McLaughlin, Staley and Adams, Circuit Judges.
The primary issue in this case is the meaning of the requirements in the Demonstration Cities and Metropolitan Development Act of 1966,*fn1 that to be eligible for Federal aid, a "comprehensive city demonstration program," must "provide * * * widespread citizen participation in the program" and the Secretary of Housing and Urban Development must "emphasize local initiative in the planning * * * [of it]."*fn2
These requirements form a central and novel feature of the Demonstration Cities Act, in whose prologue the Congress declared:
"* * * that improving the quality of urban life is the most critical domestic problem facing the United States. The persistence of widespread urban slums and blight, the concentration of persons of low income in older urban areas, and the unmet needs for additional housing and community facilities and services arising from rapid expansion of our urban population have resulted in a marked deterioration in the quality of the environment and lives of large numbers of our people while the nation as a whole prospers. * * *" 42 U.S.C.A. § 3301.
The purpose of the Act stated by Congress was "to provide additional financial and technical assistance to enable cities of all sizes * * * to plan, develop and carry out locally prepared and scheduled comprehensive city demonstration programs * * *." 42 U.S.C.A. § 3301. The basic philosophy of the Act was well-expressed by the Department of Housing and Urban Development ("HUD") in a statement of its policy concerning citizen participation: "* * improving the quality of life of the residents of a model neighborhood can be accomplished only by the affirmative action of the people themselves. This requires a means of building self-esteem, competence and a desire to participate effectively in solving the social and physical problems of their community."*fn3
Pursuant to the Act, the City of Philadelphia applied on March 3, 1967, to the Secretary for a grant to plan and develop a Model Cities Program in Philadelphia. Soon thereafter, Appellant North City Area-Wide Council, Inc. ("AWC") was organized in the target area*fn4 from a large number of existing organizations, and entered into a contract with the City to provide the local "citizen participation" in the Philadelphia Program. After several extensions, this contract was to terminate on June 30, 1969.
On November 16, 1967, the City received a grant of $203,000 from the Secretary for the planning and development of its Model Cities Program. After more than one year of extensive planning by, and consultation between, the City and AWC, the City submitted to the Secretary on December 31, 1968, an application for a grant to implement a Model Cities Program in Philadelphia.
On April 30, 1969, after further consultation among HUD, the City and AWC, this application was supplemented. A large portion of the program was to be administered by seven non-profit corporations. A majority of the directors of four of the corporations and at least sizable minorities of the directors of the other three corporations were to be chosen by AWC.
The City's presentation concluded that the two basic causes for the conditions in the target area are poverty and powerlessness. A central aim of the Philadelphia Program, therefore, was to provide Model Cities residents with an opportunity to participate fully in City decisions affecting this area and "to assume some control over their own economic resources."
On May 27, 1969, HUD objected to the proposed Program because of insufficient involvement by the City and too much reliance on AWC in both operation and evaluation of the Program. On June 9, 1969, the City thereupon submitted a "Supplementary Statement" to its Model Cities Program application. This Supplementary Statement substantially reduced the operational role of AWC and established as new policy that AWC would not be permitted to nominate more than one third of the directors of the new corporations. The remainder of the directors would be chosen by Philadelphia's Model Cities Administrator or by citizen organizations (other than AWC) chosen by the Administrator. The June 9th Supplementary Statement of City policy, amending the original application for Federal funds, declared that it had been "prepared by the [Model Cities] Administrator without the participation * * of the Area-Wide Council."
In accepting on July 3, 1969, the City's amended proposals, HUD unilaterally added two more restrictions to AWC's participation: (1) no member of the board of directors of the operating corporations may be a member of AWC after the first year of operations, and (2) after the first year, no board members may be selected by AWC. Local citizens were not consulted with respect to either the "Supplementary Statement" or the new HUD conditions of July 3rd. Yet, each effected a fundamental change in the City's Program. Because of these changes which AWC considered unlawful, and because the City refused to negotiate with AWC concerning them, AWC refused to enter into a new contract to serve as the citizen representative for the Program beyond June 30, 1969.
The City then accepted a one-year grant from HUD in excess of $3,000,000, and began organizing a new citizen group to represent the target area. AWC invoked the District Court's jurisdiction in a class action pursuant to 28 U.S.C. §§ 1331, 1361, and sought to enjoin implementation of the program until the legality of ...