congressional intent that these funds should not be released by the administration without advance consultation with, and the approval of, the Appropriations and Budget Committees of both Houses of Congress.
I wish to emphasize that the intent of Congress as I understand it, is that expenditures would not occur under this emergency authority without the prior approval of all four committees.