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r
STATUS OF PROJECTS AND SEC. 702 UNDER PUBLIC
WORKS AND ECONOMIC DEVELOPMENT ACT OF 1965
(9O-.~O)
HEARING
BE~OItB THE
SPECIAL SUBCOMMITTEE ON
ECONOMIC DEVELOPMENT PROGRAMS
OF ?rHE
COMMITTEE ON PUBLIC WORKS
HOUSE OF REPRESENTATIVES
NINETIETH CONGRESS
FIRST SBSSION
NOVEMBER ~5, 1967
Printed for the use of the Committee on Public Works
~ ~
I"j~ L~ Y ~ SlATE UNlVEj~jy
COLLEGE OI~ S3j~t JERSEY LIBRARY
CAMDEN, N. J. 08102
231969
OO~3~~
DQq U.S. GOVERNMENT PRINTING OFFICE
87-619 WASHINGTON 1967
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COMMITTEE ON PUBLIC WORKS
GEORGE H. FALLON, Maryland, Chairman
JOHN A. BLATNLI~, Minnesota
ROBERT E. JONES, Alabama
JOHN 0. KLUCZYNSKI, Illinois
JIM WRIGHT, Texas
KENNETH J. GRAY, Illinois
FRANK M. CLARK, Pennsylvania
ED EDMO DSON, Oklahoma
HAROLD T JOHNSON, California
WM. JENN NGS BRYAN DORN,
South Caro ma
DAVID N. ENDERSON, North Carolina
ARNOLD 0 SEN, Montana
RAY ROBE TS, Texas
ROBERT A EVERETT, Tennessee
RICHARD . MCCARTHY, New York
JAMES KE , West Virginia
JAMES J. OWARD, New Jersey
EDWIN W. EDWARDS, Louisiana
JEROME R WALDIE, Calilornia
FRANK M.
RAY ROBE
RICHARD:
JAMES KE:
JAMES J. I
EDWIN W.
DAVID N.
GEORGE F
Ex Officio
WILLIAM C. CRAMER, Florida
WILLIAM H. HARSHA, Ohio
JAMES R. GROVER, JR., New York
JAMES C. CLEVELAND, New Hampshire
DON H~ CLATJSEN, California
ROBERT C, MCEWEN, New York
JOHN J. DuNCAN, Tennessee
FRED ~SOHWENGEL, Iowa
HENRY C. SCHADEBERG, Wisconsin
M. G. (GENE) SNYDER, Kentucky
ROBERT V. DENNEY, Nebraska
ROGER H, ZION, Indiana
JACK H. McDONALD, Michigan
JQI~N PAUL HAMMERSCHMIDT, Arkansas
CLARENCE E. MILLER, Ohio
COMMITTEE STAn
RICHARn J. SULLIVAN, Chief Counsel
JoSEPH R, BRENNAN, Engineer-Consultant
CLIFTON W. ENFIELD, Minority Counsel
STAFF ASSISTANTS
DOROTHY BEAM, Executive Staff Assistant
MERIAM BUCKLEY ERLA S. YOUMANS
ANNE KENNEDY RANDAL C. TEAGUE
STERLYN B. CARROLL STELLA SPAULDING
SP~cIAt SUBCOMMITTEE ON ECONOMIC DEVELOPMENT PROGRAMS
ED EDMONDSON, Oklahoma, Chairman
CLARK, Pennsylvania JAMES C. CLEVELAND, New Hampshire
RTS, Texas DON H. CLAUSEN, California
). McCARTHY, New York ROBERT C. McEWEN, New York
I, West Virginia M. G. (GENE) SNYDER, Kentucky
OWARD, New Jersey JOHN PAUL HAMMERSCHMIDT, Arkansas
EDWARDS, Louisiana CLARENCE E. MILLER, Ohio
IENDERSON, North Carolina WILLIAM C. CRAMER, Florida, Member
FALLON, Maryland, Member Ez Officio
CARL J. LORENZ, C'ounsel
PAUL R. S. YATES, Minority Professional Staff Member
(II)
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STATUS OF PROJECTS AND SEC. 702 UNDER PUBLIC
WORKS AND ECONOMIC DEVELOPMENT ACT OF 1965
WEDNESDAY, NOVEMBER 15, 1967
HOUSE OF REPRESENTATIVES,
SPECIAL SUBCOMMITTEE ON
ECONOMIC DEVELOPMENT PROGRAMS
OF THE COMMITTEE ON PUBLIC WORKS,
Washington, D.C.
The subcommittee met at 10:05 a.m., in room 2167, Rayburn
Building, Hon. Ed Edmondson (subcommittee chairman) presiding.
Mr. EDMONDSON. The Subcommittee on Economic Development
Programs will come to order.
Today we open the third public hearings of the Special Subcom-
mittee on Economic Development Programs appointed last year to
investigate and study the administration of the economic develop-
ment programs under the jurisdiction of the Committee on Public
Works.
Three days of hearings were held in August of 1966 when the sub-
committee heard testimony on the status and progress of the adminis-
tration of the Public Works and Economic Development Act and the
Appalachian Regional Development Act of 1965.
Subsequently, the subcommittee issued its report on the first
hearings in which certain questions were presented that had been
suggested from the testimony. Our second meeting presented to the
offi~ials of the Economic Development Administration an opportunity
to express their views and to reply to questions raised in the report.
Subsequent to this second set of hearings, the staff of the subcom-
mittee was sent to Oakland, Calif., for about a week to make a pre-
liminary review and inquiry concerning the projects and activities
of the Economic Development Administration in that city.
I understand that Secretary Davis is going to be out there beginning
tomorrow for a pretty thorough look at that situation himself.
Today we have invited officials of the Economic Development
Administration to appear before us to inform the subcommittee
about the overall picture of the status of the projects. We are interested
in knowing how many have been approved, bow many have been
turned down, and how many have been placed in the reserve status.
We also have asked EDA to advise the subcommittee on what it
expects to do the balance of the year in regard to projects and funding
available to them.
In addition, the Administration has been requested to give a
detailed explanation of its interpretation and administration of section
702 of the Public Works and Economic Development Act of 1965,
(1)
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.9
includin an explanation of policy and procedures as well as any diffi-
culties e countered in their application.
We ar glad to have this morning three of the top officials of EDA
here to ive us their comments on these general points. Lambert
O'MalIe is the Deputy Assistant Secretary for Economic Develop-
ment Op rations, and he has with him Dr. Robert Rauner and Thomas
Harvey, vho are both, I know, key people in the administration of
this prog am, and well prepared to give us a status report.
Does e gentleman from New Hampshire have a statement he
would ii to make?
Mr. C EvELAND. Thank you, Mr. Chairman.
I woul like this morning to welcome Secretary O'MalIey and his
associate . It is my understanding Mr. Davis has a meeting with the
Vice Pres dent and thus cannot be here. I am somewhat disappointed,
however, that these hearings come so late in the session.
A little over a month ago we enacted legislation amending the Pub-
lic Work and Economic Development Act of 1965. 1 regret that to-
day's hea ings did not precede that legislation.
I unde stand that one of today's topics concerns section 702 of the
act whic I offered, and which was amended by Congressman
McCarth . I am pleased that this has been selected as a topic, espe-
cially sin e our previous hearings have indicated much confusion in
the Adm nistration's "interpretation" of this section. I am hopeful
that toda `s session may lead to a clearer understanding of the direc..
tion whi h has been taken by EDA in administering section 702.
There is resently reason to believe the legislative intent of 702 is not
being full implemented.
In my pinion, Mr. Chairman, much of the criticism I have heard
directed oward the Economic Development Administration is the
direct ou growth of the Administration's failure to communicate
adequatel with this committee.
Obtain~ng copies of such obviously public documents as published
regulatio s, policies, and procedures has been a difficult, time-consum-
ing chore. I hope that one mutually beneficial result of these hearings
will be t at the staff of the Economic Development Administration
will be in tructed to place the staff of this subcommittee on the regular
mailing ii t for all published regulations, policies, and procedures, to
respond omptly to requests for information and material and, per-
haps mos important, to make an affirmative effort to keep the staff
informed about actions and decisions which are likely to become
controver ial.
The C mmittee on Public Works reported the legislation which
created t e Economic Development Administration. This committee
should be kept informed as to the way the program is being carried
out with ut having to launch an investigation every time a new
question i raised.
A case n point is the interpretation of section 702 of the act. The
agency in erpretation is evidently based upon a study entitled, "The
Measure ent of Industrial Capacity" prepared by Economic Asso-
ciates, In . Although the report was dated October 1966, and despite
the fact hat the report "gratefully acknowledges" my assistance,
the fact o the matter is that I did not see the report until long after
its date of publication.
Mr. EDMONDSON. The gentleman from New York or New Jersey-
do you have a statement that you would like to make?
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3
Mr. MCCARTHY. Mr. Chairman, I would forgo the statement
until we get to section 702.
Mr. EDMONDS0N. The gentleman from California, or Arkansas?
Mr. HAMMERSCHMIDT. No, I have no statement at this time.
Mr. EDMONDSON. Mr. Secretary, would you continue, then, at
this point?
STATEMENT OF LAMBERT S. O'MALLEY, DEPUTY ASSISTANT
SECRETARY FOR ECONOMIC DEVELOPMENT OPERATIONS;
ACCOMPANIED BY ROBERT RAUNER AND THOMAS HARVEY
Mr. O'MALLEY. Yes, Mr. Chairman. Thank you very much.
It is always a pleasure and privilege to appear before this com-
mittee and discuss with you our program.
As you know, I bring Secretary Davis' regrets. Re is committed
to a yearly, or once-a-year meeting of the President's Review Com-
mittee on Alaska. And in view of the responsibilities involved, nobody
regrets more than I do that he cannot be here.
Mr. CLATYSEN. You say the President's Review Committee on what?
Mr. O'MALLEY. Alaska. It meets once a year, and it happened
this was the day selected for its meeting.
Mr. Chairman, you spoke of items which you wanted discussed. I
do not have a prepared statement.
If you want me to proceed to give, in brief details, a description of
those items which you mentioned, I will be glad to do that.
Mr. EDMUNDSON. I would appreciate it if you would begin by giving
us a recapitulation of the projects that have been approved, the
projects that have been turned down and projects that have been
placed in the so-called reserve category.
Mr. O'MALLEY. You are speaking of this fiscal year, I assume?
Mr. EDMONDSON. The current fiscal year, and then the overall as
well. I think it would be useful to have both.
Mr. O'MALLEY. As you know, most of the volume of our invest-
ments of appropriated funds is in the so-called operating programs in
public works, business development loans, and technical assistance.
As of November 9, in public works we had approved a total of 47
projects this year for an aggregate amount of $15.7 million.
We have been operating, as you know, in all of these programs,
and all of our programs, on a continuing resolution. And that continu-
ing resolution itself has been in some doubt in the last few weeks. Of
course, you are all aware of that. But that is the total in the public
works projects.
And as of that same date, in technical assistance we have approved
a total of 49 projects, totaling $1,642,000. In business development
loans we have approved 18 loan applications, totaling $7,191,000.
There have been also, in our other programs, planning grants under
section 301, which have been funded in connection with the establish-
ment of districts and other planning grants have been established. I do
not have the cumulative figures at the moment, but they can be
supplied for the record.
Mr. EDMONDSON. We would like to have them.
Mr. O'MALLEY. We will get that for you.
(The information referred to follows:)
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4:
Following is a statistical summary of. the planning grants that have been made
and are expected to be made during the balance of this year:
1~iscal year 1966 (actual):
Funds allocated to planning grant program $1, 400, 000
Number of area planning grants 4
Total obligations for area grants $159, 081
Number of district planning grants - 7
Obligations for district grants $415, 486
Number of State planning grants 1 11
Obligations for State grants $793, 817
Total number of grants 22
Total obligations $1,368, 384
Fiscal year 1967 (actual):
Funds allocated to planning grant program $3, 574, 000
Number of area planning grants 10
Total obligations for area grants $538, 186
Number of district planning grants 39
Obligations for District grants $1, 649, 049
Number of State planning grants 1 20
Obligations for State grants $1, 137, 720
Total number of grants 71
Total obligations $3, 424, 345
Fiscal year 1968 (actual through Nov. 15, 1967):
Funds allocated to planning grant program $4, 800, 000
Number of area planning grants 2
Total obligations for area grants $41, 986
Number of district planning grants 17
Obligations for district grants $807, 292
Number of State planning grants 1
Obligations for State grants $24, 726
Total number of grants 20
Total obligations $874, 004
Fiscal year 1968 (estimate for full fiscal year):
Funds allocated to planning grant program $4, 800, 000
Number of area planning grants 21
Total obligations for area grants $640, 000
Number of district planning grants 80
Obligations for district grants $4, 000, 000
Number of State planning grants 5
Obligations for State grants $160, 000
Total number of grants 106
Total obligations $4, 800, 000
I In the 1st year and a half of the EDA program, a relatively large share of planning grant money was
directed to the States to enable them to help EDA organize and start development district programs. In
the currant fiscal year and in ensuing years only a small percentage of these funds will be given to the States.
Most of the planning grant money will go directly to redevelopment area and economic development dis-
trict organizations.
Mr. O'MALLEY. Now in the area of denials, I would like to
proceed-
Mr. EDMONDSON. Could we get this a little bit in perspective?
Your 47 public works projects, 49 technical assistant grants, and
18 business loans; how do they compare with the volume of projects
approved, technical assistance project grants made and business
loans made in the fiscal year ending June 30, 1967?
How much have we fallen off in the scope and level of our program
this year?
Mr. O'MALLEY. You mean in the investment of moneys actually
and the number of projects?
Mr. EDMONDSON. Number of projects and moDey, yes, sir.
Mr. O'MALLEY. Well, let's see, I think we can put it probably
in better perspective if we gave it to you as of the same point last
year.
Mr. EDMONDSON. Do you have that?
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Mr. O'MALLEY, Yes, we have that. Generally the production of
projects, for instance in public works, is probably one-half at this
point of what it was in the preceding fiscal year. Now, that is because
of several reasons, but mainly because as of July 1, beginning of this
present year, we changed the public works approach to the problem
of accepting applications. This was one thing I was going to get into
with regard to denials.
We found in 1966, at the end of the 1966 fiscal year, that we had
accumulated approximately 1,400 applications, totaling $1.2 billion.
We knew that it was impossible to reach those applications with any
facility for processing and for action.
We worked very hard during the early part of that fiscal year, and
up until the spring of the past 1967 fiscal year, to eliminate those
projects which were not susceptible of ultimate approval under any
conditions.
That meant from November of last year, November of 1967 or of
1966, up until January or February we denied approximately 1,000 of
those projects.
We eliminated them for their lack of qualification.
At the beginning of this present fiscal year, we reviewed very care-
fully our procedures with regard to acceptance of applications, as I
am sure you are aware. We had had a great deal of complaint about
the length of processing time in connection with an application.
We had been, I think, in the posture of accepting applications and
reacting to applications rather than to analyzing the possibility of a
project prior to the acceptance of an application.
So we developed in public works, for instance, the procedure whereby
our field representative spent a great deal more time in discussing with
the applicant, which in most cases would be represented by the mayor
or leading city official, the ultimate possibilities in connection with an
application which he desired to file.
That resulted in a process where, after those preliminary discussions,
the applicant sits down with the representative of our office, our
office sits down with the representatives of the applicant, and discusses
not only what a particular project might do, but what the community
itself is doing in connection with what might be described as an
economic development process, what they are doing to help themse1ves~
Mr. EDMONDSON. Let me stop you just a minute and go back to
this question of the rate of project approval.
Your September 30, 1967, report shows a total in public works
projects approved up to September 30, 1967, of 875.
Mr. O'MALLEY. That is the total for the entire term of the Eco-
nomic Development Act.
Mr. EDMOND5ON. I understand this is a 1965 act.
Mr. O'MALLEY. That is correct.
Mr. EDMONDSON. And you are telling me now that approving 47 as
of November 9 means the falloff is only about one-half the rate of
approval that we had in fiscal 1967?
Mr. O'MALLEY. No. I am saying that to the same point of fiscal
1967.
Mr. EDMONDSON. I said the rate of approval. Are you telling me
that you only approved about 115 or 120 projects in fiscal 1967?
Mr. O'MALLEY. No, I am telling you that by November 9, in fiscal
1967, as contrasted with November 9 in fiscal 1968, we approved ap-
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proximately twice as many projects, or around 90. We approved in
fiscal 1967 approximately 100 more projects than we did in fiscal 1966,
if my recollection is correct.
Mr. EDMONDSON. If you had 875 approved as of September 30, 1967
and you only had life for 2 years, 1965 act, your rate of approval must
have been pretty close to 300 or 400 a year.
Mr. O'MALLEY. That is correct, it is. We approved 364 in fiscal
1966 and 461 in fiscal 1967.
Mr. EDMONDSON. In fiscal 1967 you approved 461 public works
projects?
Mr. O'MALLEY. That is correct. It might be 462.
Mr. EDMONDSON. As of November 9, 1967, you had only approved
47 projects?
Mr. O'MALLEY. For fiscal 1968.
Mr. EDMONDSON. For fiscal 1968?
1\4r. O'MALLEY. That is correct.
Mr. EDMONDSON. How in the world you can say that is about half
the rate of 1967 is beyond me.
Mr. O'MALLEY. I said it is half the rate of the point to which we
were on November 9, 1966. In the first 4 months of 1966, that is the
fiscal year 1967, we approved approximately twice as many projects
as we had to November 9. I am not talking about the full fiscal year,
just in the first 4 months.
Mr. EDM0ND50N. I would like to have details on that submitted
for the record, precise figures, because I think you must be off con-
siderably. I do not see how you could have 461 projects approved in
fiscal year 1967.
Mr. O'MALLEY. We did.
Mr. EDMONDSON. And, you have only approved about twice as
many up to November 9 of fiscal 1967, as you did up to November 9
of this current year?
Mr. O'MALLEY. That is exactly what happened. We will show you
the rate by month and will give you the number of applications
approved by month.
As you know, in the beginning of any fiscal year the rate of produc~
tion per month slows down very materially. And again, as the fiscal
year proceeds, the rate increases, so that your maximum production
generally comes in the second half of your fiscal year.
Mr. EDMONDSON. You will submit those?
Mr. O'MALLEY. Yes, sir.
(Documents referred to follow:)
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7
FISCAL 1966
January-
February
March
April
May
June
Total approved
Less deobligations
Net approved 361
FISCAL 1967
July
August
September
October
November -
December
January
February
March
April
May
June
Total approved
Less deobligations
Net approved ____________
FISCAL 1968
July
August
September
October
Total approved
Grand total (less deobligations)
Mr. CLAUSEN. Mr. Chairman.
Mr. EDMONDSON. Mr. Clausen.
Mr. CLATJSEN. Do I understand your request, that they will be
providing a specific breakdown on the projects for these fiscal years?
Mr. EDMONDSON. What I want to have is a month-by-month pic-
ture of project approvals in fiscal year 19~6, fiscal year 1967, and
fiscal year 1968, which we are in now. It seems to be that the fall off
in project approvals has been considerably greater than just 50 percent.
I think it is probably running about 15 or 20 percent of the rate in
the previous year for project approvals.
Mr. O'MALLEY. There is not any question about what the rate for
this year has fallen off very materially, and for the reason I was
explaining when you asked the question.
Mr. EDMONDSON. The continuing resolution-
Mr. O'MALLEY. Our process has changed very materially. We hope
to cut down, for instance, the number of applications, formal applica-
tions we accept by about half. Under our present procedure, which
has worked very well, we expect to receive this year only, or to accept
only about 600 applications.
These 600 will go to full processing and we expect to approve out
of that group 400 out of the 600.
Now, that is because we feel that we have so refined our procedures
that by the time we accept an application, it will have a high possi-
PUBLIC WORKS APPROVALS BY MONTH
AS OF OCT. 31 1967
Number of
projects
-
EDA funds
(thousands)
~-
Grant
Loan Total
4
19
41
139
161
$4,024
3,911
37,905
58,596
85,654
$9,655
12,040
9,165
11,141
$4 024
13,566
49,945
67,761
96,795
364
3
190,090
145
189,945
42,001
57
41,944
- 232,091
202
- 231, 889
4
17
14
18
50
21
8
15
18
34
134
140
12,380
12,286
7,171
10,001
18,441
6,645
4,459
3,279
3,376
7,255
35,953
54,888
1819
2,308
621
3,893
2, 565
2,144
1,417
203
1,662
1,824
6,410
1~,380
14,105
9,479
10,622
22,334
9,210
6,603
4,696
3,579
8,917
37,777
61,398
473
2
176,134
1,682
24,866
247
201,000
1,929
471
174,452
24,619
199,071
7
30
6
4
4,206
7,075
1,440
683
368
1 694
135
235
4,574
8,769
1,575
918
47
13,404
2,432
15,836
879
377,801
68,995
446,796
87-619-68-----2
PAGENO="0010"
8
biity of approval; although, as I say, out of 600 that we look at
finally, probably 400 will be approved.
Now, that is a very material reduction in the number of applica-
tions. And we hope to provide more assistance to applicants than we
have been able to by diverting them at an early stage to another
agency which might satisfy the requirements, when we recognize we
cannot-that eliminates, then, the distasteful situation we found
when we have had to spend a lot of time reviewing applications that
we ultimately had to deny.
Mr. EDMQNDS0N. Could you tell us whether your technical assist-
ance and your business loans approved are roughly the same?
Mr. O'MALLEY. Roughly approximating previous level.
Mr. EDMONDSON. About half of the fiscal year 1967 level?
Mr. O'MALLEY. No, they are roughly approximating what our pro~
duction was in the fiscal year 1967.
Mr. EDMONDSON. So you think fall off has been on public works?
Mr. O'MALLEY. That is correct, because we very materially changed
the procedures in public works with regard to the acceptance of an
application.
Mr. EDMONDSON. It absolutely baffles me that a change in proce-
dures could result in a tremendous reduction in grant approvals.
I just do not follow it.
Mr. O'MALLEY. Because it is delaying the acceptance of applica-
tions.
Mr. EDMONDSON. Is this considered to be constructive?
Mr. O'MALLEY. Yes, it is, because we do not want any longer to
accept applications, if we can avoid it, that we know at the outset are
probably not approvable.
Mr. CLATJSEN. If the gentleman would yield, do you have an estab-
lished criteria to fletermine how you decide whether they are approvable
or not?
Mr. O'MALLEY. Yes, we have established criteria of course.
Mr. CLAVSEN. Can you explain that?
Mr. O'MALLEY. Well, by and large it is directed, I suppose,to the
question of economic impact. The first criteria of course would be
whether the area is eligible. Second yardstick would be the need situa-
tion in the area, that is what the employment rate might be in one
area as contrasted to another, or what the family income might be in
one area as contrasted to another.
Obviously, in an area where the unemployment rate is so high that
the grant rate is 80 percent, it is established as an area that has
greater need than one in which the grant rate is 50 percent. So
those areas are examined very carefully. It is not a solution of the
problem, but it is an orderly construction of it at which we look first.
And then we examine the application itself, of course, and particu-
larly the results of it as far as the criteria established by the act, that
is what it will do to reduce unemployment in an area where there is
high and persistent unemployment or where there is low or median
family income.
Mr. EDMONDSON. Can you tell us what your funding availability
is at the moment and under what restraints you are operating from
the Bureau of the Budget?
Mr. O'MALLEY. Our appropriated funds for public works, for
instance, this year is $175 million. We are operating at the moment
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9
under a restriction from the Secretary of Commerce to establish a
pause in the approval of any grant or loan applications.
Mr. EDMONDSON. Well, based on $175 million appropriated and
project approvals totaling $15.7 million, less than 10 percent of your
appropriated money has been committed to projects right now?
Mr. O'MALLEY. Quite correct.
Mr. EDMONDSON. How about on technical assistance and business
loans?
Mr. O'MALLEY. On business loans we have appropriated $55 mil-
lion, and we have obligated approximately $7 million.
Mr. EDMUNDSON. How about technical assistance?
Mr. O'MALLEY. Technical assistance, we have appropriated $10,-
265,000, and we have obligated $1,642,000.
Based upon our experience and the indications of projects that we
will have in our pipeline, and that will be submitted for approval, we
have no doubt that we will be able to obligate or invest these funds in
a manner responsive to the dictates of the law.
Mr. EDMONDSON. What is the restrainer or restriction the Secretary
of Commerce has placed on you in connection with projects and loans?
Mr. O'M~LLLEY. As you know, there are studies being made at the
moment by the Bureau of the Budget, by the President, by the
various departments, to resolve some of the problems that have been
created in our fiscal situation, but the restraint that is imposed at the
present time is the request to us from the Secretary, effective until
further notice, that we place a freeze on new commitments for grants,
loans, and contracts.
Mr. EDMONDSON. That freeze is in effect now?
Mr. O'MALLEY. It is and has been for the past week.
Mr. EDMONDSON. And what was the date of it?
Mr. O'MALLEY. November 7.
Mr. CLAUSEN. Mr. Chairman, coming back to this question of
criteria for approved projects, do you have a public document that
spells this out so that it can be made available to some of the political
subdivisions or people concerned?
I heard you when you gave a response off the cuff; but do you have a
public document that is available for the public to determine whether
or not their particular application will be approvable, as you describe it?
Mr. O'MALLEY. Yes, we have those. And they are published and
have been very widely distributed, Congressman.
Mr. CLAUSEN. I would like to ask that that be made a part of the
record at this point, that document. Could you provide that for the
record?
Mr. O'MALLEY. Yes, we have several documents.
Mr. CLAUSEN. In response to my question, I ask unanimous con-
sent that that be made a part of the record at this point.
Mr. EDMONDSON. I think that we have a complete book on the sub-
ject. I do not know whether the gentleman wants to put the entire
book on project criteria into the record.
Mr. CLAUSEN. What I had in mind, obviously not a full book, but
just a brief résumé available to the public to determine whether or not
their application is approvable.
Mr. O'MALLEY. Mr. Chairman, I would be very much surprised if
the committee does not have our published booklets now. We will be
glad to submit a brief statement, if that is what you want.
PAGENO="0012"
10
Mr. EDMONDSON. There being no objection, anything relatively of
brief nature, and I am talking about not to exceed 10 or 15 pages, will
be welcomed as part of the record at this point. I think we are going to
find that it runs considerably longer than that, and it will be desirable
to put it in the file.
Mr. O'MALLEY. We will submit anything else that might be
indicated.
Mr. CLAUSEN. I think it would be helpful to have this as a perma-
nent part of the record at this point.
Mr. O'MALLEY. We will be glad to submit it.
Mr. EDMONDSON. Without objection, it will be made a part of the
record, providing it does not exceed 15 pages.
(Information supplied will be found in subcommittee files.)
Mr. CLEVELAND. Mr. Chairman.
Mr. EDMONDSON. Mr. Cleveland.
Mr. CLEVELAND. Mr. Chairman, point of inquiry. You do not hap-
pen to have those books with you or copies of those books? Did your
staff bring those with you?
Mr. O'MALLEY. No, I do not.
Mr. Dooley tells me that Mr. Lorenz has a complete set of those
books.
Mr. EDMONDSON, We would like very much to have any material
that you have outlining a new procedure to be effective July 1967, be-
cause I do not think that has been made a part of any record.
Mr. O'MALLEY. No, it has been only in effect since then; and if I
might take just a second, it is working very well, and I can illustrate
how it is working by one or two instances.
What we have tried to do is suggest to the field coordinator, we have
required him to suggest to the mayor, and 90 percent of the cases we
are dealing with the mayor of the community, that we are not only
interested in his project, but we are interested in what is going on in
his community as far as development is concerned. So that when we
sit down to discuss an application with him or the reception of an
application, we suggest that he bring into a meeting of that sort those
representative citizens of the community who are involved in the
development.
Now, that has worked very well. In one instance in Mississippi,
for instance, we had 45 responsible citizens of the community sit down
and discuss with the representatives of our area office just exactly
what was going on in that community, and what we thought should
go on in that community in order to not only support the particular
project, but to see that a long-range development was carried on, not
only in the community, but in the surrounding area; so that it would
have effect on the surrounding area.
That has given the citizens of those communities an understanding
of what we are trying to do and a better understanding of what is
required for them to support a project application.
They are joining in rather enthusiastically, in that kind of participa-
tion, and we are very much pleased with it.
In addition to that, if we get to the point of accepting an applica-
tion, we accept the application, and we indicate that it will probably
take 90 days to process it, and with regard to those things which the
mayor or the citizens of the community told us would go on in that
community, while that application was being processed, we require
PAGENO="0013"
11
from them, each 30 days, a statement of what is going on and whether
what they told us would go on is actually being carried on; so that when
we come to the time of final approval or denial, we not only have the
status of that community and the project at the time they made the
application, but we have the progress of it during the time we have
been processing it.
Mr. CLATJSEN. Approximately what amount of time elapses from the
time that you have one of these so-called approvable applications until
the actual grant is made? What is the average length of time?
Mr. O'MALLEY. It runs any place from 16 to 18 months. It depends
on the size of the proj ect, the complexity of the construction involved.
And it takes some communities a little longer to get their projects ready
to go to bid.
Sometimes we have had problems with overruns. We have had
construction problems that we had to iron out, but generally it is
running between 16 and 18 months before they actually get into con-
struction. Some of the projects have been rather large.
Mr. CLATJSEN. On a project that is generally considered by those
present to be approvable, it takes within 16 to 18 months to get an
approvable application?
Mr. O'MALLEY. No, get into construction, I thought you were
talking about.
We said when we file an application, we hope to have a decision, if
it is approvable, ~Tithjfl 90 days.
Mr. CRAMER. Would the gentleman yield?
Mr. EDMONDSON. On that point of approvable within 90 days, on
April 11 you informed the committee that you were establishing a
reserve category, projects that had merit but where funds were not
available to take care of them. Now we have been supplied an exhibit
from the Office of Public Works indicating, as of October 31, 1967~
there were only 17 projects that were identifiable as reserve category
projects; is that correct?
Mr O'MALLEY. That is correct. As of today, it is 18.
Mr. EDMONDSON. And so out of these hundreds of projects that
have not been denied, and there are hundreds of pending projects
that have not been denied, you only had 18 that you identify as
reserve category projects?
Mr. O'MALLEY. At this time there are not hundreds of projects
that have not been denied. A year ago there were approximately
1,000. As of the present time, we have less than 160 projects pending,
project applications pending.
Now, the elimination of a great many projects, which were not at
any point approvable, has reduced the ratio so that those projects
which we have determined might, if we had more money, be approv-
able, have been pnt into that reserve category. But because we have
reduced the number of pending projects, as we wanted very definitely
to do, that ratio is not out of line with the number of pending projects
we have.
Mr. EDMONDSON. You have only 160 pending, but you are expecting
to approve 400 this year?
Mr. O'MALLEY. That is right, exactly right, because we will receive
these in the process that I just described in detail, we will receive these
as we go along. But by the time we actually take an application, we
will have a very good preliminary judgment as to whether it is ap-
provable.
PAGENO="0014"
12
Mr. CRAMER. Mr. Chairman.
Mr. EDMONDSON. Mr. Cramer.
Mr. CRAMER. Mr. Chairman, I have a question on the documents.
that have been requested, very briefly.
Mr. Secretary, I feel obliged to advise you that so far as the minority
is concerned, relating to our effort to exercise the function that it is
commanded we do by this committee in the form of oversight, that I
for one am very unhappy with the lack of cooperation, the inability
~ get information, that has been experienced by at least the minority
side of this staff.
I constantly receive from the staff complaints about lack of coopera-
tion; unwillingness to provide information, lack of openness in dis-
cussing subject matters, having to go in and dig out what they are
interested in rather than to have it volunteered.
For instance, the staff does not have, and I understand it was just
the other day made available to the committee, a complete manual
of economic development orders. I think the staff ought to have all the
guidelines, regulations, criteria, and standards established.
I think the staff ought to have all of the directives and instructions
and reports in whatever form they may be issued. And I think that at
least two copies of such documents ought to be made available to this
committee, one to the minority, and that there should be a free flow
of information.
Frankly, I for one would have to be less than candid if I did not say
that I am very unhappy with the lack of flow of information, the lack
of cooperation, and the lack of willingness to provide information
when requested.
I would appreciate it, Mr. Secretary, if you would instruct those who
have the responsibility of liaison to see that such information is readily
available and to be willing to provide it.
Mr. O'MALLEY. Congressman, certainly as far as EDA is concerned
there is no minority, so far as this committee is concerned, so far as
any Member of Congress is concerned. You are entitled to every bit of
information that can be made available to you within legal restrictions.
To my knowledge there has been no complaint from the staff of this
committee that they have not received, uponrequest, any information
that they required. Certainly we would be enthusiastic in providing
each member of this committee and the staff of this committee with
any kind of information to which they desire.
Mr. CRAMER. I am registering such a complaint at this time.
Mr. O'MALLEY. Have you registered it prior with any of us?
Mr. CRAMER. Yes. It has been registered through the staff time and
time again, and I am registering it to you at this time.
Mr. O'MALLEY. I will be glad to accept that and see that any
derelictions that may have occurred will be eliminated.
Mr. CRAMER. I understand that about the only thing available to
this committee as a matter of course are the public announcements,
and that information relating to your orders and guidelines and
regulations and directives and so forth, has not been readily made
available to the committee.
Mr. O'MALLBY. As I say, Congressman, to my knowledge no
request has been made by the staff of this committee that has not
bčeti fulfilled. .
If that is true, I would like to know about it, and I am sure m~*
associates would like to know about it. I am certain Mr. Davis would
PAGENO="0015"
13
like to know about it. If those requests have been made and have
not been fulfilled, we will determine that, and any request from the
staff that is made to me will be fulfilled, and I can assure you of that.
Mr. CRAMER. I would suggest, for instance, that any re~u1ation
you adopt or any criteria you adopt or any orders that you issue or
instructions that you adopt should automatically come to the staff and
to this committee so that we will know whether or not the intent of
Congress is being carried out. Only in this manner can we as an over-
sight committee, properly exercise our function.
Mr. O'MATATJET. We would be glad to cooperate with you in exer-
cising that function.
Mr. EDMONDSON. I certainly want to agree with the gentleman from
Florida that when a request comes from the committee staff that there
should be proper reply to it. I can tell the gentleman from Florida that
this is the first notice that I have had that there was interest in the
manual or in the directives and orders of the EDA that had not been
satisfied. And I think that there is no question about the right of the
minority to have access to that information; and we will certainly
cooperate at our end to see that it is made available.
Mr. CRAMER. I will say to the Chairman it has been like pulling
teeth to get any information out of this agency.
Mr. HOWARD. Would the gentleman yield?
Mr. CRAMER. Yes.
Mr. HOWARD. If we were to* get all the booklets, pamphlets, regu-
lations, and other printed material from the agency, I believe we
would still not be informed as to some of the policy operations of the
agency.
Mr. O'Malley, I would like to ask you whether or not Mr. Davis
is continuing his personal policy of limiting the consideration of proj-
ects according to the unemployment rate in specific economic develop-
ment areas?
Last year Mr. Davis stated that he did not have all the money he
needed, and certainly not the amount of money needed to approve all the
projects that would normally be approvable. So on his own, he made
the decision that he would only consider applications from areas with
the highest amount of unemployment.
At that time he stated that many of the counties in the Nation or
economic development areas which did qualify under the act passed
by the Congress were not even being considered by the agency.
He stated that some counties have unemployment rates up to 33
percent. And with the amount of money the agency had on hand, they
could only look at proj ects in areas where the employment was down
to maybe 15 percent.
Anything below that would not even be considered.
I know that it is not universal, but I would presume that almost all
of the projects listed in this booklet are in areas certaiiily in excess of
an unemployment rate of 12 percent. Is that not true?
Mr. O'MALLEY. I would have to review specifically the balance,
Congressman; but I would say I know this: that in the last half of
the past fiscal year, that is 1967, the investment of EDA moneys
in the very high unemployment areas was much greater than it
had been in the first 6 months of that fiscal year.
Mr. HOWARD. Have you, in the last few months, been considering
or looking at projects in an area where the unemployment rate might
be 8 percent?
PAGENO="0016"
:14
Mr. O'MALLEY. Yes, we have been looking at them and will
continue to look at them.
Mr. HOWARD. This is a change, then, from Mr. Davis' stated
policy when he appeared before the subcommittee?
Mr. O'MAT~LEY. Well, I am not verifying your description of
Mr. Davis' statement. I think what he said was that with the limited
resources that we have that our policy generally was to look first
at the areas of worst need, and from that proceed downward to
those areas in which the r~eed was lesser.
Now, it is true that in many of those areas where the unemploy-
ment rate is very high that there are no applications or no projects
or no economic development process that makes them susceptible
to the investment of moneys. That being true, we move down, then,
to the next area or to the next lower area and look at that.
It is not to say that because an area has a high unemployment rate
that we say to them: Here is money, you invest it. We do not do that.
If there is no project there susceptible under our criteria to the invest-
ment of funds, we move down the line, so it is quite probable that we
will reach, under that kind of process, the lowers-
Mr. HOWARD. He stated he would look first to the areas with the
greatest unemployment, but the funds available were so small and
so limited there was no opportunity for any second looks.
In other words, these areas of 15 to 17 percent unemployment and
up were the ones that were using all the money.
Now, if he bad all the money he needed, then he would be able to
get down to these other areas; but he was not at that time considering
applications in an area of, say, below 12 percent, I believe. He may
have said 15, but certainly below 12 percent.
I asked him whether he had staff members in these economic
development areas below 12 percent to help municipalities prepare
applications and send them onto the agency, and if he was doing that
in these low areas, I asked him if that was not a great waste of money
since the agency knew these areas were not even going to be considered.
I would think the agency would be able to use the personnel in
areas where they are going to at least consider the application. I do
not know whether we have anything in writing, that we could get from
the agency, to indicate what Mr. Davis' policy was at the time he
appeared before this subcommittee and whether we have heard, in
writing, or have anything available to us that we might be able to read,
indicating that his policy seems to have changed since that time. I
think it could save a lot of time, money and effort if people would be
told that we are not considering 8, 9, 10, 11 percent areas, and that they
should not bother to send in applications, and use the taxpayers' time
by having Federal agents come into those areas to help or advise
them; we would let them know when we are going to start considering
those areas.
With the number of counties that we say are covered by this act,
there are many, many of them that are in no better position to obtain
Federal help for economic development than the wealthiest counties
in the Nation would be as far as the operation goes.
This is done despite the act. You cannot read the act to find out
what the agency is doing.
Mr. EDMONDSON. I think the gentlemaii has a good point. I think
if there is a policy at this time with reference to the employment level
PAGENO="0017"
15
that is a prerequisite to approval of projects, we would like to know
what it is. Is there?
Mr. O'MALLEY. There is no specific level above or below which an
application will not be considered.
Mr. EDMONDSON. In other words, there are factors other than
unemployment which are evaluated to measure the needs?
Mr. O'MALLET. There are many factors. As I said to Congressman
Howard, it is a good question.
I am sure that the policy generally as described, and I say I am not
verifying his description of it as entirely accurate, leads us to look first
at those counties where obviously the need is greatest. But as we look
at those and nothing is apparent that we should do, we move down the
list.
So it is quite possible, Congressman, that with that policy, and
without any conflict in that policy, we will reach certain area projects
in the lower rate areas, and we have done that.
Mr. HOWARD. If you do look at a project in an area of say 7 percent,
if you look at it and consider it now, then that is a change from the
policy as stated when Mr. Davis was here.
Mr. O'MALLEY. I do not think it is a change.
Mr. HOWARD. He stated they would not consider one from a 7
percent area, and now he will. That seems to be a change to me.
Mr. CRAMER. Mr. Chairman, I want, for the record, to substantiate
my remark, and then I know the gentleman from New Hampshire
wants to ask some questions-
But on December 7, 1965, Mr. Enlield, under my instructions, sent
a letter to Mr. rrancis Dooley, special assistant for congressional
liaison:
I would appreciate very much being placed on your mailing list to receive one
copy of each publication, directive, and other documents issued by the Economic
Development Administration, to implement and carry out the provisions of the
Public Works and Economic Development Act of 1965.
The December 13, 1965, reply from Mr. Dooley states:
This will acknowledge your letter of December 7th in which you ask to be put
on the mailing list to receive all future Economic Development Administration
publications. This has been done as you ask.
We have received nothing but public announcements. And I would
like to have those two letters made a part of the record.
Mr. EDMONDSON. Without objection, they will be; and so will the
project list that has been supplied. I would like to say that I am very
disappointed that there is not a reserve group of projects in larger
numbers than just 18 to meet the possibility of a considerable increase
in level of activities without reserve projects that have been estab-
lished to meet that situation.
(Documents referred to follow:)
DECEMBER 7, 1965.
Mr. FRANCIS X. DOOLEY,
Special Assistant for Congressional Liaison, U.S. Department of Commerce, Eco-
nomic Development Administration, Washington, D.C.
DEAR FRANK: Thank you for your letter of December 2, 1965, and the material
you forwarded concerning the Economic Development Program.
I would appreciate very much being placed on your mailing list to receive one
copy of each publication, directive, and other documents issued by the Eco-
PAGENO="0018"
16
nomic Development Administration, to implement and carry out the provisions
of the Public Works and Economic Development Act of 1965.
Sincerely yours,
CLIFTON W. ENFIELD.
U.S. DEPARTMENT OF COMMERCE,
ECONoMIc DEVELOPMENT ADMINISTRATION,
Washington, D.C., December 13, 1965.
Mr. CLIFTON W. ENFIELD,
Committee on Public Works,
House of Representatives,
Washington, D.C.
DEAR Mr. ENFIELD: This will acknowledge your letter of December 7th in
which you ask to be put on the mailing list to receive all future Economic Dc-.
velopment Administration publications. This has been done as you ask.
Please let us hear from you if we may be of further help at any time.
Sincerely,
FRANCIS X. DOOLEY,
Special Assistant for Congressional Liaison.
OFFICE OF PUBLIC WORKS
PROJECTS IN DENIAL-RESERVE STATUS, FISCAL YEAR 1968, AS OF OCT. 31, 1967
08-1-00607 Oct. 13
Costilla~ San Luis
MASSACHUSETTS
Tourist center
514 514
01-1-00085 Aug. 11 Fall River: Fall River Shrine development 2, 000 2, 000
MISSISSIPPI
04-1-00366 Aug. 15 Tallahatchie: Cascilla Water 472 118
NORTH CAROLINA
590
Columbus:
03-1-00459 Aug. 11 Fair Bluff Water/sewer
03-2-00460 ~do__ - do Sewage treatment
NEW MEXICO
111 111
29 29
08-1-00326 Sept. 27
Sandoval: San Yaidero (Zia Indian
Reservation).
OREGON
Multipurpose community
building.
120 120
07-1-00130 Sept. 28 Wasco: The Dalles Harbor facilities
WASHI NGTON
170 170
499 499 998
7,614 2,787 10,40~
Date
Project No. denied Location
Project type EDA
Grant
funds (thousands)
Loan Total
ARKANSAS
Desha:
08-1-00562
08-2--00366
Aug. 29
- do
Arkansas City
do
Water/sewer
Sewage treatment
$149
8
$149
21
$298
29
CALIFORNIA
07-1-00396
07-1-00480
07-1-00481
Sept. 22
- do
San Diego: San Diego
San Joaquin:
Stockton
do
Industrial park
WarehouseJport
Port facilities
447
700
750
447
700
750
07-1-00482
- do
do
do
238
238
07-1-00483
- do
do
do
750
750
07-2-00484
07-2-00486
.do
- do
do
do
Sewage treatment
do
344
313
344
313
COLORADO
07-1-00313 Sept. 18 Klickitat: Dallesport Industrial park
Total 17 projects
Note: No denials reconsidered to date.
PAGENO="0019"
17
Mr. O'MALLEY. Congressman, in some of these instances I am sure
you are aware that the applicant withdraws his project and does not
want it kept in reserve status. He wants to pursue some other avenue
of financing.
Mr. EDMONDSON. I understand,
Mr. CLEVELAND. Mr. Chairman, I think that some of the questions
already point up the fact that besides the EDA being perhaps a little
lax in keeping us informed, I think to be candid we have to admit
we have been a little lax in holding hearings.
Now, as we all know, the bells are going to ring in about 3 or 4
minutes. We all know that there is very important legislation on the
floor, that we are going to have to leave, and I know this comes as
good news to at least some of the witnesses. But I want to get it on
the record now that we are going to have more hearings, and as soon
as possible.
It is my understanding from the chairman and other people that
perhaps next week may not be a very heavy week, but again that is
in the spirit of Thanksgiving, and the witnesses may be pleased; but
I think the week following that, we should make it clear that we are
going to have hearings. I want to make it clear that if we have those
hearings-and I urge those hearings-that I am going to be asking
representatives from EDA questions with reference to the 702 sec-
tion. I am going to be asking them about the Clay Pipe case, with
which I know they are familiar. I am going to be asking them about
a more recent case, which is the Blue Ridge Nursery case in North
Carolina. I am also going to repeat, to the extent that time permits,
the observations made on page 40-questions raised by the observa-
tions on page 40 of our first interim report, House Report No. 82.
I am going to expect the people from EDA to be fully prepared to
discuss those observations and questions and particularly the two
cases: the Clay Pipe case and the Nursery case. And I believe that
Congressman McCarthy also has a case, and I think for the record he
ought to mention the name of his case, because I am convinced that
the clear legislative intent of 702 is being ignored by EDA.
I am also convinced that you are insulating yourselves behind
procedures that you have not made public, so that the general public
has no way even to enforce the clear legislative intent of 702.
This is one reason, Mr. Chairman, why I urge that we do schedule
continued hearings of this committee in the week immediately follow-
ing the Thanksgiving period.
Mr. MCCARTHY. Would the gentleman yield?
Mr. CLEVELAND. I yield to the gentleman from New York.
Mr. MCCARTHY. I thank the gentleman for yielding. I would like
to place something into the record here, so that you gentlemen when
you return, will be able to supply this committee with additional in-
formation on a specific case. I refer to the Fiber insulation Board
industry.
The information I have is from the Insulation Board Institute, the
industry association. In a letter dated August 7, 1967 to the Secretary
of Commerce, they note the long-range trend of overcapacity m this
industry. They point out that within the last few years the Armstrong
Cork Co. and Johns-Mansvile Co. have discontinued all production
of insulation board production at their plants at Pensacola, Fla.~ and
Natchez, Miss., and plants in Hawaii, Oregon, and New Jersey have
been completely dismantled.
PAGENO="0020"
18
Nevertheless, the EDA saw fit to finance an insulation board plant
not yet in production at Blountstown, Fla.
Now, on the heels of that, EDA has recently announced a $6.8
million loan to finance another company in this industry, where many
are going out of business. The loan is to. the Industrial Development
Corp. of Cordova, Ala., to build a plant which they will then lease to
Southern Fiber, Inc., which will ~produce 95 million feet annually of
half-inch fiberboard and roof insulation.
Now, Mr. Chairman, this, to me, is the clear-cut violation of section
702 alluded to by the gentleman from New Hampshire. And just for
the record, I will read section 702:
No financial assistance under this Act shall be extended to any pro3~ect when the
result will be to increase the production of goods, materials and commodities, or
the availability of services or facilities, when there is not sufficient demand for
such goods, materials, commodities, services or facilities to employ the efficient
capacity of existing competitive commercial or industrial enterprises.
Now, you have financed a study by Economic Associates, Inc., to
clarify this point. And in their report to you they said that the term
"existing competitive enterprises" may be understood and defined
by one of the coauthors of section 702; namely, myself, as "an estab-
lished company in the same line of business and in the same market
area."
Now, this is actually a nationwide market; but even if you want to
quarrel on that point, most of the plants I have mentioned are in the
Southeast United States.
Now, I happen to have new information indicating, on the heels of
the closing of these plants that were cited by the Insulation Board
Institute, that another company is considering selling its facilities
because there is just no money in this business. There is no money in
it. They are thinking of selling it.
Now, what you are doing is just driving people out of business. I
do not understand how this can happen. The industry figures are
available but the Insulation Board Institute was not even consulted
on these loans at Blountstown and Cordova. Now, the result is going
to be that you are going to be losing jobs in other places in the South-
east, where these people are going to go out of business. And what they
are doing now is to try and get out of this business anyway, and con-
vert the machines to making something else.
If they cannot do that, and apparently some of them feel they
cannot-at least one-they are thinking of selling the plant.
Mr. CLEVELAND. Would the gentleman yield?
Mr. MCCARTHY. This loan that you are going to make, making,
over $6 million to these people, how are they going to sell the product
if nobody else in the business now can sell it?
Mr. CLEVELAND. Would the gentleman from New York yield back
to me? I yielded to him.
Mr. MCCARTHY. Yes.
Mr. CLEVELAND. Mr. Chairman, I move that the staff-
Mr. CRAMER. Before the gentleman moves, would you yield?
Mr. CLEVELAND. I yield.
Mr. SNYDER. I would like to ask one question also.
Mr. CRAMER. Very briefly, I am very concerned, and others have
expressed their concern, about the administration of this program
under section 702, which provides: No financial assistance under this
PAGENO="0021"
19
act shall be extended to any project when the result will be to in-
crease the productiou of goods, materials, or commodities, or the
availability of services or facilities, when there is not sufficient demand
for such goods and so forth to employ the efficient capacity of existing
competitive commercial and industrial enterprises.
I am now referring to the North Carolina project which you list
in this EDA directory; namely, Vaughan's Blue Ridge Nursery, which
I understand will provide for 28 greenhouses for cut flowers.
I understand also that the chief clerk of the Committee on Public
Works in the Senate, Mr. Richard Royce, wrote a letter to your
department on August 11, 1967, inquiring as to how you conformed to
this legislative mandate in making this loan. This reply came from
Mr. Coleman Stein, Director, Office of Business Development:
Our staff made a thorough study of the application. Loan specialists in EDA
evaluated the material submitted by the applicant, and engineers and market
analysts from the Small Business Administration conducted a detailed investiga-
tion. Consultations were held with growers, wholesalers, and retailers of cut
flowers, North Carolina State University, Society of American Florists, American
Association of Nurserymen, and the U.S. Department of Agriculture. Also, an
opinion from an independent consultant. As a result of the information obtained
from these numerous sources, it was concluded that the restrictions of Section 702
of our Act were not applicable and the loan was approved.
Now, I understand also that letters were directed by the Society
of American Florists, one that was cited as having been consulted, and
by the American Association of Nurserymen, Inc., another cited as
having been consulted, one letter dated October 11, 1967, and directed
to Mr. Stein, in which was advised that there was no knowledge of
such consultation and no records of such consultation with the Society
of American Florists; and the same information came from the
executive vice president, Mr. Robert Lederer, with the American
Association of Nurserymen, Inc.
Mr. EDMOND5ON. Would the gentleman like to have those made a
part of the record?
Mr. CRAMER. I would like to have all three of those letters made
a part of the record because I think this raises a very serious question.
Mr. EDMONDSON. Without objection, the letters will be made a
part of the record.
(Three letters referred to follow:)
U.S. DEPARTMENT OF COMMERCE,
ECONOMIC DEVELOPMENT ADMINIsTRATION,
Washington, D~C., August 25, 1967.
Mr. RICHARD B. ROYCE,
Chief Clerk, Committee on Public Works,
U.S. Senate, Washington, D.C.
DEAR MR. ROYCE: This will reply to your letter of August 11, 1967, addressed
to Deputy Assistant Secretary Lambert S. O'Malley and also refer to the con-
versation we had on August 21, 1967, relating to the loan which the Economic
Development Administration approved to Vaughn's Blue Ridge Nursery, Inc.,
Pineola, North Carolina.
As we discussed in your office, the only information we can supply is that which
is a part of the public record. However, I feel that this will be sufficient to reply
to the questions raised in Attachment A of your letter.
Regarding the question of the repayment terms under the EDA loan, it should
be pointed out that the terms of the loan require principal payments to start
after 48 months with interest only being required for the first 4 years. Our loan
repayment requirements are established in such a manner as to permit our
Borrower to amortize its debt at a level annual basis taking into consideration
the bank loan in the amount of $111,600.
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The terms of the local development company loan were based on its fund being
supplied on a standby basis until the Government loan has been fully paid. As
you can readily see, these conditions materially differ from those set forth in
Attachment A. Our analysis indicated sufficient earnings projections to meet not
only this debt burden but the other requirements necessary to operate this
business.
Our staff made a thorough study of the application. Loan specialists in EDA
evaluated the material submitted by the applicant, and engineers and market
analysts from the Small Business Administration conducted a detailed investi-
gation. Consultations were held with growers, wholesalers, and retailers of cut
flowers, North Carolina State University, Society of American Floriests, American
Association of Nurserymen, and the U.S. Department of Agriculture. Also, an
opinion from an independent consultant. As a result of the information obtained
from these numerous sources, it was concluded that the restrictions of Section 702
of our Act were not applicable and the loan was approved.
For your information, the average 1966 unemployment rate in Avery County
was 17%. This project at full operation is expected to employ 41 additional people
of theY county's hard-core unemployed, thus creating long-term employment
opportunities,
If there is further information that I can supply you, do not hesitate to call on
me.
Sincerely,
COLEMAN B. STEIN.
Director, Office of Business Development.
SOCIETY OF AMERICAN FLORISTS,
SHERATON-PARK HOTEL,
Washington, D.C., October 11, 1967.
Mr. COLEMAN B. STEIN,
Director, Office of Business Development, Economic Development Administration,
U.S. Department of Commerce, Washington, D.C.
DEAR MR. STEIN: The enclosed letter which was directed to the Honorable
Ray A. Taylor, and signed by your predecessor, James T. Sharkey, is self explana-
tory. In the third paragraph of this letter Mr. Sharkey commented that consulta-
tions were held with the Society of American Florists.
I would like very much to know on what authority this statement was made.
I would appreciate very much your pinpointing the name of the person in my
organization who was purportedly consulted with by EDA. I would also like to
know the dates and what was discussed. A check of my staff indicates we have had
no discussions with EDA on a loan that was approved for Vaughn's Blue Ridge
Nursery, Inc., Pineola, North Carolina.
Ross P. Davis, when he Was Executive Administrator of the SBA, wrote a two
page article for our American Florist magazine relating to the work of the SBA.
The editor and chief of the magazine indicated there was no discussion held
concerning the subject included in Mr. Sharkey's letter to Representative Taylor..
Your consideration of this request will be greatly appreciated.
Sincerely,
JOHN H. WALKER,
Executive Director~
AMERICAN ASSOCIATION OF NURSERYMEN, INc.,
Washington, D.C., October 12, 1967.
Mr. JAMES SHARKEY,
Director, Office of Business Development, U.S. Department of Commerce, Economic
Development Administration, Washington, D.C.
DEAR MR. SHARKEY: A letter addressed to Congressman Roy A. Taylor, dated
February 21, 1967, and signed by you, has recently come to my attention. The
letter, which is concerned with an application of the Vaughn's Blue Ridge Nursery
for an EDA loan, refers to the American Association of Nurserymen as a con-
sultant prior to approval. For one reason or another, we can find no records in
this office, of ever having been consulted on any application for an EDA loan.
For that reason, we respectfully request your office to furnish us with background
information on the particulars concerning consultation by your office with ours
on the loan in question.
Thank you.
Sincerely yours,
ROBERT F. LEDEIIER,
Executive Vice President.
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Mr. MCCARTHY. Would the gentleman from Florida yield?
Mr. CRAMER. Just a second,
Concerning whether or not consultation took place, in the reply to
the chief clerk of the Public Works Committee of the Senate, it was
stated that these organizations were consulted. However, these orga-
nizations have advised the Department of Commerce that their
records do not show that they were consulted.
Now, this is a pretty serious situation.
I would like to have the staff investigate this matter, and also I
would like to ask further, since I understand that checks have not
been written on this loan yet, that they not be negotiated until this
matter can be thoroughly investigated.
Mr. EDMONDSON. I think the gentleman from New Hampshire has
already made the proposal, which has a great deal of merit, but if you
want to state if formally for the record-
Mr. CLEVELAND. I propose that we direct the staff of this com-
mittee to investigate the nurserymen's case that Mr. Cramer has
discussed, the case Mr. McCarthy has discussed, and also investigate
the clay pipe case; and that this be the first order of business in hear-
ings that I propose we hold on Tuesday following the Thanksgiving
week.
Mr. EDMONDSON. Is the gentleman proposing that they investigate
preceding the hearings?
Mr. CLEVELAND. I think that should be done.
Mr. EDMONDSON. You may have a time problem on trying to in-
vestigate all three of those cases, and have hearings on them the
first Tuesday after Thanksgiving.
Mr. CLEVELAND. Mr. Chairman, if the investigation is not com-
plete, I still think it would be helpful to have the hearings at that
time, because if the investigation is not complete, at least tl~e staff
will have enough information so that we can pose constructive ques-
tions to the EDA in regard to these matters. They certainly have
information with regard to the same subject matter.
Mr. EDMONDSON. The Chair wants to carry out the wish of the
`subcommittee. If the subcommittee wants to have the staff go into
some of these areas, we will certainly direct them to do so without
any delay.
Mr. ROBERTS. Would the gentleman from New Hampshire yield?
Mr. CLEVELAND. Yes.
Mr. ROBERTS. Would the gentleman amend his motion to make it
the subcommittee-I am willing to go with the staff, and I think you
are, too, and I think we will get a lot more information if we go with
them-the whole subcommittee.
Mr. EDMONDSON. I think within the time limits it will be impossible
to get the subcommittee out in the field. I think the suggestion of the
staff going is good. I think hearings based on staff findings will be in
order.
I will try to get the chairman's approval for a hearing date at the
earliest possible date following some effective exploration of the matter
by the staff. .
I will certainly do everything I can to expedite the staff inquiry
into it.
I think, too, that we would like to get, if we can, for the record
the criteria that has been developed, the regulations that have been
developed by 1~DA for implementation of section 702.
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Can you provide those for the record?
Mr. O'MALIAEY. Yes, we can provide that for the record. As a
matter of fact, I think the operating orders that are in effect now are
in the hands of the committee at the present time.
(The information referred to follows:)
U.S. DEPARTMENT OF COMMERCE, ECONOMIC DnVELOPMENT ADMINISTRATION-
MANUAL OF ECONOMIC DEVELOPMENT ORDERS
ECONOMIC DEVELOPMENT ORDER 3.02-3
Section 1. Purpose of order
This Order defines the requirements set forth in Section 702 of the Public
Works and Economic Development Act of 1965, 79 Stat. 552 (hereinafter called
the Act), and establishes procedures for compliance therewith.
Section ~. Text of section 7Ofd
Section 702 of the Act provides: "No financial assistance under this Act shall
be extended to any project when the result would be to increase the production
of goods, materials, or commodities, or the availability of services or facilities,
when there is not sufficient demand for such goods, materials, commodities,
services or facilities, to employ the efficient capacity of existing competitive
commercial or industrial enterprises."
Section 3. Policy
No application for financial assistance under Titles I and II of the Act may be
approved until it has been determined that approval of the project would not
result in violation of the provisions of Section 702 of the Act. To make this de-
termination, every application for financial assistance under Titles I and II
must be reviewed. This review of the application and project file may be suffi-
cient to enable a Section 702 determination to be made. However, in the case of
business loan and certain public works projects (see Section 6 below), a Section
702 research study is required before the final determination can be made.
Section 4. Responsibility for making section 70Pd determinations
The Deputy Assistant Secretary for Economic Development Operations, or
his designee, is responsible for determining whether the approval of assistance
for a project would violate Section 702 and for taking whatever action may be
necessary and proper in making such determinations. In all cases, the Area Offices
furnish the appropriate Washington Office with preliminary data and information.
The Washington Office determines whether more information is needed, decides
when a Section 702 study must be made and in those cases conducts the study,
and in all cases makes a final Section 702 determination.
Section 5. Definition of key terms
(1) Demand: "Demand" is the amount of the product or service which can
reasonably be expected to be used thereafter in the market area to be served by
the project or its principal industrial or commercial beneficiary.
(2) Capacity: "Capacity" is that quantity of production or supply of services
which could reasonably be expected to be produced or supplied over a sustained
period of time by existing competitive enterprises for use within a reasonable
market area under working schedules historically customary for the industry.
(3) Efficient Capacity: "Efficient Capacity" is that part of the capacity which is
produced or supplied by plants or suppliers employing well-designed structures,
equipment, machinery, methods, designs, and techniques.
(4) Existing Competitive Enterprise: "Existing competitive enterprise" is an
existing establishment which produces the same or an equivalent product or which
supplies the same or an equivalent service to the same market area or a signifi-
cant part thereof.
Section 6. When a section 702 study `is required
A Section 702 study is required for: (a) All business development loan projects,
and (b) Each public works project designed to provide public works facilities in
order primarily or essentially to benefit one particular firm or industry.
Section 7. When a section 702 study is not required
(1) No Section 702 study is required when the request for financial assistance is
for a public works project which would not result in a significant increase in the
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production that has theretofore been available in the area. Examples of such
projects are as follows:
(a) Projects designed to replace capacity recently destroyed by flood, fire,
wind, or other accident.
(b) Projects designed to assure the retention of existing capacity and
employment. An example of such a project would be the construction of a
sewage processing facility to serve an existing industry, necessitated by new
regulations concerning disposal of waste into public waters.
(c) Projects for the rebuilding of displaced facilities within the same market
area, where no significant expansion is involved.
(2) No Section 702 study is required for public works projects which are designed
primarily for the benefit of a community or area as a whole or for general industrial
or commercial purposes, rather than for a particular industry.
Section 8. Procedures for making a section 7O~ study
(1) A Section 702 study requires the same procedures whether it is for a business
development loan project or a public works project. Business development loan
applicants are required to furnish to the Area Office all data in items a and b
below. When there is a single primary beneficiary of a public works project, the
Area Office obtaiiis from such beneficiary as much of the information in items a
and b below as possible.
a. project information
The Area Office shall obtain and include in the project file the following informa-
tion for use by the Washington Office in making a Section 702 determination:
I. Information regarding applicant's or beneficiary's operation:
(a) Detailed descriptions of all products now being or to be manufactured,
iii eluding Standard Industrial Classification (Bureau of the Census) numbers
wherever possible.
(b) Estimated annual total volume or value of shipments.
(c) Estimated production tonnages expected or number of pieces per item
produced annually.
(d) Detailed information on the market areas to be served:
(1) Specific purchasers.
(2) Local market.
(3) Regional or area markets.
(4) National or international markets.
(e) Distribution system (own truck fleet, motor carriers, rail, etc.)
(f) If it is an existing plant, in addition to the data above, the amount of
of expansion planned:
(1) Numbers of existing and new jobs.
(2) Increases in production.
(3) Changes in range of products and markets.
(g) If the project involves a new plant, in addition to the data in items (a)
through (e) above, the numbers of new jobs.
2. Competition:
(a) Firms already in the market area manufacturing products which are
competitive and, where possible, an evaluation of the quality of their plants,
equipment, and products.
(b) Plants under construction in the area which are expected to manufac-
ture competitive products.
(c) Other competitors, wherever possible.
3. Any other factors which might have a bearing on a Section 702 determina~
tion should be furnished.
In the event that the Area Office anticipates a possible violation of Section 702,
it shall, prior to forwarding the entire file to Washington, send separate copies of
all pertinent data to the designee of the Deputy Assistant Secretary for Economic
Development Operations in order to allow maximum time for the Washington
Office to make a Section 702 study. In the case of business loans, notification of
any possible violation shall be included as part of the "Preliminary Project
Evaluation Report" forwarded to Washington.
b. Industry Information
All business development loan and public works applications received from the
Area Office shall be reviewed for acceptability under Section 702 by the Deputy
Assistant Secretary for Economic Development Operations, or his designee, who
shall decide whether a Section 702 study is necessary. If he deems such a study to
be necessary, he shall promptly submit a written request to the Deputy Assistant
PAGENO="0026"
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Secretary for Economic Development Planning or his designee for industrywide
information required to supplement the data furnished about the project by the
Area Office.
1. Types of information to be requested include:
(a) Industry-wide historical data and projections on:
(1) Dollar volume or value of shipments.
(2) Production quantities or number of pieces manufactured.
(3) Capital investments.
(4) Demand.
(5) Employment and employment practices.
(6) Degree of automation.
(7) Number and location of manufacturers.
(8) Efficient capacity-modern structures, techniques, etc.
(9) Market data, including local, regional,. national, or international
data.
(10) Distribution practices.
(11) Percent of production, dollar volume, or value of shipments ex-
ported.
(12) Percent of total national consumption provided by imports.
(b) Any unusual factors affecting the industry.
(c) Information on history and projections of government purchases in the
industry.
(d) Information on history and projections of related industries-suppliers,
customers.
(2) The Deputy Assistant Secretary for Economic Development Planning or his
designee shall submit to the Deputy Assistant Secretary for Economic Develop-
ment Operations, or his designee, a report containing as much of the above data
as is available, together with an evaluation of the industry. The Deputy Assistant
Secretary for Economic Development Operations, or his designee, will assess the
data furnished by the Deputy Assistant Secretary for Economic Development
Planning or his designee and by the Area Office and, when necessary, will obtain
additional information from the Area Office staff, the applicant or beneficiary,
or other appropriate sources.
Section 9. Making a section 70~2 determination
All the above data shall be assessed by the Deputy Assistant Secretary for
Economic Development Operations, or his designee. Demand, efficient capacity,
and existing competitive enterprise shall form the basis, together with the other
relevant factors, for the final Section 702 determination. A brief statement of the
findings and determination shall be included in the project's Requirements and
Certification Report, or shall be set forth in a separate report, and shall become a
permanent part of the project file. In both cases, all data supporting the final
determination shall be attached to the reportS
Section 10. Effect on other orders
This order supersedes any other instructions which may be in conflict with, its
provisions.
Mr. CLATJSEN. That was the question I asked.
Mr. EDMONDSON. The gentleman from Kentucky.
Mr. SNYDER. Yes. I would like to get a question in before we leave.
I am probably not as familiar with the program as the other members,
being new to the committee and having no EDA counties in my
district. However, I noticed that some loans have been made, one in
Oldham County, Ky., which is in my congressional district. Talking to
the city attorney this morning, I found out that both Verolon and Mo-
Vac have folded. The last loan was made in March of this year, which
was a guarantee on a $450,000 note to the largest bank in Kentucky.
I would like for you to provide for the record, if you would, (1) the
number of business loans and guarantees that have been made and
the number of those companies that have folded, and (2) the number
that you anticipate will need additional financial assistance in order
not to fold, so that we can go into that when the hearings resume.
Mr. CRAMER. Would the gentleman yield? Would the Secretary
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Rnswer my quest, whether he is willing to accede to it and not issue
the checks on this nursery business until this investigation takes place?
Mr. O'MALLEY. Congressman, this loan has been approved. In
the absence of anything that I do not know at the present time, my
disposition would be to say that the loan money will be disbursed as
required by the borrower. if there is any interference with that in any
legal way, then, of course, we will abide by it.
Mr. CRAMER. You mean to tell me, in view of the two letters that
Ifread, indicating that those two organizations which you stated had
been consulted and whose records indicated they had not been con-
sulted on the critical question of competition, you would still write the
check, even with this committee looking into the matter?
Mr. O'MALLEY. At this point, in answer to your question, I would
much prefer to stand by the statement Mr. Stein made in his letter,
that you read from Mr. Stein's letter, that they had been consulted.
I have more confidence in Mr. Stein.
Mr. CRAMER. This is Mr. Stein's.
Mr. O'MALLEY. We will welcome an investigation of the factors
which went into our determination in making this loan.
Mr. MCCARTHY. Would the gentleman yield?
Mr. CRAMER. I am astonished at the answer that you are not willing
to withhold the disposition of these funds.
Mr. O'MALLEY. It is not a matter of our being willing, but we have
a contract with the borrower.
Mr. CRAMER. But you have been holding this up for months now.
Mr. O'MALLEY. We have not been holding it up. I think in response
to other questions, I said we have a contract in which we intend to
fulfill.
Mr. MCCARTHY, Would the gentleman from Kentucky yield just a
moment?
Mr. SNYDER. Just one second. Will you get the information for the
record I requested prior to the resumption of these hearings?
Mr. O'MALLEY. You mean as to the list of loans and the status of
them at the present time?
Mr. SNYDER. The number folded and number you anticipate will
need additional financial assistance not to fold.
Mr. O'MALLEY. When you say anticipate, you mean those on which
we have requests for at this time?
Mr. SNYDER. Yes.
Mr. O'MALLEY. We will be able to provide that.
(Material supplied follows:)
The Area Redevelopment Administration approved 399 loans for which it
obligated $150,427,408. Forty-one ARA borrowers, who had received initial loans
totaling $15,939,000, obtained additional ARA financing after their initial loans
were approved in the amount of $3,100,000. ARA did not have authority to
guarantee loans. Forty-three ARA loans, representing total disbursements of
$16,563,824, have been liquidated. The actual net loss sustained on these projects
after recoveries from the sale of collateral amounted to $6,700,000.
The Economic Development Administration has approved 132 loans for which
it obligated $67,113,648. Two EDA borrowers, who had received initial loans
totaling $1,068,000, obtained additional EDA financing after their initial loans
were approved in the amount of $47,000. EDA has approved 31 working capital
loan guarantees for $11,488,000. No EDA loans have been liquidated.
Interest in the following amounts has been paid by the borrowers of the
respective agencies:
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ARA
EDA
Through June 30 1965
July 1 1965 toiune3O 1966
July 1 1966 toiune3O 1967
July 1-Sept. 30 1967
$3,758,617.31
2,663,627.98
4,057,858.48
1, 162, 745. 92
$19,180.07
274,370.27
300, 523. 65
Total
11, 642, 849. 69
594, 073. 99
Note: The above interest collections apply only to direct loans.
Mr. SNYDER. I will be glad to yield-as a matter of fact, I yield
the floor. If the chairman recognizes you, it will be all right with me.
Mr. MCCARTHY. I would like to add one additional item to the
record on the C'ordova case. The Insulation Board Institute asked
me to arrange a meeting with Coleman Stein, Director of the Office of
Business Development, on this matter of Cordova, Ala., loan. Now,
the executive vice president of the organization, with his attorney,
came here from Chicago, and we went down there to the Commerce
Department to see Mr. Stein. I took my time. These fellows came in
from Chicago to discuss this situation which affects their industry,
which is on its uppers, as I get the facts from these people closing up.
And we went down there, and he lost his file.
Mr. Stein couldn't tell us a thing about it. He didn't have his file.
Now, what kind of a way to run an organization is that?
I think this is indeed regretable. These people come all the way
from Chicago, and this fellow cannot tell them a thing because he
does not even have his file.
Now, I think we should get into this matter-its handling and
the clearcut violations of section 702 when these gentlemen return.
Mr. CRAMER. Would the gentleman yield?
It is my understanding that in the administration of section 702
you have taken the position that Congress did not specifically provide
for a hearing before your agency, or Mr. Stein, on the question of
competition with present business, and hearings have not been per-
mitted, even when requested.
Mr. O'MALLEY. Are you referring to public hearings?
Mr. CRAMER. I am referring to hearings by your agency where all
these businesses can come in and make a matter of record what they
think a loan will do to their business.
Mr. O'MALLEY. Congressman, at any time prior to a contract
being executed, we will be glad to consult with or have an opportunity
for any interested party to be heard as to whether or not our actions
should be taken or should not be taken.
Mr. CRAMER. Is such provided for in any of your regulations?
Mr. O'MALLEY. Not that I know of.
Mr. CRAMER. Do you not think it should be?
Mr. O'MALLEY. I am talking now about consultations or the
opportunity for anybody to be heard during the time the application
is under consideration.
Mr. CLEVELAND. Mr. Secretary, will you answer me this----
Mr. CRAMER. Do you have any regulations that would indicate
that when someone believes himself to be aggrieved, he has a right to
appear before your agency and be heard?
Mr. O'MALLEY. To my knowledge, there is no specific regulation,
but I think it is very general, common knowledge, because we have
those kind of considerations.
PAGENO="0029"
27
Mr. CRAMER. That is why we want to see those regulations.
Mr. CLEVELAND. Mr. Secretary, may I ask another question: Do
you have any procedure whereby you notify people that you think
might be affected? After all, if some of these loans-~--
Mr. O'MALLEY. Congressman, we could not do that. There are a
variety of people that might be interested, whose interests we cannot
identify. It would not be that we would not want any interested party
to have knowledge that there is such an application, but we would
have no way of knowing--
Mr. CLEVELAND. Mr. Secretary, how would the nurserymen down
in North Carolina avail themselves of the right to come in and say
that he is going to have unfair competition if he did not know that
you were contemplating lending to a competitor? This would be
totally useless to say that you would let them talk, if you do not tell
the people that may be affected what is going on. Do you have any
answer to that?
Mr. O'MALLEY. We have no way of notifying any possible interested
party, and the fact that we have received an application-well, we
do not know what their interests might be, or who that might be. If
anyone comes to us and says: You have an application pending, we
would like to be heard in connection with it. We are always very glad
to hear and discuss our situation.
Mr. CRAMER. Do you mean to say in this particular instance of the
cut flower and nursery business that you would not realize that those
at least in the North Carolina area, the same general area, would be
interested in knowing, pursuant to 702, that there was a loan being
contemplated?
Mr. O'MALLEY. I am sure--
Mr. CRAMER. And have an opportunity to let them know how it
affects their business?
Mr. O'MALLEY. I am sure a great many people in the industry did
know that loan had been contemplated, and I am sure a great many
of them were consulted before this contract was entered into.
Mr. EDMONDSON. I think on that point that we are going to have
our staff people get with your staff. There certainly will be memoran-
dums or letters or reports to document the consultation that took
place, if there was such consultation, I would think.
Mr. O'MALLEY. I am sure-
Mr. EDMONDSON. I am sure nobody did it on the telephone, without
making a record or memorandum about it.
We will want to get that for the record, for the future hearings.
Frankly, I think that it is something that you folks surely will be
expected to have, and to supply to the subcommittee.
We are in session at this time, and a quorum call is in progress.
The subcommittee stands adjourned subject to further call of the
chair.
(Whereupon, at 11:17 a.m., the subcommittee adjourned, subject
to call of the Chair.)
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