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MECHANIJSMS FOR FIINANCJING 1ECONOM~~
IIC GROWTh ANID 1DI~VQI~gF
OCT 15
HEARING
BEFORE THE
TASK FORCE ON COMMTJNITY DEVELOPMENT
AND NATURAL RESOURCES
OF THE
COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES
ONE HUNDRED SECOND CONGRESS
FIRST SESSION
JULY 12, 1991
MEMPHIS, TN
Printed for the use of the Committee on the Budget
Serial No. 2-2
0
U.S. GOVERNMENT PRINTING OFFICE
44-629 WASHINGTON : 1991
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-035535-4
/R7L ~S~b/13
:, O3~~
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COMMITTEE ON THE BUDGET
LEON E. PANETTA, California, Chairman
RICHARD A. GEPHARDT, Missouri
JAMES L. OBERSTAR, Minnesota
FRANK J. GUARINI, New Jersey
RICHARD J. DURBIN, Illinois
MIKE ESPY, Mississippi
DALE E. KILDEE, Michigan
ANTHONY C. BEILENSON, California
JERRY HUCKABY, Louisiana
MARTIN SABO, Minnesota
BERNARD J. DWYER, New Jersey
HOWARD L. BERMAN, California
ROBERT E. WISE, JR., West Virginia
JOHN BRYANT, Texas
JOHN M. SPRATT, Ja., South Carolina
DONALD J. PEASE, Ohio
CHARLES W. STENHOLM, Texas
ROBERT J. MATSUI, California
BARNEY FRANK, Massachusetts
JIM COOPER, Tennessee
LOUISE McINTOSH SLAUGHTER, New
York
LEWIS F. PAYNE, JR., Virginia
MIKE PARKER, Mississippi
BILL GRADISON, Ohio
Ranking Republican
J. ALEX McMILLAN, North Carolina
WILLIAM M. THOMAS, California
HAROLD ROGERS, Kentucky
AMO HOUGHTON, New York
JIM McCRERY, Louisiana
JOHN R. KASICH, Ohio
HELEN DELICH BENTLEY, Maryland
WILLIAM E. DANNEMEYER, California
JOHN MILLER, Washington
JIM KOLBE, Arizona
CHRISTOPHER SHAYS, Connecticut
RICHARD JOHN SANTORUM, Pennsylvania
BILL PAXON, New York
TASK FORCE ON COMMUNITY DEVELOPMENT AND NATURAL RESOURCES
MIKE ESPY, Mississippi, Chairman
*LEON E. PANETTA, California *BILL GRADISON, Ohio
*RICHARD A. GEPHARDT, Missouri *J ALEX McMILLAN, North Carolina
BERNARD J. DWYER, New Jersey **HELEN DELICH BENTLEY, Maryland
ROBERT E. WISE, JR., West Virginia RICHARD JOHN SANTORUM, Pennsylvania
CHARLES W. STENHOLM, Texas
LEWIS F. PAYNE, JR., Virginia
LYNNE RICHARDSON, Associate Staff and Task Force Director
JANE WALLACE MCNEIL, Associate Staff
*Ex Officio.
* *Ranking Republican.
(II)
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CONTENTS
Statement of:
Page
Bowie, Harry J., President, Delta Foundation, Greenville, MS 46
Byars, Raleigh H., State Director, Mississippi Small Business Develop-
ment Center, University of Mississippi 49
Cash, Ann, Regional Vice President, National Mississippi River Parkway
Commission, on Behalf of Minnesota State Senator John Bernhagen,
Commission National Chairman 6
Dobbins, Olivia, on Behalf of the Black Business Association 31
Eastland, Hiram, Attorney, Eastland Law Offices 63
Ford, Hon. Harold E., a Representative in Congress from the State of
Tennessee 2
Gray, Robert, President, Griffin Lamp Co., Shelby, MS 43
Haney, William Billy, Executive Director, South Delta Mississippi Plan-
ning and Development District, Greenville, MS 40
Hawkins, Wilbur F., President, Lower Mississippi Delta Center 9
Holeyfield, Mabra, Vice President, Secured Capital Developers, Memphis.. 29
Lawyer, M. Scott, Bank Consultant/Investment Banker 61
Luboti, Wesonga, Regent Investment Corp 28
Manning, Mark, Economic Development Director, South Delta Mississippi
Planning and Development District 41
Perry, James, Executive Director, Mississippi Presidential Council on
Rural Development, accompanied by John Sullivan, Chairman, Missis-
sippi Presidential Council on Rural Development 11
Richardson, Randall, State Director, Tennessee Farmers Home Adminis-
tration, U.S. Department of Agriculture, accompanied by James B.
Huff, Sr., State Director, Mississippi Farmers Home Administration
and Frank Shoemake, Chief, Farmers Home Community Business Pro-
gram in Mississippi 65
Rockefeller, Winthrop P., Chairman, President's Council on Rural Amer-
ica 13
Rowe, Gary, Director, Minority Business Development Center, Memphis ... 32
Sumner, Randall C., Vice President, The Federal Reserve Bank of St.
Louis 15
Surgeon, George, President and CEO, Elk Horn Bank and President,
Southern Development Bancorporation 56
Vindasius, Julia, Director, The Good Faith Fund 58
Welch, E. Bobby, Director, Memphis Economic Development Center 34
Prepared statements submitted by:
Bowie, Harry J 120
Byars, Raleigh H 126
Cash, Ann 75
Dobbins, Olivia 171
Gray, Robert 117
Haney, William Billy 113
Holeyfield, Mabra 109
Lawyer, M. Scott 159
Luboti, Wesonga 105
(III)
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Page
Iv
Perry, James .
Richardson, Randall 167
Rowe, Gary 110
Sumner Randall C 100
Welch, E. Bobby 239
Additional information submitted for the record by:
Durbin, Hon. Richard J., opening statement 4
Hawkins, Wilbur F., prepared statement with attached Delta Commission
Recommendations 79
Jones, Ed, chairman, Board of Directors, Lower Mississippi Delta Devel-
opment Center, prepared stat~MfiuIiarstar,..Hon...James..L.,..apening.statement
5
Rockefeller, Winthrop P., prepared statement with attachment entitled
Rural Economic Development for the 90's (A Presidential Initiative) 172
Schillinger, Ronald P., Schillinger & Associates, marketing consultants,
letter dated July 11, 1991, re Delta Regional Investment Fund with
attached development report, entitled Development of A Master Plan
for the Historic Restoration of Cairo, IL 201
Shepherd, Malcolm T., manager, Madison Madison International, Jack-
son, MS, prepared statement 236
Surgeon, George:
Exhibit 1.-Article from News and Views on Community Affairs
entitled Southern Development Provides Examples of Innovative
Community Development Lending 137
Exhibit 11.-Southern Development Bancorporation (Annual Review,
1989) 139
Prepared statement 133
Vindasius, Julia, prepared statement with attached exhibit, Sidelines,
Spring 1991 152
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MECHANISMS FOR FINANCING ECONOMIC
GROWTH AND DEVELOPMENT
FRIDAY, JULY 12, 1991
HOUSE OF REPRESENTATIVES,
TASK FORCE ON COMMUNITY DEVELOPMENT AND NATURAL
RESOURCES,
COMMITTEE ON THE BUDGET,
Memphis, TN
The Task Force met, pursuant to notice, at 9:30 a.m., in Shelby
County Commission Chambers, 160 North Main Street, Lobby
Floor, Memphis, TN, Hon. Mike Espy, chairman, presiding.
Mr. ESPY. Good morning to all of you. It's an honor to be back
here in Memphis in Harold Ford's district, Shelby County. Glad to
be surrounded by colleagues from Minnesota and Illinois and all of
you who decided to drive from points South this morning to this
hearing. I believe it's going to be interesting. I know that it will be
important.
So we're going to welcome you to the House Budget Committee's
Community Development and Natural Resources Task Force hear-
ing. This is the second hearing in a series of planned hearings
called Investments in America's Hometown.
The concern of the Budget Committee Task Force, frankly, is
that a very valuable resource, small towns and close-knit neighbor-
hoods that provide our family support and sense of belonging, is
being lost. Can that trend be reversed? Should that trend be re-
versed? The trouble found in most major cities today-high crime
rates, traffic congestion and stressful lifestyles-suggests the trend
should be reversed. The enthusiasm of people active in community
development projects-local entrepreneurs and tourist bureaus-
suggest that the trend can be reversed. So we are looking at ways
through this series of hearings to save, revitalize, and stimulate
growth and opportunities in our local communities.
In the first hearing we had in Washington we heard a number of
recommendations. For example, reauthorizing and revamping the
Economic Development Administration (EDA) administered by the
Department of Commerce; increasing funding for Community Deve-
lopmenr Block Grants (CDBG), which is a program that we all
know is administered by HUD; shifting more SBA resources and
expertise to rural areas including the certified development compa-
nies and minority business enterprise programs; upgrading the
community and business programs of the Farmers Home Adminis-
tration (FmHA); funding the Rural Partnership Investment Fund
(1)
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2
authorized in 1990; and, establishing financial institutions or mech-
anisms to serve regional economic development activity.
The. issues to be discussed today will include venture capital
funds, sources of risk capital, equity capital, private and public in-
vestment partnerships, grants, loans, loan guarantees, technical as-
sistance and business management counseling, leadership training
and a host of other mechanisms that will return viability to a lot of
small communities.
We have four Members of Congress in attendance today, and I
really do appreciate it. I personally appreciate the fact that the
gentleman from Illinois and the gentleman from Minnesota would
take time today to attend this hearing in Memphis. There are
other places that they could be and the fact that they would take
time to stop through Memphis I know I appreciate and I'm sure
that Congressman Ford does as well. He'll express that apprecia-
tion at his time in just one second.
Over 20 witnesses are scheduled to testify today as a part of four
panels. Panel I will provide an overview of the economic develop-
ment potential in local communities, particularly a region that we
call the Lower Mississippi Delta. Region. Panel II will provide in-
sights on current economic development efforts in the Memphis
area. Panel III will share experiences with economic development
in Mississippi and panel IV will discuss involvement of financial in-
stitutions and other organizations in economic development op-
tions.
I'm looking forward to hearing these options, ideas, and sugges-
tions. And I thank you all for your willingness to come today to
testify before this Budget Committee Task Force.
A couple of housekeeping matters before I turn it over to Con-
gressman Ford, then to Mr. Oberstar and Mr. Durbin. We have a
number of witnesses today. We're sure that you are all excited and
want to give us your all; but, the fact is that you cannot because if
you do we'll be here until next month. So, we're going to ask that
you summarize your written testimony in no more than 5 minutes,
please. We will appreciate you limiting your oral testimony, as I
said, to about 5 minutes. Give us a summary highlighting your
major points and please be assured that your full and complete
written statement will be included in the hearing record along
with any additional materials which you wish to submit.
With that, let me turn it over to Congressman Ford. We're de-
lighted to be here.
STATEMENT OF HON. HAROLD E. FORD, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TENNESSEE
Mr. FORD. Thank you very much, Mr. Chairman.
Mr. Chairman, I want to thank you as the chairman of the
House Budget Task Force on Community Development and Natu-
ral Resources for coming to Memphis and bringing Members of
your Task Force to this city. And I'd like to welcome my col-
leagues, Mr. Durbin and Mr. Oberstar, who I traveled with this
morning down from Washington and would like to say to the two
of them that I've had an opportunity now to represent this area for
the past 17 years as a colleague of you guys in the House. And I
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3
must say that economic development has certainly been in the
forefront of my 17 years as a Member of that body, and I guess the
topic of creating a regional fund to make capital more accessible to
small businesses is a very applicable set of issues and items that we
certainly would like to discuss in this area.
The theme for the hearings is Investments in America's Home-
towns, I guess mechanisms and financing economic development. I
must say that you, Chairman Espy, hope to draw attention to the
new approaches for community development in rural as well as
urban areas. And I must say, being a part of the urban setting,
that it is very timely that the Budget Committee would come here
to the city of Memphis like you're going other places, and also
hearing from witnesses in the Congress.
The Lower Mississippi Delta Commission Report concluded in
short that the small business sector will play a key role in shaping
the delta's economy in the next 10 years. Jobs, wages, and healthy
community depends upon small businesses which in many areas of
the delta encompasses anywhere from 90 to 100 percent of all en-
terprises. And the Commission's recommendations, Congressman
Espy, intend to focus these hearings today centered around what
the Commission was able to report back in its findings.
And as we look around, not only here in Memphis but through-
out this Nation, the limited resources of the limited dollar capital
to oftentimes small businesses as well as African Americans and
women in this country, certainly has been a downfall for stability
in our neighborhoods, stability in our communities. When we look
at the high crime rate, the drug problems which we are faced with,
oftentimes we want to use instruments that do not go to the core of
the problem.
I commend you and the other committee Members of the Budget
Task Force for having the foresight to come out into the rural
areas and urban areas and talk about enterprising ventures that
can, in fact, make neighborhoods grow and bring about stability in
communities that has been long overlooked for the past 10 years
that I know that I've served in the House of Representatives.
I hope that this Budget Committee Task Force will send a strong,
not only recommendation, but also allocate whatever formulas are
needed in order to get a message to all of our colleagues in the
House as well as our colleagues over on the Senate side, and also
send a clear message to this Administration that we must focus
more if we're going to protect the children and the families and the
stability of our communities in this country. This Task Force and
recommendations that will come from this Task Force certainly
will go a long way and play a major role in economic development
in this country.
Thank you, Mr. Chairman.
Mr. Espy. Thank you, Mr. Ford. I appreciate that statement, and
I associate myself with those words. Just let me tell the audience
that we could go anywhere and have this hearing anywhere else in
the country; but, we decided to come to Memphis, TN for a couple
of reasons. One, its strategic and geographic location as the cross-
roads of the mid-South. That means a lot to us when we talk about
options to revitalize middle America.
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4
But the other reason, frankly, is because of the leadership of
Congressman Harold Ford. He is wise, and he has given us excel-
lent support from his position as a Member of the Ways and Means
Committee. Because of this wisdom and because of this leadership,
we decided to come and hopefully, have a little bit of it rub off on
us. To come here and sit beside him. So thank you, Mr. Ford, for
what you've done and the leadership you have provided. We appre-
ciate you allowing us to come.
Mr. FORD. Mr. Chairman, just two little seconds. I want to com-
mend you and your staff for the makeup of the different panels,
and to see and to know many of those who will be testifying today
and know and be familiar with their organizations and their inter-
est. I'd like to applaud you and the committee Members, as well as
the staff, for assembling such a broad segment of our community as
well as the State of Mississippi. And I certainly would like to wel-
come all of you who are from the State of Mississippi. As you
might know or already know, Memphis is the capitol of Mississippi,
so you're right at home. Don't worry about it.
Mr. Espy. Thank you, Mr. Ford. -
Let's turn now to my colleagues on the Budget Committee, senior
colleagues on the Budget Committee, Jim Oberstar from Minneso-
ta, and Dick Durbin from Illinois.
Mr. OBERSTAR. Thank you, Mr. Chairman, it's a pleasure to be
here again in Memphis, although I must say it's been a rather long
interval since my last really substantive visit to this community. I
want to join you in welcoming our witnesses, and all those who are
participating in the hearing. I want to also join Harold Ford in con-
gratulating you on initiating a series of hearings and inquiry into
economic development, the tools that are available for both urban
and rural development and to look beyond traditional investment
tools that are used by development organizations on a regional and
local basis.
Harold Ford and I came to Congress in the same term and have
served side by side all these years, rarely cast a differing vote. He
has been a very great ally for us on the Public Works Committee
and the House Ways and Means Committee in developing tax in-
centives to match those of the direct investment funding for eco-
nomic development initiatives.
I guess all of my 28 years in Washington as a staff member and
as a Member of Congress has been spent in the field of economic
development. I was fortunate to have been part of the team that
drafted the original Public Works and Economic Development Act
of 1965, and the Appalachian Regional Development Act as well.
It was a delight to see a long time friend and participant in the
professional business of economic development, Pete Perry, who is
recognized nationally as one of the most thoughtful and effective
people in the field of economic development. I know he's going to
have some very good thoughts for us.
One or two reflections. When I chaired the Economic Develop-
ment Subcommittee of the Public Works Committee and held hear-
ings at the outset of the Reagan Administration's efforts to abolish
EDA and abolish the Appalachian Regional Commission, we had
hearings in Washington and throughout Appalachia. And among
the witnesses whose testimony sticks out in my mind is that of
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5
Tilda Kemplan with the Mountain Community's Child Develop-
ment Center at Duff, TN, who said to our committee, "Gentlemen,
when you go back to Washington please try to look over the top of
the dollar and don't see George Washington but try to see a child,
a child that somewhere will not have the opportunity to have any
health services or any nutritional services, or any educational op-
portunity, or any developmental skills. When you go back to Wash-
ington look for that child and try to put that dollar to invest in
their future."
And Charlie Turner who was then mayor of Sneedville, TN said,
"When I came on the scene in 1961 as mayor of Sneedville it was a
community that had a trodden down spirit, hopelessly looking
around for something to sustain them and they couldn't find it.
People would come here," he said, "and when we told them that we
had no railroad and no airport and no paved road we would just
see them deflate and they'd turn around and go away and make
their investment some place else." He said, "we were so far down
we had to look up to see bottom, and then along came the Appa-
lachian Regional Development Commission and helped us build."
He took us into a place where the city council met, which served
as the city hall-it rea]ly didn't have a formal city hall but this
was the place where they met, a big town hail. And on back of the
desk, I'll never forget the little sign, it said "God never put nobody
in a place too small to grow." And if you keep that in mind you're
going to be able to find a way to grow, to put the tools together and
to do the job. And the Appalachian Regional Commission was one
of those essential tools of the Federal Economic Development Ad-
ministration, one of those tools.
And now we need other devices and means to help create em-
ployment opportunities for people. We find our worth in our work.
The series of hearings that you're holding are really designed to
put the worth back in the human being and create those employ-
ment opportunities for the future. And out of this I hope we'll be
able to fashion sound budget priorities for the future for economic
growth and development.
Mr. Espy. Thank you, Mr. Oberstar. Perhaps we should call you
William Wadsworth Oberstar because of that eloquence. We appre-
ciate that.
Dick Durbin of Illinois.
Mr. DURBIN. Thank you very much, Mr. Espy.
John Kennedy is famous for some of his statements he made
during his Presidency. And one that I recall-Harvard educated
Kennedy received an honorary degree from Yale and said he had
the best of both worlds, an education from Harvard and a degree
from Yale. I feel similarly honored today to be on the Budget Task
Force with my seatmate and friend, Mike Espy, in the hometown of
my friend Harold Ford.
Harold Ford has spoken out for America's families throughout
his congressional career. Mike Espy, a relative newcomer to Con-
gress has made his mark already as an aggressive advocate, not
only for his district but also for rural America. He and I sit on the
Budget Committee, we are a distinct minority in terms of Members
who represent rural constituencies. We try to get a word in edge-
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6
wise with our urban and suburban friends and to make sure that
rural America is not forgotten.
I represent a district that is just a little above the Lower Missis-
sippi Delta, but I am on the Mississippi River. Mr. Oberstar is, too,
for that matter.
Mr. OBERSTAR. Starts in my district.
Mr. DURBIN. So we've got the Mississippi from one end to the
other covered today, and I know we're going to cover some very im-
portant issues. And I thank you for inviting me.
Mr. Espy. Thank you, Mr. Durbin.
Let's move on then to our first panel: Ann Cash, who is regional
director of the National Mississippi River Parkway Commission;
Wilbur Hawkins, president of the Lower Mississippi Delta Center;
John Sullivan, chairman of the Mississippi Presidential Council on
Rural Development, who is accompanied by James "Pete" Perry,
executive director of the Mississippi Presidential Council on Rural
Development; Winthrop Rockefeller, chairman of the President's
Council on Rural America; and Randall Sumner, who is vice presi-
dent of the Federal Reserve Bank of St. Louis, who is accompanied
by Sandra Braunstein-good to see you again, Sandra-program
manager, Community Affairs, Division of Consumer and Communi-
ty Affairs, Board of Governors of the Federal Reserve System, and
Linda Wilson.
We appreciate your being here today, and so let's start with Ms.
Cash. Again, please summarize your testimony and try to get it
down to about 5 minutes if you can.
STATEMENT OF ANN CASH, REGIONAL VICE PRESIDENT, NATION-
AL MISSISSIPPI RIVER PARKWAY COMMISSION, ON BEHALF
OF MINNESOTA STATE SENATOR JOHN BERNHAGEN, COMMIS-
SION NATIONAL CHAIRMAN
Ms. CASH. Mr. Chairman, Members of the Task Force, my name
is Ann Cash of McGehee, AR, southeast Arkansas, and I'm a re-
gional vice president of the National Mississippi River Parkway
Commission. I am providing testimony today on behalf of Minneso-
ta State Senator John Bernhagen, national chairman of the Missis-
sippi River Parkway Commission. Senator Bernhagen regrets that
he cannot be here today, but he and our executive director, John
Edman, are at this moment meeting with the Governor of the State
of Mississippi in Jackson regarding a Mississippi River internation-
al marketing program.
The Mississippi River Parkway Commission appreciates the op-
portunity to provide testimony to this House Budget Committee
Task Force on the topic of "Investments in America's Hometowns."
Our organization has been working in the 10 Mississippi River
states to stimulate economic growth in rural and urban communi-
ties through the development of highway programs, historical pres-
ervation and recreational projects and the implementation of do-
mestic and international tourism marketing efforts. While our ac-
tivities may be small in scale and funding, they demonstrate the
effectiveness of public and private partnerships in enhancing the
economic viability of a region.
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In this testimony I would like to update you on the activities of
the MRPC, particularly in our efforts to study the economic poten-
tial of the Mississippi River Valley. I'd also like to provide you
with some of the specific thoughts of Senator Bernhagen on the po-
tential role of a development bank or investment fund for the Mis-
sissippi River. In addition to serving as Chair of the National Com-
mission Senator Bernhagen serves as executive director of a rural
Community Development Corporation located in Hutchinson, MN.
First, I'd like to provide you with a little background on the Mis-
sissippi River Parkway Commission. As you may know the Com-
mission is a quasi-governmental organization of the 10 States along
the Mississippi River that exists to promote and preserve the re-
sources of the Mississippi River Valley, and to develop the regional
scenic by-way known as the Great River Road. In existence since
1938, the Commission consists of individual State commissions es-
tablished in each of the 10 States either by statute or Governor's
executive order that together comprise the National Commission.
Our organization's historic main goal is to develop highway and
amenity projects along the Mississippi River through the Great
River Road program. We have accomplished much toward this goal
with the expenditure of over $1 billion in Federal, State and local
funds on various Great River Road projects involving historic pres-
ervation, the development of scenic overlooks and bike trails, road
reconstruction and resurfacing, bridge replacement, and interpre-
tive centers. And as much as has been completed, however, the job
is only half done. An estimated $1 billion is still needed among the
States to complete the' projects and plans associated with this pro-
gram.
While working to complete our Great River Road projects and
plans we have also undertaken many new efforts to bring about a
greater domestic and international awareness of the entire Missis-
sippi River Valley. We have for several years developed programs
with State and local tourism industry partners in order to raise a
greater awareness of the tourism potential of the region. Although
funding for these programs has been limited we have done much to
increase tourism interest along the Mississippi River in the 10
States.
We have further launched an international marketing program
with the tourism offices of the 10 Mississippi River States designed
to increase the awareness of our region as a new destination for
international tourism travel. We currently have the financial par-
ticipation of 8 of our 10 States in this international marketing pro-
gram that is currently focusing on Japan. We are also currently
discussing the possibility of a new joint international marketing
initiative between the Federal Government and the States through
the United States Tourism and Travel Administration.
Perhaps the greatest partnership involved in our efforts to con-
duct a Mississippi River Fair in Osaka, Japan in 1988. This tour-
ism, trade and cultural exchange between Japan and the Mississip-
pi River States involved private industry, state tourism, involved
agriculture and economic development agencies, the Federal Gov-
ernment and the Commission. Funding for this effort was extreme-
ly difficult to obtain as there was no central organization or fund
PAGENO="0012"
8
to draw from to get this program off the ground. With much strug-
gle, however, the program was a success.
As part of our continuing efforts to provide a greater awareness
to the resources of the region we are currently involved as key
members of the Mississippi River National Heritage Corridor Study
Commission. This Commission, which is comprised of members of
the Mississippi River Parkway Commission in the 10 States and
five Federal Agency representatives, is charged to do an inventory
of the resources of the Mississippi River. The Commission is due to
complete a report to Congress within 3 years that will include rec-
ommended boundaries of a possible corridor designation as well as
recommendations on ways to increase economic development in the
region.
The Corridor Commission is now selecting a contractor for the
study and will be gathering information from throughout the Mis-
sissippi River States. The Mississippi River Parkway Commission
has already begun to assist in this effort by requesting each of the
States to furnish information regarding the types of economic de-
velopment programs and incentives for economic development that
they provide. There is much to learn from each other in developing
innovative programs to meet our local needs. We will, if it would
help, be willing to provide this information to your Task Force for
your review. /
Senator Bernhagen is particularly interested in the economic de-
velopment goals of the Corridor Commission and the Task Force,
particularly due to his capacity as executive director of his Commu-
nity Development Corporation. He has had experiences with eco-
nomic development programs in Minnesota that are perhaps simi-
lar to other rural areas in our region and that may be helpful for
this Task Force's deliberations. He has asked me to share with you
his specific thoughts.
A neighboring community to Hutchinson wrote a grant to the
State to help revitalize their main street commercial area. The
funds from this grant were to be matched with local dollars to do
commercial rehab and apartment housing, primarily for low and
moderate income people-is the time off?
Mr. Espy. Just summarize, please.
Ms. CASH. Let me give you this one thing and I'll conclude here
with it.
Mr. Espy. All right.
Ms. CASH. The funds from this grant were to be matched with
local dollars to do commercial rehab in apartment housing primari-
ly for low and moderate income people in a main street targeted
area. Basically the funding for the project was 15 percent deferred
loan, 42.5 percent zero interest loan and a 42.5 percent private
money. The program was successful only to a point. The grant was
for $800,000 of which $200,000 had to be turned back because of
lack of interest from business owners. They didn't feel they wanted
to put in that remaining 42.5 percent.
In the Senator's community he set up a similar program except
that the last 42.5 percent came from a local revolving loan fund
which they loaned out at 8 percent for a 10-year term. Not only did
the Community Development Corporation run out of money, but
there's a waiting list for additional applicants. They could do 27
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9
buildings out of 85 in this targeted area. And the Senator felt like
this might be something that the committee would be interested in
looking into.
He strongly feels that a revolving loan fund or a development
bank, as you have suggested, would pay great dividends in bringing
prosperity through new jobs, businesses and tourism to the Missis-
sippi River Valley region.
In essence anyway that the Mississippi River Parkway can help
you we will be glad to do it. If you would like to be in contact with
Senator Bernhagen we will be most happy to assist you. And I
thank you for your time.
[The prepared statement of Ms. Cash may be found at end of
hearing.]
Mr. Espy. Thank you, Ms. Cash. Please give Senator Bernhagen
our regards.
Ms. CASH. Thank you.
Mr. Espy. Mr. Hawkins.
STATEMENT OF WILBUR F. HAWKINS, PRESIDENT, LOWER
MISSISSIPPI DELTA CENTER
Mr. HAWKINS. Chairman Espy, Congressman Ford and Members
of the Task Force on Community Development and Natural Re-
sources of the House Budget Committee. I'd like to, first of all, wel-
come you here this morning to Memphis, which is not only the cap-
ital of Mississippi but the capital of the Lower Mississippi Delta
Region.
As you are aware, in 1988 the U.S. Congress saw fit to create the
Lower Mississippi Delta Development Commission. For 2 years we
studied the problems and conditions here in the Mississippi River
Valley area, and we were told at the onset that there was not a
need for another study, that the river area had been studied to
death and that we only needed more capital. Well, we found
throughout that process that there were a number of things that
we did not know about this region and it was an educational proc-
ess for the organizations and individuals in the region.
After we published our final report which was called the Delta
Initiatives, we were reviewed and scrutinized by many of the repre-
sentatives of the media, the citizens and organizations that had
participated in our process. The Commission published the report
that contained over 500 recommendations that covered 68 issue
areas. One of the most central things that we found throughout the
process of the Commission was the fact that there is tremendous
capacity that exists within local organizations, within local commu-
nities throughout the region. However, Federal policies, programs
and activities often work to the detriment of this region.
You have my prepared testimony and I will not go through in its
entirety, but I would like to just challenge you with respect to ca-
pacity, capital and priorities. I think that you will find that this
region has capacities that are untapped that can benefit not only
this nation but the world at large. We have grown many of the
crops that have gone all over the world to feed and to clothe people
of many nations, but at the same time we find that we're wrestling
with an absence of priorities within this country.
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10
Just yesterday I read where the Administration had proposed not
only to lift the sanctions on South Africa but also to increase the
$40 million that was designated to $80 million for the purpose of
housing, economic development and education. And if you think
about that and you look at the conditions that exists within this
region you will find that we have conditions that are far beyond
third world conditions in other countries throughout the world.
So I challenge you on your priorities. When I talk about capac-
ities, the Lower Mississippi Delta Development Center was a suc-
cessor to the Commission and was founded by the seven states for
the purpose of promoting economic development in this region. It
has chosen as an operational center not to be involved in the direct
development within the region, and there are several reasons why.
First of all we do find that the organizations and initiatives that
are undertaken by the people throughout this region only need
strengthening in large measure, that we do not need a lot of dupli-
cation. We do not need a lot more bureaucracy, so the center essen-
tially serves as an advocate for the Delta.
Beyond that, I think we can serve the Members of Congress and
this region very well in terms of thrashing through issues, helping
to bring together the collaborative organizations and the collabora-
tive roles that are necessary to promote economic development on
a very narrow and focus basis. We find that many organizations
are actually involved in their special initiatives, and if broadened
to look at the regional, national and global perspective we can, in
fact, shorten the time curve.
But when we talk about capital, it is important for you to under-
stand that there is capital within the region but it is regulated cap-
ital, it is capital that comes to the region in the form of welfare
payments. In Arkansas we have one county that receives over $25
million a year in transfer payments. But what we really need
within the region is developmental capital. Capital that can go
beyond just meeting the basic needs of the people.
And what we found in our report is that there was a call
throughout the region for some type of regional development, fi-
nancing organizations such as the regional development bank, a re-
gional trust fund, etcetera. And contained in my testimony is a de-
scription of what the United States Government did.
Congressman Oherstar, you alluded to the creation of the Appa-
lachian Regional Commission in 1965. If you will go back to 1933,
you will also find that the Tennessee Valley Authority was created
by an act of Congress. And from 1933~ until 1965-or 1955 or 1958,
the U.S. Government built what is now a $6 billion industry in
terms of utility.
Today TVA receives $135 million annually. And last year the
Congress authorized $150 million for the Appalachian Regional
Commission. And what I say is that it's a matter of priorities, and I
say that we continue to do from the delta, that we need help
within the region. And anything that you can do to help the region
is greatly appreciated. But also make sure that you set a priority
with respect to areas throughout this country, particularly rural
areas that are lacking in resources. Thank you.
[The prepared statement of Mr. Hawkins may be found at end of
hearing.]
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11
Mr. Espy. Thank you, Mr. Hawkins. We turn now to get the Ad-
ministration's perspective on these problems. John Sullivan and
Pete Perry.
Mr. SULLIVAN. Chairman Espy, Congressman Ford, my name is
John Sullivan T'm Chairman of the Mississippi Presidential Coun-
cil on Rural elopment. Also I'm Division Administrator for the
Federal Highway Administration, and Pete Perry, our Executive
Director, is going to make our presentation.
Mr. Espy. All right. Surely.
STATEMENT OF JAMES PERRY, EXECUTIVE DIRECTOR, MISSIS-
SIPPI PRESIDENTIAL COUNCIL ON RURAL DEVELOPMENT, AC-
COMPANIED BY JOHN SULLIVAN, CHAIRMAN
Mr. PERRY. Thank you, Mr. Chairman, and to the Members of
the House Budget Committee for the invitation extended John Sul-
livan of the Federal Highway Administration and myself to appear
before you here today on behalf of Mississippi Presidential Council
on Rural Development and share with you goals and objectives this
council is working toward in Mississippi.
And thank you, Congressman Oberstar, for your kind comments
earlier. It's good to see you again.
As Mr. Rockefeller will describe in his statement in a few min-
utes, the President's Initiative on Rural America announced in
January 1990, outlined six recommendations for rural economic de-
velopment for the 1990's. The creation of State rural development
councils was one of those six recommendations, and was imple-
mented with the establishment of eight pilot State councils in late
1990.
An interesting aspect of this effort has been that flexibility has
been a guiding principal for this project. Each State council has
been encouraged to develop its own approach to its formation, to its
membership, goals and to the issues that it faces. The complex fac-
tors that affect rural communities and the diversity of economic
and social conditions in rural America call for State and local
strategies, not national strategies.
This flexibility that is one of the key cornerstone concepts of this
initiative has been both a blessing and at times a headache. As the
council has struggled to work out its own organizational aspect and
its operational needs, the normal approach of having answers dic-
tated from Washington has been absent, allowing each council to
do as it sees fit for its own needs and its own purposes, but it has
caused us to spend an inordinate amount of time in organizational
efforts. This process, though, has provided an extra benefit in that
the pilot councils are rapidly taking ownership as we organize our-
selves, define our missions, assess the status of our States and draft
strategies to meet our needs.
A key aspect of forming the Mississippi Council was a desire to
secure a diverse membership of Federal, State, local and private
sector representatives. To insure that we could implement the deci-
sions of the council, we have maintained our membership at the
level that can control or influence governmental program policy,
including the managers of those Federal and State agencies who
have responsibilities for rural development in Mississippi, along
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12
with representatives of local governments, utility companies, pri-
vate enterprises, and organizations that are active in rural develop-
ment.
Currently we have 62 members, 16 from the Federal Govern-
ment, 21 from State government, 12 representing local govern-
ments, and 13 private sector and organizational representatives. As
we continue to consider the tasks before us we will expand our
membership as we deem appropriate at the time.
The mission of the Mississippi Council is to improve the quality
of life in rural Mississippi through addressing the economic, infra-
structure, medical, educational and environmental needs of Missis-
sippi's rural people. To achieve this mission, it is our intent to de-
velop and implement a strategy for the efficient and the effective
employment of rural development resources within the State. As
you are aware, these resources consist of a broad range of Federal,
State, local and private programs that were created with one or
more goals in mind aimed at assisting or alleviating perceived defi-
ciencies. However, these programs are generally created and pro-
mulgated in a "one size fits all" method, oftentimes with little or
no attention to the needs and desires of the people they were cre-
ated to help.
Hopefully, the Council can effectively devise a strategy that will
direct these programs to the areas most in need and modify pro-
gram policies, guidelines and regulations to fit those identified and
prioritized needs-a dramatic departure from the current situation
where program beneficiaries have to adjust their needs to fit the
particular program requirements of the resources that are avail-
able.
The Council hopes to identify and work to remove the legislative,
regulatory and policy barriers that exist in current programs of the
Federal and State governments. Also we intend to identify and re-
solve gaps, and to identify and resolve duplications and overlaps
within these Federal rural development programs.
For this Initiative to succeed, an unusual amount of cooperation
will be required between the various players involved-between the
executive and the legislative branches of the government, as well
as between levels of government. Also, the traditional turf protec-
tion-between agencies and across the levels of government-will
have to stop.
This effort should act as a model for other rural areas, particu-
larly the Lower Mississippi Delta Region. It is intended that this
concept will expand to the other States and territories over the
next few years, and that they can learn from the experiences of
our pilot efforts. And as part of the Lower Mississippi Delta
Region, I feel that our experiences in Mississippi will be extremely
helpful to those other States that are also part of the region, and
that some of what we accomplish in the coming months will par-
ticularly benefit them.
In closing, your invitation specifically asked for recommenda-
tions regarding funding levels to the management of Federal com-
munity development programs. It is my opinion that if we succeed
in this effort that the effectiveness of many of these programs
could be enhanced, increasing the positive benefits of these pro-
grams without the necessity of an increase in funding and probably
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13
with a decrease in administrative costs. Furthermore, without this
cooperation any increase in funding could result in an increase in
spending without any corresponding benefit increases.
Also, acknowledging that the funds available in many of these
areas are limited, the ability to accomplish the desired results
could be increased if the agency managers and the program spe-
cialists that are charged with overseeing the implementation of the
programs, as well as the appropriators and the legislative over-
seers, would allow the programs to be more responsive to the
actual needs and allow flexibility in their implementation. Further,
allowing the funds to be directed to those areas and individuals
most in need and less able to provide for themselves, as opposed to
spreading these funds like melted butter throughout the country,
insuring that all areas get a little coverage rather than bulk assist-
ance going to a few areas, would result in a much better actual re-
sults from these expenditures.
Thank you, Mr. Chairman. We'll be glad to respond to any ques-
tions you may have.
[The prepared statement of Mr. Perry may be found at end of
hearing.]
Mr. Espy. Thank you, sir. We'll withhold all questions until each
panel has made their presentation.
Mr. Rockefeller, we appreciate you being here.
STATEMENT OF WINTHROP P. ROCKEFELLER, CHAIRMAN,
PRESIDENT'S COUNCIL ON RURAL AMERICA
Mr. ROCKEFELLER. Thank you, sir. Mr. Chairman, Members of the
Task Force, on behalf of Governor and Vice-Chair Orr, and my
fellow council members it is a distinct pleasure and honor to
appear before you today as Chair of the President's Council on
Rural America.
I appreciate this opportunity to share with you all the Council's
visions and objectives for the rural America through the next cen-
tury. Rural America is, if you will, a nation within a nation with a
population of 57 million. It is as large as France, and yet at the
same time many of those 57 million live in conditions that can only
be described as third world. If you would, Mr. Chairman, permit
me to recount a brief Christmas carol of times in the not too dis-
tant past.
While discussing the Council with a colleague the other day, he
mentioned that he and his family used to deliver Christmas grocer-
ies to poor families in the Arkansas Delta. He spoke of one house,
too familiar, about a dozen people living in one room. Their sole
source of heat was half a 55-gallon drum sticking out of the floor
with a fire burning therein. Their so-called sanitary facilities
amount to only a path out back leading into the field, not even to
an outhouse. There are still many families in the delta living in
such suffering.
We are one country, Mr. Chairman, and yet many of our fellow
Americans are living in conditions which would cause us to feel
pity were we to see those same people in a developing country on
the 6 o'clock News. In the past we attended to the urban and rural
issues as two distinct areas. The 1930's and 1940's were decades
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14
which America recognized that it had to rebuild its countryside
after the devastation of the dust bowl. The 1960's and 1970's were
the decade of intense concentration on our urban problems. The
1990's must be a time during which we pay the attention necessary
to both urban and rural needs.
It is generally recognized that the world has become more of a
global community. We can, therefore, hardly afford to have a philo-
sophical devide in this within our own country. As the American
agriculturalist has to check the market report from around the
world each morning upon arising, we too, must recognize how
closely coupled the different segments of America really are.
For example, as America has become more mobile, so have the
problems. At one time we thought the drug problem was mainly
confined to the cities. Today, however, drug dealers wholesale their
poison out of rural America. Why? Because there's not enough law
enforcement officers in rural America to prevent it.
The President is well aware of the dependence between rural and
urban areas, and the years of neglect of rural areas which must be
overcome. Because of this he has created the Rural Economic De-
velopment Initiative, of which we, the President's Council, are one
segment.
One essential task for the Council is to debunk the myth of uto-
pian in America. You asked me to offer you mechanisms for financ-
ing economic growth in small communities such as is in the Lower
Mississippi Delta Region. Let me start by saying the solution
cannot be found in just another giveaway program emanating from
Washington. It must be a community initiative stemming from the
grass roots. It cannot be dependent upon enticing a new smoke-
stack which generally takes jobs from another region that needs
them too. Nor should the Delta just be a stepping stone before a
company moves offshore.
One solution is to add value to those products grown or extracted
locally. Another is to be fortunate enough to have the physical en-
vironment that proves conducive to tourism. Then, of course, the
problem becomes one of the chicken and the egg-which comes
first, the tourist boom or the infrastructure.
Economic development in the delta is unfortunately not just a
matter of another program or handout, it must be based, upon a
sound plan which evolves from quality research as to what the
area can offer or do. It must, to echo the other speakers, fit the
area. Vicksburg is quite different from Helena, and the plan for
the one most probably will not serve the other. And none of this
can happen without a well-educated populous. I'm not saying that
college is a solution for everybody, far from it, but we must seek
alternative educational opportunities for those who seek them.
The decade of the 1990's has been referred to as the decade of
the service sector. But are we building skilled technicians, crafts-
man and artisans who are truly in the service trades? I'm sure
most of you have sought out the services of a plumber or an electri-
cian on occasion. Sometimes, I'm not sure, I think it's easier to find
a brain surgeon than it is to find a good plumber. Speaking of
brain surgeons and health care, our rural hospitals are foundering
under the plethora of regulations, and yet when it comes time to
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15
pay the bill they only receive a fraction of that paid to their urban
counterparts.
And above all let us not forget one of the main reasons that
many of the 57 million of us choose to live in rural America. Thus
far our rural environment is still, for the most part, not totally de-
spoiled. We must be sensitive to that environment and the effect
we will have upon it future. But at the same time we must not reg-
ulate rural America to the point that it takes all the pleasure out
of living there.
Please don't forget that although an outhouse may be considered
a point of source solution-for many that may be the only option.
In conclusion, Mr. Chairman, I know that most of this ground
has probably been plowed before. The President's Commission
report has made many detailed suggestions, but unless they're im-
plemented, that report will just be one more pile of paper in a Gov-
ernment warehouse. I've included on that line, The White House
Rural Development Initiative and some previously prepared re-
marks which I'd like to include into the record for your later perus-
al.
We, of the President's Council, plan by next year to have some
more concrete policy recommendations to offer.
Again, thank you for the opportunity and we'd be pleased to
answer any questions also.
[The prepared statement of Mr. Rockefeller may be found at end
of hearing.]
Mr. Espy. Thank you, Mr. Rockefeller.
We move now to our representative from St. Louis, Mr. Sumner.
STATEMENT OF RANDALL C. SUMNER, VICE PRESIDENT, THE
FEDERAL RESERVE BANK OF ST. LOUIS
Mr. SUMNER. Thank you, Mr. Chairman, and Members of the
Task Force. My name is Randall Sumner, vice president and com-
munity affairs officer for the Federal Reserve Bank of St. Louis.
I'm pleased to be with you today to describe successful strategies
for community development that have been utilized by bank hold-
ing companies and their subsidiaries.
Through outreach programs sponsored by the community affairs
functions at the Federal Reserve Banks, we strive to assist bankers
and management of bank holding companies in their efforts to ad-
dress local community credit needs. Our role is one of suggesting
alternatives to help meet specific credit needs that have been as-
certained by local community partners. These credit needs differ
from one community to the next, and the programs designed to
meet them are as varied as the needs themselves.
Though no one approach will work for all communities and all
banks, there are several strategies that have achieved success in lo-
cations throughout the country. It is these strategies that I would
like to briefly share with you this morning.
Before discussing particular programs, I would emphasize that
selection of a program should come only after the particular need
to be met has been well defined. That is, the solution should not be
placed ahead of the problem. The development vehicles I will dis-
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16
cuss have all been successfully utilized, though they may not be ap-
propriate for all communities, banks or bank holding companies.
In your invitation to present testimony to the Committee's Task
Force, attention was drawn to development efforts involving many
parties in a community, including banks and other financial and
nonfinancial organizations.
Though not the only model of such development efforts, bank
holding company community development corporations, or CDCs,
have played just such a role in several communities within the
States that encompass the Lower Mississippi Delta Region.
Since 1971, the Federal Reserve has permitted bank holding com-
panies to invest, under certain circumstances and guidelines, in
projects primarily benefiting economically disadvantaged communi-
ties. Bank holding companies have used this limited authority to
help provide housing and job opportunities for low and moderate
income persons, to assist in the development of small and minority
businesses, and provide essential services to otherwise deprived
communities.
As you can see the Federal Reserve allows bank holding compa-
nies some latitude to tailor their investments to meet the disparate
needs of disadvantaged communities. However, community invest-
ment proposals are examined to determine whether the investment
meets the "community welfare test," and whether the size of the
investment is appropriate to its purpose and prudent for the insti-
tution. Also considered is the amount of community involvement in
the project to be supported by the particular investment.
The definition of community development is part of Regulation
Y, which specifies permissible nonbanking activities. Essentially it
states that investments designed primarily to promote community
welfare will survive the community welfare test. Examples include
new or rehabilitated housing, jobs created through a variety of
commercial and industrial development or health and educational
services, all targeted on low and moderate income persons and
areas.
Bank holding companies are also provided latitude with respect
to the for-profit or not-for-profit status of their community develop-
ment subsidiaries. Both forms of incorporation are permitted.
CDC's seeking investments or grants from foundations, usually in-
corporate as a not-for-profit status, though the majority of such in-
vestments are made on a for-profit basis.
CDC's may be established with a variation of management as
well as the for-profit or not-profit status and different types of capi-
talization. Some CDC's, and many that we're seeing today, are ac-
tually consortiums in which multiple participants, including banks,
bank holding companies, foundations, nonbanks such as electric
utilities and local government play key roles in the investment and
management of the CDC. The diversity of participation not only in-
creases the chances for success, but also maintains a focus on the
needs of the particular community involved.
Though few examples of CDC's that are going on right now
within this particular area, the specifics are in the prepared testi-
mony, but I would point out that these newer CDC's are truly joint
efforts of banks, bank holding companies, rural electric coopera-
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17
tives, and many other players that bring together their expertise to
meet local community credit needs.
You will be hearing this afternoon about a CDC in Arkadelphia,
AR that we have worked with over recent years. I won't go into
that now since you'll be hearing about it this afternoon, but I think
you'll find the opportunities created to be very interesting.
CDC's are effective development vehicles and consortium CDC's
can bring additional bank and nonbank investment and expertise
to the table. There are also other traditional vehicles that can be
utilized. Bank holding companies may invest in limited partner-
ships and also make direct investments in community development
activities as described in my prepared statement.
A number of vehicles are available. We encourage bank holding
companies to consider these possibilities and work with them as
they submit their applications to engage in these activities.
Thank you very much.
[The prepared statement of Mr. Sumner may be found at end of
hearing.]
Mr. Espy. Thank you, Mr. Sumner.
I had a discussion yesterday with David Broder, who's a Wash-
ington Post columnist. The discussion was principally on other
matters, but we got into the purpose for this hearing. During our
discussion I told him that within this area that we call the Lower
Mississippi River Valley we have about 8.2 million people, substan-
tial poverty, and with regard to involvement in income transfers,
we, as the Federal Government, presently give about $2 billion of
welfare to residents within the region. And he thought I had mis-
spoken. I said no, it's about $2 billion a year that we give in wel-
fare, benefits and payments.
Well, it doesn't take a rocket scientist to note that, within the
context of income transfer, the prospects for economic development
really isn't very bright. So, we need to try some new things. Just as
Mr. Hawkins said, with regard to other Federal outlays. I'm just a
little bit concerned about a fund that I found out about quite re-
cently. We give to Poland about $250 million into a vehicle called
the Polish-American Development Fund, to aid in their transfer
from a planned economy to a free-market system. A direct invest-
ment fund which is managed by an individual in a bank holding
corporation out of Chicago. So, I went up and met with them to
gain, for myself, a greater understanding into how this is being
done.
We called in the Delta report sometime ago for the same type of
investment fund and, I can say, it was met with some criticism.
Some mild criticism and some very severe from some Members of
the Banking Committee who point blank said that we have enough
capital in the region presently-we just don't have the ideas.
So I want to ask the panelist a general toss-up question, which
certainly could be answered by you, Mr. Sumner, or Mr. Hawkins
and then you, Mr. Rockefeller. The question is about the access to
capital situation. Is it true that the problem is not capital, that we
have enough capital in the region? What's your understanding of
the capital situation within the area? Anyone first-Mr. Hawkins,
you're aware of this criticism.
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18
Mr. HAWKINS. Mr. Chairman, I'm very much aware of the criti-
cism. What I have to say in response to your question is there is
capital here within the region, but you have to recognize that in
large measure the capital that is here is invested in other parts of
the country because it returns a higher investment and has a
higher rate of return.
Second, what I would like to say is that there are extreme short-
ages of capital when it comes to rural enterprise development such
as microenterprises and minority business development. And I
think the third comment that I would have is that access to capital
for nontraditional industries and enterprises within this region is
really a difficult situation to address. I do know that I'm working
with various loan funds now. The Tennessee Valley Authority has
recently announced the creation of a $15 million small and disad-
vantaged utilization fund.
What we have found throughout the troubles in the Delta Region
is that there's an unwillingness in large measure for financial in-
stitutions to invest in start-ups, acquisitions or anything that is
outside of the traditional, primarily industrial or agricultural
arena. And for that I think that an infusion of external capital will
help leverage existing capital within the region and give more
flexible rates to entrepreneurs within the area.
Mr. Espy. Thank you. Mr. Sumner, would you have an opinion?
Mr. SUMNER. Mr. Chairman, I cannot speak to the adequacy of
capital in the region on a macro basis, but suffice it to say the cap-
ital that is available does tend to be fragmented among many dif-
ferent institutions. That's why, in my judgement, we're seeing a
success in some of these community development corporations that
bring a number of diverse players to the table. That is, bring the
capital available from banks and bank holding companies, combine
that with capital available from nonbanking institutions as well as
sources of funding from foundations and other entities in the pri-
vate and public sector.
Mr. Espy. Yes, Mr. Perry.
Mr. PERRY. I'll speak just a second on public funding capital. I'm
going to avoid the question of capital from the banks, but having
dealt from a couple of different Federal agencies and looked real
hard at public funding that exists in this country, there's a great
deal of public capital available in this country. It's amazing how
many different ones there are; just in revolving loan funds. For ex-
ample, EDA, the Economic Development Administration provides
grants for that, as does CDBG ARC and now FmHA also. Plus
there are some local public funds that are being created too.
The problems tends to be from what we've seen in two indepth
studies that were done over the past few years on this issue, is not
the availability of capital so much but it's the type of capital. Even
in these public programs we have created them in such a sense
that now they tend to try to become banks. They're created gener-
ally as funds for those that cannot get money from banks, but they
tend to try to create a track record that shows they are good. They
try to keep a zero default rate and make only secure and solid
loans.
They try to provide low cost capital. And the cost of capital,
coming from a private small businessman's standpoint, is not
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19
really the issue. It's the availability of being able to borrow for the
start-up businesses Mr. Hawkins talks about, the new type busi-
ness, the ability to borrow. If you need to borrow money for real
estate, the banks don't want to loan on long terms. The public
funds do the same thing, they'll loan long term but they will not
loan working capital. A small start-up business has a real problem
with working capital.
Then even our public agencies write in regulations that keep the
amount of money that can go in working capital so we can keep a
good return and look good on the books when they go back to re-
quest more funds. We don't make the risky loans, but-and I don't
pretend that the public funds ought to be making risky invest-
ments but they ought to be going beyond where the banks are,
helping the local small town bank with it.
For example, the bank could make the secure loan of 60 percent
on the real estate and the public fund loan the difference, but
we're not doing that. And it's a great deal because of legislative re-
quirements and programmatic policy requirements from the execu-
tive side that has created that.
The other real frustration is that there are five or six of these
revolving funds and all the people who have these funds generally
have some money from each of the five or six. You have SBA
funds, EDA funds, CDBG funds, ARC, and they all have to be ac-
counted for differently, with a different set of books. And when the
lenders make a loan and it'll come out of three or four different
funds, so the poor borrower has to make three or four different ac-
countings. They all have slightly different programmatic require-
ments of objectives they're trying to reach, and so the poor borrow-
er has to "lie" on all the different applications as to what the pur-
pose is, while the real reason he's borrowing is to make his busi-
ness work.
But whether it is the jobs, low income or whatever, if we could
get rid of some of these cotton-picking regulations and let one loan
come out of those five or six funds, consolidate them all into one
and be able to loan there would be a lot more availability of cap-
ital. And do away with the different purposes-we all know what
the purposes are, depending on which committee it comes out of or
which agency it comes out of the purpose tends to have a slightly
different meaning.
If we could get rid of some of those conflicts I think it would help
solve an awful lot of problems. There's a lot of money out there in
these public funds, and they could help lift some of the foundation
money into private for-profit funds. But the struggle is the regula-
tions that we put on behind them.
Mr. Espy. Thank you. Questions from Mr. Ford.
Mr. FORD. Thank you very much.
Mr. Chairman, let me thank the panelist. Each one of the panel-
ist did a super job in addressing what those problems are in rural
as well as urban areas. I am not a member of this Task Force, I
want to once again thank the Chairman and the Members of the
committee for allowing me to participate.
I do have a couple of questions or observations to a couple of the
witnesses. Mr. Hawkins, you talked about the Tennessee Valley
Authority in which we're all very proud of the TVA in this particu-
PAGENO="0024"
20
lar area. You mentioned about the $150 million in congressional
appropriatidn. I didn't quite follow you. Are you suggesting that
those funds that we can allocate to TVA should be redirected or
similar funds should be focused, whether it's for Lower Mississippi
Delta Valley or some other mechanism that might be created
through hearings of this nature today?
Mr. HAWKINS. Mr. Ford, to answer your question, my illustration
there was to show that there are similar examples of the Federal
Government having supported rural development historically.
Those regions have benefited significantly from concentrated effort,
and a central source of funding on the part of the Congress.
Mr. FORD. Could they do more?
Mr. HAWKINS. They could, in fact, do more. The 219 counties that
the Tennessee Valley Authority-that the Delta covers, overlaps 66
of the 201 counties that the Tennessee Valley Authority covers. So
that is one. We do not have any overlap territory that the Appa-
lachian Regional Commission covers.
What I think has to be done is some type of formula that would
be looked at that really says where are the priorities of this
Nation, you've had over 50-some-odd years of success with the Ten-
nessee Valley Authority, over 20-some-odd years of success with the
Appalachian Regional Commission. And I think there are other
areas within this country that need the same type of support. I
don't necessarily favor more Federal total government, Federal,
State relationships, but I do see the need for the creation of more
public/private relationships. And I think therein lies where some
of the TVA, the ARC and some of the other Title 5 Commissions
can actually help this region organize and leverage resources in a
better fashion.
Mr. FORD. How do you relate the TVA to the public/private
entity?
Mr. HAWKINS. Well, the Tennessee Valley Authority, from 1933
through the 1950's, as I eluded to earlier, received Federal dollars
for the construction of its utility program. Today the TVA private
sector, the utility operation, operates as a private governmental
corporation. It is a $6 billion corporation, wholesaling electricity to
its 201 county areas, 160 distributors or so. And then those distrib-
utors actually retail that wholesale electricity to their customers.
My point is that is a--
Mr. FORD. But now this $150 million is a total--
Mr. HAWKINS. It's $135 million that they receive for appropriated
programs in 1991, fiscal year 1991. My point, Mr. Congressman--
Mr. FORD. And the $150 million you mentioned is not a part of
that $135 million?
Mr. HAWKINS. No, it isn't. It is the-TVA uses as operating re-
serve or will use as operating reserve for this loan fund. My point
is that just distinctly that if you look at the history and the prece-
dent the Federal Government has used to create a public/private
partnership in the TVA, similarly the TVA can also use its techni-
cal resources and its expertise to help a region like the Delta to do
the same.
And I think that the Congress can also, through your infinite
wlsdom and your leveraging capabilities, direct more of the exist-
ing agencies to do just that.
PAGENO="0025"
21
Mr. FORD. All right. Mr. Rockefeller, let me also welcome you to
Memphis. One or two observations in your testimony before the
committee, I totally agree with you and the problems that exist
with rat infested shacks in rural areas. Many of those conditions
exist right here in urban areas, I can speak for my own hometown
here in Memphis, TN.
But you also after addressing some of those problems that exists
in rural areas you talked about the solution cannot be found in just
another giveaway program emanating out of Congress. You say it
must be a community initiative stemming from the grassroots. You
go on and you talk about Federal Government just cannot have
some, you know, smokestack. Then you talk about some of the solu-
tions to these problems.
When you say another giveaway program, I've been there only a
short time in the Congress and I hear witnesses who testify before
many, many committees in the Congress, and often times they talk
about giveaway programs. And I think in terms of giveaway pro-
grams, I think of the $500 billion losses with the savings and loans
in this country that we are able to find through taxpayers dollars
to bailout. When I think in terms of giveaway programs we can
think in terms of huge dollar amounts that taxpayers are faced
with.
And when we see that these ills that exist in rural areas as well
as urban cities throughout this country, often times I get confused
talking to my colleagues in the House of Representatives. And
when I see a very distinguished scholar like you and the one who is
from a neighboring State here in Arkansas, and knowing of your
commitment and your ability I just want to make sure that I un-
derstand what you're speaking of when you talk about these give-
away programs. Because if they give it away like they have given
out the S&L's then maybe we ought to give it away to some degree.
But I would like to just hear your response to that, Mr. Rockefel-
ler.
Mr. ROCKEFELLER. Mr. Ford, perhaps you place too much cre-
dence on my education. However, I did not speak of the-when I
referred to the smokestacks I was speaking from the fact that it's
incumbent that we do not seek to solicit or draw an industry from
another segment of the country to our part of the country, which
usually ends up being at the other segment's expense.
Perhaps my use of the word giveaway was somewhat enthusias-
tic or over enthusiastic. The point I was trying to make there, sir,
was that the only prospect for the future for the growth and ren-
ovation, if you will, of rural America must be as-I believe as Mr.
Hawkins said, a collaborative partnership, a collective effort where-
by the community has to have the involvement. There must be a
community initiative, a community interest in pulling one's self
up. The Federal Government, the--
Mr. FORD. But how do we get there? I mean, give us some-how
do we get there? I mean, how-I live here in Memphis, I'm not
from a rural area, it's difficult for poor communities to pull them-
selves up when you have an insensitive maybe local government
and State government as well as our Federal Government. I mean
we must have those initiatives in order to give the type of help to
communities that communities can, in fact, pull themselves up.
PAGENO="0026"
22
Mr. ROCKEFELLER. Absolutely, sir. It is, as you say, a collabora-
tive effort with Federal, State and loca, but there must be a local
commitment. Perhaps I didn't phrase myself correctly. There must
be a local commitment to doing something. We cannot wait for the
solutions to be handed us, be it from Washington, be it from Nash-
ville or Little Rock. We have to be directly involved in our own fu-
tures.
Mr. FORD. You're not suggesting that we can do this without Fed-
eral funds or without public dollars?
Mr. ROCKEFELLER. Not at all, sir.
Mr. FORD. Not at all, okay.
Mr. ROCKEFELLER. But I think it is crucial and it is essential that
the local community. And Mr. Sumner spoke of the banks, the
Alcorn Bank in Arkadelphia was-if you'll allow me to correct you,
part of the Winthrop Rockefeller Foundation funding. And the pur-
pose of that-it was an extension of the South Shore Bank in Chi-
cago. The community and the private sector-well, the private
sector and public sector are not-for-profit sector working together
to pull themselves up, to pull themselves out of an acceptable cir-
cumstance, if you will.
Mr. FORD. Thank you. One final question, Mr. Sumner.
Mr. SUMNER. Yes.
Mr. FORD. Is the Community Reinvestment Act-we have con-
cerns in this area, and I'm sure it's true in the rural areas. What
type of oversight from the Reserve, or if there's any at all? I'd like
to make sure that these financial institutions who might see invest-
ments or loans or whatever in areas, but don't see that big return
on their dollar or lose interest in certain projects that would go a
long way in addressing many of the problems that we're faced
with. And more so than even African Americans who are totally
from a community perspective, an economic development perspec-
tive, are completely turned down before they even get to the door.
Are there any variables within the Reserve that suggests oversee-
ing of this?
Mr. SUMNER. The Community Reinvestment Act, of course, is di-
rected at all banking regulators, including the Federal Reserve. It
does require us to assess a bank's record of meeting credit needs
within its local community, including the needs of the low and
moderate income areas. Those assessments are made on a routine
basis, and the bank's performance ratings are now public.
Mr. FORD. So it's just an oversight? Once that oversight takes
place, I mean when you see that there's a financial institution in
any particular given area that is not meeting whatever the point
system would be, are there recommendations that are--
Mr. SUMNER. In the process of acting upon an application sub-
mitted by a bank or a bank holding company one of the elements
we consider in deciding at whether or not to approve that applica-
tion-and I stress it's just one of the elements, is the bank's record
in its Community Reinvestment Act performance. That's where the
oversight really comes into play.
Mr. FORD. Thank the panelist. Thank you, Mr. Chairman.
Mr. Espy. Thank you, Mr. Ford. Mr. Oberstar.
Mr. OBERSTAR. Thank you, Mr. Chairman. I, too, appreciate the
testimony of the panel. Ms. Cash, I just want to point out that the
PAGENO="0027"
23
House Public Works and Transportation Committee is in the final
stages of drafting the new transportation bill that will `guide our
highway transit policies for the balance of this decade. And princi-
pal among the new provisions in that bill will be a Scenic Byways
program to continue the work of the Mississippi Parkway Commis-
sion, which is the granddaddy of them all, if you will, started in the
1930's, and a cooperative effort among the ten states and the Prov-
ince of Ontario that joined in this initiative.
And, of course, the Natchez Trace Parkway which goes through a
good deal of Tennessee, Mississippi and Alabama, which has also
been a very, very successful scenic roadway generating millions of
tourism dollars. So you can take some comfort knowing that long
years of effort have paid off and we're going to see a sustained pro-
gram. I expect an initial authorization of some $25 million out of
the Highway Trust Fund to continue this very modest, but I think
very effective program.
Mr. Perry, I think your contribution focusing from your many
years of experience on flexibility is a very important one. You talk
about several aspects of the EDA, ARC, Community Development,
Farmers Home Administration, programs each having a slightly
different focus, all of them aimed at economic development, each
providing funds for a different purpose with a different authoriza-
tion.
Are you suggesting that the Congress ought to melt those all into
one single program with a broad charter for economic develop-
ment, and allow the administration of that program to fit its fund-
ing to local initiatives?
Mr. PERRY. Mr. Oberstar, as my personal opinion I think I prob-
ably would say that melting of-not necessarily all of those but a
good many of them carry more benefits than it would harm. When
the President's Initiative first started as a working group that was
my conclusion that we ought to come up with one agency rather
than 25 that did economic development in this country.
I was shot down generally by saying that I was a dreamer in
thinking that we could ever get such a thing done, and we ought to
aim for something a little more possible, getting it done both on
the executive side and the legislative side. I mean we felt like it
would be a big problem to try to meld these programs from both
legislative and agency sides. I think that there's a good bit' of it
that could be combined very easily with a lot of benefits and would
be much better.
My frustration comes from probably being part of the problem at
times, at least, but in the different agencies. Some poor mayor from
a small town with 5,000 people comes to you and wants to put a
water line in from point A to point B. And he goes to EDA and
EDA says we've got to have jobs, so he finds the jobs. He goes to
the FH who says you've got to have rural residents. He goes to
CDGB who says you've got to have low and moderate income
people. He goes to EPA and the people there tell him of the regula-
tions they're going to put up.
Well, the mayor ends up lying to all four agencies, and tells
them all what they want to hear-he goes out and finds somebody
that tells him they're going to put in jobs but he can't if he doesn't
have the water line-and he goes to find some rural residents. All
PAGENO="0028"
24
he wants to do is get water from A to B and serve everybody he
can~ Also, you've got four different applications, you've got four dif-
ferent reporting, accounting requirements, you've got different
rules and regulations you've got to do. For instance, Farmer's
Home won't let you put any more than lets say 2-inch lines, and
EDA won't let you put in less than 6 inches-but yet we can all
fund the same project.
One agency could help solve a lot of that. Short of one agency
we're hoping that this effort with this Presidential Initiative and
State Councils will internally change those things that aren't statu-
tory-we'll just work out ourselves and keep up with those of us
who used to make these stupid rules, and tell us why they're
wrong. And where we have statutory problems, we will come back
to Congress and try to remove the statutory limitations that stop
that. I think there could be some benefit if they were all in one
agency.
And the administration of these various programs-as you know
I've testified before on EDA, it's a shame to have a $180 million
program and spend $25 million to administer when you can take
the same $180 million and drop in any one of those programs, and
either save the $25 million or put it in the programs. And that's
not to speak of the administration-obvious it's just a great deal of
administrative costs. So some melting-and it would be tough and
it would take a lot of effort but I think it would be well worth it,
and then be able to target those funds as you wanted them as the
need would be.
If it's in the Lower Mississippi Region, if it's in Star County,
Texas or wherever it happens to be that you want to target those
funds let them go out of that agency.
Mr. OBERSTAR. Well, to a great extent that's what we've attempt-
ed to do in the H.R. 10, the rewrite of EDA programs which has
success in passing the House, but not the Senate.
Mr. PERRY. But that only deals with EDA, that does not deal
with all these other programs.
Mr. OBERSTAR. Well, but what we tried to do within the context
of EDA was to simplify the programs and eliminate the rigid cate-
gories that developed and give greater flexibility. And I would like
to do that on a multi-program basis. I think in the context of a
growing Federal budget we could do it. The fear of many of my col-
leagues and my own concern is that if you put all these programs
into one pot it grows, gets to be a rather sizeable amount of money,
and then the budget cutters come along and say, ah-ha, there's
where we can chop.
If it's a series of small programs they're not so likely to be cut.
What you need is some coordinating, central coordinating effort
perhaps at the absent a massive reorganization coordinating effort
to do exactly what you were saying. And I've attempted to get that
kind of initiative underway. Short of doing that each Member of
Congress makes his staff into an economic development coordinat-
ing council.
Mr. Sumner, the regulations that some years ago were modified
to allow bank holding companies to not only invest in community
development corporations but also be development entities them-
selves, has been successful in some areas of the country. What ex-
PAGENO="0029"
25
perience have you had? You've cited a couple of initiatives in your
testimony. What other successes have you seen of the effect of that
regulation change?
Mr. SUMNER. The examples cited in the testimony are rural com-
munity development corporations. As the testimony sets out they
involve multiple partners in most cases. That is the---
Mr. OBERSTAR. What about bank holding companies, what initia-
tives?
Mr. SUMNER. Banks and bank holding companies have formed
partnerships in other areas including right here in Memphis.
Three banks are involved in a community development corpora-
tions that address housing needs in the Memphis area. We have
seen similar in Chicago, and other more urban areas, particularly
along the lines of housing where the holding company is permitted
a direct investment under the 1971 Amendments to the Bank Hold-
ing Company Act.
So these have--
Mr. OBERSTAR. And these are investments that are collateralized,
that are very carefully scrutinized, that are loan based and pre-
sumably very carefully monitored by the bank holding company be-
cause they're subject to review by the Regulators.
Mr. SUMNER. Right. The amount of the investment is monitored,
and the nature of the investment is monitored not unlike a direct
loan made by the bank.
Mr. OBERSTAR. How much money is being invested in such initia-
tives by bank holding companies in your region?
Mr. SUMNER. I'm sorry, I don't have any aggregate figures with
respect to total.
Mr. OBERSTAR. See, if on the one hand the public policy posture
is avoid the giveaway programs, read grant, read government, Fed-
eral Government loan. Then the alternative is investment by the
private sector, and that's why the Congress opened up the door in
1971 for bank holding companies to make those investments to see
what the private sector would do, see what the collateralize lenders
would do, what kind of investments they would make.
Some areas have been very successful, others just a trickle. And
Mr. Rockefeller, I must say that your testimony is long on guidance
and planning and organization. At the end of the day to get invest-
ments you need money. And if the money isn't coming from a pri-
vate sector then somehow there has to be some Federal, State and
other public investments to make those initiatives succeed. Jobs
don't materialize out of thin air-takes dollars to do it. It's not the
kind of program, frankly in my 25 years or so of experience, but
it's the oversight of that program and the management of that pro-
gram in insisting that it's well run.
I don't like to hear programs characterized as giveaway pro-
grams to downgrade the whole range of public assistance initia-
tives. But I'd rather see tough monitoring and rigorous oversight of
the operation of those programs to see if they work and work effec-
tively.
Thank you Mr. Chairman.
Mr. Espy. Thank you Mr. Oberstar. Mr. Durbin.
Mr. DURBIN. Thank you Mr. Chairman. I want to relate a person-
al experience I had in my district and ask if some of the members
PAGENO="0030"
26
of the panel might be able to give me a little guidance on how they
would react to the situation.
Several years ago a plant closed in a very small town in my dis-
trict, a plant which employed several hundred people. The whole
county went into a panic. This was an important employer that
meant a lot to the community and a lot to the county. It scared us
to death to think that all these people would leave and all the chil-
dren would leave.
We enlisted every level of government, every private agency,
every bank, every group we could think of to try to find someone to
occupy this plant. We brought together every incentive package
known to man, tax incentives-you name it. And we found a com-
pany. As luck would have it the company decided to cut its ribbon
a week before the election, the ceremony was eight deep with poli-
ticians trying to get in the picture cutting the ribbon. The Gover-
nor came in by helicopter-we were all there, big smiles on our
faces, we'd saved the plant, back in business.
About 5 months later I was driving through this town and decid-
ed to stop at this plant and take a tour. And I went inside to find,
not inhuman working conditions but pretty rough working condi-
tions, to find that the people working there were being paid 10
cents more than the minimum wage, that there were virtually no
health benefits available, certainly no discussion of pension bene-
fits and a very unclear picture as to whether there was much in
terms of family leave or vacation on the horizon for these folks.
Most of the workers were 18, 19 years old, fresh out of high
school with no college, no training. They were there and working
unable to even purchase a car with the limited amount of money
they were making. They certainly couldn't live on their own or get
married or consider anything else we can put as part of the Ameri-
can dream. That plant lasted about 6 or 8 months.
And it raised a question in my mind as to whether or not we
should be holding up any kind of a standard, any kind of guideline,
yardstick when it comes to these efforts to attract businesses to
communities. I don't know if that company made any money as a
result of that experience-maybe it lost some money and tried and
didn't make it. But we really were ready to do anything in our
power to get workers back in that plant and it showed, because
when it was all said and done I don't think we helped the commu-
nity, I don't believe we helped the employees there.
There's some people who say maybe these are skeptics, maybe
they're right, that we waste a lot of time in resources in just that
sort of effort. That the money is better spent on infrastructure,
which my colleague, Mr. Oberstar is acutely aware of with Public
Works Committee, and I work on with the Transportation Appro-
priation Subcommittee. Some say putting the money in education
and health care has a heck of a lot more to do with the quality of
life and whether a good business will want to come to a communi-
ty.
Mr. Hawkins, what do you think?
Mr. HAWKINS. Congressman Durbin, first of all my first comment
that came to mind is ESOP. On the front end there should have
possibly been explored an opportunity for employee stock options.
Secondly, I think that local ownership of that company would have
PAGENO="0031"
27
helped in a large measure, because I think if you look throughout
this country the only industry that cannot pick up and go in hard
times is the utility industry. But beyond that if you take a second
look, local ownership has a tendency to stay in a community and
ride out the good times and the bad times.
And I think a lot of times we tend to look to recruit existing in-
dustry from other areas. We try to look at how do we bring in the
big smokestacks to rural areas, we build spec buildings, we do a lot
of the things that your home area has done. But we have not fo-
cused our attention upon providing capital, technical assistance so
that we can develop those local industries, those microenterprises
and make them self-sustaining initiatives within their own commu-
nity. And then education, health care and all of the other things
take place.
I think that when you look at the fact that many times we have
companies, particularly within the delta that are owned by foreign
investors, they're owned by people from outside this region. And
then when it comes time for economies or even hard times in terms
of the bottom line, the profitability in those firms, you find them
shutting the ones in rural areas like the delta.
My point to that is is that if, in fact, local ownership were in
place-there were perhaps 50 or any type of majority, minority
ownership with local versus foreign areas or other capital, that
marriage would have been struck. And then in difficult times it
would be easier to buy out that percentage as opposed to buying
out the whole operation.
Mr. Espy. Mr. Rockefeller, what do you think?
Mr. ROCKEFELLER. Well, sir, I have to concur with Mr. Hawkins.
It does take the infrastructure, the capital. I harken back to some
of the studying that we've done on the Council to the story of the
Carolina's which has one of the lowest unemployment in the
nation, lowest unemployment rates in the nation and has probably
one of the highest working poor percentages in the nation. I don't
have the solution for it, sir, I wish I did. But I think the direct local
involvement is a possible solution to the sort of problem that you
had with your plant.
Mr. DURBIN. Mr. Espy here, I think, made a valid point earlier
about the money that comes into this region and my region too, in
the form of welfare payments. And, how, if we put some of that
money into investment in people early on perhaps we could create
a work force that would attract a business that would pay people
enough to come off welfare and see a future. I'm fearful that we're
operating on a margin in many of our rural areas in America, and
think that the creation of a job per se is the answer to the problem.
Thank you.
Mr. Espy. Thank you. And thank you, Mr. Durbin. I really appre-
ciate all the testimony that we've heard today. We obviously could
keep you here another hour, but we're unable to do that. We've got
three more panels to move through. So, if I could just ask that we
could dismiss this panel and move to the second one.
Mr. FORD. Mr. Chairman, would you yield at this time, if you
don't mind, please?
Mr. Espy. Sure.
PAGENO="0032"
28
Mr. FORD. Mr. Chairman, I'd like to welcome this panel. I hap-
pened to be familiar with the whole group that's here and I want
my colleagues in the Congress to know that this panel that has as-
sembled here now has been a group that has worked on economic
development for quite sometime in this area. And there would be
very, very little economic development in this city if it was not for
the people I see that appear on this particular panel at this time,
in the Memphis area.
I salute each one of them. I want ~ou to know that Chairman
Espy and the other Members of this committee hopefully will take
these recommendations back and will help strengthen us in an
urban setting here in this city. And Mr. Welch, Ms. Dobbins, Mr.
Rowe, Mr. Holeyfield, thank you very much.
Mr. Espy. Thank you, Mr. Ford. Let me just assure the witnesses
here that we're not just here to hear you and leave. There will cer-
tainly be some follow-up. Your testimony, both written and oral,
will be presented to the full Budget Committee and to our col-
leagues. We do appreciate your presence here and we will note
your recommendations.
Why don't we start with Mr. Luboti.
Let me repeat the instructions. We have several other witnesses,
two other panels behind even this one, and if we could just ask
that you try to summarize your written testimony and to present
yourself in no more than 5 minutes, please. Be assured that your
written testimony will be made a part of the record.
STATEMENT OF WESONGA LUBOTI, REGENT INVESTMENT
CORPORATION
Mr. LuBOTI. Thank you, Chairman, and those attending. I'm here
on behalf of Regent Investment Corporation. We propose that
Memphis as a city and its metro areas would benefit much better
from a development bank. A development bank offers a variety of
opportunities that other banks do not offer.
First, we have to look at Memphis and its metro area, and the
kind of population that we do have. The population is composed of
mainly disadvantaged persons, whoever they may be. Those per-
sons do possess, as we believe, and as I believe, the talents and po-
tential to participate and contribute to the economic development
of the region.
However, they are faced with such an obstacle that not only in-
cludes technical skills but capital in particular. We propose that a
development bank can work in conjunction with the State and Fed-
eral Governments whereby the Federal Government can also make
a set amount of financial support without changing any existing
rules. I'd like to give an example on this investment.
If we look at the Federal Government, we spend billions of dol-
lars by administration, and yet we complain about the waste. And
if we look around we still find certain people, the disadvantaged
people are not able to borrow the SBA loans. What bothers me on
that is that those people cannot really borrow or the banks do not
consider them what we call prime business opportunity. However,
a development bank would offer the individuals the opportunity to
go into business when it's at its prime level.
PAGENO="0033"
29
All businesses that do succeed have to be established within their
prime phases, and all businesses that do fail are only established in
phases that are contrary to what we call economic implication.
Without going into economic terms, if the Members of Congress,
particularly those who come from this area, want to see the disad-
vantaged persons who possess the talents and potential to succeed
succeed, we're going to what we call experimental methods where-
by local investors can put together the capital.
And on the other hand, the Federal Government in connection
with the local and state governments can offer certain amount of
money for experimental purposes in that the good face of itself
could not only produce the results that we are seeking. I'm not
trying to be theoretical in nature but a practical way. In this area
there's a nonexistence of what we refer to as true venture capital
for new industries and for enterprises owned by individuals that
are a part of the disadvantaged group in our community.
Rarely banks are interested in lending the money. More often
banks, what we call banks-I call them traditional banks, but the
banks are more or less interested in loaning to the affluent, a few,
and to the big corporations. They're not interested in earning
$5,000 to $10,000. They see that as a waste of time. And actually it
costs them more money as they argue to make analysis or apprais-
al of such small loans.
A development bank can go out of its way and take its time to
look at a small person, small need and work with that person from
the conception of the idea to the maturity of that idea. Not only its
maturity but to constant encouragement in order to repay the
amount borrowed. Such repayment can benefit others who might
want to borrow in the future. And we offer our support to all of
those in this area who are interested in establishing a development
bank.
Actually, we do believe that we are going to be able to do it be-
cause all of you and all of us are here because we are interested in
economic development of our region. Thank you.
[The prepared statement of Mr. Luboti maybe found at end of
hearing.]
Mr. Espy. Thank you, Mr. Luboti. We move now to Mr. Holey-
field.
STATEMENT OF MABRA HOLEYFIELD, VICE PRESIDENT,
SECURED CAPITAL DEVELOPERS, MEMPHIS, TN
Mr. HOLEYFIELD. Thank you, Mr. Chainman, and other distin-
guished panel members. It's an honor for me to be here on behalf
of Secured Capital Developers. Our company is involved in manag-
ing venture capital funds and loan funds of a wide variety which
includes Farmers Home Administration and various foundations.
And it has given us the opportunity to manage funds not only for
urban ventures but also for rural ventures as well. And I think
from that perspective we have a deep interest in this particular
subject.
The need for locally based and managed revolving loan funds
was established in the early 1960's. It was shown that conventional
lending institutions were not responsive to the needs of the lower
44-629 0 - 91 - 2
PAGENO="0034"
30
income communities. In fact, the practice of "red lining" was quite
common. As a result, those communities most in need of economic
development were barred from consideration.
Federal and local governments along with several large founda-
tions responded with the development of a variety of loan funds
and programs designed to provide capital to businesses in dis-
tressed areas.
Because of the current problems in the banking industry, the
need for continued support in this area is even more acute. Loan
approval requirements at conventional institutions are such that
minority businesses in particular have a difficult time qualifying.
The most difficult requirement is that the applicant has to have
collateral equal to the value of the loan.
Managing loan funds targeted to minority businesses or dis-
tressed communities is significantly different from managing loan
funds for a bank. A bank loan officer essentially examines the
credit history and collateral of an applicant. A business plan is re-
quired but it is not given as much weight as the collateral that's
offered. A great business plan and weak collateral will not produce
a loan approval at most banks.
Given the fact that applicants to revolving loan funds will not
normally meet collateral requirements, the managers have to be
more skilled in evaluating business plans and the skills of those in-
volved in the business. In many instances the manager will have to
provide some level of technical assistance in order to assist the ap-
plicant in qualifying for a loan. This means that if a loan fund is
going to be successful, funds will have to be available to pay a
highly competent staff.
Even a competent staff cannot change the fact that a higher per-
centage of loans will end up in default, than would normally be the
case in a conventional institution. Given this fact, realistic goals
must be established at the beginning. These goals, which might in-
clude failure rates as high as 25 to 30 percent, must clearly be un-
derstood by the funding source.
Failure to set realistic goals often results in revolving loan funds
establishing loan criteria similar to banks in an effort to reduce
the failure rate. Once this is done the revolving loan fund becomes
irrelevant. What we must understand is that one of the major
problems facing the minority business community is a lack of his-
torical involvement in business. This lack of history makes it even
more difficult to succeed. While revolving loan funds will experi-
ence a higher failure rate, even failures contribute to the develop-
ment of entrepreneurs who will eventually succeed.
Another problem that I want to mention is the fact that many of
the funds that were originally designed to provide equity capital
very seldom do so in a form that's going to help the business. More
specifically the MESBICs, for instance, they have the flexibility to
provide equity capital but in most instances when they make a
loan the equity that they take usually is a result or is aside from
the fact that they made a loan and they got an equity participation
based upon the fact that they made this personal loan.
The original intent was to reduce the front end debt service pay-
ments that businesses experience in a start-up situation, but what
really happens is that they have a debt and they've given away a
PAGENO="0035"
31
part, of the business in addition to that. So we think that there is a
need for additional capital for locally based organizations, but the
flexibility that was originally intended that also needs to be ad-
dressed in the regulations. And I think there needs to be more un-
derstanding on the front end from the funding sources that they
need to use these flexibilities and also not penalize those who
manage these funds for taking a chance and actually making an
equity investments and giving them the flexibility that they need.
This concludes my presentation. Thank you.
[The prepared statement of Mr. Holeyfield may be found at end
of hearing.]
Mr. Espy. Thank you, Mr. Holeyfield. I understand, Ms. Dobbins,
you're appearing for Ron Mann.
Ms. DOBBINS. That's correct. -
Mr. Espy. All right, why don't we move to you at this moment,
then to Mr. Rowe and to Mr. Welch.
STATEMENT OF OLIVIA DOBBINS, ON BEHALF OF THE BLACK
BUSINESS ASSOCIATION
Ms. D0BBIN5. I'd like to say thank you, Mr. Chairman, for the op-
portunity to appear before this panel representing the Black Busi-
ness Association. We serve as a representative on many fronts for
the causes and problems of our members and other socially and
economically disadvantaged businesses in the region. Our mission
is to positively advance the black community through upgrading its
economic opportunities and position.
In December 1989, we began a series of meetings with local lend-
ing officers, the local FDIC, other organizations and individuals in
the financial field. From these meetings the BBA and others real-
ized it was time to bring the community together to create an inno-
vative plan truly capable of addressing the sizeable problem. We
are currently working with the Shelby County Community Rein-
vestment Coalition on a joint CRA responsive proposal. This pro-
posal will become a part of the CRA package at the local banks.
No. 1, we believe that they should create a comprehensive busi-
ness development plan to be produced by and have input by the
banking community, local government, the county government, the
BBA, the Black CPA's, the local universities, LeMoyne College,
Shelby State Community College, Memphis State University and
all concerned organizations.
Two, we believe that there should be funding for an economic
study of the African/American community for its access to busi-
ness and housing requirements.
Three, we request that the local lending institutions with CRA
requirements join with the Tennessee Valley Authority in creating
a capital pool that will provide debt, equity capital for businesses,
especially those located in target census tracks, capable of provid-
ing entry level jobs and training opportunities for disadvantaged
residents. This fund would coordinate the diverse loan funds and
also provide technical and management support programs that's
currently available in the Memphis, Shelby County and Lower Mis-
sissippi Delta Region, but until this point it's somewhat underuti-
lized.
PAGENO="0036"
32
The plan would also link the products and land resources of
North Mississippi to the distribution capabilities of Memphis. In es-
sence, what we're looking for there is the government to play a
role in priming the pumps from the local banks to fund such a pro-
gram. Such a program would be able to create jobs. We see that
Memphis could act as a vortex to distribute the goods produced by
Mississippi.
Four, that the local lending institutions would establish financial
and technical assistance partnerships with community based
groups and organizations that seek to revitalize target neighbor-
hoods and provide housing. In essence, with that point what we
would like is for the bank to provide some of this expertise. We'd
look at major corporations and banks as having the technical
wherewithal to help a small neighborhood CDC.
In brief, the minority businesses need assistance from the Feder-
al Government in the form of business development grants to help
buy equipment, programs to provide low interest loans and assist
with bonding, timely information on government sponsored busi-
ness seminars. Removal of the barriers that make it more difficult
for black businesses to compete, increase minority participation in
hearings, panel discussions and committee's that pertain to busi-
ness economic development. Requirements of a community rein-
vestment plan for majority of corporations participating in govern-
ment contracts, this should include joint ventures between majority
and minority companies on public sector projects and private sector
projects.
Incentives to contractors, contractor associations to train and
assist minority firms and to train socially and economically disad-
vantaged individuals. Incentives to majority corporations for joint
ventures in both the public and private sector contracts. And in-
centives to local banks and majority corporations that adopt a
neighborhood.
Memphis and Shelby County has demographics not found in any
other region of the United States. The minority population has in-
creased to 55 to 60 percent in Memphis, and 42.7 percent in Shelby
County, yet there remains a vast disparity in economics. According
to the 1984 ED & A figures we have 39.8 percent of TVA's subre-
gion minority population, yet there still remains a problem. Mem-
phis is, therefore, in the ideal situation to share ideas on improving
the economic climate of the region. I thank you.
[The prepared statement of Ms. Dobbins may be found at end of
hearing.]
Mr. Espy. Thank you. Mr. Rowe.
STATEMENT OF GARY ROWE, DIRECTOR, MINORITY BUSINESS
DEVELOPMENT CENTER, MEMPHIS, TN
Mr. ROWE. Mr. Chairman and Members of the committee, on
behalf of the Memphis Minority Business Development Center op-
erated by Banks, Finley, White and Co. CPA's, and funded by Mi-
nority Business Development Agency, U.S. Department of Com-
merce, I thank you for this invitation to testify before the House
Budget Committee Task Force on Community Development and
Natural Resources.
PAGENO="0037"
33
I wish to make it clear that I am speaking as a director of the
Minority Business Development Center and not as a spokesman for
the U.S. Minority Business Development Agency.
The Memphis MBDC is part of network of 100 centers nation-
wide. The Memphis MBDC serves the standard metropolitan and
statistical area to include Memphis and Shelby County, Tipton
County, Crittenden County, Arkansas, and De Soto County, MS.
The Center provides management and technical assistance to in-
dividuals and firms in the areas of marketing, finance, construction
assistance and management to improve the gross receipts, profits
and net worth of the firms are also assisted. All firms and individ-
uals seeking assistance from the BDC will be provided with initial
general counseling and referral assistance free of charge. Subse-
quent services would be on a fee for services basis.
The Memphis MBDC develops and maintains an inventory of mi-
nority vendor firms qualified and capable of selling their goods and
services to public and private sector, and to broker or match these
minority firms with public sector procurement and private sector
contract opportunities, both foreign and domestic.
The Center identifies qualified minority individuals and firms
with the potential to start new businesses and expand existing
businesses and to broker or match these individuals and firms with
new business ownership opportunities.
In addition, the Center identifies capital sources for investment
in or lending to minority firms or potential entrepreneurs.
The Center is an integral partner in stimulating economic devel-
opment in Memphis and the mid-South. The annual report of per-
formance during the period of April 1, 1990 through March 31,
1991, reflects a culmination of partnerships with the public and
private sector.
The Center assisted a total of 147 minority businesses providing
1992 billable hours of management and technical assistance. The
Center packaged a total of 23 financial proposals with the potential
dollars approved totalling $2,603,949. The Center assisted minority
firms with procurement of contracts valued at $9,871,100. This in-
formation is generated on a quarterly basis and submitted to the
Minority Business Development Agency, the Atlanta Regional
Office.
The Center maintains an aggressive advocacy and outreach pro-
gram constantly linking with public and private corporations and
minority firms. The following organizations provide examples of
partnerships established with the Minority Business Development
Center. We are part of the Shelby County Community Reinvest-
* ment Act Coalition. The Memphis MBDC has been a part of the
Shelby County Community Reinvestment Act Coalition since 1988.
The Shelby County Community Reinvestment Act Coalition is rep-
resentative of community and advocacy groups representing the
spectrum from the NAACP to the National Association of Real
Estate Brokers. In the period from 1988 to the present, the Center
has participated with the coalition in negotiating community rein-
vestment agreements with First Tennessee Bank, Sovran Bank,
Union Planters Bank and First American Bank.
The Center also has an active Loan Review Committee. The
Memphis Minority Business Development Center has established a
PAGENO="0038"
34
working relationship with local lending institutions to serve on a
local loan review committee. The purpose of the Loan Review Com-
mittee is to review and analyze loan proposals before they are pre-
sented to lending institutions to identify the strength and weakness
of the proposal. The committee has caused loan approval rates to
increase.
We are also a part of the Business Assistance Consortium. The
mission of the Business Assistance Consortium is to increase the
opportunity for economic progress and independence of minority
businesses. The 12 members of the Business Assistance Consortium
will promote business development and an economic environment
in which minority businesses can better develop our talents and
skills to achieve better lives for our community, and in so doing,
contribute to a stronger economic base.
We also have developed the Memphis Area Neighborhood Devel-
opment Corporation. This corporation is organized and controlled
by local residents to develop the economy of their own community.
The Community Development Corporation is, in fact, a new tool
created by the people in low income areas to gain influence over
the economic conditions of their lives. To get their influence to
make fundamental changes in their communities the Memphis
area Neighborhood Development Corporation will identify and de-
velop local skills and talents, own and control land and other re-
sources, start new businesses and industries, increase job opportu-
nities, sponsor new community facilities and service and improve
the physical environment.
We are taking these steps to continue this reinvigoration and le-
verage the resources within all sectors more effectively to address
these needs strategically. This testimony highlights many of the
initiatives now underway within the Memphis MBDC. We thank
you for the opportunity to appear here today and bring into focus
much of what the Memphis Minority Business Development Center
is doing on behalf of minority businesses.
We'll be pleased to answer any questions after the hearing.
[The prepared statement of Mr. Rowe may be found at end of
hearing.]
Mr. Espy. Thank you, sir. We'll have some for you. Mr. Welch.
STATEMENT OF E. BOBBY WELCH, DIRECTOR, MEMPHIS
ECONOMIC DEVELOPMENT CENTER
Mr. WELCH. Thank you, Mr. Chairman, Members of the task
force.
The Memphis Economic Development Center is a joint venture
between the city of Memphis, the Chamber of Commerce and the
Black Business Association. Our major thrust is threefold. First we
serve as an incubator to new and start-up businesses. Secondly, we
provide technical assistance to existing business as well as those
start-up businesses. And thirdly, we are involved in education and
training via a public service activity which manifests itself in the
form of seminars in all areas of business disciplines.
This morning I was asked to speak specifically to the incubator
concept. That is what I shall do.
PAGENO="0039"
35
Using a business incubator is a way for new companies to get
cost effective rental space, share office services and have access to
expertise and management and technical assistance. The number
of businesses using incubators over the past 2 years have increased
over 200 percent, mainly because new firms starting in incubators
have an 80 percent chance of success. This rate is a stunning con-
trast to the figures compiled by the Small Business Administration
which show that 80 percent of all new businesses fail within the
first 5 years.
The lack of access to capital for the Memphis Economic Develop-
ment Center for business expansion has not effected the quality
and scope of our service. The MEDC has continued to provide op-
portunities for low and moderate income persons through technical
assistance and training, public service and office space for new
business start-ups.
The incubator concept is not anything really new. Small busi-
nesses have substantially contributed to the economy in job cre-
ation, innovation and productivity. As small homegrown businesses
are becoming an important focus of local economic development ef-
forts, the small business incubator has become an increasingly pop-
ular economic development tool which helps improve the success
rate of new firms:
Incubators are buildings characterized by low rent structure,
availability of centralized services and administrative support serv-
ice, receiving and shipping facilities, conference rooms, computers
and word processors, and other business services. The arrangement
reduces business failure by making them able to survive the criti-
cal stages of early business development. This is achieved by pro-
viding the business a means of reducing overhead costs. It also
seeks to graduate their tenants to conventional quarters when they
have become economically and financially viable.
Housed in my written report will be steps for the formation or
development of incubator facilities.
Mr. Chairman, in finality we believe at the Memphis Economic
Development Center that only new businesses and the expansion of
existing businesses which create jobs will eliminate most of the
social ills or some of the social ills in our community. I think you
would agree that in America oftentimes disadvantaged businesses
do not get involved in the early stages of owning their businesses.
That is specifically why we are there to train and educate the dis-
advantaged citizens in our community on the need for developing
their own businesses. And some specifics for funding an incubator
is housed in my written report.
Mr. Chairman, on behalf of the tenants of the Memphis Econom-
ic Development Center, thank you for allowing me the opportunity
to talk with you this morning.
[The statement of Mr. Welch may be found at end of hearing.]
Mr. Espy. Thank you for testifying, Mr. Welch, as well all the
rest of the panelist today.
I represent an area where the largest town is about 50,000
people, and the average size town in my district in the Lower Mis-
sissippi Delta Region is about 12,000 or 15,000 people. But as I sit
and listen, there are many, many similarities within the problems
experienced by Memphians and those experienced by the folks I
PAGENO="0040"
36
represent who want to go to the bank to try to get a loan. Problems
of access to capital, high risk ventures, and a rather hesitant lend-
ing community, are all the same. Hopefully, out of this hearing we
can come up with recommendations that will enable both of us to
move forward.
I have a couple of questions. One, for Ms. Dobbins-I'm really en-
thused to hear that you are able to get the banks in the area to
agree to accept a comprehensive Community Reinvestment Act
package. Now, did I mishear you? Regarding this package that you
described, is it a proposal going to them or one in which they were
involved from the outset in developing? What's the status on that
fact?
Ms. DOBBINS. The final draft is in our hands for proofing now to
submit to the bank. They've been in negotiation, as Mr. Rowe has
mentioned, with the Shelby County Community Reinvestment Coa-
lition. Based on our meetings with the local FDIC we believe that
everything is in line. And by the fact of bringing all the organiza-
tions together saying that is what we want, we feel it stands a very
good chance of being accepted by the banks.
Mr. Espy. But the banks have been involved from the outset? I
mean, are they also involved in financing the planning aspect of
the proposal?
Ms. DOBBINS. This is being done currently on a volunteer basis by
all our organizations. And now we believe that we do need staff
people to finish the planning, so that's one of the steps we're
asking them to fund a study and further planning.
Mr. Espy. Right; and if they don't accept this proposal? You
heard earlier Mr. Sumner from the Federal Reserve Board, in
answer to Mr. Ford's question. In my opinion, he did not hold out
much hope for leverage of community groups against commercial
banks that have to comply with the CRA. I mean, what do you
plan to do? They could get this proposal and pretty much put it in
file 13, couldn't they?
Ms. DOBBINS. Well, we believe that it's created, that there is
money available in the banks. But there needs to be a comprehen-
sive way to get it out. Mr. Holeyfield mentioned about going to a
bank and needing the equity, and we believe that if we create such
a plan they should go along with it.
Mr. Espy. I have another question that I'm curious about and I'd
like to get your opinion. We are faced with a Supreme Court which
certainly is more conservative. If President Bush's current nominee
is confirmed, I think that's just about going to do it in terms of put-
ting the cork on the conservative side of questions involving affirm-
ative action and minority development. Certainly with regard to
the Court's recent decision in Richmond v. Crosen, I think-this is
a personal opinion-it hurt the prospects for minority development
and the degree to which counties and municipalities would be re-
quired to assist development of local development concerns.
What are you doing here in Memphis to overcome the burdens of
the Richmond v. Crosen case? What prospects do you see for what
we'll all have to do nationally to overcome that decision?
Mr. ROWE. If I may, Mr. Chairman--
Mr. Espy. Yes.
PAGENO="0041"
37
Mr. ROWE. Here in-Memphis, TN and the surrounding area we
have approached the local government and specifically the county
government to discuss the possibility of funding a disparity study.
This study is necessary to justify the need for any type of minority
participation programs. To date I do understand there is support in
the county to fund this program, however, there is some hesitancy
on the part of other government entities to buy into it.
We believe that we will get the funds for the disparity study and
prove that there has been historical discrimination against minori-
ty owned firms and use a program, a participation program t&in-
dude, again, minority firms and the purchasing process.
Mr. Espy. Mr. Welch, would you as a representative of thé~.city,
have an opinion on that question?
Mr~WELCH. It is not within my bailiwick, if you will, to deal with
that but I will give you my personal observations about it. First of
all let me say this, to a large extent, Mr. Chairman, I don't believe
in minority set asides primarily because they have not worked,
first of all. And I think that something new needs to be dealt with.
Primarily what I do personally when I talk to people is that I
want them to operate in the open market. -L think it goes without
saying that there's something wrong in this city, county and State
when there's a serious lack of minority participation in business
contracts. So to that end I strongly feel, as Mr. Rowe does, that
something should and needs to be done. Now whether or not it can
be legislated I really don't know, because I'm not in that end of it.
But I can assure you that there needs to be some kind of inter-
face between your particular area and the legislative branch of our
government, and the traditional lending institutions in which some
things as it relates to traditional lending constraints could be
waived for disadvantaged businesses. I think it's a sad state of af-
fairs that we have to seek dollars to do a disparity study when in
our hearts we know what's really up.
But, again, I think it's government playing games with us, and I
think it's fair time in this country that the gentlemen like your-
selves who have been elected to look over and oversee some of the
ills of our community to take a lead in making it known to the tra-
ditional lending institutions starting at the Federal Reserve that
some things need to be changed.
As business people we see the fallacy in the savings and loan sce-
nario, we understand currently there's a banking crisis in all that.
And, you know, we are sitting here wondering what and why are
we here. And at some point in time may be the people who serve
our country as public officials would have to start looking at some
of the things that we are discussing here in a realistic manner.
And, again, to reiterate my posture as it relates to Mr. Rowe's
answer, I do feel that there is something wrong. I do think it's
wrong that we have to beg to be told again that we do not partici-
pate in the process. I think the disparity study is frankly a slap in
the African-American's businessman's face, but it's something that
we're told that we must come up with. I think you gentlemen could
serve as lobbyist in that particular arena by letting people on high
know that that is unfair and we need to be about the business of
making America what it really is-and that is the home of the
brave and land of the free.
PAGENO="0042"
38
Mr. Espy. And home of a Democratiö president perhaps. Mr.
Oberstar.
Mr. OBERSTAR. Thank you, Mr. Chairman. Yes, I think the last
part said it all. It may be kinder and gentler but heart is still hard
and in the wrong place.
What comes through for me with this panel is very basic ap-
rroach to business development, combining the elements. You've
aefined what is needed to generate jobs to promote business oppor-
tunities among minority enterprises, and I may say coming from
an area where minority means made of Americans. I have six
Indian reservations in my congressional district. The problems are
verj~sirniiar to those you're describing here today.
Difficulty of getting access to capital, whether it's debt or equity
capital, record of experience, track record of previous experience in
business opportunities, and most instances a lack of trained man-
agement personnel. A great amount of resources can be developed,
but the tools to develop those resources are missing. One of the
really exciting thoughts that I hear today is the concept of Ms.
Dobbins of community reinvestment coalition where you're obvi-
ously working to bring together all the resources of the community
to bear on the different aspects of small enterprise development.
We have to-you have to have training. I think, Mr. Luboti, that
comes through with your testimony as well as Mr. Holeyfield, man-
agement assistance from the lender or from the investor, manage-
ment assistance to that small enterprise to help keep them on
track. That's one of the problems that so often comes up. You have
the skills, you have the resources to produce on a contract or devel-
op a product, but the management skill is lacking and the lender
or investor can provide that kind of assistance.
And if you're developing those resources then the Federal Gov-
ernment ought to find a way to assist in that initiative. And I
think as each of the panelist have said they want to be participants
in the market place, they also need some of those tools to be suc-
cessful. And I think the history of small enterprise development is
that where it fails is in that consistent management of contracts,
and with just a little bit of technical assistance and guidance those
small enterprises cannot succeed.
I think you've really touched on a very important theme, one
that we ought to be helping with. Thank you..
Mr. Espy. Thank you. Mr. Durbin, do you have any questions?
Mr. DURBIN. I don't have any questions, no.
Mr. Espy. All right, thank you. I'd like to know a little bit more
about Mr. Luboti's development bank. Could you give us just a
minute on that?
Mr. LUBOTI. Yes. First we have to meet the requirements in the
State of Tennessee. The State of Tennessee requires that any bank,
development, commercial or whatever, financial institution must
have capitalization of $5 million. We believe that such capital
should come from private individuals before we can seek assistance
from local governments or Federal Government, because a bank
should be owned by individuals.
What we're doing is putting together minorities that are interest-
ed in using their savings to open this bank so that in turn we can
show to the local governments and Federal Government that we
PAGENO="0043"
39
are prepared as individuals to take the risks in the community de-
velopment of Memphis and its metro area. That's where we are as
of now. We are very close to $5 million, but when we get there I
think you will hear from us very soon.
Mr. Espy. I want to ask each panelist very quickly. If you had to
rewrite the Federal Minority Business Development programs-
don't say we need more money, we know that-what would be the
top three changes, improvements that you would enact? Mr. Holey-
field?
Mr. HOLEYFIELD. First of all with respect to funds that's available
for Venture Capital Funds we would put a requirement that a cer-
tain percentage actually be in the form of equity injections as op-
posed to debt. The other thing, that I would want to hit on is a
question that you raised a few minutes ago with respect to affirma-
tive action programs being under siege at this point, I think that a
lot could be gained by focusing on the area of removing obstacles to
small business participation.
Quite frankly if a small business, be it for a project that is also
bid on by a larger business, that small business in many instances
has an advantage in that they don't have the overhead expenses
that the larger business has. But if you look at the constraints
often in the form of higher bond requirements and other require-
ments that are not germane to the particular situation you'll find
that it's such that the small business person on the basis of those
requirements cannot compete. But if you were to remove the obsta-
cles to participation and allow them to participate for that piece of
business they can actually do you will find that you can get greater
participation at a lower price. Thank you.
Mr. Espy. Thank you. Mr. Rowe?
Mr. ROWE. If I was to add anything it would just basically be one
thing, and that's enforcement. I think a lot of the programs that
are coming out of your Federal Government has no real enforce-
ment to make these programs work. So I would put enforcement as
the number one thing to do.
Mr. Espy. Ms. Dobbins?
Ms. D0BBIN5. More partnerships between the public and the pri-
vate sector, and tagging this on to the question about the banks,
those lending institutions and those corporations that stand to gain
from government contracts or holding government funds should be
willing to invest in commUnity and help build that business base.
Mr. Espy. Mr. Welch?
Mr. WELCH. Ditto to my colleagues. That's about all I can say.
Mr. Espy. All right, and Mr. Luboti?
Mr. LuB0TI. Maybe one day it will come when the Congress can
eliminate the SBA, and put it in the private hands so that we can
practice the free market without having to depend on the bureauc-
racy. I strongly believe in that, that we as the minorities can also
benefit from the free market.
Mr. Espy. We do appreciate these recommendations and appreci-
ate the testimony from the panel. We put out a call to Mr. Ford to
come back. He was called away on business and I was hoping he
could make it back in time to question the panel-all of which are
local to this community-but I don't believe he's going to come
back in time.
PAGENO="0044"
40
So, let's dismiss this panel. We have about 20 minutes or so in
the schedule for lunch, so why don't we recess for about 20 to 30
minutes? We had also instructed the afternoon witnesses to come
about 12:30, so we have some time built in the schedule that we
could use at this point. Let's recess this hearing and reconvene
about 12:30.
AFTERNOON SESSION
Mr. Espy. Let's call the hearing back to order for our third es-
teemed panel, mostly from the Mississippi area. I do appreciate all
of you making the drive up today.
Malcolm Shepherd called this morning and expressed his disap-
pointment that he would be unable to make it. He did send his tes-
timony, which will be included in the record and provided to the
Members of Congress.
[The prepared statement of Mr. Shepherd may be found at end of
hearing.]
Mr. Espy. We do have William "Billy" Haney, executive director
of the South Delta Mississippi Planning and Development District
out of Greenville, who is accompanied by Mark Manning, economic
development director from the South Delta Mississippi Planning
and Development District; Mayor Robert Gray, president of Griffin
Lamp Co. in Shelby, MS; Harry Bowie, Delta Foundation in Green-
ville; and Raleigh Byars, State director for the Mississippi Small
Business Development Center. We do appreciate all of you coming.
As we said to the panel this morning we've had a pretty long day
and there's even another panel which will present after this one.
We have your written testimony, and if you could just summarize
your oral testimony. Please try to limit it to about 5 minutes. We
will certainly include your written testimony in the permanent
record of the hearing.
With' that, Mr. Haney, please proceed. We do appreciate you
coming, sir.
STATEMENT OF WILLIAM BILLY HANEY, EXECUTIVE DIRECTOR,
SOUTH DELTA MISSISSIPPI PLANNING AND DEVELOPMENT
DISTRICT, GREENVILLE, MS
Mr. HANEY. Mr. Chairman and Members of the Task Force, I'm
Billy Haney, executive director of South Delta Planning and Devel-
opment District headquartered in Greenville, MS. I also serve as
chairperson of the Mississippi Association of. Planning Develop-
ment Districts.
I'd like to thank you, Mr. Chairman, for the opportunity of ap-
pearing today to testify, but I'd also like, to express my personal ap-
preciation for your strong support of all the initiatives which serve
to improve the quality of life for the people living in our State.
South Delta PDD serves six counties and 35 municipalities locat-
ed in the heart of the Mississippi delta, long considered one of the
poorest areas in the poorest State in the United States. The area
we serve is approximately 210 miles long and 45 miles wide, repre-
senting 3,502 square miles of primarily rural areas. In addition,
this area represents a total population of 163,786 persons, which is
a decline of 13,775 people from the 1980 census.
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41
Our area, regretfully, has inadequate infrastructure, substandard
housing, per capita income well below both the State and Federal
level, school dropout far above the State and national level, teen
pregnancy rates out of sight, and then illiteracy rate which is com-
parable to some of the third world countries, and many other social
and economic problems.
However, today we're trying to look at economic development, so
basically this information is just to provide for you the playing
field in which we're trying to establish economic development.
Our six counties have a total labor force of 66,290 persons with
6,600 of them being unemployed, which represents an average or
about 9.956 percent of those being unemployed. The counties indi-
vidually range from a low unemployment of about 9 percent all the
way up to 15.5 percent unemployment.
So basically all these statistics present a thumbnail picture of
the economic development arena. However, the flip side of the coin
is where our interest is today, and that's in economic development.
I'm not a native of the Mississippi delta. I grew up in northeast
Mississippi in the Tupelo area, and in my lifetime I can remember
when that area had a similar economy of despair. I can see it as it
grew through an economy of repair until it's today the economic
yardstick for economic development in the State of Mississippi, and
I think probably the Southeastern United States.
I took this job in Greenville because I wanted to be a part of this
revival in the Mississippi/Delta area, and I know with the help of
people like you we're going to get there. Most of my staff are in
Greenville for the same reason. We are transplanted planners and
administrators by profession, but we're change artists by dedica-
tion.
What has been done in the past? Mark Manning of our staff will
present just a brief sketch of the current programs that we have
operating.
STATEMENT OF MARK MANNING, ECONOMIC DEVELOPMENT DI-
RECTOR, SOUTH DELTA MISSISSIPPI PLANNING AND DEVELOP-
MENT DISTRICT
Mr. MANNING. Mr. Chairman, I'm not going to regale you with
the statistics of the Mississippi delta. I'm sure that you, in particu-
lar Congressman Espy, know them better than I do.
Mr. Espy. We've beat them over the head with that already.
Mr. MANNING. To sum it up it's very easy to say. We live in the
poorest counties in the poorest State in the richest nation God has
ever created, and there's something wrong with that. We've got to
do what we can to address it.
We do have a number of current programs that thankfully the
Federal Government has seen fit to implement over the years.
They're in your testimony and I won't bother you by reading them,
but very quickly they are Economic Development Administration,
Small Cities Community Development Block Grant Program, Small
Business Administration, so forth and so on.
What I would like to talk about is the need for capital assistance
in the Mississippi delta. South Delta Planning and Development
was fortunate enough in the last several weeks to receive an an-
PAGENO="0046"
42
nouncement that we are able to borrow-and I emphasize borrow-
$1.25 million from the Farmers Home Administration to relend in
our area for small business development.
Over the years we've been pretty successful with the loan pro-
grams that we have had. I think initially our Economic Develop-
ment Administration RLF began with a capitalization of a little
over $1 million, and in 12 years we've turned that into $3 million
capitalization and have created-I can confirm at least 1,500 jobs.
However, obviously when you're talking about an area where the
per capita income is so low that's a very small drop in a very large
bucket.
We are committed to economic development in the delta. I'm
sorry--
Mr. Espy. No, sir, I'm just saying you have a separate 5 minutes
so you're speaking on your own time now.
Mr. MANNING. Okay, excuse me. The bottom line is there's a tre-
mendous need for capital assjstance in very small business, in what
I would call microloans from $500 to $10,000. Along with that as-
sistance there's a great need for technical assistance in the busi-
ness development. A prudent investment is something that will pay
off for the Federal Government over many, many years, and it's
not something to be seen as a giveaway by the Federal Government
but an investment in the future. Thank you.
Mr. Espy. All right, very good. Did you want to reclaim your
time, Mr. Haney?
Mr. HANEY. Please, if you don't mind.
Mr. HANEY. You've seen what's been done with those tools which
are out there available, and I'd like to stress the need that basical-
ly what we need are more of these tools. We also need some assist-
ance in some of the existing programs where program guidelines
can be developed at the local level. As long as an agency has physi-
cal responsibility and a proven track record we feel like that the
best decisions to assist locally can be made locally.
We feel like in our economic development programs the timing is
a major factor. Irregardless of how good the project is if we cannot
fund it in a reasonable length of time* we lose the program, and in
most cases the business doesn't reap the benefits. While job cre-
ation and the improvement in quality of life are important there
should be less emphasis on job creation and more emphasis on cap-
ital input.
In our area of the delta a lot of times we deal with projects
which may deal with the improvement of a product toward a fin-
ished product, but realistically that type operation does not create
a lot of jobs. It creates capital-creates capital investment but it
does not create jobs as such.
Districts such as South Delta have found immense benefits de-
rived from~ an infusion of ideas received at the national level. And
one of these such organizations is the National Association of De-
velopment Organization. This organization has assisted us greatly
because it represents the very basic network for improving econom-
ic opportunities and ~uality of life in America's small metropolitan
rural areas.
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43
Congressman Espy, I would just like to tell you how much we ap-
preciate your support in the past and your continued support in
the future.
In closing, our area has existed on handouts long enough. We do
not need, want nor do we support giveaway programs. Instead we
seek opportunities to truly create long term investment in both the
people and the economy of the Mississippi delta. By borrowing
$1.25 million to create a loan fund for economic development, we
and others are committing ourselves to the future of the Delta. We
simply ask you to help us by continuing programs so important to
our area and to refine and simplify these same programs as the op-
portunity arises.
Please allow me to close by expressing our appreciation for your
sincere interest in our work, and any chain such as an economic
chain is no stronger than its weakest link. Thank you.
[The prepared statement of Mr. Haney may be found at end of
hearing.]
Mr. Espy. Thank you, Mr. Haney and Mr. Manning. Mayor Gray.
STATEMENT OF ROBERT GRAY, PRESIDENT, GRIFFIN LAMP CO.,
SHELBY, MS
Mr. GRAY. Thank you, Congressman. To all the Members of the
U.S. Congress who make up this panel, especially you Congressman
Espy, my Congressman. It's an honor to have been asked to come
here this morning, and may I say prior to starting to Congressman
Ford, just prior to my coming here I went by the South Memphis
Senior Citizen's Center and they made me promise, when they
found out that I was going to be here with you today, to tell you
that they really appreciate the job you're doing out there for them,
and it's really a nice facility. Thank you.
Mr. Espy. I really like this panel.
Mr. FORD. You weren't up here politicking today by any chance,
were you?
Mr. GRAY. No, no, no. I have no vested interest, just went by to
see some friends.
Mr. FORD. All right, okay.
Mr. GRAY. I believe today we were asked to talk on mechanism
for financing economic development. My presentation, which will
be brief, will be geared toward maybe provide some comments on
why I feel we should go forward with developing a mechanism,
whether it be a regional development bank, or whatever.
Let me begin by saying that something must be done and some-
thing must be done, in what I feel, a very timely fashion to arrest
the deterioration and disintegration of rural and small town Amer-
ica.
I believe rural and small town America is the backbone of the
entire economy of this country. Therefore, its health and viability
should and must be protected whatever the cost. I truly do believe
that the deplorable and deteriorating economic conditions of rural
America are contributing to the destruction and decay of big city
America. Therefore, if we solve the problems in the small and
rural towns of America we begin to solve the many problems in
our major cities.
PAGENO="0048"
44
Someone or some institution must be willing to invest in rural
America. While there may be some degree of attitudinal changes
recently major corporations have been unwilling to invest in rural
America for the most part. They always cite such excuses as low
skill levels of work force, which is a farce, population make-up, par-
ticularly where the minority make-up is a significant part of the
population. There's a corporate buzz word called red lining, which
means that if the population in a particular area consists of 30 per-
cent or more of minorities it's a no-no as to whether or not they
would move into that particular area.
Banks and other commercial lending institutions are not willing
to invest in rural America. In fact, banks are taking money out
rather than putting money into these communities, that is the
rural communities. The Community Reinvestment Act is not work-
ing or is not being enforced. We realize that there is a banking
crisis in this country at the present time, and the regulatory agen-
cies for the financial institutions are tightening down on these in-
stitutions.
This is causing havoc in the business community. Rural and
small town America is paying more than its fair share of these con-
ditions. Rural America did not cause these conditions, and neither
did legitimate small businesses cause these conditions. I say that
fraud, cronyism, graft, the buddy-buddy system that exists in the
financial institution world, and yes, racism that exists in banking,
caused these banking crises.
Big banks in big cities are still lending money, but rural banks in
small communities are not. Rural banks are investing their monies
with the big boys rather than investing in small businesses in their
own communities, which gave rise to their very existence in the
first place. In other words there's no loyalty to those communities.
Government guaranty programs do not work. The only time a
bank in our area-and when I say our area, I'm talking about the
Lower Mississippi Delta area, the only time that the banks will
honor a guaranty is when the project didn't need a guaranty in the
first place or some friend they want to pay a favor to without
undue risk.
I wager to say that if an investigation could be conducted on the
various government guaranty programs, I feel that some startling
findings would appear as to who has received these funds and what
their connections are with the various lending institutions. There-
fore, banking in rural America is far too conservative, far too crony
oriented and far too profit oriented, as well as far too racist.
It would seem to me that if you had the full faith and credit of
the U.S. Government guaranteeing 90 percent of a loan then a
bank should feel comfortable. But that is not the case in our area.
In fact, I've had banks tell me that they wouldn't consider a loan
even at 250 percent guaranty. So that program, to my knowledge,
is not working. I don't understand why, but on the other hand
until recently, until the crisis came about, I know of banks making
loans in the several million dollar range unsecured to friends and
cronys. In fact, just recently one bank in our area settled for 20
cents on the dollar for a several million dollar loan. And when I
say several million, I'm talking upward of $20 million.
PAGENO="0049"
45
I say that if that same institution had invested $1 million in 20
small businesses I feel that at least 16 of those businesses would
have prospered and been able to repay these loans. I say that this
is cronyism at its best. We are not advocating giveaway programs
or investing unwisely. We are merely saying let's play on a level
playing field, give my project the same consideration that you give
John Doe, give us the same opportunity to develop and become a
part of the economic main stream as you do our counterparts.
History tells us that this is not going to happen with our tradi-
tional institutions of finance. The Reinvestment Act has not made
them do it. There are various other laws to eliminate discrimina-
tion, have not made a difference. Then why should we expect any-
thing different to happen now, especially with the present crises
that exist in the banking system.
An institution of finance must be developed, be it a regional de-
velopment bank or call it what you may, that is willing to make its
resources available to all, using the same set of rules and stand-
ards. It's no secret,, gentlemen, why this area, the Lower Mississip-
pi Delta, lags far behind other parts of the country. It is because
such a large segment of the population is left out of the economic
mainstream, namely black people. No nation or no area can sur-
vive, let alone prosper, with such a significant portion of its popula-
tion shut off from the area's resources for economic prosperity.
It's no different in black people here in the Lower Mississippi
Delta than those in California, Connecticut, Maine, Massachusetts
or New York. The difference is we make up such a significant part
of the population. But let me caution you here in your efforts that
developing such an institution, a regional development bank, and
putting the same people in place to operate will be no different
than what we have today. There are programs in existence today
that could work, such as the guaranty program, if the people in
charge had the right attitudes, the mentality and most of all the
work ethics to make it happen.
What usually happens is that people who are put in place to run
these agencies and organizations that have been created by the
government to address some of the problems that we face today,
they usually take on or develop the local banking mentality or
they do not understand the real business world. Many times they
are people who have failed in the private sector and who have a
vendetta or have an envy built in whether they realize it or not.
Mr. Espy. Mayor, could I ask you to suspend for a minute? Could
you move on to a summary, or we could move on to the next wit-
ness and come back to you during Q and A?
Mr. GRAY. Okay, I'm almost through. I'm about finished.
Mr. Espy. All right.
Mr. GRAY. Therefore, in lieu of this testimony I urge you, the
U.S. Congress, to forge ahead in bringing into reality a develop-
ment bank to serve as a vehicle or resource to address the econom-
ic conditions of all the people on an equitable basis, rather than
the select few which traditional financial institutions are serving.
We realize that existing institutions are going to be in opposition
to such an undertaking, but these existing institutions are not will-
ing to address the problem. We know that heat is going to be
brought upon you for undertaking such an activity, but we encour-
PAGENO="0050"
46
age you to move forward and do that. And if you fail to do that, all
of the hearings like this, all of what I say or what you say is noth-
ing more than rhetoric.
Thank you very much.
Mr. Espy. Well, thank you. I appreciate you being here. Harry
Bowie.
STATEMENT OF HARRY J. BOWIE, PRESIDENT, DELTA
FOUNDATION, GREENVILLE, MS
Mr. BowIE. Congressman Espy and other gentlemen on the
panel, I am president of the Delta Foundation in Greenville, MS,
and in my report I say a few words about the beginning of Delta
and its work in the area.
Delta has accomplished some significant goals, but the goals and
accomplishments pale in significance to the problems that still
exist in our region. And the delta's primary area is the delta of
Mississippi and spills over into Arkansas, works throughout the
whole of Mississippi and Arkansas occasionally and in Tennessee
occasionally and certain parts of Alabama.
It is significant though-and I want to say this, that we've been
able to create businesses that have been successful. Even more im-
portantly we have been, with our Rural Development Loan Pro-
gram, required to make loans to individuals and companies that
are not bankable. We have to make "bad" loans, if you will, but we
have to find good reasons to make those loans.
It is significant that our first revolving loan fund has revolved
twice and it's on its third revolution making loans to businesses
that are not supposed to be bankable. For the most part they were,
as you said Robert, minority businesses that could not get through
into the normal systems. In some cases there were valid reasons
and in some cases there were not.
Mr. FORD. In other words there were risk clauses; is that correct?
Mr. BOwIE. The risks were too great for the commercial banks to
take, but we did it, we worked with them, we provided some techni-
cal assistance and they're operating and doing business. The Con-
gressman knows of a number-Robert Gray is also one of the ones
that we loaned money to because he could not borrow money from
the commercial banks.
I'll say that, just in passing, Robert has touched on a couple of
things that are very important. One of the great needs in our
region, not just the Mississippi Delta but the surrounding region, is
the need for development capital. That's a very, very difficult com-
modity and resource. It's particularly vexing in the minority com-
munity where there's not been a growth in capital and capital cre-
ation that's necessary; and yet as Robert so aptly put it, it is
simply impossible for our region to develop if we leave behind 40
percent of the people. We cannot solve the problem by giving them
deadend minimum wage jobs. The minority community must be
brought into the mainstream as well as other members in our com-
munity.
It is significant to note that we cannot build the region by simply
bringing in outside companies. We continue and we should contin-
ue to try and attract new industry into the region. The majority of
PAGENO="0051"
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the development that will occur in our region, however, will occur
through the development of plants, the expansion of existing busi-
nesses, the creation of businesses by people who live here, and the
use of resources and people in our own communities.
One of the strategies that we needed to consider is how we bring
more venture capital and seed capital into the region to help initi-
ate these developments. The reality of large businesses avoiding
communities that have a larger percent of minority residents was
documented by studies done at the University of Texas back in the
late 1960's, early 1970's. These studies detailed the economic rea-
sons why businesses tended to avoid areas which were majority mi-
nority.
Now one idea that we've discussed-and I don't want to knock
it-Robert is supporting it and I think we need to look at it very
carefully though, is that of a Regional Development Bank. I'm not
certain that's the best idea at this point, and my reason for that is
that each State has developed differently. In Tennessee, Congress-
man Ford, for example there are several MESBICs that exist, and
there are some venture funds that exist. There are two or three in
Louisiana. There's only one in Mississippi, one MESBIC, and I
don't think we have an SBIC active in the State any more. We had
an SBIC in the past, but not now. Mississippi does not have enough
institutions of the type.
Arkansas, until the people in Arkadelphia came along, didn't
have any. Because each State has developed differently, each has
slightly different needs. If we do a regional bank it has to be tied
into the flexibility and the differing needs of those States; or we
may need to look more carefully at the existing SBIC, MESBICs
and unregulated venture funds that exists in those States and see
how we can bring more funds and more seed capital to help build
this existing network of institutions that have been initiating eco-
nomic development over a period of time, rather than attempting
to impose a regional idea, concept, or solution on differing prob-
lems in different States. We have to look at that.
That's telling me to hurry--
One other thing is that the Defense Department has developed a
Mentor Protegee Program in which network larger businesses and
minority businesses, in order to assist minority businesses obtain
Defense contracts. You may want to look at the problems faced by
new and emerging minority business and find out if there are not
certain kinds of incentives that you can give that would involve
larger majority businesses working in a business relationship with
someone like Robert to help him with different problems that he
may have on the technical side of his business.
I want to commend to you the Community Development Pro-
gram. It's a program that's funded with approximately $21 million.
Congressman Espy, we've been able to call upon you. You have
been a strong supporter of this program. This* is a very unique pro-
gram in that it allows the Federal Government-to truly target
money toward poor communities and depressed communities, and
involves community development corporations in the use of those
moneys so they can target those funds toward the poor and unem-
ployed.
PAGENO="0052"
48
One other condition is that 75 percent of the people employed by
this program must meet the standard of poverty; they have to have
been laid off and for not working or some other poverty status
when you hire them in businesses that are directed toward bring-
ing those people into the mainstream.
This is a unique program-and I'm trying to stay within my 5
minutes.
Mr. Espy. Yes, sure.
Mr. BowIE. You need to take a hard look.
Another important issue that's coming up is the microlending
proposal. There's some talk about SBA coming into that field and
looking at it. Senators Bumpers and Mitchell are proposing legisla-
tion around microlending. As I said earlier, almost 80 percent of
the jobs would be created by small and medium size businesses.
Then you need to be looking at what you do that enables those
kinds of jobs to be built up and expanded.
In my report I talked about some statistics from the SBA loan
funds, and it shows how little of that money has gone to those busi-
nesses and yet they're the key to growth. Yes, there is a high fail-
ure rate among small businesses, we know that; but they still
create the jobs and many of them succeed and they do more in the
long term than bringing in the one megabusiness which almost in-
evitability imports 75 percent of its management and clerical staff
from some place else into the region. It provides some lower level
jobs in the region.
We have an idea about this microlending demonstration pro-
gram, and we want to see up to $20 million in grants be made
available through the Small Business Administration to implement
a 5-year demonstration. Grants should be made to intermediary or-
ganizations, private, nonprofit corporations generally referred to as
Community Development Corporations, with a demonstrated record
of achievement in business lending and providing assistance to
small businesses.
These intermediaries will operate the loan fund and provide
technical assistance; it is very important to provide technical as-
sistance. Generally we're talking about loans that might not exceed
$35,000 which would be the kind that would help get these busi-
nesses off the ground. It's $15,000, $25,000, $35,000 which is often
the threshold of need even though many times you need above
that. That's the kind of fund level we think is necessary to spur the
expansion and development of smaller businesses and intermediary
businesses in our area which would be the backbone in creating
jobs.
I'm not going to read all this. We want you to look very carefully
at what we're saying concerning the program and the kind of re-
serves we're talking about. We think it should be a grant program,
but if not that, then we ask you to look at the Intermediary Loan
Program administered by the Farmer's Home Administration in
which money is loaned out at 1 percent. The money is paid back,
the staff does not get a grant t9 run it, but on the arbitrage they
pay for the staff and the technical assistance, the loan lost reserve
and the other things necessary to operate the program.
There's a proven history of loan funds being able to do that and
operate in that way and still keep the funds moving perpetually.
PAGENO="0053"
49
We ask you to seriously consider this idea. I also want to point out
because it's very critical, and not just because Delta has a company
that makes folding attic staircases, that we need in housing starts,
so do continue with your efforts to fund rural housing. The need is
great. During the Reagan years we cut that program by 50 percent.
We have enormous housing needs, it's a spur to economic develop-
ment. I hope you'll consider it.
I had more to say but that red light is blinking and you're en-
couraging me to stop.
[The prepared statement of Mr. Bowie may be found at end og
hearing.]
Mr. Espy. Yes, sir. Only because your testimony is so interesting
we want to move and conclude the first part of the testimony and
begin the questions so we can interrogate you later. Mr. Byars.
STATEMENT OF RALEIGH H. BYARS, STATE DIRECTOR, MISSIS-
SIPPI SMALL BUSINESS DEVELOPMENT CENTER, THE UNIVER-
SITY OF MISSISSIPPI
Mr. BYARS. Thank you. Mr. Chairman, Members of the Task
Force, it is an honor and distinct pleasure to be here today. I ap-
preciate the invitation to speak before you. Also it's indeed a pleas-
ure to have the Task Force here in the mid-South.
I'm the State director of the Mississippi Small Business Develop-
ment Center and we're charged with providing assistance to exist-
ing and small businesses in all 82 counties in the State of Mississip-
pi. I appreciate the comments Mr. Oberstar made earlier on the
Management and Technical Assistance Program. I want to address
that issue and some other issues.
The agenda says that I'm from the University of Mississippi, but
I'm not a college professor, I'm the director of a service delivery
program for the State of Mississippi.
The SBDC Program is a national program in all 50 States of the
nation, however, the budget for the national program is only $70
million. The SBDC is a grassroots management and technical as-
sistance program for the small business community of a nation in
Mississippi. And it's really a joint partnership between the Federal
Government and the States in the program. Specifically in Missis-
sippi the agreement is between the Small Business Administration
and the University of Mississippi to manage the program in all 82
counties of the State.
Why is the program on the campus of the University of Missis-
sippi? Well, basically we're a satellite program that's attached to
the university essentially to keep down overhead to save both Fed-
eral and State dollars. We involved ourselves there at the universi-
ty with the services they provide for us in order to do that, such as
personnel, accounting, purchasing, transportation and like services.
It also involves the university and the community college system in
local activities such as involvement with small businesses and fi-
nancing programs.
We manage 14 Small Business Development Centers in the State,
each serving from 6 to 10 counties in the local area. So these serv-
ices are really being made in local, rural areas and towns and
cities. And as you well know, Mr. Chairman, Mississippi is almost
PAGENO="0054"
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all rural, and we also have three SBDC's in your second district in
the Delta. What do we do for small businesses? Two major services
that we offer, No. 1 is counseling, advice, if you will, and business
management training program to help train entrepreneurs and ex-
isting business managers in areas that they feel that they need im-
provement in. These services are free to existing businesses and
also to new business start-ups.
What are the services that we provide to the small business com-
munity? We have small businesses that do business plans to start a
business, we offer assistance in personnel training, accounting,
marketing, production and other related type business manage-
ment services. We offer international trade assistance of small
business clients that are interested in exporting or importing estab-
lished import or export business. We can help that small business
get started.
Also we provide procurement assistance for those businesses in-
terested in selling to the government, the Federal Government or
State and local departments. For example, recently in northeast
Mississippi we conducted a procurement conference that involved
the NASA Rocket Motor Construction facility, which we had over
200 participants interested in selling their products or services to
the government.
In our training program which are basically three, six or nine
hour programs, we offer training and how to start a business.
We're not training entrepreneurs but we're trying to give them the
basic skills and ideas about how an individual starts a business and
what process he or she should go through to do that.
How much counseling do we do annually? Approximately 49 per-
cent of our counseling services are for start-up businesses. On the
average we'll spend approximately 9 hours of counseling and train-
ing with a small business. We don't recommend any businesses to
our clients. We're only able to evaluate a business if they come to
us with a proposal to start a business.
In the letter inviting me here it mentioned a problem with
equity capital. Briefly I'd like to address that problem. I began the
work in the SBDC program approximately 10 years ago and served
in a service center for eight years before I moved over to the State
office. The problem-I experienced that problem with working with
small businesses back in 1981 and it still exists today.
The basic problem, as it's been discussed earlier with other
speakers, was that 20 or 30 percent equity is required by a finan-
cial institution for even to have an application considered by the
loan officer. The evaluation doesn't go beyond the process of look-
ing at equity injection or risk capital or whatever you'd like to call
it. So the real value of that business or whether that business is
needed in the market place is really never evaluated because the
evaluation process doesn't get beyond the venture capital or the in-
jection capital rather.
One other problem, as also mentioned earlier, the requirement
for 100 percent collateral. So if the injection capital problem
doesn't stop a proposal then the collateral situation may stop a pro-
posal. But what I've seen in the past couple of years--
Mr. Espy. Mr. Byars, I have to apologize to you because I failed
to activate the clock. I've been told that you've gone about 6 mm-
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51
utes. And I'm only doing this because I know that we have a couple
of colleagues on the panel who might have to, in half an hour or so,
rush for an airplane or make their way toward the airport. So if
you can move to summarize I'd appreciate it.
Mr. BYARS. I was about to finish.
Mr. Espy. All right.
Mr. BYARS. What I've seen in the past couple of years is a move-
ment in change in philosophy of the financial institution. Now this
is not an across-the-board movement, but I've seen activity in the
Federal and State programs, and also in some of the banks to begin
to look at a business more closely. The ability of that small busi-
ness to generate revenue in cash flow so that they can service a
loan that is made to the small business person.
There will continue to be a need or requirement for venture cap-
ital and equity capital, but I think there is a movement among the
financial institutions to evaluate a business on the merits of that
business. At least I've seen this in some areas in our SBDC pro-
gram.
Briefly we have a pilot program that was initiated by a bank and
also a Federal Agency in Pike County to initiate a procedure where
the bank will provide the equity injection for that business loan.
And the equity injection provided by the bank would be put on
standby until such time that the small bank or the small business
rather, could make payments on the main loan from the bank and
also the equity injection loan.
This is a procedure that I think has some merit and we're going
to look at it for about a year and see if that will provide some addi-
tional help.
[The prepared statement of Mr. Byars may be found at end of
hearing.]
Mr. Espy. Thank you, sir. I appreciate your testimony.
Let me congratulate each and every panelist, not only for coming
up here this morning but providing great testimony.
And to Mr. Gray, let me agree with you in your acknowledge-
ment of the racial, negative racial history that we've had in our
State and in this region. Let me describe it to my colleagues this
way. We've heard a lot today about the genius of the ARC and
TVA. You know those programs started in the 1930's and the
1960's. When President Roosevelt in the 1930's went to the Tennes-
see Valley area and said "Oh, there's poverty here," the TVA
sprang from his imagination. The TVA, we know has done a whole
lot to promote economic development in that region.
In the 1960's when President Kennedy campaigned in West Vir-
ginia, he said "Oh, there's poverty in this area of Appalachia."
Then there sprang from his imagination the ARC. Well, there has
always been great poverty, grinding poverty in this area. It's just
that when anyone who might have been progressive at that time
came here to acknowledge the deprivation and poverty, there were
others in the body of politic and in the Halls of Congress that said,
"Wait a minute, if you send money down here it will come with too
many strings attached. You know, equal opportunity, equity in
doing something for those who might have been at the bottom and
might have been of another racial stripe." The great irony is that
now, we have this tremendous, tremendous budget that precludes a
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52
lot of options that we might have now that our racial situation is
improved. That's the problem we have-knowing that we cannot do
another ARC and knowing we cannot do another TVA; but trying
to find some innovative solutions to prime these areas.
That's what I wanted to ask Mr. Haney. You mentioned first in
your testimony that having come from the Tupelo area, which is
northeast Mississippi, is in the ARC service area. Is that why the
Tupelo area has done better than the so-called delta?
Mr. HANEY. I think probably the two major factors that have
contributed to the success of that area, the first would have to be a
combination of ARC in conjunction with the furniture industry re-
alistically. It was two things that happen to come together at the
right time and they fit real, real well. And ironically today every-
body-on unemployment in that area there. Everybody almost
who's looking for a job has a well-paying job based upon produc-
tion. And I suspect those two items contributed greatly to their suc-
cess.
Mr. BowIE. Congressman Espy, could I--
Mr. ESPY. Sure. Sure, please.
Mr. BowIE. It's absolutely critical that we understand the demo-
graphics is a major factor in this development. Tupelo and North-
east Mississippi has a population that almost mirrors the national
population in terms of its minority populations. It has prospered,
east Tennessee has prospered, northwest Arkansas has prospered
and the Cumberland Plateau Region of the South has prospered. It
is not an accident that prosperity, that is, the sun belt did not
shine in the black belt. The sun belt is seen shining in those parts
of the South in which there has been an extremely small minority
population and that is a principal reason for the development of
those regions. In saying this I do not take away anything from the
leadership of the people in Tupelo and that area who took advan-
tage of those opportunities and made progress happen. But we
should not miss the element of demographics. Absolutely critical.
Mr. Espy. Which leads me into my question to you, Harry. You
mentioned the microenterprise proposals and-again, let me de-
scribe to my colleagues, it doesn't rise to the level of the $35,000
base that you mentioned, Harry. There is a microenterprise project
which was funded as a demonstration project as a part of the Jobs
Training Partnership Act (JTPA) and with the Levi-Strauss Foun-
dation. Last year it provided a woman named Ms. Robbie Rabun,
who was an AFDC recipient, in fact, she happens to be white, with
$5,000 in seed capital. Also, the project required her to attend self-
esteem classes and business and technical development classes
which were supervised by an MBA from a local university. The
project, in just 13 or 14 months time, enabled her to move from
AFDC into entrepreneurship. She now owns her own business,
which is a car detail service, but it's hers. She moved in a little bit
over one year from making $411 a month on AFDC into an inde-
pendent situation where she now makes about $1,800 a month and
is off welfare.
She feels a lot better about herself. She's no longer relying on
government resources except to the extent, my colleagues, where
she's saying now that she's inelligible for Medicaid. So one illness
will knock her out and send her back to where she came from.
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53
That is what we need to look at, but I'm endorsing this microenter-
prise suggestion.
Mr. BOwIE. There are many levels of it. There are many levels of
it, and you're talking about one that more nearly models what they
call the Bangladesh Project, the one that started in Pakistan, in
which they were talking about making loans of $500 to $1,000 to
help people get into individual businesses. And there are several in
this country: There's the Good Faith Fund in Arkansas that's doing
this and there was one in New Mexico that has been very success-
ful, and also in Arizona. And these programs that loan $1,000,
$2,000, $3,000, and $4,000 have been very successful. And we're
talking about those but we're also talking about a notch above
those in terms of that other level of small business that's going to
create businesses of 15, 20, 25 employees, and we think they're crit-
ical to the development of our region.
Mr. Espy. Thank you. I reserve the rest of my questions and
move to the other panel. Mr. Ford.
Mr. FORD. Mr. Chairman, I will yield to my colleagues. Some
might have flight schedules and let me yield to them for the con-
venience of those Members.
Mr. OBERSTAR. Mr. Chairman, I really don't have a question for
the panels. I think the panelists all presented very clear and
thoughtful testimony. Bill Haney's remarks about the ARC and
EDA warmed my heart. I spent a great deal of time of my public
service shaping that program, developing it, saving it from the
Reagan budget ax, and trying to keep it alive and targeting its
funds both ARC and EDA, targeting those funds in a more effective
way. You've certainly seen how those funds can work, leveraging
those monies, putting them to the broadest public benefit.
And I think the comments from other members of the panel are
very, very helpful for our purposes. And I think as Chairman Espy
said, the tragedy facing us on the Budget Committee is that, as
you've noted, while there are now different attitudes about race
and investment and demographics, now we see huge budget deficits
constraining the availability of Federal funds to provide for those
disadvantaged populations the kind of investment that had been
made so successfully elsewhere.
And our challenge is that the EDA program which was at $900
million in the last Carter budget, wasn't just trend on the margin.
We didn't just cut the increase as is now being done with defense
budget. We're not really-having to really cut defense, it's been
cutting the increase. We cut the meat, the muscle, the heart to
that program down to $250 million. That's real dollars, because
that was a two-thirds reduction. And cut it further in subsequent
years, so that EDA's funding today is in constant dollars probably
90 percent less than it was in the last Carter Administration
budget.
How can you do real economic development when you don't have
the money to invest? Now in the South Belt District where you've
had the benefit of 20 years of experience of EDA, you know how to
make the investments, you know what the tools are, you know
what the management skills require, you know how to leverage
those dollars, but the dollars are not there.
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54
And what we're simply doing in this budget process is not rob-
bing from Peter to pay Paul-we're robbing from Peter to pay
Peter. We're just taking it out of one pocket and putting it right
back in the same pocket and we're not increasing the funding. And
what we have to do in this budget process is try to set some prior-
ities. You've given us some good ideas and some good incentives for
prioritizing investment in the future.
Mr. Espy. Thank you, Mr. Oberstar. Mr. Durbin?
Mr. DURBIN. Thank you, Mr. Chairman. A couple of years ago I
took a trip to a country which could truly be termed God forsaken
in the truest sense of the word-the country was Bangladesh. And
I was there with another Member of Congress. We were the larg-
est-two of us were the largest congressional delegation to ever
visit Bangladesh. People don't usually put that in their itinerary
for places to stop off.
We went outside Dakar and drove for several hours, in a four-
wheel vehicle, into an area of backroads where the roads ended.
We got out of our vehicle and hiked for another hour over hand-
made trestle bridges, finally coming upon a tiny little village and
the village consisted of lean-to's and shelters. There was one, I
guess, larger building there that we went into where we saw ap-
proximately 40 women lined up in neat rows all dressed in the
most brightly colored sari's you've ever seen holding children. And
they were standing there looking in wonderment at these white
face people who had come to visit them.
A translator asked them if they had ever heard of the United
States of America. They had never heard of it. We were in a bank-
ing meeting for the Grameen Bank in Bangladesh. Each one of the
women in that shelter had been loaned $100, $200 or $300 to buy a
milk cow, to develop some basic cottage industry to feed her chil-
dren. I think what Mr. Bowie referred to earlier was this very ex-
perience of Grameen Bank.
The key to it, as I saw it, was first it was grass roots. It wasn't a
question of someone from the capitol calling this village and saying
here's what you need. The people there decided what they needed
to survive. But secondly and equally important this Grameen Bank
- and I think the next panel includes someone representing a
spinoff there, this Grameen Bank represented a group effort. It
wasn't just one borrower and one lender, there were groups of bor-
rowers working together to help one another.
When you talked, Mr. Bowie, earlier about your success of taking
clients too risky for regular banks, and proving that they could
make it, I'll bet you a nickel the biggest element there is the fact
that you have confidence in them and you work with them. You
don't give up on them, you don't tell them before I'm going to hand
you the money and good luck and if you don't make the payment
you'll hear from our lawyers. My guess is there's more to it than
that. And I hear some of the examples Mr. Byars and others, this
counselling and this involvement whether you're dealing with the
farmer in my part of the world or small business man in your part
of the world, there's a key element here and one that's really lack-
ing.
It isn't the brand new idea in Washington. It's the old idea of
neighbor to neighbor helping one another out, getting people on
PAGENO="0059"
55
their feet and the success story that Congressman Espy told earli-
er.
I'm sorry I may not be able to stay for the later testimony. But
when you made reference to it I remembered that scene that will
stick with me for a lifetime. Thank you.
Mr. Espy. Thank you. That's a perfect way actually to introduce
the last panel. I do, though, want to compliment this panel and
apologize that we don't have more time to hear from them.
Mr. FORD. Mr. Chairman, let me just compliment.
Mr. Espy. Sure.
Mr. FORD. I want to just make one observation here and raise a
question to Mr. Haney.
Mr. Espy. All right.
Mr. FORD. I want to compliment the panelist as well, and it's
very clear the information that the Budget Committee's Task Force
is receiving today. Hopefully this will spark this Budget Committee
as well as other committee's in Congress to move forward.
But Mr. Haney, I just want to ask one question. You mentioned
handouts and giveaway programs. Let me just clearly define what
we're talking about. I am not on this committee and I happen to
Chair the Human Resources Subcommittee in the Congress, and
often times I hear all about these handouts and giveaway pro-
grams. I want to make sure that I understand what you're saying.
Mr. HANEY. We have found through experience that it seems the
programs work better where people are not only personally in-
volved in the programs, but financially involved in the programs.
We've been very successful of late working with the banks, even
though they do have a real hesitancy in our area because of the
problems they've been experiencing with the towboat industry and
agriculture in making loans.
But what we've done is provide the technical assistance to be
able to utilize existing Federal and State programs to provide funds
that we can subordinate to the banks and assisted in making them
make loans and using our funds as gap financing to make them
make loans they were not ordinarily making. When I said give-
away, I'm saying that I don't think that just handouts is the
answer, but I think funds that could be used to try to create an
environment where the existing funds could work better would be
better than just strictly giveaway programs as such. It was just a
terminology that I used.
Mr. FORD. Okay. That's all. Thank you very much, Mr. Chair-
man.
Mr. Espy. Well, then let's introduce the last panel and again say
we do appreciate testimony from this panel. The last panel actually
would incorporate models expressed in the testimony earlier,
models like the Grameen Bank from Bangladesh.
We would like to call the last panel George Surgeon, president
and CEO, Elk Horn Bank, and president, Southern Development
Bancorporation; Julia Vindasius, director of the Good Faith Fund,
a nonprofit subsidiary of the Southern Development Bancorpora-
tion; Scott Lawyer from Memphis, consultant and investment
banker, accompanied by Hiram Eastland, an attorney from the
Eastland Law Offices; and Randall Richardson, State Director of
Tennessee Farmers Home Administration, accompanied by James
PAGENO="0060"
56
Huff, of the Mississippi Farmers Home Administration, and Frank
Shoemake, chief of the Community Business Development Pro-
grams in the Mississippi FmHA.
We welcome the last panel of the day. The witnesses scheduled
to testify on this panel will present the bottom line-whatever is
the bottom line-and that is, what is the situation out there in
terms of access to capital, how do development banks work, and
whether we need them in our region. We have some banks already
ongoing and we'd like to hear a current situation-a report from
them.
Let's start with Mr. Surgeon, president and CEO of the Elk Horn
Bank. As I said to the other panels, please try to limit your testi-
mony to about 5 minutes. We do have your written testimony
which we will include as a part of the permanent record of the
hearing.
STATEMENT OF GEORGE SURGEON, PRESIDENT AND CEO, ELK
HORN BANK AND PRESIDENT, SOUTHERN DEVELOPMENT BAN-
CORPORATION
Mr. SURGEON. Thank you, and good afternoon. My name is
George Surgeon, I'm president and chief executive officer of South-
ern Development Bancorporation and its bank subsidiary, Elk
Horn Bank and Trust Co. in Arkadelphia, AR.
Mr. Bowie, in the earlier panel, has already made most of the
points in my presentation. I will therefore be very brief. Whenever
I've had an opportunity to discuss development banking with other
bankers I've often been told that what Southern Development Ban-
corporation does in rural Arkansas really doesn't count. It doesn't
count because what Southern does is so radically different from
other bank holding companies. And, in fact, there's some truth to
this.
First of all, Southern's shareholder group really is unique for a
small bank holding company. Southern shareholders include major
Arkansas investors and corporations such as the Winthrop Rocke-
feller Foundation, Stephens Group, Inc., Systematics, Arkla, Ar-
kansas Electric Co-Operatives. Southern's shareholders also include
major national foundations and investors such as the Ford Founda-
tion, the John D. and Catherine T. MacArthur Foundation, Aetna
Insurance Co., and Metropolitan Life Foundation.
As you can imagine, these entities do not ordinarily invest in the
illiquid securities of small country banks in rural Arkansas. The
reason they invested in Southern is because Southern's corporate
mission is unique. Southern was created to catalyze economic de-
velopment in rural Arkansas for the benefit of low and moderate
income Arkansans, not to maximize earnings.
That is not to imply, however, that we take our responsibilities
to our shareholders or to our depositors lightly. And, in fact, Elk
Horn Bank has received the highest ratings for safety and sound-
ness from several independent bank rating agencies over the past
several years. Also, to facilitate the achievement of Southern's eco-
nomic development goals and to help underwrite the extraordinary
costs of doing development in a rural setting, our shareholders
PAGENO="0061"
57
have agreed to limit the financial returns on their investments to
the inflation rate for an indeterminate period of time.
Southern's approach to rural economic development centers on
building Arkansas from the inside out. The specific strategy that
Southern has adopted focuses on assisting in the creation and ex-
pansion of small locally owned businesses that either produce goods
and services that can be exported outside of Arkansas or that
produce goods and services that substitute for goods and services
consumed in Arkansas, but which are produced elsewhere.
The premise is that these small locally based firms will, over
time, create more jobs and be better employers than larger nation-
al firms. Small local companies should also be more likely to stay
in Arkansas and not move to the Pacific Rim or Eastern Europe to
chase marginally lower wage rates or marginally more attractive
government subsidies. We also believe that this strategy will not
only improve the standard of living in rural Arkansas, but will also
expand the ownership of wealth and thereby create more stake-
holders in rural Arkahsas.
In his invitation to provide testimony this afternoon, Congress-
man Espy suggested that I share some of my experiences in com-
munity development as they may relate to the proposed Delta De-
velopment Bank. Over the past several years I've had the opportu-
nity to learn many lessons about community development in the
rural South, most of those lessons have been learned the hard way
by making mistakes.
The four that stand out as most crucial when we think about
conceptualizing a Delta Development Bank are as follows. First, de-
velopment banking is a business. To be successful at development a
bank must approach and manage its development activities as it
would any other bank product.
The development programs implemented by the Delta Develop-
ment Bank must be strategically integrated within a sound busi-
ness plan to create synergy, to reach scale, and to achieve operat-
ing efficiencies. Otherwise the scope of the Delta's problems and
the immense size of the region will easily dwarf the bank's capital
base.
Second, you cannot do it by yourself. To have the measurable
impact on the lives of the 8.3 million residents of the delta would
require a development bank with a capitalization in the billions of
dollars. Barring that level of Federal support, the Delta Develop-
ment Bank will have to forge public/private partnerships with all
entities that are currently involved in economic development in the
Delta.
Third, you cannot do it all. Again, barring several billions of dol-
lars in capitalization, the Delta Development Bank will have to
target its activities, both geographically and programmatically.
And finally, development doesn't travel well. There have been
numerous tomes written about community development, including
several on community development banking. However, what works
well in Chicago, Minneapolis, and New York might not work at all
well in Pine Bluff, in Memphis, in Greenville and might be totally
inappropriate or irrelevant in Arkadelphia, in Tunica or in other
smaller Delta communities.
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The organizers of Southern Development Bancorporation raised
a lot of money to capitalize Southern Development Bancorporation.
In the 3 years that Southern has been operational, it has originat-
ed almost 200 investments for more than $7.5 million. We take
great pride in these accomplishments. However, Southern's invest-
ment performance pales in comparison with the need in the com-
munities we serve and with our goal of catalyzing economic devel-
opment throughout rural Arkansas.
We know that the only way that we'll be able to achieve our
goals will be in partnership with other development organizations,
such as Arkansas Capital Corporation, Arkansas Development Fi-
nance Authority, Arkansas Industrial Development Corporation,
the U.S. Small Business Administration, the Farmers Home Ad-
ministration, and hopefully before long the Delta Development
Bank.
Thank you.
[The prepared statement of Mr. Surgeon may be found at end of
hearing.]
Mr. Espy. Very good. I thank you, sir. Ms. Vindasius.
STATEMENT OF JULIA VINDASIUS, DIRECTOR, THE GOOD FAITH
FUND
Ms. VINDASIUS. Thank you very much for letting me share some
of my experiences with my enterprise development. I'm delighted
that Mr. Durbin has also seen the Grameen Bank. It's pretty inspi-
rational.
We began operations in the Good Faith Fund in May 1988, con-
currently with the start-up of Southern Development Corporation.
We're headquartered in Pine Bluff, AK, about 50 miles southeast of
Little Rock on Highway 65, and we serve a seven-county target
area in southeastern Arkansas. We've got about 10 staff and four
field offices outside of Pine Bluff, McGehee, Lake Village, Hamburg
and Monticello.
The Good Faith Fund targets low income residents making very
small short-term loans for self-employment projects and activities
using peer group support techniques pioneered by the Grameen
Bank of Bangladesh. Through the delivery of self-employment
credit and services, The Good Faith Fund's mission is to both raise
the income levels and entrepreneurial levels and skills of low
income residents in the rural communities in our region, and to
widen the profile of would-be entrepreneurs to include women, mi-
norities and other dislocated workers. The key to our mission is to
focus on low income enterprising people and poverty alleviation.
Good Faith Fund operates by bringing credit and services espe-
cially to the doorsteps of our local residents. Our outreach to pro-
spective customers come in the form of training workshops for
people interested in self-employment, the organization and facilita-
tion of borrowing groups in our target area, and subsequent lend-
ing and administration of small loans and technical assistance to
the microentrepreneurs.
At the Good Faith Fund borrowing groups of four to six people
self-select to provide mutual support and assistance and to serve as
a preliminary loan committee for loans to its members. The Good
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Faith Fund staff facilitates the formation of borrowing groups, but
individuals are responsible for meeting with, screening and form-
ing their own groups.
After the initial orientation and training session the borrowing
groups are certified, reviewing and approving loans proposals from
their members. Each group choose a chairperson and a secretary
and opens a group savings account to which they all contribute at
biweekly meetings. Groups of borrowing groups or centers meet in
towns on a biweekly basis. Consensus, mutual support, membership
responsibility and accountability and feedback over a long time ho-
rizon are central to our process.
At this time Good Faith Fund is working in five towns in the
region. We have about 40 members. Approximately 58 percent of
our membership is female and 89 percent is African-American.
Since we started the program we've disbursed 55 loans, totalling
over $133,000. Our average loan size is about $1,200, and our maxi-
mum loan limit is $5,000. We've lent money to upholsterers, cater-
ers, home-based seamstresses, day care operations, cleaning serv-
ices, video production shops, repair services of all kinds, hog
farmer, gift and accessory traders, crafters, Mary Kay representa-
tives, and auto detailers among others.
Several of our customers have been on public assistance and are
working themselves off, particularly off food stamps as a result of
their self-employment activity. And we have many members who
have chosen to belong to the Good Faith Fund in order to take ad-
vantage of the network, training and the technical assistance that's
available through membership. Profiles of some of our recent mem-
bers are in our quarterly newsletter that I've attached to my testi-
mony.
Peer group lending is subset of the field of microenterprised de-
velopment lending. Unlike small business development programs
Micro Enterprise Development Programs distinguish themselves by
reaching out to poor communities and poor individuals. It seems
like in the last couple of years allegiance of new peer-group lending
programs have started operating around the continent and I've
mentioned a few of them in my written testimony.
I'd like to reiterate the lessons that George Surgeon suggested
and then focus on a few specific to the Good Faith Fund. First, that
we have to operate in the most business like fashion because our
customers, poor though they may be, demand professional service.
Secondly, targeting resources is very critical to any development
effort. Thirdly, partnerships with banks and with schools and with
other institutions is very important for us to achieve our develop-
ment objectives. Fourth, staff training and professional develop-
ment is very important. It's really important to have the most cre-
ative minds, put their heads together for the difficult development
problems that we face.
And finally as George mentioned development doesn't travel
well. Investing and testing strategies is just as important as imple-
menting those strategies.
If I leave only one message with this testimony I guess it's to
urge you to remember the fine gradations of small when you think
about small business, and to shed some of the conventional wisdom
about growth. Very few of our customers operate growth business-
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es, that is those businesses that are measured by profits investment
and jobs created. Rather the Good Faith Fund's target has been
survival enterprises or supplemental income activities. A common
wisdom is that growth means increases in sales and numbers of
employees. However, at the micro end of the continuum, income is
generated in many and diverse ways.
Growth for these businesses means expanding into any number
of income generating activities. I have an example of one of our
customers borrowed $150 to purchase fabric and supplies for her
home-based sewing business. She has an early morning paper route
and she's also the primary income earner for her family as her
spouse is often out of work. And as she nears the end of her loan
she is thinking about borrowing again to operate a snow-cone ma-
chine for the summer for the kids in the neighborhood.
What's important to remember is that these businesses, though
they're not small businesses the way we think about them, are a
critical part of the local economies in which we work. They empha-
size existing talent and are a viable and rational alternative to low-
wage jobs or, in many of our delta communities, no jobs.
Like many other microenterprise development programs, Good
Faith Fund targets women. Statistics suggest that women are in-
creasingly likely to start a business, yet women have less access to
resources, including credit capital, and most critically, information.
We focus additionally on the fact that women are also most likely
to live in poverty and, therefore, raise children in poverty.
Internationally and domestically development loan funds and
business assistance programs often target women because of the
fact that they are less risky and more reliable borrowers.
Savings are also a critical component to our peer group lending
program. While different programs emphasize savings in different
ways, the premise is that the poor can save and can collective, as a
group, accumulate wealth more rapidly than they can individually.
We consider our biggest success stories, not the loans necessarily
that the Good Faith Fund gives out, but the loans that groups give
out to the membership. There are land mark events which demon-
strate economic power that is possible when individuals unite and
are given a supportive opportunity to accumulate wealth and rein-
vest.
[The prepared statement of Ms. Vindasius may be found at end
of hearing.]
Mr. Espy. Thank you. Could I ask you, what's your default rate
in the Good Faith Fund?
Ms. VINDASIUS. It hovers currently about 15 percent.
Mr. Espy. Fifteen percent. Is that a lot better than commercial
default rates?
Ms. VINDAsIu5. Well, actually most banks operate hopefully at
under 2 percent. But that's a delinquency rate, it's not actually a
default rate. We have written off a fair number of loans before, but
we're trying to keep our delinquency and defaults as low as we pos-
sibly can.
* Mr. Espy. I know that my colleagues have to leave and run for
the airport. I'd like for them to make any brief closing comments.
Mr. OBERSTAR. I want to compliment all those who presented tes-
timony today. I know it takes a lot of time to develop the written
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document, you invest many hours in doing it, and you arrive at the
committee Hearing and are told you've got five minutes to make a
presentation. And I want to assure you that those are five or six or
seven well invested minutes. You emphasize the highlights, the
breast of the testimony-I've learned to speed read and have read
through everything that's been presented today and I'm very im-
pressed with the quality of presentation, the sincerity of those who
made their contributions. I've learned a great deal today and want
to compliment all of you who are engaged in both growth and de-
velopment of local economies.
Mr. DURBIN. First, let me say, Ms. Vindasius, I'm glad to hear
your testimony, especially since I told the story earlier not realiz-
ing that you patterned after Grameen. But at the Grameen Bank
meetings they do calisthenics and chant their 12 commandments. I
doubt that you do that part, but it sounds like you've picked up on
the basic principal and I'm glad to hear it's working successfully
for so many people.
Thank you, Chairman Espy, it's been a good hearing and I've
learned a lot. Mr. Ford, great hometown and thank you for having
us. I appreciate it very much.
Mr. FORD. Come back again. Thank you.
Mr. Espy. I wish our colleagues Godspeed and have a safe jour-
ney to Illinois and Minnesota. See you Tuesday.
We'll continue then with Mr. Lawyer.
STATEMENT OF M. SCOTT LAWYER, BANK CONSULTANT!
INVESTMENT BANKER
Mr. LAWYER. Mr. Chairman, members of the panel, ladies and
gentlemen, I appreciate the opportunity to be here today.
I won't quote from my prepared text. I think the reason I was
invited to be here is because I think I'm the only person in the
room that's chartered a minority bank in the last year. We've, in
fact, chartered two African-American banks, one in New Orleans,
one in Los Angeles, to serve the minority communities in both
those cities. We're currently looking at the possibilities of charting
up four more and are working with the FDIC, the RTC, the other
banking agencies.
As we're all aware with the savings and loan debaucle and the
hundreds of failed banks that will occur over the next several
years, there's ample opportunity for minority banking to be regen-
erated. And I think to address some of the problems that have been
discussed here today along the lines of whether loans are bankable
or their degree of risk in a given economic community very much
tracks the racial components of that community.
Therefore, it's our position that one of the best ways, to address
the capital needs in these minority communities are the creation of
minority commercial banks. And this can be done, the programs
are in place in certain instances, however, they need to be expand-
ed to allow for the creation of minority banks.
The concept of the use of MESBICs or SBIC, versus commercial
banks limits the size and type of the loans that can be made in mi-
nority communities, what can be done vis-a-vis the use of a minori-
ty bank. Therefore, we feel that the pending Banking Reform bill
44-629 0 - 91 - 3
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currently before the Congress, should be amended to include seven
points. For this I will quote from prepared testimony.
(1) The RTC's Interim Capital Assistance Program, which was
originally adopted as a provision of FIRREA, needs to be amended
to include all commercial banks, savings and loans and branches
whether those were formerly minority banks or not. This would in-
clude a mandate to the Office of the Comptroller of the Currency to
expedite chartering processes which now take up to four months
for minority investor groups.
(2) To remove an impediment, they need to extend the repay-
ment period for the Interim Capital Assistance Program, which is
now a period of 9 months which is totally unrealistic to try to come
up with millions of dollars, to at least 36 months and with long-
term permanent financing available if the performance of the new
bank is satisfactory.
(3) They need to amend the Community Reinvestment Act to give
credit to majority owned institutions and their holding companies
for the purchase of preferred stock from minority owned institu-
tions and their holding companies. And to allow for the purchase of
this preferred stock to be in the form of pretax dollars. The pre-
ferred stock purchase should be required to meet bank regulatory
standards of Tier 1 capital.
(4) Require by statute the allocation of 25 percent of all asset
sales by the FDIC and RTC to be offered first to minority institu-
tions on a negotiated basis rather than on a current bid process,
which favors large majority owned financial institutions.
(5) To allocate 25 percent of all FDIC and RTC management con-
tracts to minority owned financial institutions and companies on a
negotiated basis as opposed to the current bid process. If the con-
tracts cannot be awarded successfully on such a basis then have
them bid through the normal process. With regard to this particu-
lar point of the program we are also urge that you amend the Com-
munity Reinvestment Act to give credit to majority owned institu-
tions that either subcontract with minority owned institutions or
companies when the majority owned institution is awarded the con-
tract, or who assists minority companies when the minority compa-
ny is awarded the contract.
(6) We would also urge you to amend existing tax laws to permit
minority owned institutions that purchase failed institutions to
assume the tax loss carryforward of that failed institution to avoid
payment of undue taxes on minority businesses, particularly a
brand new minority bank. The tax carryforward is available, it
would take one simple amendment to amend the tax law. That
would stimulate additional capital in the minority community.
(7) Amend tax laws to permit the use of accelerated depreciation
on all fixed assets and leasehold improvements purchased from the
FDIC or RTC by minority owned institutions.
All seven points of this program are critical to revitalizing mi-
nority ownership of financial institutions which realistically best
serves the needs of minority communities as opposed to paying lip
service.
I would go back to Mr. Hawkins' testimony, his earlier testimony
with regard to Community Development Bank. We worked with
the chairman and his staff in this regard. We feel that this is a
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very, very viable project. It will supplement and be-as Mr. Sur-
geon points out, a very, very key element in this region. But inso-
far as minority communities outside this region and within this
region we would urge these amendments be made of the existing
laws and policies of the FDIC and the RTC for the creation of new
minority owned commercial banks. Thank you.
[The prepared statement of Mr. Lawyer may be found at end of
hearing.]
Mr. Espy. Thank you, sir. Mr. Eastland.
Mr. FORD. Mr. Chairman, before the next panelist-I don't want
the panel to think that I'm going to be rude, I have a media event
right outside the door. I am the Congressman from this area, so
they often and frequently want to talk with you.
But one thing before I leave, Mr. Lawyer, I serve on a tax com-
mittee in the Congress and your testimony there I'm going to carry
a copy of it back with me to give it to some of my tax counsels on
the Ways and Means Committee. It is an area that we have had
some dialog with on the committee and hopefully we can take this
portion of it back to our Oversight Committee in the Congress as
well as Mr. Rangel's subcommittee that maybe we can get some
testimony in this area and see how we can move. Because we have
suggested to RTC in the past and we have suggested certain things,
but now I'm more concerned about maybe some of these reform
areas in the Tax Code give minority financial institutions some
type of tax incentives that would be necessary that would be very
helpful for reinvesting in the development in the African-American
communities.
Mr. LAWYER. I recently met with Mr. Rangel in the New York
delegation and shared some of these concepts, not all of them, with
him so he would not be totally unfamiliar.
Mr. FORD. I'm going to take your testimony back. Not that I'm
not going to take the others, but that's on my committee.
I'll be right back, Mr. Chairman.
Mr. Espy. Very good.
Mr. Eastland, would you care to make any comments on Mr.
Lawyer's testimony?
STATEMENT OF HIRAM EASTLAND, ATTORNEY, EASTLAND LAW
OFFICES
Mr. EASTLAND. Just a few, as I assisted in preparing Mr. Law-
yer's testimony and was asked to accompany him I don't have pre-
pared remarks. But I want to thank you, Mr. Chairman, for chair-
ing these hearings and focusing on our area. As a somewhat young
Mississippian from your district, I particularly want to thank you,
my Congressman, for creating this national focus on the Mississippi
Delta region. As you have stated, a new generation of Mississippi-
ans, white and black, are prepared to move forward, working to-
gether shoulder to shoulder to confront age-old challenges facing
the delta. We are proud to be a part of a new Mississippi, and I
appreciate the remarks and the leadership you have shown in this
regard.
PAGENO="0068"
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I am encouraged also by the remarks of Mr. Oberstar stating
that this Task Force should go back to Washingtom with a determi-
nation to set this area as a national priority.
I know you and I have long both felt such action is needed and
justified. Likewise, I am encouraged by the confidence Mr. Durbin
has in new ideas. I think we have all learned that just throwing
money at problems is not the answer. Ideas and the correct ap-
proach to economic and social problems do count just as much as
money. I hope that when you go back to Washington, the Congress
will listen to the progressive ideas discussed here today, such as the
minority assistance program, the regional development bank, and
ideas and suggestions like those of Mr. Surgeon with respect to
community development banks.
The justifiable and appropriate access to the additional financial
markets and funds provided by the minorities assistance program
we have discussed today could have major significance for the eco-
nomic empowerment of minorities. The proposal could help place
minority management in the mainstream of national banking ac-
tivity, working with minority and majority interests to formulate
community economic development policy in everyone's interest. As
you have often said, Mr. Chairman, economic policy which
strengthens our weakest links, economically strengthens the com-
munity and the country as a whole.
Ideas like the regional development bank and the community de-
velopment banks can also be most valuable in financing communi-
ty economic growth and development. We may even want to consid-
er expanding the concept of community development banks, as I
have discussed with you before. With hundreds of savings and
loans institutions currently being "resolved" by the Resolution
Trust Corporation, it seems a perfect opportunity for the Govern-
ment to act now as a catalyst in the creation of more community
development banks nationwide. While to date I have seen no pro-
posals which ask to incorporate a community development bank
concept with RTC resolution policy, fortunately there are several
models such as the Southern Development Bank Mr. Surgeon has
testified about, and David Osborne has written about, that could be
used to set up qualifying criteria encouraging a certain amount of
community development bank expansion in conjunction with RTC
resolution.
As far as Federal capital for ongoing programs within communi-
ty development banks, there may be a number of Federal and State
programs already existing which could be drawn upon. For seed
capital for the start-up of community development banks, we might
consider something similar to the Government purchase of pre-
ferred stocks which we have suggested for the regional develop-
ment bank legislation. As you are aware, we have suggested utiliz-
ing temporary Government financing patterned after President
Roosevelt's Reconstruction Finance Corporation which is paid back
to the Government as the preferred stock is retired.
Obviously, such a microcommunity development bank approach
could work perfectly with the regional development bank proposal,
which could itself provide a further source of funding and assist-
ance to community development banks through participation in
various projects.
PAGENO="0069"
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I appreciate the opportunity of being here, Mr. Chairman, and I
look forward to working with you in any way possible to assist in
creating ideas which will expand the economic potential of the Mis-
sissippi Delta. In addressing this challenge, your Task Force and
the Budget Committee can be critically instrumental in creating a
brighter future for millions of Americans, and in strengthening the
country as a whole. As you have recognized, Mr. Chairman, there
was much talk about the Mississippi delta back in the 1960's. The
time has come for action, for a more unified Mississippi and Amer-
ica to now combine our common experiences and talents and take
concerted action together based on what we have all learned-to
continue to create a more perfect union.
Mr. Espy. Thank you for making the comment. Mr. Richardson.
STATEMENT OF RANDALL RICHARDSON, STATE DIRECTOR, TEN-
NESSEE FARMERS HOME ADMINISTRATION, U.S. DEPARTMENT
OF AGRICULTURE, ACCOMPANIED BY JAMES B. HUFF, SR.,
STATE DIRECTOR, MISSISSIPPI FARMERS HOME ADMINISTRA-
TION AND FRANK SHOEMAKE, CHIEF, FARMERS HOME COMMU-
NITY BUSINESS PROGRAM IN MISSISSIPPI
Mr. RICHARDSON. Thank you, Mr. Chairman. The Farmers Home
Administration appreciates the opportunity to be a part of this
hearing today.
With me today are James Huff, State Director, Farmers Home
Administration in Mississippi, and Frank Shoemake, Chief of the
Farmers Home Community Business Program in Mississippi. We
have submitted a prepared statement for the record, which goes
into detail about our programs.
In the interest of time I'll give a summary of our programs and
speak specifically about our community and business program and
the intermediary relending program that you asked about.
The Farmers Home Administration has been a silent partner in
the growth and development of rural America for about 50 years.
Our programs improve the quality of life for all rural Americans.
Over the years Farmers Home has invested more than $23 billion
in community and business loans and grants, and almost $59 bil-
lion in the rural housing programs. Two million American families
have a decent affordable place to live because of our housing pro-
gram. This program has an immediate and dramatic impact on the
lives of families, most of whom do not have a decent place to live
without Farmers Home assistance.
Six hundred thousand farm families own and operate their farms
because of our farm programs. Thousands of communities have
clean drinking water, waste treatment, libraries, fire protection,
town halls, rehabilitation centers, hospital additions and other fa-
cilities essential for a community to have a better quality of life
because of the community programs.
Thousands of Americans can live and work in their hometowns
and not have to move to urban centers to find employment because
of businesses which are financed by Farmers Home guaranteed
loans. More specifically Farmers Home community and business
programs fall into three primary categories: Water and waste, com-
munity facilities, and business and industry.
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66
Funding allocations for the fiscal year are $500 million for water
and waste direct loans; $35 million for water and waste guaranteed
loans; $301 million for water and waste grants; $100 million for
community facility direct loans; $25 million for community facility
guaranteed loans; $100 million for business and industry loans;
$31.5 million for intermediary lending loans, which is a new pro-
gram; $20.8 million for rural development grants; and $2.6 billion
for rural housing.
Mr. Chairman, you asked about the intermediary lending pro-
gram under which we lend a nonprofit corporation or public entity
up to $2 million at one percent interest for the 30-year payback.
The intermediary through a revolving fund relends to local busi-
nesses in rural areas at a rate that is less than that which is
charged by commercial lenders.
This gives the business a better chance of survival due to less
pressure on cash flow to meet debt service. This program involves
local lenders because the loans to the ultimate recipient is limited
to the lesser of 150,000 or 75 percent of project costs. Involving
local lenders and business people also puts credit decisions in the
hands of people with finance and business experience and brings a
loan decision to the local level not in our State Office.
In Tennessee we've closed one intermediary relending loan for $2
million and have issued a letter of conditions on another one for
almost $1.9 million. We advanced the funds to the intermediary on
a 30-day need basis. We have made two advances totalling
$1,030,000 involving eight recipients which will create 290 jobs for
our cost per job of $3,551. Funds from other sources total about $1.5
million for the eight projects, meaning our loan funds account for
about 40 percent of the total involved in the projects.
That's a good mix of public and private funds aimed toward eco-
nomic development.
Here in Tennessee we have an investment of $1.7 billion. Bank-
ers call it a portfolio, we call it an investment in people. It's easy to
sit here and talk about it. I've provided a book that's typical of
what we offer here in the State of Tennessee. This program in
Henry County, TN and northwest Tennessee indicates that there's
a better quality of life in that county because we have some modest
housing programs, some farm loans, some community development
loans and also business loans that provide employment to people.
Mr. Huff and Mr. Shoemake are here and available to answer
questions about Mississippi. We appreciate the opportunity to be
here.
[The prepared statement of Mr. Richardson may be found at end
of hearing.]
Mr. Espy. Thank you. I would now invite Mr. Huff and/or Mr.
Shoemake to make any contribution they would care to make.
Mr. HUFF. Thank you, Mr. Chairman. I will not, in the interest
of time make a formal statement, but I do want to thank you for
allowing us to be here. I want to thank you and the panel for your
interest in rural America and I want to thank you for what you do
for Mississippi. It's good to be here.
Mr. Espy. Well, the esteem is mutual. I don't mind reiterating
the compliment and cdmpliments I pay to you personally and your
office. And, let me just say to you, that I've said the same to Mr.
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67
Madigan in your behalf because I have been a very vocal critic of
the Farmers Home Mississippi operation in the past. Since you've
stepped up to helm, I think you've done a magnificent job paying
attention. I appreciate it and I don't mind saying so. It's on the
record and able to be duplicated and disseminated. So, I think you
will have it. Mr. Shoemake?
Mr. SHOEMAKE. I just echo Mr. Huff's comments and say we ap-
preciate the job you and your staff are doing for us.
Mr. Espy. Thank you. It's not always the case that I'm here
alone, but I'm not alone. You are speaking in fact, through the
transcriber here, to the entire Congress. So, to me, we've had a
very excellent hearing, the testimony has been great. The testimo-
ny that I've heard today constitutes the basis for some exciting
things that we're going to try to do in the region. Hopefully things
we can do in the region.
I mentioned earlier about something called a Polish-American
Enterprise Fund, which was a congressional reaction to events in
Poland and in Eastern Europe. The fund is our way to try to help
them convert from a planned economy to a free market system.
We, in the Congress, appropriated the funds quite easily-I had to
go back to the records to really try to document the discussion.
Further, $260 million of the fund is being managed by a person
with whom you're familiar, a member of the South Shore Bank in
Chicago.
Appropriation of money to the fund was done quite easily. But
the political atmosphere was right for that and certain Members
recognized it and steered it through. I think the political climate is
beginning to warm to these kind of ideas and through the expertise
of a lot of Members, even those appearing today, we're going to try
to do the same thing; but we need some help. We need a lot of help
to try to do it. That's why I'm glad to hear from Mr. Surgeon, Ms.
Vindasius, Mr. Lawyer and Mr. Eastland in particular on this part
of the question because we need reform.
Now I had a chance to go to the South Shore Bank 2 weeks ago
and talk to Mr. Bennett, Mr. Grzywinski and others there that had
so much to do, in my opinion, with the development of the Arkan-
sas bank. But, in your testimony you said that development bank-
ing doesn't travel well. What, in your opinion, is the difference be-
tween the operation in a very urban province of Chicago and a
very rural province Arkansas?
Mr. SURGEON. I think there's one major difference, and that is
the problem that we faced in the inner city of Chicago was really
not economic development. For example, Chicago has a population
of 9 million in the larger metropolitan area. It's surrounded by one
of the fastest growing counties in DuPage County in the United
States. There's a lot of jobs being created every day.
The problem we faced in South Shore was one of creating decent
housing in one small community, and also trying to recreate
market forces that had just gotten out of kilter in one part of a
larger economy that was generally pretty healthy. In rural Arkan-
sas and in the delta area we don't start with a healthy economy
throughout the general area. We're not dealing with pockets, small
pockets or small areas where market forces don't work. We're deal-
ing with an entire region where market forces aren't working.
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Mr. Espy. And to Ms. Vindasius, in your operation of the Good
Faith Fund, if you again could talk about the level of default and
delinquency, as a percentage of commercial bank experiences. Also,
could you mention the extent to which the successful applicants to
the Good Faith Fund were removed from public assistance. I would
appreciate knowing a little bit more about it.
Ms. VINDA5Iu5. This kind of banking, this Mircoenterprise Devel-
opment Banking is very human and tractive intensive. It's very-
you have to-in banking terminology it's the difference between
personal banking and ATM machines. And we started the program
really being a replication of Grameen. Bank, testing and experi-
ment and we had to learn some hard lessons. One of them was that
our target area, even though we were trying to be very careful
about targeting, was probably too large for the two staff that we
had. So we've made a fairly significant investment in hiring a lot
of staff and it has made a big difference in us being able to control
delinquency and default.
And I'm not a banker by background and so it took me a little
while to get smart about banking. I think we've gotten delinquency
and default problems under control. And for the most part the peer
groups really do serve as a way of not so much pressuring others to
make their payments, but supporting them through difficult peri-
ods of times so they can make their payments. And we spend a
great deal of time troubleshooting and problem solving with our
borrowers.
A lot of mention has been made during the testimony about tech-
nical assistance and management assistance, but those kinds of as-
sistance programs are very expensive to do.
Mr. Espy. What is the service area of the Good Faith Fund?
Ms. VINDA5Iu5. We're about 5,000 square miles, about 200,000
people, so it's really not a very large population but geographically
quite disbursed.
Mr. Espy. I'm trying to get an idea of the ratio service area to
staff. It would seem to me that you'd have to have intensive man-
agement and a bunch of MBA's or business trainees. How do you
gauge the number of employees that you can hire against the serv-
ice territory and the universal pool of applicants?
Ms. VINDA5Iu5. I don't think we know yet what the universal
pool of applicants are. I think that we haven't even begun really to
scratch the surface. I don't think the percentages are as high as we
might imagine, but I don't know quite what they are. We have
made a pretty big investment and we've got-in staff, so now we've
got about-I think the idea is to have one staff person being able to
service 50 customers or something like that. That's actually not a
very big ratio. Right now our staff to customer ratio is much, much
lower than that. That would be the ideal.
Mr. Espy. If we try this on a Federal level-I'm quite sure that
we would have to offer our colleagues in the Congress who are
mostly from urban areas-because the Congress is becoming more
urban-an analysis of the cost/benefit ratio. That's why I asked
about the public assistance rate.
The young woman I mentioned earlier in Mississippi, in 13 or 14
months went from AFDC to independence. So I'm asking again
about the public assistance aspect.
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Ms. VINDAsIus. We just spent about 18 months researching wel-
fare demonstration programs, and we are about to embark on a
fairly large partnership with votech and adult ed programs in the
Department of Human Services in the area to do a welfare demon-
stration program along the lines of what you described. In rural
areas where there really are not very many jobs, job training pro-
grams sort of miss the mark. And so what we're trying to do is see
if we can provide self-employment opportunities for people on wel-
fare.
And there is a great-in Arkansas I think the lady that you
mentioned was in Mississippi; is that right?
Mr. Espy. Yes.
Ms. VINDASIUS. Arkansas really jumped on the Family Support
Act in 1988, and really tried to push those recommendations. And
so there is a fair bit of gray area in the State policy to allow for
self-employment for transitional benefits while a welfare recipient
chooses or opts for self-employments. I think it was even more diffi-
cult for the woman that you mentioned in Mississippi because the
State did not push on the Family Support Act clause, and we still
are trying to get some Federal waivers to allow for income and
asset waivers for people to get transitional benefits while they're
going through the start-up phase of their business. We'd still like
to do it.
Mr. Espy. You service a 5,000 square mile area. Here we're talk-
ing in our region-gosh, I don't know-we have about 8.3 million
people from southern Illinois to southern Louisiana. So, I have a
toss-up question that touches on the central point of targeting.
We're at the crossroads of deciding whether we're going to try this
or not. We've already been criticized in some of the commercial
banking areas. That's why I endeavor to call this a "fund," not a
"bank" and I point up quite candidly the Polish-American Fund for
which we found money.
Is this too grandiose an effort to start, Mr. Lawyer? A Delta Re-
gional Investment Fund, is it feasible? Is it reasonable? And last,
this may be an unfair question, but whatever comments you would
have I'd appreciate. What level of Federal direct investment would
be doable? As we know, it might not be the right atmosphere-we
know the S&L situation, we know the commercial banking situa-
tion, we know that there's criticism of Government sponsored en-
terprises, and we know the great problem with Federal loan guar-
antees.
I'm asking, because you've done a little research on this matter,
is this feasible, reasonable, and what level of Federal support
would be appropriate?
Mr. LAWYER. Well, first of all, Mr. Chairman, it is very feasible
to do this. There are too many models nationwide to tap into to
have the expertise. You mentioned South Shore and we have one
expert sitting right here, and we have a lot of people who could
lend assistance in credibilities to such an effort.
Mr. Espy. But we don't have a Winthrop Rockefeller.
Mr. LAWYER. Well, we don't have him. Unfortunately somebody
got to him first. You know, it's realistic to talk about doing this,
but it's not realistic to talk about it without Federal assistance.
And as we originally envisioned the program when talking with
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and working with your staff, the drafters back last February, the
model that we came up with which is best suited for this type of
situation. And this is, again, in the context of a bank at that time,
could be the same thing is true for a fund, would be along the lines
of the Reconstruction Finance Corporation.
The superagency formed after the Depression was used to recapi-
talize this country, even recapitalized the banking system. And it
did so by buying preferred stock in institutions that had gone bank-
rupt or out of business or whatever the terminology was at that
time. And what we were proposing in this case would be that the
Federal Government buy preferred stock in the cooperative bank,
the fund or whatever the institution might be, and that over some
period of time-we don't know what amount of time until we test
the water so to speak, but we would replace that preferred stock
with common stock that would be issued to various State agencies,
private investors, foreign investors, various corporations and Mr.
Rockefeller if we could get him interested in this program.
But that those moneys could be replaced. And the Treasury
would only hold the preferred stock of this entity for a limited
period of time.
Given some of the comments I've heard today I would think that
we should be looking at something in the neighborhood of $250 mil-
lion.
Mr. Espy. All right. Mr. Eastland, do you have any comments to
make?
Mr. EASTLAND. Just to say in working with your staff on possible
ways to finance the regional development bank concept, the pri-
mary reason we have felt the proposal is feasible is that the pre-
ferred stock concept allows the Government to get its money back.
We appreciate your comments about the political environment
that we're in as far as budgetary restraints. We have also heard
remarks from some of the witnesses about avoiding political per-
ceptions of so-called Government handout programs.
But from a political standpoint, the Government will get its
money back. The role of the Government with respect to the re-
gional development bank is simply the Government acting as a cat-
alyst. So many people agree today with the role of Government as
a government/private enterprise-type role, with the Government
simply acting as a catalyst. It's not a role to which anybody can
point fingers, calling the proposal another so-called Government
handout. The regional development bank proposal is a sound in-
vestment. It can be structured in a way that it is responsibly fi-
nanced with limited Government intervention, and the regional de-
velopment bank is in an area of the country that is certainly de-
serving.
Mr. LAWYER. Well particularly, if I could, in light of the fact that
yesterday the bill passed the Senate that we're going to spend $2 to
$3 billion to launch another space station. And here we're talking
about something that's one-tenth that amount, and as you point
out it affects the lives of 8.3 million people in all these States.
Mr. Espy. Just to respond, actually the House Appropriation Sub-
committee on HUD, VA, which is the committee of jurisdiction
over the space station, actually cut the increase by $2 billion. The
Administration, through the Vice President and through some
PAGENO="0075"
71
others in the Congress, was successful in restoring the cut of $2 bil-
lion. So, I do understand what you're saying.
Let's move to the Farmers Home representative. I have a couple
of questions. One, although we don't have anything written on this
so-called Delta Fund, I'd be interested in getting a reaction from
the outset from the Farmers Home representatives. Second, we
know that Farmers Home is currently undergoing reorganization
to separate the farm lending function from the rural development
function, to consolidate the community development, business, in-
vestment, water, sewer programs and all that. How is that going
and what would be the real impact on rural development?
A lot of people feel that's going to put the emphasis more on
physical infrastructure, a water or sewer system as opposed to
human infrastructure. I just want to know how is it going from the
Mississippi and Tennessee experience.
Mr. HUFF. I'd be glad to address it with the knowledge that I
have. In the 1990 farm bill, as you know, created a new agency
known as the Rural Development Agency which I think is targeted
to kick off on October* 1. The way it's going to impact Farmers
Home, from what we gather, is everything pertaining to communi-
ty programs and business and industry will be shifted to that
agency.
I will be involved in some of the planning of that. They've cre-
ated a committee that will start a transition plan to do that. The
number of people that's involved, for instance, to show you the
magnitude of this, will be in the neighborhood of 925 Farmer Home
employees will be moved into RDA. And I don't know exactly how
that's going to be structured, I don't know that it has been decided
at this point.
But the budget for that program will be moved from Farmers
Home the new year, 1991, into the new Rural Development Admin-
istration. And how. that's going to be done and exactly how it's
going to be organized, to my knowledge, has not been decided but
will be in the next few weeks and months.
Mr. Espy. Thank you. Mr. Richardson?
Mr. RICHARDSON. Congressman, we're still in the stage just as
Mr. Huff is. That program in Tennessee constitutes about 10 per-
cent of our total program. Our largest program is housing, and
that's. about a billion dollars. About half a billion is in farm pro-
grams; community and business programs are only about $170 mil-
lion. That's a lot of money, that program has always run well. We
think we'll probably lose 17 to 18 people to that program. The pro-
gram is run very well right now where it is, but we'll go on with
what we do get from Congress and the Administration.
Mr. Espy. Well, I take that as a notice. The last question that I
have is for Mr. Lawyer. You were very clear and I appreciate the
specificity to which you testified on the banking reform. And, you
know, Mr. Ford, of course, mentioned he will take the recommen-
dation to his Ways and Means Committee subcommittee.
But what I really want to know is, do we think the overall
theory to allow more nonbanks into the investment market is
going to improve access to capital. You would think that it would,
but on the other hand, everybody out here says we have enough
capital already-it's just the problem of risk and risk takers. In
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72
fact, we're in a recession and, even though the interest rates are
decreasing somewhat, the extent to which the bankers are willing
to be more moderate has not been forthcoming. So they're just as
conservative as they've always been. Should we expect that the
nonbank banks will be as conservative? That won't do a thing to
increase capital or access to capital for minority entrepreneurs or
women. How do you feel about it? If any of the other panelist want
to comment, please do so.
Mr. LAWYER. That's exactly one of the points that I make in the
written testimony. One of the major aspects of the Banking Reform
Act is to allow companies that are not traditionally in financial re-
lated services to own banks. There have been prohibitions in the
past, say for insurance cbmpanies to own banks. Some of that is
broken down.
But to have a manufacturing company to have a piano making
company. It's a famous case, the Baldwin Piano Co. out of St.
Louis, to have them own a bank was prohibited by the Bank Hold-
ing Company Act. Quite naturally there's a lot of stored up capital
in companies other than financial services businesses, and that is
more particularly true in the minority community where you find
that-let's take the funeral home business, for example, or insur-
ance companies. There's a lot of capital in those minority business-
es that if it could be brought out of that business, that funeral
home business, for instance, and then put into a bank to capitalize
that bank we could have a new minority bank.
Unfortunately the tax laws prohibit the dividending of that cap-
ital out because you have to pay income tax on it. So the actual
dollars available left to capitalize a new financial institution would
be dramatically reduced. If, instead, the minority owned business
or a coalition of minority owned business that had capital available
could charter a new financial institution. We would see, I believe, a
lot more women owned and minority owned businesses.
Now, this is almost exactly the case with the minority bank that
we created and chartered in New Orleans last year. There were a
number of community development funds, one of which at least
was represented here today, who agreed to make capital available
to this new African-American bank in New Orleans. And they were
able to do that but only on a limited basis because of the prohibi-
tions of the Bank Holding Company Act.
Having that portion of the act amended as part of the banking
reform bill is critical, I think, another critical aspect as far as mi-
nority communities are concerned. But in order for this to really be
a Banking Reform Act and for it to have an equivalent effect on
minority community members it would be critical of those seven
points that I went through today for those to be included as amend-
ments to the banking reform bill. Otherwise, the minority commu-
nity is going to continue to be disenfranchised by from financial
services.
And that is exactly what's happened over the last 3 years, and it
will continue to happen at a much more alarming rate. As these
institutions have failed, even the majority of the institutions that
had branches in what have now become minority neighborhoods,
quite conveniently those branches are not picked up by the institu-
tions who require the failed institution. So the number of offices
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73
serving the minority communities across this Nation has dropped
disproportionately to the overall number of institutions that have
failed.
Mr. Espy. I appreciate it.
Well, we had announced that we would try to conclude by 2:30,
and we're about 10 or 12 minutes over that. So, by way of summa-
ry, let me make a couple of points. One, is I do appreciate all of
you coming. I know it takes some time and effort to get here just in
terms of pure transportation. Further, the time the thought and
the trouble that it takes to prepare testimony, to have it typed, to
have it faxed to Washington in the appropriate numbers, is some-
thing you don't have to do. I really do appreciate everyone and ac-
knowledge that appreciation. These things are not simple to do.
Let me assure you, though there's a lot of followup and follow-
through. We are definitely preparing a proposal for the next
budget year. That is why we're doing it and I'm thrilled that the
colleagues who joined me this morning decided to come, because
they don't have to come. We're on a recess for a weekend. They
have their own districts to go to-Minnesota and Illinois-and it
takes some time to get there from here, and they didn't have to
come.
You know, there's no special obligation one Member owes to an-
other to come to any field hearing. We ought to really take note of
the fact that these two gentlemen came because they're both my
senior on the Budget Committee. They're one removed from the
Chairman. Mr. Durbin serves as a Member of the Appropriations
Committee, plus a Member of the Budget Committee, which has a
lot of meaning on the kind of things we're trying to do.
Mr. Oberstar is the chairman of a subcommittee of the Public
Works and Transportation Committee. We've been trying to get
him on the delta region's proposals on the new highway bill. So we
tried to bring him here to show the extent to which we need eco-
nomic development to be pursued through infrastructure. I am
sure he knows that which is why he decided to come. Mr. Ford, of
course, is on the Ways and Means Committee. So they listen, they
can speed-read, but more than that their staffs will read your pres-
entations, and will cull through the testimony. We will take the
recommendations forward to the rest of the members of our panel.
A word about the atmosphere. We have a lot of trouble, I mean,
no doubt about it. We have a $300 billion budget deficit and that's
an on-record deficit. That has nothing to do with the off-record
S&L situation, and the disaster bill which was also off-record, and
the Desert Storm funding for which hopefully our allies can help
pay and I think they are. But we're still going to have a residue of
debt there.
But, I think, the atmosphere makes it all the more necessary
that we move toward grandiose self-help projects. For instance, for
first time ever, in the Congress we passed Hope 1, which was a
Jack Kemp inspired proposal to allow public housing tenants to
own their own units. That could be in Chicago, it could be in Ten-
nessee, or it could be in Mississippi. The Congress now collectively
conceived the benefit in asset development. It creates self-esteem,
creates collateral, develops assets, and it accomplishes the overall
goal of reducing the Federal outlay on vouchers and welfare.
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74
That's what this is all about. We're trying to take this attitude,
not just for housing, but applied to other traditional welfare reform
proposals. To try an individual development account proposal,
where the Government can match whatever the low income resi-
dents could save, as long as, what they save is -applied to college,
housing, or job training. I think such proposals are moving forward
as a result of a lot of the Delta Commission initiatives, such as the
overall idea of an investment fund.
Again, we're still in the initial stages of developing the invest-
ment fund idea. The fact is, though we get $2 billion of Federal dol-
lars into this region in welfare, in my mind is not really helpful.
It's immediately helpful in the near term, of course, but on a long-
term basis, both in terms of self-sufficiency and Federal outlay, it is
not helpful. I think the same kind of justification that we can
make for Hope 1, can be made for welfare reform through propos-
als like an investment fund, which can be leveraged for other
things.
I think the time is right for it. It won't happen soon, but if we
pushed through a Polish-American investment fund with very little
discussion I think, we can do it. I think that we can do it. We
bailed out Lockheed, we bailed out Chrysler, we bailed out the sav-
ings and loans, and we may have to bailout some of the banks. We
have credits now for Soviet Union, which I think will pass. I think
it's about time to perhaps raise the decibel level of our rhetoric and
say what about us; what about our region. Let's deal with some
Grameen Bank models on a regional basis and use what you've
been doing in the Good Faith Fund as a model. There's evidence
for it. You don't need another demonstration project. We can use
you who testified today because you've done it privately and it's
working.
If we can work out an appropriate level of Federal investment to
try to do an investment fund, modeled after what you're doing in
Arkansas and what they've done in South Shore and in New York,
we would like to work it out, particularly if there's some return on
our investment. I think the time to do it is now and if we get Mem-
bers like the other two to my left that were here, to help us to do it
I think is very worthy.
Let me thank all of you for coming and testifying. By way of
housekeeping if anyone in the audience wishes to submit written
testimony or other materials related to today's hearing topic, the
record will remain open for 2 weeks for receipt of such materials.
They should be mailed to the Budget Committee, House of Repre-
sentatives, Washington, DC 20515. If you need further information
on issues related to this hearing or any other hearings scheduled
by this Task Force, please feel free to contact me or to speak to
staff persons assisting here today.
I do appreciate you coming. This is the beginning of a very excit-
ing role. Thank you. The hearing is concluded.
[Additional information submitted for the record follows:
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PREPARED STATEMENT OF ANN CASH
Mr. Chairman, Members of the Task Force:
My name is Ann Cash of McGee, Arkansas and I am Regional Vice-
President of the National Mississippi River Parkway Commission. I am
providing testimony today on behalf of Minnesota State Senator John
Bernhagen, National Chairman of the Mississippi River Parkway
Commission. Senator Bernhagen regrets that he cannot be here today,
but he and our Executive Director John Edman are at this moment
meeting with the Governor of the state of Mississippi in Jackson
regarding a Mississippi River International Marketing program.
The Mississippi River Parkway Commission appreciates the opportunity
to provide testimony to this House Budget Committee Task Force on the
topic of "Investments in America's Hometowns". Our organization has
been working in the ten Mississippi River states to stimulate economic
growth in rural and urban communities through the development of
highway programs, historical preservation and recreation projects, and
the implementation of domestic and International tourism marketing
efforts. While our activities may be small In scale and fund1ng~ they
demonstrate the effectiveness of public and private partnerships in
enhancing the economic vitality of a region.
In this testimony I would like to update you on the activities of the
Mississippi River Parkway Commission, particularly in our efforts to
study the economic potential of the Mississippi River valley. I'd also like
to provide you with some of the specific thoughts of Senator Bernhagen
on the potential role of a development bank or investment fund for the
Mississippi River. In addition to serving as Chair of the National
Commission, Senator Bernha~n serves as Executive Director of a rural
Community Development Corporation located in Hutohinson, Minnesota.
First, I'd like to provide you with a little background on the Mississippi
River Parkway Commission. As you may know, the Commission is a
quasi-governmental organization of the ten states along the Mississippi
River that exists to promote and preserve the resources of the
Mississippi River valley and to develop the regional scenic By-way
known as the Great River Road. In existence since 1938, the
Commission consists of individual state commissions established in each
of the ten states either by statute or Governor's Executive Order that
together comprise the National Commission.
Our organization's historic main goal is to develop highway and amenity
projects along the Mississippi River through the Great River Road
program. We have accomplished much towards this goal with the
expenditure of over $1 billion in federal, state, and local funds on
various Great River Road projects involving historic preservation, the
development of scenic overlooks and bike trails, road reconstruction and
resurfacing bridge replacement, and interpretive centers. As much as
has been completed, however, the job is only half done. An estimated
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$1 billion is still needed among the states to complete the projects and
plans associated with this program.
While working to complete our Great River Road projects and plans we
have also undertaken many new efforts to bring about a greater domestic
and international awareness of the entire Mississippi. River valley. We
have for several years developed programs with state and local tourism
industry partners in order to raise a greater awareness of the tourism
potential of the region. Although funding for these programs has been
limited we have done much to increase tourism interest along the
Mississippi River in the ten states.
We have further launched an international marketing program with the
tourism offices of the ten Mississippi River states designed to increase
the awareness of our region as a new destination for International
tourism travel. We currently have the financial participation of eight of
our ten states in this international marketing program that is currently
focussing on Japan. We are also currently discussing the possibility of a
new joint international marketing initiative between the federal
government and the states through the U.S. Tourism and Travel
Administration.
Perhaps the greatest partnership involved our efforts to conduct a
Mississippi River Fair in Osaka Japan in 1988. This tourism, trade, and
cultural exchange between Japan and the Mississippi River states
involved private industry, state tourism, agriculture, and economic
development agencies, the federal government and the Commission.
Funding for this effort was extremely difficult to obtain as there was no
central organization or fund to draw from to get this program off the
ground. With much struggle however, this program was a success.
As part of our continuing efforts to provide a greater awareness to the
resources of the region, we are currently involved as key members of
the Mississippi River National Heritage Corridor Study Commission. This
Commission, which is comprised of members of the Mississippi River
Parkway Commission in the ten states and five federal agency
representatives, is charged to do an inventory of the resources of the
Mississippi. River. The Commission is due to complete a report to
Congress within three years that will include recommended boundries of
a possible Corridor designation as well as recommendations on ways to
increase economic development in the region.
The Corridor Commission is now selecting a contractor for the study and
will be gathering information from throughout the Mississippi River
states. The Mississippi River Parkway Commission has already begun to
assist in this effort by requesting each of the states to furnish
information regarding the types of economic development programs and
incentives for economic development that they provide. There is much
to learn from each other in developing innovative programs to meet our
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local needs. We will, if it would help, be willing to provide this
Information to your task force for your review.
Senator Bernhagen is particularly interested in the economic
development geals of the Corridor Commission and the Task Force partly
due to his capacity as Executive Director of his Community Development
Corporation. He has had experiences with economic development
programs In Minnesota that are perhaps similar to other rural areas in
our region and that may be helpful for this Task Force's deliberations.
He asked me to share with you his specific thoughts.
A neighboring community to Hut1chlnson wrote a grant to the state to
help revitalize their main street commercial area. The funds from this
grant were to bs matched with local dollars to do commercial rehab and
apartment housing primarily for low and moderate income people in a
main street targeted area. Basically, the funding for the project was 15
percent deferred loan, 42.5 percent zero interest loan, and 42.5 percent
private money. The program was successful only to a point. The grant
was for $800,000 of which $200,000 needed to be turued back because
of a lack of interest of business owners who didn't feel that they
wanted to put In the remaining 42.5 percent.
In Senator Bernhagen's community he set up a similar program except
that the last 42.5 percent came from a local revolving land fund which
they loaned out at 8 percent for a ten year term. Not only did the
Hutchinson Community Development Corporation run out of money, but
there is a waiting list for additional applicants. They were able to do 27
buildings out of possible 85 in the targeted main street area. The*
initiative has led to a major discount store expanding in the area, a
grocery store considering the same, and an overall renewed sense a
economic vitality. More could have been accomplished if more funds
were available.
Senator Bernhagen's feelings are that a revolving loan fund or
development bank as you have suggested would pay great dividends in
bringing prosperity through jobs, new businesses, and tourism to the
Mississippi River valley. He has suggested that perhaps the only realistic
way of determining an appropriate level of funding would be to survey
selected numbers of representative communities to find out what they
perceive their funding needs to be and work from there.
In conclusion, the Mississippi River Parkway Commission has had a great
history in developing and encouraging a wide variety of partnerships
with the federal government, private industry, and the states, in working
to enhance the economic vitality of he region. Help is needed in rural
and urban areas in our region for community development, main street
revitalization, parkway development, and even international tourism
marketing. We stand ready to work with you in any area where we
may be of assistance.
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Once again Mr. Chairman, we appreciate the opportunity to provide
testimony to this task force here today. On behalf of the entire
Mississippi River Parkway Commission In the ten River states, we
applaud your efforts to stimulate rural and urban regions of the country
like ours.
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PREPARED STATEMENT OF WILBUR F. HAWKINS
Chairman (Mike) Espy, Mr. (Harold) Ford and members of the
House Budget Committee Task Force on Community Development and
Natural Resources, I an pleased that you have cone to the Lower
Mississippi Delta region and for the opportunity to provide you
with comments and perspectives on "Mechanisms for Financing
Economic Development."
In October, 1988 the Congress passed the Lower Mississippi
Delta Development Act to study the economic development needs of
the seven state, 219 county and parish region stemming from
Carbondale, Illinois down the mighty Mississippi River, through the
boot heel of Missouri, western Kentucky, rural west Tennessee, the
Arkansas and Mississippi delta on into New Orleans, Louisiana.
I am pleased to have been the executive director of the
Commission and now serve as President of the successor body, the
Lower Mississippi Delta Development Center. The Delta Center is
a non-profit corporation created by the seven delta states of
Illinois, Missouri, Kentucky, Tennessee, Mississippi, Arkansas and
Louisiana. We, are chartered in the state of Arkansas with our
corporate. offices located in the same facility where the Delta
Commission was located.
Governed by a 14 member board of directors, each director was
nominated by their respective governor. The Delta Commission's
Call to Action expressly called for the states to establish and
fund an interim organization to act as an advocate for the Delta
Initiatives and that this temporary organization be composed to
reflect the ethnic, gender and geographic makeup of the region.
Further more the call stated that this organization remain in place
until such time as a permanent entity is established.
A second component of the call was that the Congress address
the issue of an appropriate entity to monitor the progress of the
Delta, to ensure successful implementation of the Commission's
recommendations, to provide for joint federal state participation
and to address funding mechanisms.
The Delta Center faces a monumental task of trying to
facilitate implementation of the over 500 recommendations in 68
issue areas as presented in the final report of the Commission
while competing with limited state resources and priorities. We
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have been able to survive but the economic development of the Delta
hinges upon an organization serving in the unique capacity as we
do.
The Lower Mississippi Delta Development Center, serves as a
think-tank for exploring options to issues, programs, and policies
that impact regional development.
We look for resources that the region can acquire that don't
necessarily cost extra money. For example, instead of two Delta
institutions of higher education competing for one grant their
efforts were combined and successfully acquired funds for the
creation of the Memphis State university/southern Illinois
University at carbondale Center for International Business
Education.
As a result, this venture resulted in one of 16 such
designated centers in the country.
Another example is that the Commission recommended that more
federal facilities be established in the region. Through the
collaborative efforts of the states we were successful in having
three new federal prison facilities identified for construction in
the Delta. These facilities will bring significant economic
development to places like *Forrest City, Arkansas, Yazoo City,
Mississippi and Pollack, Louisiana.
We have developed an extensive data base of information and
have networks organized among various organizations such as
tourism, higher education, community development, agriculture,
environment and natural resources to name a few. These resources
can be mobilized for the development of the region but we need
adequate resources to to a quality job.
During the course of the Commission's study and deliberations,
it became quite clear to me that conditions within the Mississippi
Delta region were worse than those that prevail in some Third World
countries. Since the release of our report over 15,000 copies have
been distributed not only within the region but to countries as far
as Taiwan and South America. Our report has been praised as a
simple action plan, one by which each individual, organization and
level of government can take action to improve this region. Many
of the issues for which we developed recommendations will bring
benefits for the nation as a whole.
Our process was simple, we involved people in addressing the
problems we face, as well as the solutions. We recognized the need
for more resources while at the same time challenging existing
governmental and private sector organizations to eliminate
duplication, increase efficiency and promote holistic solutions to
resource shortages.
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However, the United States is clearly without a domestic
policy and if, you as Members of Congress do not balance the
military and foreign spending with domestic spending, I am afraid
that the United States will follow the Communist bloc nations in
their inability to feed their own. For many years, the communist
nations spent their resources on developing strong
military/industrial complexes and today, they cannot provide
adequate housing, health care and food for their own people.
America can be different, we have abundant natural resources
and one of our best resources is our human capital. I consistently
raise the question, what will the quality of life be like for the
child that will be born in the year 2000? Today, based upon their
plights I am afraid that for many, there is little promise for a
bright future in which all children of the Lower Mississippi Delta
can fulfill their potential.
Federal policies often work to the detriment of rural areas
and simple changes can enhance development. Earlier this year,
Health and Human Services Secretary Louis Sullivan announced the
Administration's Healthy Start Initiative that will focus upon
reducing infant mortality within the country. Initially, the
administration proposed $171 million that would be targeted toward
the top ten urban cities in terms of their infant mortality rates.
Within the Delta region, a predominantly rural area, we have
rates that exceed Chile, Cuba, Malaysia and French Guiana. Two
simple words in issuing the federal guidelines have the potential
of aiding the Delta significantly. Those being "and rural".
Original wording proposed only urban areas for funding
consideration. If you think "and rural" in your deliberations and
in development of legislation, significant improvement will be
made.
It was through working with the organized 24 Member Delta
House Caucus and the Delta Senate Caucus of 14 Members that the
issue was brought to the attention of.caucus members and a formal
letter drafted to Secretary Sullivan. We are optimistic that more
changes of this nature can take place, benefitting not only the
Delta but rural areas throughout this country.
What is needed now is for the Congress to clearly understand
how important an institution such as the Delta Center is to the
overall development of the Lower Mississippi Delta.
First, there are many sub-regional and special interest
groups, each focusing upon their geographic, subject or issue area;
however, the Delta Center is the only recognized body that serves
as an advocate for broad regional advocacy and implementation of
the Delta Initiatives.
Second, if supported we can set the pace for regional economic
development for the next century. It is quite clear to us that the
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era of creating federal-state regional organizations such as the
Tennessee Valley Authority (TVA) and the Appalachian Regional
Commission (ARC) are over. What is clearly upon the horizon and
within our grasp is the need for establishing stronger
public/private partnerships within the Delta.
We certainly need federal support and for some reason the
Congress can see fit to fund entities such as the TVA for $135
million and the ARC for $150 million in Fiscal Year 1991 and has
tremendous difficulty in clearly understanding that we are not
asking for a hand out but a helping hand up.
That is why the Delta Commission intentionally went out of
existence and is seeking to firmly establish capacity within the
existing regional development organizations, and not through
creating another bureaucratic agency. Perhaps, our job would have
beem easier had we gone this route but, I am not certain in ten
years we would be more competitive than the Appalachian region.
But, I am certain that with a strong public/private partnership
similar to what the federal government did in 1933 in creating the
TVA we can create industries, jobs and can fund our own social
development needs such as housing, health care and education.
In 1933, the Congress created the TVA and today, it is a $ 6
billion utility industry. From 1933 until the early 1950s the
federal government invested in creating a strong and viable
industrial and agricultural infrastructure in the Tennessee Valley.
In 1958, the TVA began repaying the federal government for the
investments it made in the utility system. The TVA repays the
federal treasury approximately $120 million annually in interest
and principal annually and will do so until the total debt is
repaid.
The TVA region continues to receive some $135 million from
Congress to support resource development in an area similar in size
to the Delta but, with a significantly higher per capita income
today than in 1933. The 7 state 219 county Delta region overlaps
66 TVA counties.
I shared this precedent with you to help you the Members of
Congress to understand that you can use the same approach in
assisting the Delta develop. Furthermore, I ask that you
understand the seriousness of your responsibility to your
constituents and to this nation as a whole. We cannot afford to
send aid to foreign nations and not take care of our Third World
here at home.
This country supported Poland, Germany, Asia and other nations
as they seek to overcome adversity, famine and political turmoil
and has virtually ignored the developmental needs right here at
home. This year you have responded to the needs of the Kurds, and
the Administration most recently announced it would seek to double
asistance to South Africa from $ 40 million to $80 million for
housing, economic development and education programs. Once again
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I ask, What about us? What about us? What about us?
We need aid but we do not need additional welfare aid that
diminishes human dignity, worth and contributions to society, we*
need developmental aid. It is an investment in the long-term
economic stability of this country just as military investments are
viewed as contributing to our global military stability.
While I could talk all day about the imbalances that exist
between international and domestic priorities, I am specifically
recommending that the Congress support the development of the Delta
region by providing an small, but adequate funding floor that would
assure the Center's existence while establishing its public/private
partnerships.
One such public/private partnership that the Commission called
for is the creation of a regional development bank. The task of
bringing this recommendation to a reality requires careful
deliberations among the existing financial institutions,
developmental organizations and the thrashing out of issues of
funding, focus and opportunities in improving our national and
global competitiveness as a region.
The Delta Center could provide the following:
* Assemble the national and regional leaders needed to
address organizational issues. The Center could assemble these
leaders and ensure objectivity because of our independence and
broad regional perspective.
* Based upon existing data and research already compiled we
could reduce the time and overall costs associated with organizing
a regional development fund or other appropriate entity; and,
* We could develop realistic scenarios the would provide for
the repayment of any federal investment that the federal government
would invest in the capitalization of a regional development fund.
The Central challenge facing the Delta is the challenge to
develop a strong business and industrial sector that will enable
the region's economy to be one of growth and vitality in an
increasingly competitive environment. " A vibrant business
industrial and.commercial sector lies at the heart of regional
expanded opportunities, the region will continue to under-utilize
its human resources and export the best and brightest of its
workers to other areas of the nation."
Goals and recommendations are designed to accomplish the following
objectives.
o Increase access to capital to promote business investment and
activity.
o Build entrepreneurial skills in the financing and management
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of regional enterprises.
o Build and strengthen technical competence in the production
of goods and services.
o Establish a strong manufacturing base, particularly in value-
added goods.
o Foster a regional spirit of entrepreneurship and creativity.
o Foster a climate of innovation and cooperation in the
engagement of labor in productive processes.
o Foster economic, development that builds upon the region's
strengths and assets.
o Expand into new markets.
Progress in the attainment of each of these objectives during the
upcoming ten-year period will substantially advanced the Delta
region toward its quest to become a full partner in this nation's
progress.
Capital is not extremely scarce in the Delta, however, lending
practices in commercial institutions are generally perceived as
conservative. Government programs are usually undercapitalized and
too fragmented in nature to have a significant impact.
Insufficient training in the preparation of financial packages or
inadequate knowledge . of existing programs often hinder
entrepreneurs and lenders alike. A financing mechanism is needed
to leverage existing dollars and encourage greater collaboration
and more joint ventures among existing entities.
Low capital investment in the Delta is clearly demonstrated by the
lower loan/deposit ratio of the region's banks. The Delta region
as a whole has substantial assets in its banking system, and these
assets currently total about $78 billion. The regional
loan/deposit ratio is 73.6%, which is beli,w the national
loan/deposit ratio of 79.5% and suggests a more conservative
lending pattern within the region. The lower loan/deposit ratio
could also indicate lower loan demand; however, in each of the
Commission's public hearings, Delta business persons addressed the
need for greater access to capital and encouraged the Delta
Commission to recommend the establishment of a regional funding
entity to work with banks to increase the amount of capital
available for regional investment.
Indeed $3.5 billion in additional investment would take place on
an annual basis if the Delta's banks loaned at the national rate
of 79.5% (reflecting a 6% increase). Even a 3% increase in the
loan/deposit ratio would mean almost $1.8 billion in additional
investment within the Delta.
In general, Delta state government recognize that long-term, low-
interest, fixed rate financing and venture capital are critical to
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economic development, and thus, strive to provide essential public
financed programs for economic development projects. The levels
and categories of funding among state programs, however, differ
widely. For example, differences exist in the maximum amount of
loans or loan guarantees which states are currently authorized to
provide. In addition-, most of the states in the Delta region
under-utilize local and state general obligation bonds to support
economic development, and there is a need to increase the number
and scope of active, adequate publicly, funded seed or venture
capital programs.
Finally, it is difficult to determine the extent to which
businesses and industries within the rural areas of the Delta have
adequate access to the- financing programs offered by their state
governments.
A number of federal programs exist which provide economic
development financing for Delta firms; however, these programs,
currently do not fill the gap of unmet business financing needs.
The Federal government, in cooperation with the state governments
and the private sector, should establish a regional development
bank that guarantees local bank financed loans, provides equity and
near equity loans to Delta businesses as well as fixed asset
financing and also provides equity financing to community based
loan pools. Delta development bank monies should be targeted to
assist small and minority businesses, firms in need of venture
capital to expand or respond to new markets created by increased
value-added opportunities and firms in need of export credit to
engage in international trade. Such a banking entity would
aggressively seek joint ventures with existing lending institutions
and programs in the public and private sectors.
Legislation has been introduced in the 102nd Congress that would
authorize funding for the Center to adequately address the creation
of a regional development fund/bank while at the same time allowing
us to serve as the advocate for the recommendations as contained
in the Commission's Final report.
I have included the specific recommendations of the Commission as
an attachment to my formal testimony and would ask that you accept
the written testimony of one of your former collegues and our Board
Chairman, the Honorable Ed Jones, who served in the Congress for
20 years and continues to serve this region well. Mr. Jones asked
that I express his personal appreciation for your being here today
and regrets for his absence due to health considerations.
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8
an attachment to my formal testimony and would ask that you accept
the written testimony of one of your former collegues and our Board
chairman, the Honorable Ed Jones, who served in the Congress for
20 years and continues to serve this region well. Mr. Jones asked
that I express his personal appreciation for your being here today
and regrets for his absence due to health considerations.
Thank you for the opportunity to address your task force and
I certainly hope you understand our sincerity and commitment to
the economic development of this region.
Thank you.
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ENTREPRENEURIAL DEVELOPMENT
Capital
Ten Year Goal:
By the year 2001, $2 billion a year in additional capital will
become available for business investment and development in the
Delta.
Situation:
Capital is not extremely scarce in the Delta; however, lending
practices in commercial institutions are generally perceived as
conservative. Government programs are usually undercapitalized and
too fragmented in nature to have a significant impact.
Insufficient training to the preparation of financial packages or
inadequate knowledge of existing programs often hinder
entrepreneurs and lenders alike. A financing mechanism is needed
to leverage existing dollars and encourage greater collaboration
and more joint ventures among existing entities.
Recommendations:
o The Federal government in cooperation with the state
governments and the private sector should establish a regional
development bank that guarantees local bank-financed loans,
provides equity and near equity loans to Delta businesses as
well as fixed-asset financing and also provides equity
financing to community based loan pools. Delta development
bank monies should be targeted to assist small and minority
businesses, firms in need of venture capital to expand or
respond to new markets created by increased value added
opportunities, and firms in need of export credit to engage
in international trade. Such a banking entity would
aggressively seek joint ventures with existing lending
institutions and programs in the public and private sectors.
A not-for-profit subsidiary of the Delta development bank
should be established to work with Small Business Development
Centers, institutions of higher learning and other entities
to develop and implement economic development finance training
programs for entrepreneurs, bankers and other lenders,
particularly in rural areas.
o Congress should authorize the Economic Development
Administration (EDA), the small Business Administration (SBA),
Farmers Home Administration (FmHA), the U.S. Export-Import
Bank,and the Overseas Private Investment Corporation to
provide Delta set-asides to assist with the establishment of
a regional development bank.
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o Congress should implement a ten-year extension of industrial
development bond programs to facilitate long-term financing
and planning on the state and local level in the Delta region.
o Congress should require EDA to reduce the amount of funds a
private investor from the Delta must raise to be eligible for
financial assistance from 15-20% to 5-10%.
o The SBA should increase the number of its Small Business
Investment Corporations (SBIC' s) and Minority Enterprise Small
Business Investment Corporations (MESBIC's) in the Delta.
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TECHNOLOGY DEVELOPMENT
Telecommunications
Ten Year Goal:
By the year 2001, the region's research institutions will be linked
into the proposed national high speed network of super computing
centers, thereby giving businesses in the Delta access to the
nation's super computers.
Situation:
There are many small private computer networks among universities
and research institutions in the region and across the country.
However, these networks are not standardized, which sometimes makes
communications between them cumbersome and slow. A fiber optic
network would give Delta research entities and their business
networks immediate access to the best and fastest computers in the
world.
Hecommendation:
o Congress and the President should approve and fund the
construction and operation of a national high speed data
network of super computing centers that would yield a national
standard for all other networks to follow.
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ENTREPRENEURIAL DEVELOPMENT
Human Resource Development
Ten Year Goal~
By the year 2001, Delta entrepreneurs and managers will incorporate
a solid understanding of global needs, flexible system production
techniques, and "cutting edge" developments in business management
practices in their strategies to compete globally.
Situation:
In general Delta businesses are not competitive enough to meet the
challenges posed by an international economy. Most Delta business
persons agree that the region needs skilled labor in order to
progress. But few managers also recognize the need for or have
access to the kind of technology, training, and resources that will
strengthen their skills and expertise as managers.
Adjustments must be made at all levels of society if America is to
maintain a strategic place in the global economy. Within the
business sector, these adjustments will affect management as well
as labor. Thus, efforts to improve the basic skills of workers
must be complemented by on-going efforts to enhance the skills of
entrepreneurs and managers. In the economy of the future, local
Delta managers must operate with an appreciation of the global
economic and social trends that impact business productivity.
Changes in the workplace will also be necessary if businesses are
to maintain competitive advantage in the marketplace. These
changes will require a more flexible system of producing goods and
systems of organization that enable greater linkage and
coordination between tasks assigned to labor and tasks assigned to
management.
Recommendation:
o The U.S. Department of Education should fund proposals to
establish International Business Education Centers in the
Delta through a consortium of institutions of higher
education. Such centers would enhance the language, cultural
and business skills of students and provide assistance to
Delta businesses seeking to enter international markets.
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BUSINESS AND INDUSTRIAL DEVELOPMENT
Small Business Development
TEN YEAR GOAL:
By the year 2001, financial and technical assistance programs for
the small business sector will reflect that sector's dominant role
in the Delta's economy.
SITUATION:
Any long term business development strategy must involve building
upon the potential of the Delta's dynamic small business sector.
The important role of small business in the Delta is reinforced by
the reality that in many areas 98-100% of all enterprises are small
businesses. Some states, in cooperation with the Small Business
Administration (SBA) and institutions of higher learning, have
significantly increased their support for small businesses,
particularly those in the Delta. Yet existing federal and state
programs are still not able to meet the needs of the Delta's small
businesses. In the international economy of the twenty-first
century, small businesses will face even greater competition,
therefore, increased assistance and support must be targeted to
this sector if it is to play a continuing role in the Delta's
economic development.
RECOMMENDATIONS:
o Congress should revise tax laws to promote continued and
greater use of industrial development/revenue financing
on a tax-exempt basis for small industry.
o Congress should authorize federal agencies to target 5%
of funding under the Small Business Innovative Research
Program (SBIR) to small businesses in the Delta.
o The SBA, state governments, and institutions of higher
education should aggressively promote the SBIR program
and give particular support to projects and proposals
which focus on international trade and the needs of small
businesses in rural areas.
o The SBA, state governments, and institutions of higher
education, should increase the number of Small Business
Development Centers in the Delta and strengthen their
institutional capacity to better monitor clientele for
possible intervention before failure to increase the
range of services available, particularly in the area of
procurement assistance.
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o Directors of SBDC programs in the Delta states should
meet annualy to develop strategies to better coordinate
activities in order to improve the strength and vitality
of the small business sector in the Delta region.
o The SBA should establish a Delta region set-aside in its
Section 8(a) Procurement Program and explore the
feasibility of merging existing procurement centers with
SBDC5.
o The SBA and other federal agencies should streamline
paperwork and procedural requirements for small
businesses competing for government contracts.
o The federal government, in cooperation with state
governments and the private sector, should establish a
Delta development bank that provides loans and loan
guarantees and underwrites the bonding of small
businesses.
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BUSINESS AND INDUSTRIAL DEVELOPMENT
Minority Business Development
TEN-YEAR GOAL:
By the year 2001, a 25% increase will be achieved in the number of
minority businesses and the number of jobs generated by minority
businesses will be increased in the Delta by 80,000.
SITUATION:
Minority businesses remain an untapped market for economic
development in the Delta. For example, approximately 40% of the
total population is African American; yet, the involvement of
African Americans in the business sector is far less substantial.
Recent data indicates that factors limiting the growth and income
of minority businesses include the size of their market shares,
available capital, human expertise, and exclusion based on race or
sex.
Government procurement policies could provide and excellent vehicle
through which minority businesses can play a more meaningful role
in the region's economy. If sufficient resources were made
available just to meet the 5% minority small business contract
award goals of the Department of Defense (DOD), the region would
realize benefits of more than $3 billion and 60,000 jobs over the
next five year period. This number could be quadrupled if the
Delta's minority firms adequately participated in other government
sponsored procurement initiatives.
Community development corporations (CDCs) have been shown to be
viable nontraditional mechanisms for addressing many of the
problems faced by minority businesses in particular. In the
development and implementation of a regional strategy to boost
minority business income and jobs, consideration must be given to
the expanded involvement of CDC5 and other nonprofit institutions.
RECOMMENDATIONS:
o Congress should extend Section 1207 of the Defense
Authorization Bill that mandates a goal of 5% for the
award of defense contracts to minority firms, which
includes historically Black Colleges and Universities
(HBCU5), to apply from 1992 to -2001, particularly with
respect to the Delta region.
0 Congress should authorize the Department of Defense to
provide a Delta set-aside within the minority procurement
program mandated under Section 1207 of the Defense
Authorization Bill.
44-629 0 - 91 - 4
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o Congress should authorize all federal agencies to
implement a uniform minority business certification
process for all business programs.
o Federal agencies should streamline the paperwork and
procedural requirements for minority businesses competing
for government contracts.
o Federal agencies should provide greater assistance in
promoting the economic/business development goals of
federally recognized Native American communities.
o The federal government, in cooperation with state
governments and the private sector should establish a
regional development bank to work with CDCs in providing
loans and loan guarantees for minority business
development, as well as to underwrite the bonding of
minority businesses.
o The SBA should expand activities through its Small
Business Development Center Program to provide increased
assistance to minority businesses in the Delta.
o States should mandate a comprehensive review, with
substantial input from state departments of economic
development, the private sector in general and minority
business persons, of all minority business programs, to
assess their efficiency and appropriateness to the broad
needs of the minority community.
o States should initiate statewide internal purchasing
programs which gives priority to minority manufacturers
and business vendors.
o States and the private sector should encourage minority
business participation in business development programs
and networks such as Adopt-a-Business initiatives,
Regional Purchasing Councils, mentor-protege programs,
and the National Alliance of Business.
o Institutions of higher education should establish a
regional policy research network to develop job
generation and capital acquisition strategies to enhance
the competitiveness of minority businesses in the Delta.
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TECHNOLOGY DEVELOPMENT
Technology Transfer
TEN YEAR GOAL:
By the year 2001, the region will take full advantage of the
provisions of the Technology Transfer Act of 1986 to encourage
business development and expansion.
SITUATION:
The Federal Technology Transfer Act of 1986 was designed to provide
greater freedom to federal laboratories to allow licensing
agreements and other legal arrangements with private industry to
encourage use of government owned technology for the benefit of the
American economy. The Food and Drug Administration's National
Center for Toxicological Research in Jefferson, Arkansas is the
only federal laboratory in the Delta. Some progress has been made
in overcoming bureaucratic and regulatory hurdles concerning the
National Biotechnology Cooperative Project, but issues such as
financing and staffing have yet to be resolved.
RECOMMENDATIONS:
o The U.S. Food and Drug Administration and Congress should
approve and fund the National Biotechnology Cooperative
Project.
o The Federal Laboratory Consortium should target funds to
begin or strengthen its members' technology transfer
efforts in the Delta.
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BUSINESS AND INDUSTRIAL DEVELOPMENT
Alternative Fuel Industry
TEN YEAR GOAL:
By the year 2001 a viable, self-sustaining alternative fuel
industry will be created in the Delta.
SITUATION:
The nation has slowly slipped back into a position of dependence
on foreign sources of energy. This not only threatens our economic
freedom, but also makes our military strategic interests
vulnerable. Basic directions of research and development for
renewable energy sources already have been established. Many are
based on agricultural crops that hold potential as alternative
crops that can be grown in the Delta. Other renewable sources such
as solar, wind and photo-voltaic cells have received a three-year
commitment from the Department of Energy for funding. (See related
Alternative Fuels recommendations under Natural Resources.)
RECOMMENDATIONS:
o The Department of Energy (DOE) should target at least
3.4% of funds authorized for non-nuclear alternative
energy research in the "Renewable and Energy Efficiency
Technology Competitiveness Act of 1989" consistent with
institutions' and businesses interests in the Delta.
o The U.S. Department of Agriculture should promote
opportunities within existing farm programs that can be
used to expand ethanol or natural gas based energy
production.
o States, universities and private industry should
establish a network that encourages research and
development joint ventures to establish -a strong
alternative energy supply industry.
o States should target any remaining money from "oil
overcharge" funds for joint research and development
efforts to create an alternative energy industry. (See
glossary).
o States should identify tax and other mechanisms to
support the development of an alternative energy supply
industry in the region such as tax exemptions on research
and development activities.
o Industry should give funding consideration to joint
ventures between universities and private sector
participants.
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PREPARED STATEMENT OF JAMES L (PETE) PERRY
Thank you Mr. Chairman, and members of the House Budget
Committee, for the invitation for Chairman John Sullivan and myself
to appear here on behalf of the Mississippi Presidential Council on
Rural Development and share with you the goals and objectives this
Council is working to reach in Mississippi.
As Mr. Rockefeller will describe in his statement, the
President's Initiative on Rural America announced in January, 1990,
outlined six recommendations for "rural economic development for
the 90's." The creation of state rural development councils was
one of those six recommendations, and was implemented with the
establishment of eight pilot state councils in late 1990.
Mississippi, as one of those pilot states, formed our council under
the guidance of a group of thirty federal and state agency
officials led at that time by Jim Huff, State Director of the
Farmers Home Administration.
An interesting aspect of this effort has been that
"flexibility" is a guiding principal for the project. Each state
council has been encouraged to develop its own approach to its
formation, membership, goals, and the issues it faces. The complex
factors that affect rural communities and the diversity of economic
and social conditions in rural America call for state and local
strategies, not national strategies. Efforts to assess local
conditions and design appropriate solutions will be focused at the
state and local level.
This "flexibility" has been both a blessing and at times a
headache. As the Council has struggled to work out its own
organizational aspects and operational needs, the normal approach
of having answers dictated from Washington has been absent,
allowing each council to do as it sees best for its own needs and
purposes, but causing us to spend an inordinate amount of time in
organizational efforts. This process has provided an extra benefit
in that the pilot councils are rapidly taking ownership as we
organize ourselves, define our missions, assess the status of our
states, and draft strategies to meet our needs.
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A key aspect of forming the Mississippi Council was a desire
to secure a diverse membership of federal, state, local, and
private sector representatives. To insure that the we could
implement the decisions of the council, we have maintained our
membership at the level that can control or influence governmental
program policy, including the managers of those Federal and State
agencies who have responsibilities for rural development in
Mississippi, along with representatives of local governments,
utility companies, private enterprises, and organizations active in
rural development.
Currently we have sixty-two members -- sixteen from the
federal government, twenty-one from state government, twelve
representing local government, and thirteen private sector and
organization representatives. As we continue to consider the tasks
before us, we will expand our membership as we deem appropriate.
Also, in exploring the needs and strategies for our efforts, we are
including others who have expertise, special knowledge, or concerns
in specific areas that we are considering as participants in the
Council's work, even though they may not be members.
The mission of the Mississippi Council is to improve the
quality of life in rural Mississippi through addressing the
economic, infrastructure, medical, educational, and environmental
needs of Mississippi's rural people. To achieve this mission, it
is our intent to develop and implement a strategy for the efficient
and effective employment of rural development resources within the
State. As you are aware, these resources consist of a broad range
of federal, state, local, and private programs that were created
with one or more goals in mind aimed at assisting or alleviating
perceived deficiencies. However, these programs are generally
created and promulgated in a "one size fits all" method, oftentimes
with little or no attention to the needs and desires of the people
they were created to help.
Hopefully, the Council can effectively devise a strategy that
will direct these programs to the areas most in need and modify
program policies, guidelines and regulations to fit those
identified and prioritized needs -- a dramatic departure from the
current situation where program beneficiaries have to adjust their
needs to fit the particular program requirements of the resources
available.
We hope to identify and work to remove the legislative,
regulatory, and policy barriers that exist in current programs of
the federal and state governments. Also, we intend to identify and
resolve gaps, duplications, and overlaps within these rural
development programs.
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For this Initiative to succeed, an unusual amount of
cooperation will be required between the various players involved:
the executive and legislative branches of government as well as
between levels of government. Also, the traditional turf
protection -- between agencies and across levels of government --
will have to stop.
This effort should act as a model for other rural areas,
particularly the Lower Mississippi Delta Region. It is intended
that this concept will expand to the other states and territories
over the next few years, and that they can learn from the
experiences of our pilot efforts. As part of the Lower Mississippi
Delta Region, I feel that our experiences in Mississippi will be
extremely helpful to those other states that are also part of the
Region, and that some of what we accomplish in the coming months
will particularly benefit them.
Further, I would note that the report of the Lower Mississippi
Delta Commission is one of the many documents our Council's
committees are using as we evaluate the needs, desires, and
resources of our state and its rural citizens. We do not intend to
duplicate those efforts, but rather to build upon them and where
appropriate, develop and put into action an implementation plan for
them.
Your invitation specifically asked for recommendations
regarding funding levels and management of federal community
development programs. It is my opinion that if we succeed in this
effort, the effectiveness of many of these programs could be
enhanced, increasing the positive benefits of these programs
without the necessity of an increase in funding and probably with
a decrease in administrative costs. Furthermore, without this
cooperation, any increase in funding could result in an increase in
spending without any corresponding benefit increase.
Also, acknowledging that the funds available in many of these
areas are limited, the ability to accomplish the desired results
could be increased if the agency managers and program specialists
charged with overseeing the implementation of the programs., as well
as the appropriators, would allow the programs to be more
responsive to the actual needs and allow flexibility in their
implementation. Further, allowing the funds to be directed to
those areas and individuals most in need and less able to provide
for themselves, as opposed to spreading them like melted butter
throughout the country, insuring that all areas get a little
coverage rather than bulk assistance going to a few areas, would
result in a much better actual results from these expenditures.
Mr. Chairman, this concludes my statement, and I would be
pleased to respond to questions.
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PREPARED STATEMENT OF RANDALL C. SUMNER
Mr. Chairman and members of the Committee, I am pleased to
appear before the Committee today to describe successful
strategies for community development that have been utilized by
bank holding companies and their subsidiaries.
Through outreach programs sponsored by the Community Affairs
functions at the Federal Reserve Banks, we strive to assist
bankers and management of bank holding companies in their efforts
to address local community credit needs.
Our role is one of suggesting alternatives to help meet
specific credit needs that have been ascertained by local com-
munity partners. These credit needs differ from one community to
the next, and the programs designed to meet them are as varied as
the needs themselves.
Though no one approach will work for all communities or all
banks, there are several strategies that have achieved success in
locations throughout the nation. It is these strategies I would
like to share with you this morning.
Before discussing particular programs, I would emphasize
that selection of a vehicle to meet a development or credit need
should come only after careful selection of the need to be met.
That is, the solution should not be placed ahead of the problem.
The development vehicles I will discuss have all been success-
fully utilized, though they may not be appropriate for all com-
munities, banks or bank holding companies.
In your invitation to present testimony to the Committee
Task Force, attention was drawn to development efforts involving
many parties in a community, including banks and other financial
organizations.
While not the only model of such development efforts, com-
munity development corporation (CDC) subsidiaries of bank holding
companies have played just such a role in several communities
within the states that encompass the Lower Mississippi Delta
region.
Since 1971, the Federal Reserve Board has permitted bank
holding companies to invest, under certain guidelines and limita-
tions, in projects primarily benefiting economically disadvan-
taged communities. Bank holding companies have used this limited
authority to help provide housing and job opportunities for low-
and moderate-income persons, assist in the development of small
and minority businesses, and provide essential services to other-
wise deprived communities.
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As you can see, the Federal Reserve allows bank holding com-
panies some latitude to tailor their investments to meet the dis-
parate needs of disadvantaged communities. However, community
investment proposals are examined to determine whether the in-
vestment meets the "community welfare test" and whether the size
of the investment is appropriate to its purpose and prudent for
the institution. Also considered is the amount of community in-
volvement in the project to be supported by the investment.
The definition of community development in Regulation Y,
which specifies the nonbanking activities considered proper and
permissible for bank holding companies, refers to "investments...
designed primarily to promote community welfare." Board decisions
have generally held that an investment that directly and
primarily benefits economically disadvantaged persons and com-
munities meets the community welfare test. Examples of such
benefits include new or rehabilitated housing, jobs created
through a variety of commercial and industrial developments, or
health and educational services, all targeted on low- and
moderate-income persons and areas.
Bank holding companies are also provided latitude with
respect to the for-profit or nonprofit status of CDC sub-
sidiaries. BOth forms of incorporation are permitted, with the
decision usually based upon the need for additional partners.
CDCs seeking investment or grants from foundations, for example,
usually incorporate as not-for-profit corporations. However, the
majority of holding company CDCs and other equity investments
have been for-profit ventures.
One question we are frequently asked regarding formation of
CDC5 concerns the size of the investment permitted the bank hold-
ing company. As proposed community development activities are
diverse, the Federal Reserve takes a flexible approach in its
evaluation of equity commitments. Although no minimum or maximum
levels are established, the Board does expect that the financial
commitment will be appropriate to the nature and scope of an-
ticipated investment activities and prudent with respect to the
size, financial condition, and capitalization of the holding com-
pany.
CDC5 may be established with many variations on management,
for-profit or nonprofit status, and capitalization. Some CDCs
are consortiums in which multiple participants, including banks,
bank holding companies, foundations, nonbanks such as electric
cooperatives, and local government play key roles in the invest-
ment and management of the CDC. This diversity of participation
not only increases the chances for success, but also maintains a
focus on the needs of the particular community being served.
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Although I am speaking to opportunities available to bank
holding companies, I would note that the Comptroller of the Cur-
rency permits national banks to establish bank CDC subsidiaries.
Also, some states have enacted legislation permitting state char-
tered banks to engage in similar activity.
Several examples of currently active bank holding company
CDC5 include a CDC in western Illinois with multi-lender and
public participants, a CDC in Kentucky that has formed a partner-
ship with a city government, and two CDC5 in Arkansas developed
by Southern Development Bancorporation.
Tn-County Development Corporation, Jacksonville, IL
Tn-County Development Corporation in Jacksonville, Il-
linois, is a multi-investor, for-profit CDC which serves three
counties in western Illinois. The CDC was formed in 1989 to
retain and create jobs, help new and existing businesses, and ex-
pand the tax base.
Investors in Tn-County include eight banks, a local Chamber
of Commerce, and a rural power cooperative. In addition, two
other utilities have made contributions to the CDC.
Tn-County provides both equity and subordinated debt
financing and technical advisory services to local small
businesses and encourages public sector participation in economic
development projects. By providing gap financing, equity invest-
ments, and small seed capital loans, Tn-County CDC is ac-
complishing its goals.
Through the CDC's initial project, a loan to a music company
assisted location of a distribution center in Jacksonville. This
40,000 square-foot facility is expected to create 40 new jobs
within two years.
BMC Realty and Investments, Inc., Benton, KY
BMC Realty and Investments is a for-profit CDC established
by a bank holding company. The CDC entered into a limited
partnership with a nonprofit tax exempt subsidiary of the city of
Benton, Kentucky. This CDC and the city's subsidiary will each
invest up to $100,000. The partnership financed the construction
of two industrial "spec" buildings on land owned by the city.
The primary purpose of the CDC is local job creation resulting
* from utilization of the industrial buildings by new businesses.
Southern Development Bancorporation, Arkadelphia, Arkansas
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Southern Development Bancorporation in Arkadelphia, Arkan-
sas, has established two community development corporations.
The first, Arkansas Enterprise Group (AEG), is a nonprofit
corporation that operates a number of small business assistance
programs for rural areas of Arkansas. AEG provides financial,
technical, and marketing assistance to new entrepreneurs and
micro enterprises to help them increase their probability of suc-
cess and generate employment opportunities.
The second, Opportunity Lands Corporation (OLC), is a f or-
prof it CDC that renovates and develops low- and moderate-income
housing and commercial property serving small businesses in
lower-income Arkansas communities. The CDC's activities are part
of a comprehensive program of the holding company and its bank
subsidiary, along with several monbank subsidiaries to help
stimulate long-term economic development of targeted unemploy-
ment. OLC has begun developing three low- and moderate-income
housing projects and has renovated a vacant 100,000 square foot
store creating a successful small business incubator.
CDC5 are effective development vehicles and consortium CDC5
can bring additional bank and nonbank investment and expertise to
the table. However, other vehicles, including more traditional
concepts, should not be overlooked when considering ways to meet
community credit needs.
In addition to lending by subsidiary banks, other forms of
investment are available to holding companies. Limited partner-
ships and direct investments are but two examples.
The advent of a federal tax credit for business investment
in low-income housing has made the limited partnership vehicle
more attractive to businesses and corporations. Limited partners
are essentially passive investors and rely upon the the financial
strength, experience and character of the general partner.
Examples of bank holding company participation include in-
vestments by one holding company of almost $5 million to limited
partnerships that developed 12 housing projects with a total of
more that 500 housing units for lower-income families and the el-
derly.
Bank holding companies may also invest directly in community
development projects. For example, additional equity may be
provided for a neighborhood housing project or commercial
redevelopment venture, making it possible for the sponsor to
qualify for debt financing and move forward.
Community development investments may not be suitable
for every bank holding company. The vehicles I have described
are but several of many options available. The choice depends
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104
upon many corporate and community factors, each of which nay vary
over time. companies that have made such investments though have
found them to be valuable supplements to those products and serv-
ices that are more traditionally employed to help meet community
reinvestment needs.
Thank you for the opportunity to testify before the Coin-
mittee.
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105
PREPARED STATEMENT OF WESONGA LUBOTI
THE PROPOSED DEVELOPMENT BANK FOR THE MEMPHIS AREA WOULD BE A SPECIALIZED
PRIVATE FINANCIAL INSTITUTION WITH SOME FORM OF PUBLIC AND NON-PROFIT
FINANCIAL SUPPORT THAT WOULD ENABLE THE BANK TO SUPPLY MEDIUM- AND LONG-TERM
FUNDS FOR THE CREATION AND EXPANSION OF INDUSTRIAL AND NEW ENTERPRISES TO BE
ESTABLISHED AND OWNED BY THE LOW INCOME AND THE DISADVANTAGED PERSONS OF THE
AREA WHO POSSESS THE TALENT AND DESIRE TO ENTERPRISE. THE DEVELOPMENT BANK
AS FINANCIAL MECHANISM IS CLOSER TO BEING ESTABLISHED IN THE MEMPHIS AREA
BECAUSE THE EXISTING BANKS USUALLY FOCUS ON THE CONTROL AND REGULATION OF
THE AGGREGATE SUPPLY OF MONEY. MOREOVER, THE EXISTING BANKS SET LOAN
CONDITIONS THAT OFTEN ARE INAPPROPRIATE FOR ESTABLISHING NEW ENTERPRISES OR
FINANCING SMALL-SCALE PROJECTS. THEIR FUNDS MORE OFTEN ARE ALLOCATED TO
`SAFE BORROWERS' (i.e. ESTABLISHED INDUSTRIES AND BUSINESSES OWNED OR RUN BY
WELL-KNOWN LOCAL FAMILIES). TRUE `VENTURE CAPITAL' FOR NEW INDUSTRIES AND
ENTERPRISES OWNED BY INDIVIDUALS THAT ARE PART OF THE DISADVANTAGED GROUP
RARELY FINDS APPROVAL.
IN ORDER TO FACILITATE INDUSTRIAL AND ECONOMIC GROWTH AMONG THE LEAST
ADVANTAGED PERSONS, THE DEVELOPMENT BANK SEEKS TO RAISE CAPITAL, INITIALLY
FOCUSING ON THREE MAJOR SOURCES:
-INDIVIDUAL LOCAL INVESTORS
-NOT-FOR-PROFIT ORGANIZATIONS
-LOANS AND GRANTS FOR LOCAL, STATE, AND FEDERAL GOVERNMENTS
IN ADDITION TO RAISING CAPITAL, THE PROPOSED BANK THAT CURRENTLY IS BEING
ORGANIZED BY LOCAL RESIDENTS IS IN THE PROCESS OF DEVELOPING SPECIALIZED
SKILLS~ IN THE FIELD OF INDUSTRIAL AND FINANCIAL PROJECT APPRAISAL. THE
BANK WILL GO FAR BEYOND THE MODERN BANKER'S ROLE OF LENDING MONEY TO ONLY
CREDIT-WORTHY CUSTOMERS. IT WILL TRAIN AND EDUCATE PROSPECTIVE
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106
ENTREPRENEURS. THE BANK WILL HAVE AN ACTIVE ROLE IN THE SUCCESS OF THE
BORROWERS OR ITS CLIENTS. THE ACTIVITIES OF THE BANK WILL ENCOMPASS DIRECT
ENTREPRENEURIAL, MANAGERIAL, AND PROMOTIONAL INVOLVEMENT IN THE ENTERPRISES
THEY FINANCE. HENCE, THE BANK WILL PLAY AN IMPORTANT ROLE IN THE
IMPROVEMENT OF THE QUALITY OF LIFE OF THE LEAST ADVANTAGED. INDEED, THE
PROPOSED DEVELOPIIENT BANK FOR THE MEMPHIS AREA WILL NOT BEHAVE LIKE SOME OR
MOST OTHER FINANCIAL INSTITUTIONS THAT REFUSE TO CONSIDER LOANS OF LESS THAN
$20,000 TO $50,000. THEY OFTEN ARGUE THAT SMALLER LOANS DO NOT JUSTIFY THE
TIME AND EFFORT INVOLVED IN THEIR APPRAISAL. AS A RESULT, THESE FINANCIAL
INSTITUTIONS ALMOST TOTALLY REMOVE THEMSELVES FROM THE AREA OF ASSISTANCE TO
SMALL ENTERPRISES, EVEN THOUGH SUCH ASSISTANCE IS OF MAJOR IMPORTANCE TO THE
ACHIEVEMENT OF BROADLY BASED ECONOMIC DEVELOPMENT THAT OFTEN CONSTITUTES THE
BULK OF ASSISTANCE NEEDED IN THE PRIVATE SECTOR. AS SUCH, SMALL SCALE
ENTREPRENEURS, OFTEN LACKING TECHNICAL, PURCHASING, MARKETING,
ORGANIZATIONAL, AND ACCOUNTING SKILLS, AS WELL AS ACCESS TO BANK CREDIT, ARE
THUS FORCED TO SEEK FUNDS IN THE EXPLOITIVE UNORGANIZED MONEY MARKET THAT
INCLUDES `LOAN SHARKS' AND `PAWN SHOPS'. THIS DEVELOPMENT BANK WILL
CONCENTRATE ON SERVING SMALL-ENTERPRISE FINANCIAL AND TECHNICAL NEEDS OTHER
THAN FOCUSING ON LARGE CORPORATIONS, AND AFFLUENT AND WELL-KNOWN INDIVIDUALS
IN THE LOCAL BUSINESS SECTOR.
THEREFORE, THE DEVELOPMENT BANK WILL NOT ONLY MOBILIZE SAVINGS FROM SMALL AS
WELL AS LARGE LOCAL SAVERS, BUT, MORE IMPORTANTLY, WILL CHANNEL THESE
FINANCIAL RESOURCES TO THE SMALL ENTREPRENEURS IN THE MARGINAL SECTOR; THEY
HAVE BEEN ALMOST TOTALLY EXCLUDED FROM ACCESS TO NEEDED CREDIT AT REASONABLE
RATES OF INTEREST AND FINANCIAL TERMS AND ARRANGEMENTS. THE DEVELOPMENT
BANK WILL ALSO HAVE OTHER SUBSIDIARIES THAT WILL ENABLE THE HOLDING ENTITY
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107
TO MAXIMIZE RETURNS SO AS TO RE-INVEST.
THE DEVELOPMENT BANK AS A DEVELOPMENT MECHANISM IS CHOSEN NOT SOLELY FOR THE
BENEFIT OF THE DISADVANTAGED ENTREPRENEURS BUT ALSO BY PRODUCTIVITY ANALYSIS
OF CAPITAL/OUTPUT RATIOS AND IN THE CONTEXT OF AN OVERALL DEVELOPMENT
PROGRAM THAT TAKES ACCOUNT OF EXTERNAL ECONOMICS, INDIRECT REPERCUSSIONS
(i.e. OBSTACLES AS A RESULT OF RACE) AND LONG-TERM ECONOMIC OBJECTIVES AND
IMPLICATIONS. INVESTORS AND MANAGERS WILL BE ENCOURAGED TO VISIT AND IN
TURN, WITH THEIR NEWLY ACQUIRED KNOWLEDGE ENCOURAGE CLIENTS TO SUCCEED,
THEREBY MINIMIZING THE LOSS RISKS AND, HENCE, MAXIMIZING EXPECTED RETURNS.
THEREFORE, THE THEORY BEHIND THE DEVELOPMENT BANK IS THE ESTABLISHMENT OF
THE BASIC PRINCIPLE IN THE FIELD OF COMMERCE: THAT THE MARKET, ITS PRICES,
AND SALES (DETERMINED BY LEVEL OF DEPOSITORS IN THE CASE OF BANKING), SHOULD
BE LEFT TO INTERNAL ECONOMIC FORCES AND NATURAL COMPETITION (IN THIS CASE
BETWEEN FINANCIAL INSTITUTIONS) WITHOUT MANIPULATION BY THE AFFLUENT FEW.
IN THIS CASE, THE CATALYST OF COMPETITION IN THE MEMPHIS AREA WILL BE THE
DEVELOPMENT BANK. THE BANK WILL WORK AND OPERATE WITHIN A FREE MARKET AND
WILL RESPOND TO THE NATURAL LAWS OF SUPPLY AND DEMAND, HOWEVER, TAKING INTO
CONSIDERATION THE HANDICAPS OR OBSTACLES FACED BY THE LEAST ADVANTAGED WHO
HAPPEN TO BE AFRICAN-AMERICANS OR BLACKS.
WHY FOR MEMPHIS?
THE CHOICE OF A DEVELOPMENT BANK FOR MEMPHIS AS THE FINANCIAL MECHANISM TO
FOSTER ECONOMICS FOR METROPOLITAN MEMPHIS AND THE SURROUNDING RURAL AREAS IS
BASED ON ECONOMIC INDICATORS THAT REFLECT HARSH PROBLEMS OF ECONOMIC DECAY,
POVERTY, UNDERDEVELOPMENT, HIGH LEVELS OF UNEMPLOYMENT, AND HIGH NUMBERS OF
LOW INCOME FAMILIES AND DISADVANTAGED INDIVIDUALS. A GREATER NUMBER OF
FAMILIES AND INDIVIDUALS IN THE LOW INCOME AND DISADVANTAGED CATEGORIES IS
MADE UP OF BLACKS OR AFRICAN-AMERICANS.
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108
SOME OF THESE INDIVIDUALS POSSESS ENTREPRENEURIAL SKILLS AND SPIRITS BUT ARE
UNABLE TO PARTICIPATE IN ECONOMIC DEVELOPMENT--A CENTRAL DIMENSION OF OUR
GREAT COUNTRY DUE TO LACK OF CAPITAL, AN ACUTE ELEi~1ENT THAT IS NOT ONLY
CRITICAL BUT A PREREQUISITE TO ESTABLISHING A SUCCESSFUL ENTERPRISE. THE
TALENTED BUT DISADVANTAGED AND POOR INDIVIDUALS MORE OFTEN THAN NORMAL AS
COMPARED TO ADVANTAGED AND WEALTHY INDIVIDUALS TEND TO PUT ANY RESOURCEFUL
TALENTS TO WASTE DUE TO THE EXISTING FINANCIAL STRUCTURE.
FURTHERMORE, IN OUR COUNTRY WHEREBY THE MONETARY POLICY WORKS ON TWO
PRINCIPLE ECONOMIC VARIABLES--THE AGGREGATE SUPPLY OF MONEY IN CIRCULATION
AND THE LEVEL OF INTEREST RATES, THE BENEFICIARY IS THE WELL-TO-DO. AS
COMPENSMTIUN, THE DEVELOPMENT BANK WILL OFFER CLASSES TO ITS LOW INCOME
CLIENTS UN THE SUBJECTS OF BUSINESS, ECONOMICS, WITH BORROWING AND REPAYMENT
BASED UPON GOOD FAITH PRINCIPLES.
A DETAILED CONFIDENTIAL REPORT WILL BE FURNISHED TO THE MEMBERS OF THE
COMMITTEE UPON WRITTEN REQUEST. THE REPORT WILL INCLUDE AN UPDATED LIST OF
INTERESTED AND COMMITTED INVESTORS, AN EXPOSITION OF THE OPERATIONAL
MECHANISMS FOR THE BANK, AND COMMUNICATE THE LEVEL OF SUCCESS IN THE
ORGANIZATIONAL PHASE.
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109
PREPARED STATEMENT OFMABRA HOLEYFIELD
THE NEED
The need for locally based and managed revolving loan funds
was established in the early sixties. It was shown that
conventional lending institutions were not responsive to the
needs of the lower income community. In fact, the practice
of "Red Lining" was quite common. As a result, those
communities most in need of economic development were barred
from consideration.
Federal and local governments along with several large
foundations responded with the development of a variety of
loan funds and programs designed to provide capital to
businesses in distressed areas.
Because of the current problems in the banking industry, the
need for continued support in this area is even more acute.
Loan approval requirements at conventional institutions are
such that minority businesses in particular have a difficult
time qualifying. The most difficult requirement is that the
applicant has to have collateral equal in value to the loan.
MANAGEMENT AND ADMINISTRATION
Managing loan funds targeted to minority businesses or
distressed communities is significantly different from
managing loan funds for a bank. A bank loan officer
essentially examines the credit history and collateral of the
applicant. A business plan is required but it is not given
as much weight as the collateral offered. A great business
plan and weak collateral will not produce a loan approval at
most banks.
Given the fact that applicants to revolving loan funds will
not normally meet collateral requirements, the managers have
to be more skilled in evaluating business plans and the
skills of those involved in the business. In many instances,
the manager will have to provide some level of technical
assistance in order to assist the applicant in qualifying for
a loan. This means that if a loan fund is going to be
successful, funds will have to be available to pay a highly
competent staff.
Even a competent staff cannot change the fact that a higher
percentage of loans will end up in default, than would
normally be the case in a conventional institution. Given
this fact, realistic goals must be established at the
beginning. These goals, which might include failure rates as
high as 25-30 percent, must clearly be understood by the
funding source.
Failure to set realistic goals often results in revolving
loam funds establishing loan criteria similar to banks in an
effort to reduce the failure rate. Once this is done, the
revolving loan fund becomes irrelevant.
What must be understood is that one of the major problems
facing the minority business community is a lack of
historical involvement in business. This "lack of history"
makes it even more difficult to succeed. While revolving
loam funds will experience a higher failure rate, even
failures contribute to the development of entrepreneurs who
will eventually succeed.
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PREPARED STATEMENT OF GARY L. ROWE
~. thairixan and Members of the ~nittee
Co behalf of ~ ~ MiXX)rity Business Developnsflt Center (NBDC)
operated by Banks, Finley, White and Qmrpany CPA's, funded by the
Minority Business t~velo~z1Ent Agency, U.S. Copartsent of Omemerce. I
thank you for the invitation to testify before the House Budget
Coemittee Task Force on Coimminity Developamnt and National Resources.
I wish to sake it clear that I an spea]dng as an individual as to the
services of the Mes~his NJ3DC, and not as a spokesperson for the U.S.
Minority Business Develorsent Agency.
The Memphis NBDC is part of a national network of 100 Centers
nationwide. ¶Ibe Msix~iis NBDC serves the Standard Metropolitan
Statistical Area to inclix~e; Meir~iis Shelby County, Tipton County,
Crittendon County Arkansas and Desoto County Mississippi, and
management and technical assistance, the leverage of pablic and private
resources and the brokering of business opportunities.
¶Ike Center provides managenant and technical assistance to individuals
and firms in the areas of marketing, finance, construction assistance
and management to improve the gross receipts, profits and net worth of
the firms assisted. All firms and individuals seeidng assistance from
the 3)C will be provided with initial general counseling and referral
assistance, free of charge. Suheequent services would be on a fee for
services basis. Hocever, no qualified entrepreneur should be refused
assistance based on inability to pay the fee.
¶Iha Men~is MH)C develope and maintains an inventory of minority vendor
firms qualified and capable of selling their goods and services to the
piblic and private sector, ~ to broker or match these minority firms
with piblic sector procureirent and private sector contract
opportunities, both foreign and domestic. This inventory has been
named the `P~IE" system.
~[bo Center identifies qualified minority individuals and firms with the
potential to start new businesses and expand existing businesses pp~ to
broker or match these individuals and firirs with new business ownership
opportunities.
In a~ition, the Center identifies capital sources for investment in or
lending to minority firms or potential entrepreneurs ~ to broker or
match these capital sources to minority firms seeking or requiring such
funds.
¶Ehe Center is an integral partner in stimulating Economic Development
in Meim~is and the Mid South.
The annual report of performance during the period of April 1, 1990
through March 31, 1991 reflects a culmination of parterships with the
piblic and private sector.
`Iks Center assisted a total of 147 minorlty\ business providing 1,992
billable hours of management and technical assistance. The Center
packaged a total of twenty-three (23) financial proposals with the
potential dollars approved totaling $2,603,949. The Center assisted
minority owned fires with procurement of contracts valued at
$9,871,100. This information, which is generated on a quarterly basis
is submitted to the Minority Business Development Agency, Atlanta
Regional Office.
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The Center itaintains an aggressive advocacy and outreach program
constantly linking with public/private Corporations and minority firms.
The following organizations provide exair~les of partnershipa
established with the ~is M~)C:
~1HE SHELBY ~IY ~~tJNIT~ RE-flWES~4ENT CDAIITION
The Memphis NBDC has been a part of the Shelby County Comonnity
Reinvestment Act Coalition since 1988. The Shelby County Coninninity
RelrlvestnEnt Act Coalition is representative of coninninity and advocacy
groupo representing the spectrum fron the NAACP to The National
Association of Real E~tate Brookers (NAREB). In the period fron 1988
to the present NBDC has participated with the coalition in negotiating
cornrrninity reinvestment agreements with First Thnnesse Bank, Sovran
Bank, Union Planters, and First American Bank. The Coalition has also
challenged Leader Federal Savings & Loans reguest for branch openings
and has sucoessfufly delayed (3) three such reguests because of =
Leader's poor record of addressing low-income credit needs.. From
these negotiations and agreements new 1st nortgage loans, new home
repair loans, and new construction loans for low-income housing, and
new Business loans for Businesses in the targeted areas, and new credit
instruments for residents of the inner-city.are availble..
NBDC LOAN REVIEW ~~HE
The Memphis Minority Business t~velopuent Center has established a
~rking relationship with local lending institutions to serve on a loan
review connnittee.
The purpose of the Loan Review Commnitte is to review and analyze loan
proposals before they are presented to lending institutions to identify
the strength and weakness of the proposal. This connnittee has caused
loan approval rates to increase
CONSORPIUM
The mission of the Business Assistance Consortin is to increase the
opportunity for economic progress and independence for Minority
businesses.The t~lve (12) members of the Business Assistance
Consortium will pronote business develoirmant and an economic
environment in which Minority businesses can better develope our
talents and skills to achieve better lives for our conununity and, in so
doing, contribute to a stronger economic base.
¶EHE NSHPHIS APEX NEIGHBORHOOD DEVFILORHENT COR~)RATION (MAN1X~
The Memphis Area Neighborhood t~velopnent Corporation is organized and
controlled by local residents to develop the economy of their own
conumninity. The Conmnninity t~velopmant Corporation is, in fact, a new
conununity tool created by people in low income areas to gain influence
over the economic conditions of their lives. TO get their influence to
make fundamental changes in their conununities, NANDOD will identify and
develop local skills and talents, own and control land and other
reso~ces, start new business and industries, increase job
opportunities, sponsor new conuminity facilities and services and
improve the physical environment.
NBDC's programs are designed to assist prospective and existing
minority businesses to penetrate markets and industries historically
under-represented by minorities. These include general contracting,
manufacturing, wholesaling, finance, business and professional services
and the markets of the future such as Interaational Thade and
Thlecommununications.
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We are taking steps to continue this reinvigoration and leverage the
resources withing all sectors irore effectively to address these needs
strategically..
This testirrony highlights anny of the initiatives nev undeiway within
the MBDC. Thank you for the opportunity to appear here today and bring
into focus ~h of what the Mai~is Minority Business I~velo~mEnt
Center is doing on behalf of hinority business.
I will be pleased to address your questions.
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PREPARED STATEMENT OF BILLY HANEY
Mr. Chairman, members of the Task Force, I am Billy Haney,
Executive Director of South Delta Planning & Development District
(Greenville, Mississippi). I also serve as Chairperson of the
Mississippi Association of Planning and Development Districts.
I would like to thank you, Mr. Chairman, for the opportunity of
appearing before this hearing to examine "Mechanisms for Financing
Economic Development." I would further like to express my personal
appreciation for your strong support of all initiatives which serve to
improve the quality of life of the people living in our State.
South Delta PDD serves six counties and 35 municipalities located
in the heart of the Mississippi Delta, long considered one of the
poorest areas in the poorest state in the United States. The area we
serve is approximately 210 miles long and 45 miles wide, representing
approximately 3,502 squaremiles of primarily rural areas. In addition,
this area represent a total population of 163,786 persons, based on the
1990 Census. This population figure represents a decline of 13,775
persons or approximately 7.76 percent since the 1980 Census.
The area also has:
Inadequate infrastructure ( water, sewer, streets);
Substandard housing;
Per capita income well below state and national levels;
School drop-out rates far above state and national levels;
Teen pregnancy rates far above state and national levels;
Illiteracy rate comparable to some third world countries;
Many other social/economic problems.
However, today we are examining economic development tools and
public-private partnership for the creation of jobs and improving the
rural economy.
Our six counties have a total labor force of 66,290 persons, with
6,600 or 9.956 percent of those being unemployed (May 1991). The
12-month moving average of unemployment is 10.7 percent. The counties
individually range from a low unemployment rate of 9 percent up to a
high of 15.5 percent (Mississippi Employment Security Commission).
The economic base of the counties has historically been
agriculture, however, the major source of income for five of our
counties is transfer payments and the major source for the sixth county
is land rental.
All of these negative statistics are presented to provide a "thumb
nail" picture of the economic development "arena."
The "flip side" of the coin is where our interest centers today.
What can/has and should be done to improve the economy and life-style of
this area.
I am not a native of the Mississippi Delta. I grew up in Northeast
Mississippi in the Tupelo area. In my lifetime, I have seen that area
rise from a similiar "economy of dispair" through an " economy of
repair" to today's economic yardstick for Mississippi, as well as the
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Nation. I took this job in Greenville because I wanted to be a part of
this "revival" which I know, with help from people like you, is coming
to the Delta area of Mississippi.
Most of my staff are in the Greenville/Delta area for that same
reason. We are transplanted planners/administrators by profession; we
are "change artists" by dedication.
What has been done in the past? Mark Manning, South Delta Planning
and Development District Economic Development Director, will present
highlights of several programs which have provided great assistance to
our area.
CURRENT PROGRAMS
The Planning & Development Districts, serving as regionally based,
private, non-profit development agencies, are in a unique position to
understand the current problems associated with rural development. As
is evident, the Mississippi Delta is a prime example of long term
economic stagnation in rural America. At the same time, there are a
number of currently operating programs which are functioning efficiently
in assisting local units of government to arrest and reverse negative
trends in investment, job creation, per capita income and other
generally accepted measures of prosperity. Examples of currently
available programs are as follows:
1. U. S. Department of Commerce/Economic Development Administration
(EDA)
The U. S. Department of Commerce, Economic Development
Administration has, for many years, been vital to area development by
providing infrastructure improvements for industrial development,
Planning Grant funds for development of long term economic development
strategy, and funds for area based Revolving Loan Funds.
EDA funds have provided port facilities, rail improvements, water
and sewer capacity, and other infrastructure. Without EDA assistance,
it is unlikely that many currently successful industrial parks would be
in existence.
The Revolving Loan Fund of South Delta Planning & Development
District began in 1979 with capitalization of $1,070,000. In 12 short
years, the RLF has grown to a portfolio size in excess of 3.5 million
dollars. The RLF has been directly associated with concurrent private
investment of over 19 million dollars and is responsible for job
creation and retention in excess of 1500 jobs. This reflects a Cost Per
Job of less than $2,400 to the EDA RLF. The program has been successful
primarily because of prudent local lending practices and the general
goals and objectives of EDA.
2. U. S. Department of Housing and Urban Development
Small Cities Community Development Block Grant Program (CDBG)
The Small Cities CDBG program is one of the primary sources of
funding for capital improvement and economic development financing in
the South Delta area. Just in the last two years, the program has
provided funds for 3 Rural Health facilities, various drainage
improvement projects, water and sewer capacity improvements, and
economic development infrastructure and loan funds responsible for the
creation and retention of approximately 1000 jobs in the South Delta
area.
3. U. S. Department of Housing and Urban Development
Urban Development Action Grants (UDAG)
While the UDAG program is no longer funding new projects, this
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program continues to impact the Delta area since local units of
government have been allowed to retain repayment funds for further
economic development. Currently, South Delta PDD is working closely
with an area municipality to utilize UDAG repayment funds to match State
Minority Business Enterprise loan funds. This project will provide gap
financing to a locally owned and operated minority business firm to
retain over 40 jobs in an area with an unemployment rate of 11.0
percent. The key to the successful utilization of these funds is local
control flexibility of the eligible uses of funds.
4. State of Mississippi Minority Business Enterprise Loans
In order to enhance business opportunities for members of the
minority business community, the State of Mississippi has created the
Minority Business Loan Program. Under this program, a minority owned
business is eligible to borrow up to 50 percent (or $250,000) of total
eligible project costs at favorable rates of interest. Equity
requirements are only 5 percent and the primary lending institution
receives a first lien on assets financed. This program not only allows
long term low down payment financing, but also serves to increase
relationships between minority business owners and the financial
community.
5. Farmers Home Administration (FmHA)
In addition to the community facility grant/loan programs available
through FmHA, South Delta PDD has been fortunate to receive 1.25 million
in loan funds from FmHA to increase its presence in the economic
development loan field. These are not grant funds, but are borrowed at
1 percent over a thirty year period and reloaned for rural business
development in the South Delta area. The program is very flexible and
allows for a great deal of local control and input into the economic
development process.
You have seen what has been done with "those tools which were or
are available." Please allow me to stress the need for more "TOOLS."
As previously demonstrated, a number of Federal and State programs
exist which are extremely helpful in fostering rural economic
development. Our experiences with the different agencies have been
positive and there is generally a very real commitment among agencies to
cooperate and assist in local efforts. There are, however, a number of
areas that need to be addressed to facilitate local development efforts
as follows:
A. Programs whose guidelines can be developed at the local level --
give us as much flexibility locally with programs as possible as
long as we exhibit fiscal responsibility and a successful track
record.
B. Timing of economic development projects is critical especially when
attempting to tie two or more programs into one project. Whenever
possible, it would be extremely beneficial to maximize similarity
in program guidelines. For example, it is often required to
complete somewhat differing environmental procedures for each
program that funds one project.
C. While job creation and the commensurate improvements in quality of
life are important, there should be less emphasis upon direct job
creation and more emphasis on investment attracted and the total
long term impact upon the area economy. For example, in the Delta,
value added processing may or may not add a large number of direct
jobs but is very important in long term development strategy.
D. Program design should take all reasonable steps to provide positive
PAGENO="0120"
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reasons for traditional financial institutions to invest in area
development. Examples include subordinate financing, near equity
or equity financing, management assistance, etc.
E. Based upon our long term exposure to area problems and program
effectiveness, it is clear that area problems require coordinated
area input and control. The programs that have been the most
effective in quickly and effectively addressing financing needs
have been based in local decision making. For example, the South
Delta Revolving Loan Fund decision making process is controlled by
a loan review committee made up of area businessmen. By
understanding the local community and having an awareness of
business concerns, the RLF is in a position to respond quickly.
F. Districts such as South Delta PDD have found that immense benefits
are derived from "an infusion of ideas" received from national
organizations such as the National Association of Development
Organizations. This organization represents the basic network for
improving economic opportunities and the quality of life in
America's small metropolitan and rural areas.
In closing, our area has existed on hand-outs long enough and this
has not been the answer. We do not need or want "give-away programs" in
our area. Instead, we seek opportunities to truly create long term
investment in both the people and the economy of the Mississippi Delta.
By borrowing 1.25 million dollars to create a loan fund for economic
development, we and others are showing our commitment to positive
change. We simply ask you to help us by continuing programs so
important to our area and to refine and simplify these same programs as
the opportunities arise.
Please allow me to close by expressing my appreciation for your
sincere interest in our work. "A chain is only as strong as its weakest
link."
We will be happy to answer any questions you might have.
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PREPARED STATEMENT OF ROBERT D. GRAY
To The Honorable Members of the United States Congress who make up this
panel and especially to my Congressman, The Honorable Mike Espy of Mississ!ppi. It
is indeed an honor, as well as a privilege, to have been invited to make a presenta-
tion at this hearing.
I believe the topic at hand is "Mechanisms For Financing Economic Develop
ment."
Let me begin by saying, something must be done. And something must be done
In a timely fashion to arrest the deterioration and disIntegration of rural and small
town America. I believe rural and small town America is the backbone of the entire
economic structure of this country. Therefore, its health and viability should and
must be protected at whatever the cost.
I truly do believe that the deplorable and deteriorating economic conditions of
rural America are contributing to the destruction and decay of big city America.
Therefore, if we solve the problems of small town and rural America, we begin to
solve many of the problems in our major cities.
Someone or some institutions must be willing to invest In rural America. While
there may seem to be some degree of attidual change recently, major corporations
have been unwilling to invest in rural America for the most part, citing such excuses
as low-skill levels oF workforce, population make-up, partlcuiarly where Blacks make
up a significant part of the population. They (Corporate America) call It red-lining.
Most assuredly, if the population make-up is 30% or more Black, then it's a NO NO
as to locating a facility there.
Banks and other commercial lending institutions are not willing to invest in
rural America. In fact, banks are taking money out of, rather than putting money
into these communities (rural). The Community Reinvestment Act Is not working or
Is not being enforced. We realize that there is a banking ôrisis in this country at
present and the regulatory agencies for financial institutions have tightened down on
these institutions, causing havoc to the business community. Rural and small town
America is paying far more than its share for these conditions (Banking).
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Rural America did not cause these conditions, legitimate small business did not
cause these conditions. Fraud, cronism, graft, the buddy-buddy system that exist in
the financial institution world, and yes, racism that exist in banking caused this
banking crisis.
Big banks in big cities are still lending money, but rural banks In small communi-
ties are not. Rural banks are investing their money with the Big Boys, rather than
investing In small business In their own communities, which gave rise, to their very
existence.
Government guaranty programs do not work. The only time a bank, in our
area, will honor a government guaranty is either when the project does not need a
guaranty in the first place or when the Institution wants to help a friend. If an
investigation was conducted of the various government guaranty programs, some
startling findings would appear as to who had received these loans. Therefore,
banking in rural America Is far too conservative, far too ~ oriented, far too
~ oriented and far too racist.
It would seem to me that If you had the full faith and credit of the United
States Government guaranteeing 90% of a loan, then a bank would feel comfortable,
but that is not the case in this area. In fact, I've had banks to tell me they would
not make a loan that was 250% guaranteed. I just do not understand. On the other
hand until recently. I know of banks making loans In the several million dollar
range unsecured to their fr~nds and cronies. In fact, just recently, one bank In my
area settled for 20~ on the dollar for a several million dollar loan, and when I say
several, I'm talking upward of 20 million dollars that was unsecured; whereas, if
they had loaned 20 small businesses in their area one million each, at 1~I5~t 16 of
those businesses would have prospered and been able to repay those loans. This is
Cronism.
We are not advocating giving away money or investing unwisely. We are merely
saying lets play on a level playing field. Give my project the same consideration
that you give Joh Doe. Give us the same opportunity to develop and become a part
of the economic mainstream as you do our counterpart.
History tells us that this is not going to happen with our traditional institutions
of finance. The reinvestment act has not made them do it. The various other laws
to eliminate discriminating in lending have not made a significant difference. Then
why should we expect anything different to happen now, especially with the present
crisis that exist within the banking system.
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An institution of finance must be developed, be it a "Regional Development
Bank', or call it what you may, that is willing to make its resources available to
all, using the same set of rules and standards.
It's no secret why this area (Lower Mississippi Delta) lags far behind the other
parts of this country. It's because a large segment of the population is lcf~ out of
the economic mainstream, namely, Black People. No nation or area can survive, let
alone prosper, when such a significant portion of its population is shut-off from the
area's resources for economic prosperity.
It's no difference in us (Blacks) here in the Lower Mississippi Delta and those
in California, Connecticut, Maine, Massachusetts, or New York. The difference is we
just make up such a large part of the population.
Let me caution you that developing such an institution (Regional Development
Bank) and putting the same people in place to operate it, will be no different than
what you have today. There are programs that could work, such as the guaranty
programs, if the people in charge had the right attitudes, mentality and work ethics,
to make it happen. What usually happens is that the people who are put in place to
run the MESBICS and like programs either soon dcvelop the local banking mentality
or they do not understand the real business world.
Therefore, in lieu of this testimony, I urge you (the congress of the United
States) to forge ahead in developing a Development Bank to serve as a vehicle of
resource to address the economic conditions for all people on an equitable basis,
rather than for the select few which traditional financial institutions are guilty of.
THANK YOU!
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PREPARED STATEMENT OF HARRY J. BOWIE
In 1969, 14 community membership and action groups founded the
Delta Foundation to concentrate attention and resources in economic
development in the Mississippi Delta region. i-leadquartered in
Greenville, Mississippi, these community leaders believed that the
national legislative accomplishments of the early 1960s could be
realized through the creatiofl of jobs and improved income for their
individual constituents. Their work built an organization that has
created over 2,000 jobs. It directly generates $20 million
annually in new sales revenue to the Delta region through operating
companies owned and managed b~ Delta Enterprise. Delta Foundation
also manages an investment division and venture capital
subsidiaries with a capitalization of $6,500,000. The business
loan portfolio includes over 100 low-to moderate- constituent
clients. Annual sales revenue from these client businesses in the
loan portfolio, and businesses that have already paid off their
loans, is estimated to be another $30,000,000 a year. Conservative
macro-economic multipliers would say that the 2,000 jobs created
have indirectly generated another 2,000 jobs in the Delta area.
Similarly, the $50,000,000 in estimated annual sales directly and
indirectly influenced by Delta Foundation has generated another
$50,000,000 in annual sales revenue in the Delta region.
The Delta covers 40 counties in Arkansas and Mississippi that
span a region approximately 250 miles long and 150 miles wide.
Economic Development in the Delta is a challenging endeavor. The
Delta Foundation recently commissioned a needs study of its
constituents. Of the 1,737 usable survey responses received, 73~
said money was a major problem. Thirty-one percent of the
respondents said jobs were their greatest need. Fifteen percent
of the respondents were either unemployed or laid-off, and another
11% were employed only part time.
In spite of the' challenges and the needs that are still
unfilled the Delta Foundation has made a significant and positive
impact on its constituents' lives. Stable jobs exist for
individuals who never had a steady job before the Delta Foundation
efforts. Several of those individuals have advanced from entry-
level jobs to both supervisory positions and top management. Most
importantly the Delta Foundation demonstration, that viable
businesses can be successfully built within constituent
communities, has given minority individuals and community groups
the confidence and knowledge to start and build their own
businesses.
The Delta Foundation's central staff of 11 operates three
different corporations and one division under the leadership of its
President, Harry J. Bowie. They include Delta Enterprises Inc.,
Z~ction Communications Inc., Sun Delta Capital Access Corp., and a
Rural Development Loan Fund.
One of the greatest needs facing our region is the need to
generate jobs and opportunities for development. These jobs and
the work force that must fill these jobs will increasingly have to
be globally competitive. It is unrealistic to expect that major
companies from outside of the region will locate enough plants to
fulfill even a major portion of the employment needs in the region.
The overwhelming majority of new jobs that will be created in our
region will come from the expansion of existing business and/or the
creation of new businesses, small and median sized, within the
region. In order for this to occur, there is the need to genei~ate
an expanded pool of seed capital and venture capital. The need for
more venture capital isparticularly vexing for minority groups in
Mississippi and the larger region. Until and unless minorities can
make major advances in the ownership of businesses and enterprise
development there will not be a.major improvement to the overall
economic climate of our region. Low skilled and minimum wage jobs
for the minority population will not significantly change the
economic condition of our state or the surrounding states.
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An idea that has been discussed recently is the concept of a
Regional Development Bank. Although there may be some merit to
this concept, it should b~ looked at very carefully. The
regulatory agencies that govern banks will of necessity be much
more conservative given the recent climate with regard to the
savings and loan industry a~d potential problems surfacing with
regard to banks nationally. It should also be noted that each state
in the region has developed differently with regard to sources of
venture and seed capital. It may, in fact, be more prudent to
increase the capital pools and effectiveness of existing agencies
in different states then to attempt to impose one regional entity
and/or solution to the different problems in each state. Small
Business Investment Corporations (SBICs), Minority Small Business
Investment Corporations (MSI3ICs), and unregulated Venture funds can
be found in the region; although, at present, they have a very
limited capacity. The creation of new funds to significantly expand
these programs in a manner that flexibly addresses the need in
different states is clearly an issue that your committee should
consider.
Another need in the area of minority and small business
development among new and/or emerging businesses is the need for
technical assistance and specific technical expertise. The
Department of Defense has developed a Nentor/prote~ program which
allows larger private sector business to support minority
businesses through joint collaboration. Your committee might give
consideration to legislation which establishes a private business
incentive program similar to the Defense Departments Mentor/proteae
program where there is an incentive for the private business sector
to assist in the development of minority businesses. The use of
Income Tax Credits or some other incentive should be considered.
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Community Economic Developarent Program
An extremely important program is the Community Economic
Development (CED) Program which is authorized in the Community
Services Block Grant. This program is funded at about $21 million
and is a key resource to non-profit organizations such as Delta
Foundation. Delta has used funds from -this program to help create
many of the 2,000 jobs which were referred to above. A poignant
example of this is the Fine Vines garment plant in Greenville, MS.
In the early morning hours of February 16, 1988, the garment plant
located on Washington Avenue in downtown Greenville caught on fire
and totally destroyed the plant., all of the equipment, piece goods,
and the overwhelming majority of it finished inventory. One
hundred and sixty workers were immediately put out of work. The
limited insurance was enough to pay the outstanding bills with a
little capital remaining. It would have been totally impossible
to get back into business without access to the CED program funds.
When they began calling the employees back to work, over ninety
percent were still unemployerl and available to come back to work
at Fine Vines, Inc. Another company which has been started with
these funds and matching private dollars includes Electro National
which produces electronic and mechanical parts such as pressure
switches, stepping switches, and other parts that are used in
military and commercial equipment. Approximately 70% of the parts
are sold for use in military equipment.
The CED program is unique. No other federal program exclusively
targets investment capital to low income -communities, using
community organizations as a vehicle to promote economic
opportunity for low income individuals. The CED program gives non-
profit community based organizations the opportunity to improve the
economic condition of their communities.
The discretionary fund provides enormous economic benefits to local
communities. CED discretionary monies are used by community
development corporations as a way to bring private investment and
economic growth to poor communities. In 1987, the last year for
which complete information is available, CED grants were
responsible for creating more than 2,000 jobs, leveraging over $67
million in outside investment and creating 123 new business
ventures.
The discretionary fund provides a low cost source of employment
opportunities for low income individuals. A major criteria for
receiving funding is the creation of jobs for low income people;
75% of the jobs created by C~D investments must go to low income
people. Since its inception, the CED discretionary fund has been
responsible for the creation of close to 20,000 permanent jobs in
poor communities.
There is great deiuamd for CED discretionary funding. In 1990 more
than 200 applications for CED were submitted. Yet, because of
limited funding, only 46 grants were made. Despite the highly
competitive nature of the program and the complicated and detailed
application procedure, community development organizations, often
with very limited resources, are willing to invest time and money
to apply for funds knowing that, at least statistically, their
changes are not very good.
Congressman Espy, we understand you have been a key supporter of
this program and we appreciate your efforts in this regard.
Micro-Lending
In many parts of the country, the availability of funds for small
business is limited. Downturns in regional economies, particularly
in the northeast as well as in the south, and the continuing lack
of credit in rural areas, have made it increasingly difficult for
small businesses and solely-nwned proprietorships to gain access
to credit.
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The Crisis in the nation's financial institutions has made even
healthy banks more risk adverse and less willing to make smaller
less profitable loans. Small businesses with lower lending needs,
less credit history and less conventional forms of security are
often victims of the new financial environment.
In addition, there is a growing recognition that micro businesses,
generally, those enterprises with up to 15 employees, including
the owner, play an important role in job creation and economic
growth. Very small and micro enterprises, employing less than 15
people, provide up to 80% of all new job opportunities nationwide.
This sector is particularly important in rural areas. The credit
needs of these businesses are generally up to $35,000, with most
of the need centering below ~15,000.
These very small businesses are seldom the focus of public policy
resources. For example, in~ 988, SBA made 513 loans for less than
$25,000. That total, $7.7 million, constituted 3% of the agencies
loans that year and 2.2% of its total obligations. In the same
year, one hundredth of one percent of the SBA's total obligations
represented loans of less than $10,000 in rural areas..
In addition to capital, these small enterprises usually require
technical assistance in planning, cash flow management and business
development. Organizations such as the Delta Foundation and other
Community Development Corporations (CDCs) have been leaders in
small business lending. CDCs have programs which address the
credit needs of women and low income persons wishing to start their
own businesses. In addition, both provide a range of technical
assistance and financing services to established and expanding
small businesses.
In the Senate, Senator Bumpers and Senator Mitchell, are about to
introduce a demonstration program aimed at promoting small business
lending. Their approach includes such intermediary organizations
as CDC5 to provide lending and technical assistance to very small
businesses.
The Bumpers-Mitchell bill capitalizes revolving loan funds with 10
year loans from the Small nusiness Administration (SBA) at the
government rate. The bill also permits a one time only grant of
up to $150,000 to administer these funds.
We would prefer a grant program to capitalize the fund, permitting
intermediaries to cover their cost through the interest rate
charged borrowers. Failing that, the model of the Rural
Development Loan Fund, which is administered by Farmer Home
Administration (FmHA) is a good one. This RDLF provides 1% loans
for 30 years .and again, the cost of technical assistance and loan
fund administration is covered by interest rate payments by
borrowers. This provides a long term basis for supporting the
costs of the intermediary.
Described below is the type of demonstration we would endorse.
Micro-Lending Demonstration Program
Goal: to demonstrate the effectiveness of a range of small business
activity in creating job and enterprise opportunity in areas hard
hit by the recent downturn in the economy. Also to demonstrate the
effectiveness of intermediary organizations in assisting small
businesses through a range of financing and technical assistance
services.
Program: up to $20 million in grants will be made available through
the Small Business Administration to implement a five year
demonstration. Grants will be made to intermediary organizations
private, non-profit corporations, generally referred to as
community development corporations (CDCs) -- with a demonstrated
record of achievement in business lending and providing assistance
to small businesses.
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with the funds provided, SBA must make at least 30 grants, equally
divided between urban and rural. Grants funds are to be used to
capitalize revolving loan funds and to provide funding for
administrative and technical assistance costs -- not to exceed 10%
of the grant. Priority will be given to intermediaries from areas
suffering from the impact of the recession.
Intermediaries will operate the loan fund and provide technical
assistance. Generally, loans to private businesses may not exceed
$35,000. In implementing the demonstration, SHA will be expected
to fund a range of lendir.g targets including those programs
proposing to make loans of upto $5,000, those programs targeting
between $5-15,000 and $15-35,000.
All intermediaries will be responsible for establishing a loan loss
reserve. Rates and terms will be established by the intermediary.
In determining lending criteria, intermediaries are to pay
particular attention to businesses or entrepreneurs with limited
financial resources who are unable to obtain commercial credit yet,
possess the potential to be successful women minorities and low
income.
SBA will audit loan funds on an annual basis and provide necessary
project monitoring. The administrator will be authorized to
recapture capitalization funds which are used in a manner
inconsistent with the purposes of demonstration. At the end of the
third year of the demonstration SBA will conduct an evaluation and
report to Congress on the program.
We are also grateful for your help in promoting rural housing
programs in the federal budget process. The administration
proposed major reductions in rural housing lending as well as a
shift to guaranteed loans. Through your efforts, rural housing
programs will continue.
Rural Housing Need
According to the National Housing Task Force, some 4.3 million
low income households in non-metropolitan areas currently
experience housing problems. Of this number, close to two million
have significant problems with the units themselves, including a
lack of plumbing.
Low paying jobs and the seasonal nature of work, coupled with
the downturn in natural resource based economies important to rural
America, have prevented our small, towns from participating in the
recent improvement in the nation's economy. Non-metropolitan areas
now have a higher rate of poverty and unemployment than our big
cities.
According to the 1980 census, there are 229 non-metro counties
with high rates of substandard housing and poverty. In
Mississippi, there are 25 counties in which at least 20% of the
people have incomes below th~ poverty line and 10% of the housing
units are substandard.
In 1970, there were appzoximately 500,000 more low rent units
in small towns and rural areas than there were renter households.
By 1985, there were 500,000 fewer low rent units in non-metro
areas than there were renter households. Beyond this, there were
2.5 million low income renter households, but only 2 million low
rent units. And, of the 2 million units available, only 1.3
million were occupied by low income households
As of January 1990, FmHA had on-hand eligible pre-applications
and applications for rural rental housing totalling over $2 billion
or close to four times the FY `90 appropriation. In order for a
pre-application to be considered eligible, the market or need for
the project must be proven.
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Funding History
Rural housing programs were increased by about 5% in FY `90,
this increase was offset by a reduction.of about $60 million in
section 502 direct lending FY `91. During the 1980's rural housing
programs were reduced by more than 50%.
The bulk of FmHA funding is in the form of subsidized loans.
Some $1.31 billion is provided for single family loans under
Section 502. Close to 90% of 502 loans are in rural areas which
populations of less than 10,000. The average annual income of
Section 502 is about $13,500 and the law requires that 40% of
Section 502 mortgage aid go to very low income households (50% of
median).
Some $574 million is appropriated for FY `91 for the Section
515 loan program. Section 515 provides reduced interest loans to
public and private sponsors to finance the acquisition,
construction and repair of multi-family housing for low income and
elderly households. The average annual income of Section 515
tenants is about $8,000. About 40% of all Section 515 units are
occupied by elderly households.
In Fiscal `91 Mississippi received over $77 million in FmHA
funds. In all categories that state used more funds than
originally allocated. This shows the tremendous need for housing
in rural Mississippi and the importance of FmHA rural housing
programs.
44-629 0 - 91 - 5
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PREPARED STATEMENT OF RALEIGH H. BYARS
Part One - TheilississiPPi SBDC PrpRram~
MY name is Raleigh H. Byars, I am the State Director of the
Mississippi Small Business Development Center Program (MSBDC), a
small business assistance network for the small businesses of
Mississippi. The State SBDC Office is located on the Main Campus
of the University of Mississippi, Oxford, Mississippi. I have been
the State SBDC Director since October of 1988. Prior to that I was
the SBDC Business Service Center director in the Oxford office from
1981 to 1988. At that time the Oxford SBDC was responsible for the
delivery of small business assistance services to 29 counties in
North Mississippi.
The SBDC Program is a joint Federal/State Program Partnership
between, the U.S. Small Business Administration and the separate
states for the purpose of delivering assistance services to the
small business community of the Nation.
The SBDC Program, as it is commonly called, began with the
enactment of Federal legislation in 1980, the Small Business
Development Center Act of 1980. Begun as a pilot program in the
business school of a single university in 1977, there are now 56
SBDC Programs and over 600 SBDC Business Service centers in 50
states, Puerto Rico and the Virgin Islands.
The Mississippi SBDC Program was officially designated and funded
by the U.S. Small Business administration (SBA) on September 18,
1981. Mississippi was the 18th State to enter the program through
an agreement with SBA. The administration of the program is through
a Cooperative Agreement between SBA and the University of
Mississippi, the designated "Lead" institution for the Mississippi
SBDC Program. The State SBDC Office, which is housed on the
University of Mississippi Campus, works in cooperation with the SBA
District Office in Jackson to nanage the statewide program. The
University of Mississippi contracts with other state universities!
colleges to form a statewide SBDC Network for the delivery of
assistance to the State's 51,000 plum small business
establishments. The Mississippi SBDC Network is currently made up
of 11 Business Service Centers, one International Trade Center, one
Resource Center and one Contract Procurement Office. A wide variety
of institutions, State and non-profit organizations host or act as
the parent unit for the 14 SBDCs. The Host Network is made up of
five senior universities, six community colleges, one private
college, one State Economic Development Department, and one State
Contract Procurement Office.
The National Network of 56 SBDCs, which includes the Mississippi
SBDC, function as a framework for cooperatively linking the
resources of the universities/college system, federal and state
agencies and programs and the private sector to help solve problems
answer questions, and otherwise assist small businesses.
On the National level, the accomplishments of all 56 SBDCs in 1990
were as follows:
191,865 - Small Business Clients Counseled
12,234 - Training/Education Workshops
274,928 - Attendees at the Workshops
The accomplishments of the Mississippi SBDC Network during the
period of 1981-1989 were:
18,495 - Small Business Clients
164,532 - Total Counseling Hours (8.9 hrs per case)
1,121 - Training/Education Workshops
27,698 - Attendees at Workshops
Mississippi Small Business Clients (New and Existing) Counseled:
49 % - New Venture or Start-Up Clients
51 % - Existing Businesses
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Areas~oLf~ounsel ing~p rovids~d tg~58DC~C1i ents~
Percent Area of~Counse2 ~
49 Z - Start-Up Clients receive full range of counseling
(All other Clients)
16 Z - Sources of Financing/loan applications
10 Z - Marketing Assistance
09 % - International Trade
16 X - Other Areas
- ~
Now to focus on the problem of equity capital needed by small
businesses to qualify for borrowing from financial inčtitutions
or under various Federal, State, or private programs. Secondly,
to make suggestions regarding other options to current equity
capital requirements to qualify for borrowing capital.
First, let me briefly discuss the counseling assistance that the
SBDC Program provides to small business clients. As pointed out
above, approximately one-half of clients that request assistance
are interested in starting a business.
For start-up clients, the full range of topics are discussed in
detail, either in a group setting or in individual counseling
sessions. The large portion of that time is spent with clients
discussing the amount of capital needed to start the business and
secondly, sources available for financing a new venture. Over the
eight years that I served as the SBDC Service Center director, the
greatest frustration that I experienced in working with clients was
the problem of equity, risk, or capital injection that is needed
to be considered for start-up funding.
These clients could be classified from very small, mom and pop
businesses, to small manufacturing operations with 10-20 employees.
The major obstacle that eventually blocked a large percentage of
new venture clients was the lack of equity funds. Many hours of
work were spent going over alternative ways that a client should
investigate for a possible nourcO of equity funds. For example,
other family members, a relative, friends, find a partner with
capital, small time investor, selling personal assets to name a
few. Sometimes these were successful and often were not. The
question always was "if I had that much capital, I wouldn't need
a loan" or if I had that much money, the bank would lend me the
money without a guarantee from a government agency.
There were situations where clients had perhaps half the necessary
equity, but often this was neither sufficient to satisfy the
financial institution, nor the government agency. From the time
that I joined the SBDC Program in 1981, I can truthfully say that
loans through federal and state agencies were almost none existent.
It was not until late in the 1980's that both the Federal and State
agencies began to got involved in guaranteeing small business loans
and really to have an impact in the snmll business financing arena.
I can report today that throughout the MSBDC System, that it is a
common occurrence these days for loans to be approved that would
not have even been consider by many government agencies a few years
ago. There has been a significant turn around in the attitudes and
sensitivity of these agencies, to the needs of both start-up and
existing businesses.
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The attitude back then was if you don't have the 25 or 30 percent
of equity capital, you can forget about obtaining some type of
Federal or State sponsored financing program. It was as simple as
that, without that equity capital, the loan packages received
little evaluation, analysis and review. In other words, the basis
of an analysis and review of a loan package was to first look at
equity injection and if it was not available, then there was no
need to proceed any further with that application.
I am not saying this because the SBA is the primary funding source
for the Mississippi SBDC Program, it is because I have been
astonished and, more importantly, encouraged by these changes that
have taken place and the fact that SBDC clients now have a chance
to secure the capital needed to start a new venture. How did this
happen and what caused it? Well I think that it was a recognition
by those manager and supervisors responsible for financing program
that something was wrong. Here was Mississippi at the bottom of the
economic ladder and at the same time the government programs were
not using the funds available to make loans for small businesses
and very few loans were being made in Mississippi. Iii addition,
changes andshifting of personnel in some of the management and
supervisory positions responsible for administering the financing
programs had an impact.
Let me make one last comment about the equity capital problem.
In the past, as mentioned above, the emphasis was one the
requirement that applicants have the 20 to 30 percent of equity
up front to qualify or to apply for a loan. In addition to the
changes that I discussed above, one other change in criteria was
changed. That change had to do with the amount of collateral
necessary to secure a loan.
Earlier, as in the requirement for 20-30 percent equity, there
was a requirement for 100 or more percent of collateral, depending
on who you were dealing with to secure a loan. A new philosophy has
emerged among the federal, state agenöies and other institutions,
that has shifted the emphasis from 100 or sore percent collateral
to, in my opinion, a more applicable topic.
The new emphasis is on the revenue and "cash flow" of the business.
In other words, the analysis of a loan package does not stop at the
determination of the level of equity injection, but rather to the
ability of the business to generate revenue and to sustained a
positive cash flow. I think the basis for this shift was a
realization that the ability of the business to repay the loan was
neither dependent on the level of capital injection, nor on the
amount of collateral, but rather on the potential cash flow from
the business operation. The repayment schedule can not be kept
current from collateral, even with 100 percent collateral, it has
to be made from dollars received by the business and if the
business is viable, then the loan can be serviced from business
revenues.
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Now to other possible options that may be considered to help
small businesses qualify for business loans.
As has been discussed, financial institutions, federal and state
agencies reqŕire equity capital up front to quality for or to be
considered for a loan. (The alternative discussed above is not
uniform across all agencies, therefore other options need to be
investigated). Since the requirement for equity is still a
criteria and will continue to be there, even in the situation
discussed above, there needs to be other options available to small
businesses to secure the necessary capital. One way that is being
considered, by one of the statewide banks in Southwest Mississippi,
is for the bank to provide the equity injection. Let me hasten to
say also that this is a one year pilot project and we want know for
some time whether it has been be successful or not. I will explain
that more fully later. This project began an a result of an effort
by the bank, SBA and others to come up. with a way to overcome this
problem of equity injection.
First of all, these loan will be for $ 50,000 dollars or less.
Initially, the project will be only for small business clients in
Pike county. How will this procedure be incorporated into the loan
application process?
After the client has gone though all the business planning steps,
which includes going through the SBDC for business planning
assistance, and after the amount of capital necessary to start the
business has been determined, at this point the new procedure will
be put in place. For example, if the loan is for $ 40,000 and the
bank is asking for a 10 percent capital injection to qualify for
the loan, the participating bank will make the capital injection
by pyoviding the $4,000 to the client. The key to this procedure
is that the $ 4,000 of capital injection will be put on "standby",
which means that the small business person makes no payments on the
$ 4,000 capital injection loan until such time as the business can
afford to repay that loan and continue with payments on the
$40,000 loan. Modifications to this step would also be available,
such as providing half the equity injection if the small business
person needed that amount etc. The is not necessarily a new
procedure, regulations outline and authorize such a procedure,
which can be implemented in these situations. If this procedure is
successful in the local banking system in Pike county, it could be
initiated in that particular statewide banking system in other
counties around the state.
FederaJ.~Conmunitr ~Dsvelopment Prograj~s. Comments and
Recommendat lonm~.
One problem that is prevalent across all economic development,
small business, community development programs and to other
service providers is the problem of fragmentation of services.
By that I mean, one organization provides planning, one financing,
another something else along the way to starting a business. For
example, the SBDCs may be the first contact made by the local small
business person and will become extensively involved with the
client in his or her efforts to start a business.
PAGENO="0134"
130
However, the SBDC has no in house financing programs and must refer
clients to some other agency for financing assistance. The SBDC may
go so far as to help the client with the other agency's application
for assistance. At this point, the SBDC counselor has become very
familiar with all aspects of the client's business and has worked
extei~sively with the client, especially in the case of a start-up
venture. On the other hand the financial institution receiving the
referral has never heard of this person and knows little or nothing
about the business and, if it is a new venture, could possible not
be interested in working on the financing plan. So, as a result of
the fragmentation, the small business client gets shuttled from
one agency to another, from one government agency to another, and
so on. In most instances the financing institution, whether it is
a bank, federal/state agency, or some other institution, may not
be interested in the fact that the SBDC has spent 10-12 hours with
this particular client. The financing institution has to start all
over again, from scratch to build a rapport with the small business
person.
P~ar~t Three - ~oinaunitr Developrrtent Organizations. Proarans. and
Interaction with the SBDC Pro~raa~
Economic Development Administration. Progran and operations with
University Centers and others. Loans to create jobs, one job for
each $. 35,000 in loan proceeds. Experience has been that most
involvement is with city, county and local government.
Comment/RecominendmtLon~ In Mississippi, SBDCS have had little
involvement with EDA Programs. To reduce the fragmentation of
economic, community development and small business assistance
efforts, this program could be combined with other similar programs
into a single entity in regional locations to both improve the
delivery of business assistance programs and to offer a "one stop"
service to users.
Farmers Home Administration. Funds available to establish revolving
loan programs for small businesses. Activities that involve small
businesses, which could involve local SBDCs. Two Planning and
Development Districts (PDDs) in Mississippi operate revolving loan
programs (RLPs) that were established with funds from FHA.
Comment/RecomsendatiOn. In Mississippi, SBDC5 have had little
involvement with FHA Programo however, SBDC clients have been
referred to PDDs regz~rding participation in the revolving loan
programs. To reduce the fragmentation of economic, community
development and small business assistance efforts, this program
could be combined with other similar programs into a single entity
in regional locations to both improve the delivery of business
assistance and offer a "one stop" service to users.
Certified Development Corporation (CDC)(SBA 504 Program). Programs
that are active may involve banks, SBA debentures, small businesses
and others at the local level, eg. chambers of commerce, industrial
development organizations, banks etc. Participation packages with
multiple involvement by the parties mentioned. Loans to purchase
fixed assets, by existing businesses or new business ventures.
Apparently there is little interest in the program, although, the
structure of financing deals offer an excellent opportunity to
banks with low risk.
PAGENO="0135"
131
~c,mment/Recommendation. In h'ississippi, SBDC5 have had little or
no involvement with CDC Programs. To reduce the fragmentation of
economic, community development and small business assistance
efforts, this program could be combined with other similar programs
into a single entity in regional locations to improve the delivery
of business assistance programs and to offer a "one stop" service
to users.
U.S. Small Business Administration Financing Programs. The SBDCs
are only involved in financing programs to the extent of helping
clients understand the loan application and providing assistance
with the completion of a loan package. The SBDC counselor will
explain the guaranty and the direct loan programs to small business
clients and offer suggestions regarding which to select based on
the needs of the client and the loan criteria.
The decision is up to the small business client regarding which
program to pursue and which bank to deliver the application for
consideration. In the course of assisting a client, SBDCs may
provide help with estimating investment for building, land,
equipment, inventory, working capital and start-up capital. Also,
assistance with estimating revenue, costs and expenses and
preparing a cash flow budget for three years are the standard items
that are available through the local SBDC service center. However,
once the small business client has a completed SBA loan package,
it is up to hin or her to deliver the package to the bank of
choice. From that point forward, the communications and exchange
of administrative paper work, changes and modifications to the loan
package are between the bank, SBA and the small business client.
At this point, SBA is only interest in the relationship with the
bank because the legal paper work is between SBA, the bank and the
small business person. For all intents and purposes, the SBDC
drops completely out of the process and here is where the close
working relationship is lost. SB4 steps in without any knowledge
of the client, perhaps a relationship with the bank, but not
always. Here the new participants involved have to become
acquainted with one another, establish a rapport and working
relationship and begin to put a financing package together. The
long working relationship that the SBDC began months earlier is
lost and the small business client moves along the road of multiple
service providers and financial institutions. This is not to say
that the local SBDC counselor can not have a working relationship
with the local banker, but the point that I want to make is that
a new relationship has to be established when a new service
provider or financial institution enters into the process. That is
what happens when the loan package is taken to the bank and the
process takes on a new player, because as pointed out above, the
procedure shifts to legally binding agreements between the three
parties involved namely the bank, SBA and the small business
person.
ComaentLRecornmen~dation. Because of the legal relationship that
evolves between the small business client, the bank and with the
government agency, there is little that can be done to change that
situation. However, there could be an organizational structure that
would permit the government agency loan officer to have a closer
working relationship with the local SBDCs. GovernDent agency loan
officers or any financial institution loan officer needs to be on
the ground in order to work closely with both the amall business
client and the SBDC counselor in order to take advantage of what
has already been accomplished in the business planning process.
PAGENO="0136"
132
This means that government agency loan officers need to be assigned
or to work on a area or regional basis with the local players in
this process in order to capitalize on the established working
relationships at the local level. The loan officer that never meets
the loan applicant, has only a casual relationship with the banker
and, if the SBDC counselor is taken out of the picture, has only
the information on the loan application to go on in making a
decision regarding a loan. To reduce the fragmentation of economic,
community development and small business assistance programs, these
programs could be combined with other similar programs into a
single entity in regional locations to improve the delivery of
business assistance programs and to offer a "one stop" service to
users.
Summary~ All through this process there is duplication of effort,
loss of working relationships etc. that occur because of the
way that programs are currently structured. If required services
were defined and organized on a regional basis, so that services
were not centralized and fragmented, I believe that not only would
the quality of services be improved, but the impact on economic
and community development and small business growth would also have
greater significance. Such a regional organization would have all
the economic and community development and small business
assistance and financing programs combined in one entity in order
to offer "one stop" services to users. The SBDC Network is an
established structure in all 50 states and normally serves an area
of from six to ten counties. One specialist in each of the service
areas could handle the load in most SBDC service areas. For
example, one economic development, one community development, one
small business assistance, one financial (loan) specialist in such
a combined entity could handle the load for a six to ten county
service area. The advantage of the SBDC Network is that it has an
established organizational structure in all 50 states and most
state programs are organized along similar structural lines. The
other development programs are generally centralized in many cases
in the stat.e capital or in larger cities, but could easily be de-
centralized and placed in the regional delivery centers.
I hope that my comments and recommendations have been helpful to
the committee in reaching decisions about economic development
policy. Thank you for the opportunity to appear before you and on
behalf of the i'fississippi Small Business Development Center
Program, I hope that you will continue to put your trust in the
National and State SBDC Programs for the delivery of assistance
service to the small business community of our Nation.
PAGENO="0137"
133
PREPARED STATEMENT OF GEORGE SURGEON
Good afternoon. My name is George Surgeon. I am President
and Chief Executive Officer of Southern Development
Bancorporation and its wholly-owned subsidiary, Elk Horn Bank and
Trust Company of Arkadelphia, Arkansas. Thank you for inviting
me to testify this afternoon.
Whenever I have had the opportunity to discuss development
banking with bankers, I have often been told that what Southern
does in rural Arkansas really doesn't count because Southern is
so radically different from other banking companies. Indeed,
there is some truth to this assertion. First, Southern's
shareholder group is unique for small bank holding companies.
Southern's shareholders include major Arkansas corporations and
investors led by the Winthrop Rockefeller Foundation, Stephens
Group, Inc., Sam and Helen Walton Foundation, Arkla, and the
Arkansas Electric Cooperative among others. Investors outside
Arkansas include major foundations and socially responsible
investors such as the Ford Foundation, the John D. and Catherine
T. MacArthur Foundation, Aetna Insurance Company and Metropolitan
Life Foundation. As you can imagine, these companies and
foundations do not usually invest in the illiquid securities of
small country banks.
The reason they invested in Southern is because Southern's
corporate mission is unique. Southern was created to catalyze
economic development in rural Arkansas for the benefit of low and
moderate income Arkansans, not to maximize earnings. This is
certainly not to imply that we take our financial
responsibilities to our depositors or shareholders lightly.
Indeed Elk Horn Bank achieved record profits in 1989 and 1990 -
its first two years of ownership by Southern - as well as in the
first half of 1991. Elk Horn Bank has received the highest
ratings for safety and soundness by several independent bank
rating agencies. To facilitate the achievement of Southern's
economic development goal and to help underWrite the
extraordinary costs of creating and implementing a successful
economic development program, Southern's shareholders have agreed
to limit their financial return to the rate of inflation for an
indeterminate period of time.
Before I outline Southern's community development
strategies, it might be helpful to discuss exactly what we mean
by community development. In some ways it's easier to define
community development by providing examples of what it is not.
For example, building penthouse apartments or luxury townhomes in
inner-city neighborhoods that residents of those neighborhoods
cannot afford is not development. It's displacement.
Similarly, building assembly plants in small rural towns,
like Arkadelphia, where no real value is added to a manufactured
product, plants that are attracted to rural areas because of low
wage rates and the ability to avoid providing workers with
health, life, and disability insurance benefits, is not
development either. That's exploitation.
In short, increased economic activity p~ se, whether in
rural or inner-city communities, is not necessarily synonymous
with community development. Community development at its best
unleashes the talents and the capacities of local ŕommunity
residents. Community development activities should not only
PAGENO="0138"
134
increase the standard of living of community residents; they
should also create new wealth in the community, and result in
increased local ownership of capital.
To quote David Osborne, a frequent contributor to ~
magazine, Harvard Business Review, The New Republic, and other
publications, "Growth is simply an increase in output.
Development is a process through which people, communities and
firms increase their capacity to produce, creating an upward
spiral that has its own momentum."
All of us here this afternoon are only too familiar with the
economic history cf the Delta and the problems the Delta has
encountered as its economy transformed from one based exclusively
on agriculture to a more diversified one. That transformation
has not been easy and is still not complete. The Final Report of
the Delta Commission clearly illustrates the challenges that
continue to confront the Delta.
Soliciting industry from the North and overseas to build
branch plants in rural towns has been a cornerstone of the state-
sponsored economic development strategy of Arkansas and other
Delta states since the nineteen-fifties. In many cases it has
proven to be very successful. However, exclusive reliance on an
industrial recruitment strategy can lead to an undiversified
local economy that puts small rural communities on a never ending
boom and bust treadmill. For example, a large number of
manufacturing plants that moved to Arkansas in the late 1950's
because of low wage rates have now moved to the Pacific Rim.
Arkadelphia, Arkansas', experience is typical of many other small
rural towns across the country. In the mid-l980's over a period
of four years Arkadelphia lost three major employers: a Reynolds
Metals plant, a Fafnir ball bearing manufacturing plant, and a
Levi Strauss cut and sew operation. This resulted in a
cumulative loss of approximately 1500 jobs in a town with a
population of 10,000 in a county of 20,000. Unemployment had
reached over 13% in Clark County when Southern was negotiating to
purchase Elk Horn Bank in 1987.
Southern truly appreciates the work of Arkansas Industrial
Development Corporation ("AIDC") and state agencies like AIDC
that operate throughout the Delta. We applaud their tireless
efforts to bring established industries to rural communities.
Southern's own approach to rural economic development, however,
centers on building Arkansas from the inside out. The specific
strategy Southern has adopted focuses on assisting in the
creation and expansion of small locally owned businesses that
either produce goods or services for export outside Arkansas or
produce goods or services that substitute for goods and services
consumed in Arkansas but which are produced elsewhere.
The premise is that these small, locally based firms will,
over time, create more jobs than larger companies, and that they
will be better employers. The job creation capacity of small
firms has been documented in several studies of the economic
expansion during the 1980's. Small local companies 3hould also
be more likely to stay in Arkansas and not move to the Pacific
Rim or Eastern Europe to chase marginally lower wage rates and
marginally more attractive government subsidies. We believe that
this strategy will diversify the local economy and thereby
provide some insulation from economic dislocation during the bad
times that inevitably come. We also believe that this strategy
will not only improve the standard of living in rural Arkansas
but also expand the ownership of wealth and thereby create more
stakeholders in rural Arkansas.
PAGENO="0139"
135
The organizing group that created Southern thought that the
vehicle to best implement this economic development strategy was
a regulated bank holding company. From 1986 through 1988
Southern's organizers raised $6.5 million in equity capital, plus
$4 million in long term low interest loans, and over $1.5 million
in foundation grants to capitalize the Company. Southern became
operational in May of 1988 with the acquisition of Elk Horn Bank.
As a bank holding company, Southern is regulated by the Federal
Reserve Bank of St. Louis. When the Fed examines Southern, or
when the State Bank Department or the FDIC examines the Bank,
they do not use a special set of regulatory guidelines to
evaluate our safety and soundness. They apply the same standards
to us as they do to First Commercial, Worthen, First Tennessee,
Deposit Guaranty, or any other bank for that matter.
A comprehensive description of Southern's organizational
structure and development activities is found in the inaugural
issue of Community Affairs Newsletter published this spring by
the Federal Reserve Bank of St. Louis and in Southern's Annual
Review. These documents are attached as exhibits to my written
testimony. My colleague Julia Vindasius, who follows me on the
program, will speak in detail about our most non-traditional
program, the Good Faith Fund, which makes very small loans - the
maximum loan size being $5,000 - to individual entrepreneurs for
self employment purposes.
The story of AEB Consultants is illustrative of what we do
and what we hope to replicate throughout Arkansas. In 1989 AEB
Consultants was a small, one-man company located in Little Rock.
It tests workers in nuclear plants for exposure to radiation for
the Department of Energy and the Department of Defense. Prior to
involvement by Southern's venture capital affiliate, Southern
Ventures, Inc., all of AEB's business was undertaken on a sub-
contractor basis. AEB had neither the equipment, the technical
staff, nor the working capital to be a primary contractor - which
is where the money is. Over the past nine months, Southern
Ventures has invested $277,000 in this minority owned, high tech
Company. Since then AEB has won a primary contract with the Navy
for its Puget Sound facility in Washington state. The Company
leveraged Southern Venture's equity investment with a $200,000
long-term loan from Arkansas Capital Corporation, guaranteed by
the U.S. Small Business Administration. Employment has increased
from three to nineteen. This is a prototypical transaction, not
just for Southern Ventures, but for the other Southern companies
as well. AEB provides a service for export outside Arkansas in
an industry with strong growth potential. AEB's laboratory is
located in Pine Bluff in close proximity to the National Center
for Toxological Research, a valuable, though underutilized, Delta
resource. Its location close to NCTR should facilitate joint
ventures in the future or possible commercialization by AEB of
basic research developed at NCTR. Southern's investment in AEB
has allowed us to participate with other key players in
development - ACC and SBA - and thereby leverage our small
capital base.
In his invitation, Congressman Espy suggested that I share
my experiences in community development as they relate to the
proposed Delta Development Bank. Over the past. several years I
have learned many lessons about community development in the
rural South, most of them the hard way. The five that stand out
are as follows:
First, development banking is a business. To be successful
at development, a bank must approach and manage its development
activities as it would any other bank product. The development
PAGENO="0140"
136
programs implemented by the Delta Development Bank must be
strategically integrated within a sound business plan to create
synergy, reach scale, and achieve operating efficiencies.
Otherwise the scope of the Delta's problems and the immense
physical size of the region will easily dwarf the bank's capital
resources. All businesses strive to generate profits, not to
break even. The Delta Development Bank should be no exception.
Profit will be necessary to fund the expansion of the bank's
activities and to insure that it will be self funding in the
future. Targeting breakeven operation is a sure fire tactic for
failure.
Second, you can't do it by yourself. To have a measurable
impact on the lives of the 8.3 million residents of the Delta
would require a development bank with capitalization in the
billions of dollars. Barring that level of federal support, the
Delta Development Bank will have to forge public/private
partnerships with all the entities involved indevelopnent in the
region.
Third, you can't do it all. Again, barring several billions
of dollars in capitalization, the Delta Development Bank will
have to target its activities both programmatically and
geographically. Where the bank should target its resources and
what programs it should offer will depend on the size of its
actual capitalization. These questions will also benefit from
further research.
Fourth, bankers make bad developers. Developers make bad
bankers. Bankers generally have introverted personalities and
utilize deductive reasoning to solve problems, whereas developers
are just the opposite. Thus, the stellar Commercial Bank Loan
Officer with strong community credentials might be exactly the
wrong person to head up a division of the Delta Development Bank.
Finally, development doesn't travel well. There have been
numerous tomes written on community development including several
on community development banking. However, what works in
Chicago, Minneapolis, or New York might not work well in Pine
Bluff, Greenville, or Memphis and might be totally inappropriate
or irrelevant in Tunica, Helena, and other smaller Delta
communities.
The organizers of Southern Development Bancorporation raised
a lot of money to launch a development bank for the rural and
distressed communities of Arkansas, some $12 million. In the
three years that Southern has been operational, it has originated
almost 200 development investments for more than $7.5 million.
We take pride in these accomplishments. However, Southern's
investment performance pales in comparison with the need in the
communities, we serve and with our goal of catalyzing economic
development in distressed communities throughout Arkansas. We
know that the only way.that we will achieve our goals will be in
partnership with other development organizations such as Arkansas
Capital Corporation, Arkansas Industrial Developnent Corporation,
the U.S. Small Business Administration, the Farmers Home
Administration, and hopefully, before too long, the Delta
Development Bank.
PAGENO="0141"
137
~hibit I
AretllV9
* ** **
* ~ T
- .5 * ~--~`- .*
-. S. - BS!h ~thrd ~sseava Distriti
Southern Development Provides Exam~le of
Innovative Commumty Developrnentlen ding
outhem Develo~- loans These arecommercial th~bank olglnatedover$2 to thaiprovedes affordable
anentBoncorp- loansthatcontriba[etothe, nsilllonlna~lcuInsialcred1ts. ffic~nd~omesupport
~ oration (Southern) . deodopmentofthdlooil -The Bank'tide~lQprnint~.. cesia~rnall businesses;
a pnvately economybut thaio$ic'flagn I nd1n~ activities tncr~as~d En rprise Centeriwascreated
owned and capi- clal institutionswould not steadilyslnce 1988, iisfir~t.ye~ji * b~ rbovaiingavacast, .
talizedbankhold- ..grantonsimilartirms~pthe ofpper~alonu&1erSou1heha-~: .l0~0O($~quare-footfurniture
* ingcompanyorganized in - normal coaneofbüslness- owaershjp-Thti buea~e~as-'-- stote in~lowntosesArkaeleiphia,
* 1988 to aceelerateeconomic. - .MoslofEHB'sdrmlopment -. sisted'rtsngefromwoodjk~ - Arkansas. TheCenterhasbčen
development among low and lendrng h~ involved th eaten u~ts manufacturtrsio lsree&r so cceasful that atth. end
moderate-income residentoof sion of SEA-guaranteed term eggp~sultiyfarnes'to ničdlcal.~ of 1990, OLCbegandesvloping.
rural Arkansas. . loins with ticed interestrales. preeticen In ruraFcoinmun~ties EnterpriswCentefll, across the
* - The bankended 1990w1th -- startedbyphyslclans just outof street from the original Center,
ERa Rorn tlesisfu and more than $2 millionin devel- methcal school. * -* and Ente~prise Ceater UI in
Trust Cocsçcsny (ERD) oprnent loans In process. - - . *- * ~in ~i~ff, Arkansas. *
Soathem'ssabsidiaries include Also, sinceeugust 1989, EHB Opportunity Ldcdc -* OLC alsod~elo~olow- and -
the Elk 11am Bank and Trust haseagaged In aggressive Cor~tor~ttion (OLC) rno~ierate-iacome residential
Company, a commercial bank outreach efforts to local family OLC is Soathem's for-profit - housing. At the end of 1990,
whose primary cpntribution to farm operatiovo and has real estate development OLC had three residential
Soathem's economic develop- become ttooervice area's only * subsIdiary. To date OLC's most projects underway. The most
bent mission has been the * alternaaiveto federal govem- successful project Jaas been * ambitious Involvesthe acquisi-
oraginallon of desw1opmnt mentfinancing During 1990 EnL~prL Centerl an Incubs tin'a and rehabilitation of 20
- - - - S * S -. * * *` ` Iov:-incc~me rental uisitsin -
Plte Bluff. OLC acquired this
seriouslydetertoraied,isut still
occupied, projeci from the RTC
InJanuaiyl99iandplansto
rehabilitate Itwiulaniral rental
* rehabfundefromthedftyof1
Pine Eluff and flnancingfrom
alo~,al commercial bank
* `honsas Entorpriso
Group (AEG)
AEG, Southem's nm-profit
affiliate, pmvjdesfiaancuai
* and ~1etworklngservlcOf, mar-
* t,&t~,, tralalag,and technical,
cetosm~llbusln~ses -
I: rdn~°-ente~ri~t~
*;Increase t}ieprobabllltylf sac-
ccs~. Amhab three
components.-
1. soLrnmRR I~7V7eEc,
1Nr~ (SW),ayenturecapltal
~ * company Ilcensedbythe Small
___________ Business Mmlnistration as an
____________ SBIC, ha3concentrated its In-
Yestment activiuieson providing
PAGENO="0142"
138
~iv, ~
equity ratherthan secured debt number andshipe the preluct Third t.~orld locations toth
toils portfolio companies. from theiocafmanufacturer.- - rural South. Th~ough the end
The focus l~as been on innova- Managerneni-AEG pro- of 1990, GFF had made 45 - -
the, fast-growth compaptes video traditional management.. loans totaling $123,860:GFF
thatpaywages above the norm consulting and innovatlrp cost has been Southern's mcinsuc-
in the local maiicetplace. These acc5iintingservices not gener- cefsful program In meeting tjse -
* firrnshave thepotential for allyavailabletosnrallmanu- qeedsof*omenandml~ority **~
* rapid growth and offer skill facrurers. entrepreneurs; currently, 58
development and advancement Financia!-AEG's most in- percent of GFF's members are C2'~) ~
opportunities fi*employees, novative financial service is women and 81 percent are ~.-" ~ - -
notoimply the minimum wage Working Capital Investments minorities. . j ~.`.
with no benefits or chances for (WCI) which makes short-term -.. . - . - I -
* improvement. SVI has invested investments in specifIc con- --- . . -;
almoet $L7 million ir~ 10 tracts, purchssk orderti or
* compaptes~siinse products and receivables WCI enters into*
services range from bio-asoay joint venturm' with fit-ms to
radiochemistry tenting to provideworking capital. When
ceramic coating, to waste water the firm completenproductioń
treatment, to new techniques and receives payment. WCI
forpetroleum refining, receives its investment back,
plus a predetermined share of
2. AEGMANUFAC77JRING the profit on the specific job.
SFJMCES-As the diagram
shows, AEG Manufacturing 3. GOOD FAITH FUND (Gif),
Services provides marketing, a micro-enterprise rerolving
management and financial loan fund, makes very small,
services to new and fledgling short-term loans forself-em-
manufacturingenrrepreneurs. ploynientto very low income
Markellng-AEG provides residents using peer-group sup-
market research, develops port techniques. With a pri- ~
advertising campaigns, places mary goal of poverty allevia- wllbaloafmm OFF.
ads in publications, takes lion, GFF adapted lendingpro _________-
orders ona 24-hour toll-free grams proven effective in
PAGENO="0143"
139
Exhibit II
SOUTHERN DEVELOPMENT BANCORPORATION
1989 ANNUAL REVIEW
SOUTHERN DEVELOPMENT BANCORPORATION is a
privately owned bank holding company created to
accelerate economic growth among tow and moder-
ate income residents of rural Arkansas. Southern's
progi-anss emphasize the delivery of credit, capitat,
and marketing/management assistance to encour-
age the creation and expansion of small business en-
terprises.
ELK HORN BANK & TRUST COMPANYoriginates devel-
opment credit through commercial and residential
loans. Elk Horn is one of the few banking institutions
in the state that actively participates in Small Busi-
ness Administration loan programs.
OPPORTUNITY LANDS CORPORATION is a for-profit
real estate development subsidiary of Southern. OLC
works to meet the residential and commercial space
needs of targeted towns in southern Arkansas.
ARKANSAS ENTERPRISE GROUP is a 5011c)(3) tax-ex-
empt affiliate of Southern that provides financial
services, marketing training, and technical assistance
to small business owners. AEG manages four non-
bank funds that promote economic development in
southern Arkansas: Southern Ventures, Good Faith
Fund, Seed Capital Fund, and Working Capital In-
vestments.
SOUTHERN VENTURES, INC. isa licensed Small Business
Investment Company that makes loans and equity
investments in small, growing companies. SVI is one
of the few venture capital companies in the country
actively pursuing investments in rural areas. In addi.
tion to investments, SVI also provides management
assistance to portfolio companies.
GOOD FAITH FUND makes small, short-term loans exclu-
sively for starting or expanding self-employment en-
terprises. To assure a high rate of repayment, the
program employs peer-group support techniques
that were first proven effective in Third World loca-
tions.
SEED CAPITAL FUND provides loans and investments to
fund new and expanding businesses. The AEG staff
identifies businesses that are particularly promising
in terms of bath financial feasibility and job creation
potential.
WORKING CAPITAL INVESTMENTS funds short terns
joint ventures to finance operating costs in the pro-
duction process for smatl, under-capitalized, manu-
facturing firma.
PAGENO="0144"
140
I
\\!
yin
Larry Cawtey received a toan from the Good Faith Fund to purchase equipment for his automobile dclvii shop. Larry was 4
member of one of the eight GFF borrowing groups.
PAGENO="0145"
~vt1opnient Financing
:xkr~ ftT2te,~t7.~..
~
~1i~i'so
_______ $157975
~ ~~~itS2 ~j
__ 2t"~
- 141
residents of rural Arkansas.
Southern brings diverse
tools to that process - bank
loans and forms of higher
nsk business credit, manage-.
ment and marketing exper-
tise and entrepreneurial
training.
In addition to (man-
ciat services and manage-
ment training, SDB operates
a real estate subsidiary that
develops affordable housing
and Inexpensive commercial
office space. "Money is nec-
essary for economic develop-
mint, but it's not sufficient,"
said Etk Horn Bank Presi-
dent George Surgeon. "Bud-
ding entrepreneurs need ac-
cess to market data, technical
support, and business plan.
ning counsel. Above all, they
need people who have ma'
knows?" said Grzywinski. "I
believe a large part of the de.
velopment business is that
you get in and start doing it.
You keep your eye on the
ball and keep adapting and
changing and modifying.
You do a lot of handcraft.
ing."
SDB finished its first
full year of operation in 1989.
During the year, Southern
invested just over $2 million
in 68 development projects,
up from $745,867 in 34 trans-
actions in 1988. SDB's invest~
ment performance is sum~
marized at the left (see
chart). These are loans and
investments that probably
would not have been made
without Southern's involve.
ment. Individual financings
ranged from a $250,000 debt
and equity investment in a
waste water treatment com-
pany by Southern Ventures
to a $2,500 loan for a start-up
automobile and appliance
repair shop by the Good
Faith Fund.
SDB accomplished
these devctopnsent objec-
tives within the framework
of a regulated bank balding
company and while making
a profit. Southern's profits
largely reflect the earnings of
its banking subsidiary, Elk
Horn Bank & Trust Com-
pany of Arkadelphia, With
more than $60 million in as'
sets at year end, Elk Horn
Bank maintained its preem'
inent position as the largest
bank in Clark County. Elk
Horn also generated record
earnings of $572,000 in 1989,
up from $383,000 a year ear-
lier, for a return on average
assets of 0.99%. Deposits in.
creased by five percent to
$53,559,000 while the bank's
capital accounts increased by
almost $600,000. This pro.
Southern Development Bancorporation
Inc. Magazine her' lure business judgment with
aids Southern Development whom they can talk."
Bancorporation as one of the SDB was created at
"most radical experiments in the initiative of the Winthrop
the history of rural economic Rockefeller Foundation to
development." function as a privately capi.
SDB in a privately talized development bank.
capitalized, regulated, bank Southern focuses on
holding company created for nurturing new and home-
the purpose of accelerating grown businesses. By pro-
economic activity among viding a variety of services
low and moderate income and financial assistance, SDB
is initiating a chain re-
__________________________________ action in which entre-
preneurs invest in new
preducts and services,
make a profit, and con-
tinue expanding their
businesses.
"I think that the
____________________ *management services
we provide small busi-
_____________ ness owners are just as
important as the finan.
_____________ cial assistance," said
Brian Ketley, vice
__________ president of Arkansas
Enterprise Group, the
SDB, "Southern is here
to create employment
and promote economic de-
velopment in south Arkan-
sas. We want to create a self-
sustaining vehicle for enter-
prise formation that will be
an important part of the
Arkansas economy for the
tong term."
Southern is pat-
terned in part on Shorebank
Corporation which operates
a program with similar goals
in the inner city of Chicago.
Ronald Grzywinski serves as
chairman of both SDB and
Shorebank. Can the structure
that has achieved demon-
stratable success in a north-
ern urban setting be adapted
to rural Arkansas?
"For Arkansas, I
think training and support
for small businesses is going
to be critical. But who
PAGENO="0146"
142
../ (.2
0
~
Shorty Washington works attho
sewing machine that she pur*
chased with a toss from the
Good Foith Fund.
LucilleSmith stands In one of
the classrooms in herUttle Folk
Daycaro. Snrith isa participanttn
the Good Faith Fund.
4;
L
mary capital ratio of 10.48% ousty retaining a solid loan group as determined by the Elk Horn Bank Vice President
compared to 9.77% on Dc- portfolio. Thebanks netloan FDIC. Similarly, seriously Carolyn McAnaity assists Mitch
cember 31, 1988. The banks tosses as a percent ofaverage delinquent loansatyear.end Bettla in securing a toasts bay
record profits and develop- loans outstanding were were only 0.73% of loans equipment for the buatnoas ho
ment Initiatives were 0.25% for the year as op- outstanding compared to coownstnArtadeiphta.
achieved white nimultane- posed to 0.43% for Its peer 1.44% for Its peergroup.
PAGENO="0147"
143
Elk Horn Bank & Trust Company
The 105-year-old Elk
Horn Bank was purchased
by Southern in May, 1988 to
be the springboard for its
development activities. The
bank, in conjunction with the
other SDB companies offers
a variety of non-traditional
programs to assist small
businesses.
In October, 1909, the
Yearly Pol1nrm3nro
development loan customers
were also clients of the
bank's venture capital affili-
ate, Southern Ventures, Inc.
In 1989, Elk Horn
Bank eupanded its lending
activities to the agricultural
sector. Many Arkansas
banks exiled this arena when
overinflaled farmland prices
crashed in the early t980s.
r~-~--'1 j~I~~~1187ip3o
f~ .l98L....,.. ... 1515,10
03,5 $51100
`jttt~'~ - 11372!I0
row mop farmers, but also closed out a
finances (amity farmers who $1 mittion
are diversifying their farms. construction
The concept is that if a toantobuild
farmer'sroweropsdonotdo a 41 unit,
welt one year, then his tive' federally
stock, poultry or vegetables subsidized,
might. In the last half of tow-income,
1989, the bank nude 10 toans e t d c r I y
to (amity farm operations to- h o u s i n g
lating $211,075. Seven of project in
these loans total' Arkadetphia
_________________________________________________________ ing $157,975 were and opened
fordiversification a $1.1 mit.
or expansion of tion con-
famityfarmsand struclion
are considered loantobuild
_____________________ ______________ development a 33-unit,
~ 5106 ~js.s3,7ti,oso credits. federally
- ~` - 1)17 ... . ... - 152,105030 A n o I h e r cubsidized,
- 1t80_._...... .. __. . ..lltBSO,030 `rca that meets ow-income,
-- 1180,132,030 credit ncedsand clderty
$1,771,030 generates profits h o u s i n g
.1,917,003 for the bank is project in
- 9088 mortgage bank- Hughes,
ing. The bank Arkansas.
~~~`"1s.ta,3v,o88 originated 71 Al the
- ....~... - ...._~1~Bl,ooo single-family close of
- . - .. .__~~l,035,000 mortgageloamin 1988, the
$53,512,000 1989. These loans bank laid
- aggregated to the ground-
$3,097,353, up work for a
from 58 loans for Develop-
$2,321,750 in ment Dc- _______________
1988. For the most part, posit" pro.
these mortgage loans were gram. These deposits are
sold to the secondary mar- raised from individuals, cor-
kel. Five of the bank's 1989 poralions, religious organi-
morlgagors qualify at "low zations and others who want
income" families according to see their money do more
to the U.S. Department of than just earn interest. Dc'
Housing and Urban Devel- velopment Deposits""" will be
opment's 1990 Section 8 used to fund development
rental assistance guidelines loam, and the earnings on
for Clark County. Sixteen these deposits will be used
had tow enough incomes to to offset the extraordinary
qualify for below market costs of doing economic dc-
rate financing through the velopmcnt in a regulated
Arkansas Development Fi' banking environment, Dc-
nance Authority. Twenty' velopment Deposits"" earn
four morigagors had family the same rate of interest as
incomes below the 1990 Ar' other deposits and can be
kansas median of $25,900 made in any amount, An ac-
(which is almost one'lhird live campaign to raise Devel-
less than the national me- opment Deposits"" from
dian family income of across the country will be
$35,700). The bank also launched soon.
bank was awarded Certilicd
Lender Status by the Small
Business Administration in
r~rcognilion of Elk Horn's
participation in SBA's 7(A)
loan guarantee program and
the bank's commitment to
small business tending. Only
11 banks in Arkansas have
achieved this elite status.
"We believe that by
investing the lime to care-
fully tailor a financing pack'
age that weds the cus-
tomer's needs and secures a
government guarantee, we
can qualify a larger number
of small businesses for bank
credit," said bank Prc-sidc',,t
George Surgeon. The bank
originated 13 commercial de-
velopment loans in 1989 to-
taling $640,932. Two bank
Only a few banks are stilt
active farm tenders in alt of
southern Arkansas with only
a small handful is southwest
Arkansas. Elk Horn Bank
began to actively market ag-
ricUltural production credit
to family farmers in Ihe Ark'
adetphia area when it hired
veteran agricultural loan of'
ficer Bill Fowler in the sum-
mer, 1989.
"Agricultural pro.
duclion loans are very risky
and you shouldn't gel in-
volved unless you lake the
lime to learn the business
and plan to make a long.
term cvmmitm('nt to the in-
dustry, as Elk Horn has
done," said Fowler. The
bank nut only supports the
credit needs of traditional
PAGENO="0148"
144
Southern Vnnturen,tnc. Prod-
dent Jell Boone ulnitu K-Tech,
Inc. Thin cerumlc coaling bunt-
nvnuwoa euvntaiucoopvruliona
SVl Invested tn.
Bill Fnwler,vtce prnutdonttordlk
Horn Bank, dlncunnea un agri-
cultural loan application with
TrIcia Cole. Elk Horn In nun ut a
tew banka tn nouth Arkaunaa
ectlne In tending money ter
tarmiug operutlona.
Quick
Response!
clkHorn uuiurded
Certified Lender Status
Tot meet the
growing needu of small
businesses in southern
Arkansas, Elk Horn
Bank bus qualified (or
Certified LenderStutus
by the Small Business
Administration. Thiu
new status will signifi-
cantly reduce the time
it takes to approve
SBA guaranteed loans
to new and misting
businesses.
At the time Elk
Horn was purchased
by Southern Develop-
ment Bancorporation,
there was nnly one
SBA tnun en the bank's
books. Since the bank
was acquired by SOB,
Development Lending
Officer Ted t(erstcn
and his coticagues
have worked with
many businesses
originating nsore than
$500,000 in SBA
guaranteed leans. Oot~
it ofthc275banks in
the slate have qualified
as SBA Certified
Lc
1i~j~: 7
Ted Knrntnn und wunda
Bunyan lath at the grund
opening of Wanda'a Hutt-
k murk, Wanda received an
( SBA loon to purchuse the
nlumshn hod managed tar
13 yearn.
PAGENO="0149"
`-A
a
C;'
PAGENO="0150"
Opportunity Lands Corporation
Opportunity Lands sale at $36100. Current plam
Corporation, the for-profit call for the home loans to be
real estate development originaledbyElkHornBank
subsidiary of Southern, re- and insured through as Fl-IA
cently completed construe- program that allows all the
lion and sold its first afford- closing costs lobe included
able single-family home in in the borrower's mortgage,
Arkadelphia. The purchaser leaving only a 3% down
of the $52,000 residence is a payment to be paid by the
single parent who obtained purchaser at closing. With a
financing through a low- in- sales price of $36,100, ADFA
terest rate loan program financing, and FHA mort-
provided by the Arkansas gage insurance, the homes
Development Finance Au. wilt be available for low-in-
thorily (ADFA) for tow- and come families.
moderate-income Arkansas Linda Chandler, vice
families. This project is typi- president and manager of
cal of OLC's residential de- OLC, said that in addition to
velopment programs. The its residential projects in
goals of OLC's residential Arkadelphia, the company
activities are lo provide de- has begun planning a "rural
cent affordable housing for rental rehab" program in
the residents of Southern's Pine Bluff. This program
targeted areas and, at the would make use of low- in-
same time, generate a profit terest rate funds available
that will allow the company from the city to substantially
to expand its programs to rehabilitate single-family
serve a larger number of properties within certain
people. OLC's development targeted areas in Pine Bluff.
activities often require the Chandler is investigating
company to blend together a several absentee-owned
variety of federal, slate and properties that are "pretty
private sector assistance to dilapidated." The program's
make projects happen that inlenl is to sell or lease the
conventional real estate de- renovated homes to the cx-
velopersavoid. isling tenants for monthly
During 1989, OLC re- payments closeto what they
ceived a second $186,000 at- are currently paying in rent,
location of ADFA bond Another residential
money to construct four ad- project in the planning stages
dilional affordable homes for is the construction of a 33-
146
The bulldingo across the utroet
from The EnterprIse Center are
beIng acquIred to construct
01Cc second commercial proj.
eel-The Enlorprtse Centorlt,
square foot building that
would house SDB's Good
Faith Fund as its first tenant.
"We may team up in
the future with Arkansas
Enterprise Group to make a
business incubator program
that not only provides office
space to entrepreneurs," said
Chandler, "but also delivers
services they need to grow
their businesses such as:
marketing, business plan
unit, elderly congregate care
facility in Hamburg, Arkan-
sas. OLC has made a
preapplication to the
Farmer's Home Administra-
tion for financing of this de-
velopment.
OLC is also working
to meet the commercial
space needs of small busi-
nesses. The first project un-
dertaken by OLC was the
purchase of the 12,000
"We want to do.something
that is going to meet a need..."
square foot vacant Adams- development, or help with
Nowlin Building in down- selecting atlorneys and ac-
town Arkadelphia renamed counlanls. This type of pro-
The Enterprise Center. The gram might be more impor.
small, low-rent office spaces tant in developing the rural
were completely fitted by the Arkansas economy than
end of May, 1990. Thebuild- building out ineupensive
ing was purchased for commercial space alone."
$42,000, and $343,000 of OLC's objective here
renovations have been made. is to enhance the rate of en-
A second commercial terprise creation and sur-
project entails acquiring and vival. "The key to our sac-
renovating two small build' cess so far has been our se-
ings across the steet from lectivettess. We've worked
The Enterprise Center to hard to make one project a
createThe Enterprise Center success before moving on to
II. OLC isalso trying lobring something else," said Chan-
the Enterprise Center model dler. -l feel the momenlum,
to Pine Bluff and has made and I expect itlo continue."
an offer on a vacant 9,500
PAGENO="0151"
147
Arkansas Enterprise Group
injune, 1989 and has partici-
pated in 47 ventures with
four manufacturers, invest-
ing $99,800. Tobian says that
WCI is still in the develop-
ment stage but hopes to fi-
nance at teast five new
manufacturers during 1990.
SOUTHERN VENTURES,
INC.
SVI is a for-profit
venture capital company
owned by AEG that makes
equity investments between
$50,000 and $250,000 in lo-
cally-owned companies. Ac-
cording to SVI `resident leff
Doose, white they try to
make funds available to a
full range of businesses
"AEG is here to help create employment and ~
economic development in southern Arkansas. h~t~t ~
can take additional risk
trepreneunat success, completes production and and hopefully receive a corn-
"AEG ts here to help receives payment for its mensurale retum on our in-
create employment and ceo- product, WCI is reimbursed vestment," said Doose. "The
nomtc development in for its inveslmenls plus a high return investments, in
southern Arkansas," said small share of the profit. turn, help cover the invest'
Brtan Kelley, vtce president "What this means is ments that don't work out."
of AEG. "We want to create that WCI assumes a lot of SVI invests in compa-
a self-suslatning vehicle that risk," said Lou Tobian, man- nies through loans, equity
will stilt be here 10 or 20 ager of WCI. "We bear a investorients, or a combina-
years from now. There are a large share of the financial tion of beth. In return, SVI
vanely of tools we can use. risk so, in exchange for that slaff participate on the board
We intend to try out a num- risk, we expect to share in of directors of the company,
ber of those tools, see what the earnings." and SVI serves as a source of
works, make changes or dis- The program is dv- managerial assistance. SVI
card the ones that dont." signed to be a long-term, requires that the company
progressive relationship, have monthly beard meet-
SEED CAPITAL FUND We feel more comfortable ings and submit financial
Many financial serv- assuming more risk as the statements for analysis be-
ices are already available for relationship matures," said fore the meetings so any po-
small bxsinesses. However, Tobian. "We begin to trust tenlial problems can be ad-
the ioslttulions offering these each other, and the next time dressed early. SVI also as-
programs do not enjoy the manufacturer needs sists in marketing, financial
AEG's financial flexibility. working capital, we are in a management and produc-
Ketley manages the Seed better position to provide lion management.
Capital Fund that is realty a more money." Venture capital in-
fund within a fund. 1 he Seed WCI began operating vesting is an inherently risky
Working capital is a
problem for undercapital-
ized, small manufacturing
businesses. Where does a
small manufacturer turn to
acquire the raw materials it
needs to fulfill a large con-
tract? In south Arkansas, one
answer is the Arkansas En-
terprise Group.
AEG is the non-profit
division of Southern Devel-
opment Bancorporation that
manages several programs
designed to help small busi-
nesses. AEG provides finan-
cial and networking set-vices,
marketing training, and
technical assistance to in-
crease the probability of en-
Capital Fund was created to
euperimenl with new ap-
proaches for accelerating en-
terprise formation.
The newest lest pro-
gram within the Seed Capi-
tal Fund is Working Capital
Investments. This fund
makes small, short-term in-
vestments in specific con-
tracts, purchase orders or re-
ceivables. If a manufacturer
receives a large purchase or-
der bul doesn't bane the
capital to pay for supplies to
complete production, WCI
enters into a joint venture
with the rnanuf,,eturer to
provide the necessary capi-
tal. When the manufacturer
business, "On the average,
out of five investmepts, two
will fail and produce a total
loss, two will limp along and
return only principal, and
only one will become a real
star, The return on that one
investment needs to be
enough to sustain the inves-
tor," said Doose.
* Doose doesn't thittk
that SVI wilt perform better
than the industry norm. in
fact, I think that if we
achieve average perform-
ance, it will be really extraor-
dinary." SVI is one of a small
handful of venture capital
companies in the country
actively pursuing invest-
ments exclusively in rural
PAGENO="0152"
00
S
1J;IfI "li
* *
* *
* : :
* *
* a~~c~g *
PAGENO="0153"
149
Arkansas Enterprise Group (Continued)
used waste products from
atuminum refining plants
in Bauxite to produce a su-
per-absorbent cat titter
product. SVI made a se-
cured toan to the company
so tosses on this venture
are expected to be tow.
The kitchen equip-
ment business was at-
tempting to reorganize out
of Chapter 11 bankruptcy
and, according to Doose,
seemed to represent a good
opportunity to maintain a
business that had signifi-
cant employment. A For-
tune 500 company had
owned the business but
had `taken att the profits
out of it and left it for
dead.' The business at-
tempted to recapture the
market share they once had
but was unable to do so.
"This is the one out-and-
out failure we have had out
of our first five invest-
ments,' said Doose.
The sixth and most
recent isvestmenl is SVI's
first minority-owned com-
pany. A laboralory opera-
tion to perform biochemi-
cal testing of nuclear plant
workers will apes soon in
Pine Bluff. The owner has
experience in this field and
the company has a strong
potential for growth.
Through financial
and managerial assistance,
Doose and SVI employees
Lou Tobian and Stephanie
McHenry.Dosning de-
velop strong relationships
with their clients. This indi-
vidualized attention can be
a big boost for early slage
companies. "You essen-
tially live and breathe the
company like the cntrepre- $100,000 since May 1988.
ncur does," said Doose.
"You think about them con- AEG MARKETiNG
stantly and you worry about SERVICES
the things they could have or "The marketing pro'
should have done. There are gram is based on the prem-
a lot of sleepless nights." se that one way to assist
small businesses is to help
GOOD FAITH FUND them increase their sales,"
CIT focuses on self- said AEG Vice President
employed business people Brian Kelley.
who need loans to start or Motlie Munro works
expand their businesses. The for AEG Marketing Services
unique aspect of GFF is that and, in the six months since
it utilizes peer-group sup- the program started, has
port techniques that have completed a study of manu-
proven effective in several facluring in south Arkansas,
Third World locations lx as- conducted training sessions
sure a high rate of repay- on sates management and
ment on small loans let mi- created Iwo training and in-
cm-entrepreneurs. formation packages for dis-
Borrowers organize tribution to smatt businesses.
themselves into groups of `Ourgoal is to develop a cot-
five people, alt of whom are lection of services for manu-
self-employed or interested facturing and industrial
in becoming self-employed, companies that wilt help
After the group completes them succeed," said Keltey.
two weeks of orientation, it `Locally-based ceo-
is certified and recommends nomic development in gm-
its first two members for eral, and ABC's programs in
loans. When the first two particular, are long-term
members have made regular propositions,' said Brian
payments at the bi-weekly Kelley. `It will be difficult to
meetings over a two month assess ABC's impact for sev-
period, the next two mem- eral years, because it is so
bers are recommended for difficult to measure the local
loans. After another two economy." The primary
months, if all four bereowers measure of success wilt be
are current on payments, the monitoring changes in the
remaining member becomes indieiduat businesses as-
et~gibte for a loan. sisted by AEG's services.
This program is The personal atten-
Southern Development Ban- lion provided by ABC
corporation's most radical should help Arkansas busi-
departure from traditional nesscs grow and prosper.
banking, bc-cause it doesn't
require collateral or detailed
financial statements from its
borrowers. With 36 members
in eight borrowing groups,
CIT has loaned more than
Independent
at last
Good Faith Fund helps
entrepreneur rnsch gcnst
For yearn William
Olive approached
banks about borrowing
money to begin his
automobile and ap-
pliance repair shop.
Bach time he was turn-
ed down for a loan.
`For several yearn I
tried to borrow the
money, but banks told
me they didn't gel into
businesses as small as
mine,' said Olive.
Olive wasone of
the firsl clients to
participate in the peer-
grouplending process
initiated by the Good
Faith Fund. He has
already paid back his
first loan and has taken
out his second from the
fund. `I try to encour-
age others to try the
Coed Faith Fund," said
Olive, `I talk to people
all the time who could
be doing something for
themselves, but are
afraid It) venture t'xt
on their own.'
PAGENO="0154"
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PAGENO="0155"
151
DIRECFORS Elk Horn Bank Attorneys
~ ~ ~ ~ ~ ~ ~ James W. Harrington Mayer Brown and Platt
Southern Development Chairman Rose Law Firm
Bancorporation George P. Surgeon Wright Chancy & Berry
Board of Directors President
Hillary clinton Roy N. Shope Certified Public
Herman Davenport Executive Vice President/Cashier Accountants
Ronald Grzywinski Herman Brewer Ernst & Young
James W. Harrington ~ President
Mary Houghton Linda Chandler
Dr. Jacquelyn McCray Vice President
Thomas McRae Bill Fowler
Gene Meyer Vice President
Dr. Robert Miller Carolyn McAnally
Henry Morgan Vice President
Walter V. Smiley Johnny McAnally
Dorothy Stuck Vice President
George P. Surgeon Beth Marshall
S. Robson Walton Assistant Vice President
Morris Turner
Elk Horn Bank Assistant Vice President
Board of Directors Betty Carter
Thomas Barksdale AsmstantCastver
James Blanton Tod Kersten
Harold Echols Development Loan Officer
Ronald Grzywinski Sue Stinrtett
James W. Harrington Resi Estate Loan Officer
Mary Houghton
J. Hugh Lookadoo Arkansas Enterprise Group
Mary Jo Mann Mary Houghton
Wayne D. Pollard Chairman
Roy N. Shcpe Ronald Grzywlnski
George P. Surgeon President
S. Robson Walton Brian Kelley
J. B. Wingfield Vice President
Susan Raynolds
OFFICERS Director, Resource Development
Julia Vindaslus
00000000
Manager, Good Faith Fund
Southern Development
Bancorporatlon
Southern Ventures, Inc.
Ronald Grzywlnski Jeffrey A. Doose
Chairman
President
George P. Surgeon Stephanie McHenry-Downing
Presiderd
Linda Chandler Investment Manager
Lou Tobian
Vice President
Investment Manager
Jeffrey A. Doose
Vice President
Brian Kelley Opportunity Lands
Vice President ~
Linda Chandler
Jo Ann McMasters Vice President
Vice President & Controller
Lou Tobian
frtvestment Officer
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PREPARED STATEMENT OF JULIA VINDASIUS
My name is Julia Vindasius and! am the Executive Director of the Good Faith Fund, a self-
employment loan fund which is a a non-profit program of Southern Development
Bancorporation. Thank you very much for the opportunity to share with you my experience
with micro-enterprise financing.
Backg~
The Good Faith Fund (GFF) began operations in May of 1988 concurrently with the start-
up of Southern Development Bancorporation, a federally regulated bank holding company.
Southern and its non-profit affiliate, Arkansas Enterprise Group, is headquartered in
Arkadelphia, Arkansas. The Good Faith Fund is headquartered in Pine Bluff, Arkansas,
about 50 miles southeast of Little Rock on Highway 65. GFF currently serves a seven-
county target area in southeastern Arkansas which includes Jefferson, Desha, Drew,
Bradley, Lincoln, Chicot, and Ashley counties. GFF has staff in four field offices in
McGehee, Lake Village, Hamburg, and Monticello. The OFF targets low income residents
making very small, short-term loans for self-employment projects and activities using peer
group support and outreach techniques pioneered by the Grameen Bank of Bangladesh.
Through the delivery of self-employment credit and credit services, the GFFs mission is to
both raise the income levels and entrepreneurial skills of low-income residents in the rural
communities in our region and widen the profile of would-be entrepreneurs to include
women, minorities, and other dislocated workers. Key to our mission is to focus on low-
income enterprising people.
Good Faith Fund operates by bringing credit and services into local communities. Our
outreach to prospective customers is in the form of training workshops for people
interested in self-employment, the organization and facilitation of borrowing groups in our
target area, and subsequent lending and administration of small loans and technical
assistance to "micro-entrepreneurs." At the Good Faith Fund, borrowing groups of four to
six people self-select to provide mutual support and assistance and to serve as an
preliminary loan committee for loans to their members. The OFF staff facilitates the
formation of borrowing groups, but individuals are responsible for meeting with,
screening, and choosing their own members. After an initial orientation and training (six 3-
hour sessions), the borrowing groups are certified, reviewing and approving loan
proposals from their members. Each group chooses a chairperson and secretary and opens
a group savings fund to which they all contribute at biweekly meetings. Groups of
borrowing groups or "centers' meet in each town on a biweekly basis. Consensus, mutual
support, membership responsibility, and feedback over a long time horizon are central to
the borrowing group process.
As of this date, the Good Faith Fund is working in 5 towns in the region, works with 8
certified borrowing groups, and has 40 members. Approximately 58% of our members
are female and 89% are African-American. Since we started the program, we have
disbursed 55 loans totalling over $133,000. Our average loan size is about $1,200 and our
maximum loan limit is $5,000. Good Faith Fund has lent money to upholsterers, caterers,
home-based seamstresses, day care operations, cleaning and janitorial services, video
production shops, several kinds of repair services, a small farmer, gift and accessory
traders, crafters, Mary Kay Representatives, and auto detailers among others. Several of
our customers have been on public assistance and several are working themselves off
welfare (particularly Food Stamps) as a result of their self-employment activity. We have
many members who have chosen to belong to the Good Faith Fund in order to take
advantage of the network, training, and technical assistance that is available through
membership. Profiles of some of our recent members are in our quarterly newsletter,
Sidelines, attached.
Good Faith Fund is part of a rapidly growing field called microenterprise development
which focuses on these tiniest entrepreneurial activities. Peer group lending, the type of
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lending that Good Faith Fund employs, is a subset of the field and I will be talldng about
both interchangeably. Microenterprise development programs include training and
technical assistance programs and credit programs. Microenterprise programs broaden
economic development and small business development programs by reaching out to poor
constituencies or communities.
Peer-group lending programs generally operate under the "peer-pressure" rule which is
basically that after a peer-group self-selects, loans are extended on a rotating basis to
members of the group as long as everyone in the group is current on their loan payments.
The peer-pressure rule assumes that the poor do not have assets that can serve as collateral
for loans and that another guarantee mechanism--accountability to one's peers--is required
to substitute for collateral. In most programs and the Good Faith Fund, the accountability
is not legally binding, although some programs do require their groups members to co-sign
each other's notes. In practice, peer groups serve less as "pressure" groups as they do
support groups for assistance and networking. Also, peer-groups are viewed as an
efficient administrative mechanism since administrative and credit review costs are
generally higher for individual, collateralized loans. Moreover, peer-groups allow program
staff to work with several clients at once.
Despite the group concept and the community organizing aspects of Good Faith Fund's
outreach activities, the emphasis is on serving low-income individuals, not communities.
Peer-group lending targets the self-employed and family-based businesses, not cooperative
ventures or community-owned enterprises. Loans are made to individuals within a group,
not to the group to re-lend as in some cooperative lending models.
Peer-group lending programs have in common that through credit and peer-support, an
individual's skills or talents can be tapped to earn income through self-employment. The
vision and expectation of our programs is that credit is a tool which allows one to invest in
one's own future and skills and increases one's choices and opportunities. Therefore,
credit should not be a tool limited only to the wealthy, but also to the poor and
disadvantaged. As a result, women, minorities, and dislocated workers are often targeted
client groups for microenterprise development programs. Almost all customers of micro-
loan funds are not able to access business credit from local banks.
Allow me a minute to tell you about the membership in this field. Two microenterprise
development programs started in the mid-eighties--WEDCO (Women's Economic
Development Corporation) in Minneapolis and MICRO in Arizona. Subsequently, there
was a surge of interest in the field among development professionals in the United States
largely because of the successes of the international programs such as Grameen Bank in
Bangladesh and the Latin American microenterprise credit programs sponsored by Accion,
International, both of which had made small self-employment loans to thousands of the
rural poor, significantly raising incomes and quality of life for their clients. By the late
eighties, many professionals and donor organizations that had both international and
domestic involvement became interested in trying to replicate the peer-group lending model
in the West.
Within two years, seven peer-group lending programs started in Canada and the United
States, strongly influenced by international models, either Accion's group lending
programs or Grameen Bank's. The Calmeadow Foundation in Toronto, Canada kicked off
their circle lending program in three Native North American communities in October 1987.
While Grameen's program has influenced Calmeadow's work, Calmeadow's also received
technical assistance and advice from Jeff Ashe who had formerly run Accion International;
Calmeadow continues to sponsor micro-credit programs in South America. Good Faith
Fund began seven months later in southeastern Arkansas as a replication of the Grameen
Bank model. In August of 1988, the Women's Self-Employment Project (WSEP) which
had been running a self-employment training and credit program for women in Chicago for
about two years, started a separate group lending program modeled after Grameen called
the Full Circle Fund. That same year, the Lakota Fund started a group lending credit
program modeled after Grameen Bank after an unsuccessful attempt to operate an
individual business loan fund on the Pine Ridge reservation in South Dakota. Finally,
three peer-group demonstration programs were started in North Carolina by the North
Carolina Rural Economic Development Center with funding from the state legislature and
program assistance from the Center for Community Self-Help. These programs were
influenced by Grameen Bank to the extent that they followed and researched the emerging
practice of Good Faith Fund, Women's Self-Employment Project, and the other "Grameen-
style" peer-group lending programs.
Today, it seems, there are legions of peer-group lending programs emerging every month
around the continent. Local and state government, foundations, policy and advocacy
groups, and social service/job training programs have expanded their definition of
economic development and have started microenterprise credit programs and many are
using peer-group lending principles. Some notable examples are Jeff Ashe's Working
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Capital program in the northeast, Coalition for Women's Economic Development (CWED)
in Los Angeles, and rural enterprises program in Nebraska led by Gene Severens at the
Center for Rural Affairs in Walt Hill.
I would like to reiterate the lessons that George Surgeon suggested. First, although Good
Faith Fund targets a different constituency than the other Southern companies and is a non-
profit program, it is no less committed to operating in the most business-like fashion. Our
success requires it and our customers demand it. Many of our customers feel that the Fund
is one of the only places where their business activities are treated with the respect and
professionalism necessary for success. Secondly, targeting resources is critical to any
development effort. Good Faith Fund has maintained a circumscribed target area for three
years and will only expand its geographic scope when it has the staff and resources to do
so. In addition, OFF's program will perform best when there are other credit, capital and
institutional resources targeted in the same area. Partnerships with banks and other
institutions are important to achieve overall development objectives. At the Good Faith
Fund,we are able torun our field office operationsby having baiks and county and local
officials contribute rent and utilities or donating in-kind services. Third, because
development and banking seem often at odds, investment in specialized staff training and
professional development is critical. In 1990, because we understood the scope of our
mission and the special nature of the field, Good Faith Fund made a significant investment
in recruiting, hiring, and training seven new Loan Representatives by creating a 6-month
training Fellowship program focused on microenterprise and rural economic development.
Finally, as George mentioned, `development doesn't travel well." Investment in testing
strategies and adapting as necessary is as critical as implementing strategies.
In addition to these lessons, I'd like to share some other thoughts about micro-enterprise
development and Good Faith Fund's experience. Very few of our customers operate
growth businesses--that is, those whose success will be measured by profits, investment,
and jobs created. Rather the Good Faith Fund's target has been survival enterprises or
supplemental income activities. If I leave only one message in this testimony, it is to urge
you to remember the fine gradations of "small" when you think about "small business" and
to shed some of the conventional wisdom about "growth." The common wisdom is that
growth means increases in sales and numbers of employees. However, at the "micro" end
of the continuum, income is generated in many and diverse ways for survival and security.
"Growth," for these businesses means expanding into any number of income-generating
activities. These businesses are often home-based so that individuals, particularly women,
can be close to their children and family responsibilities. For example, one of our
customers borrowed $150 to purchase fabric and notions for her home sewing business.
She has an early morning paper route and is the primary income earner for her family as her
spouse is often out of work. As she nears the end of her loan, she is thinking about
borrowing again to operate her snow-cone machine during the summer. Another of our
customers, a single mother, works occasional jobs to supplement her business income as a
indoor landscaping and plant maintenance service, although she aims to focus solely on her
business as her income stabilizes and her family circumstances become more supportive.
What is important to remember is that these businesses are a critical part of local
economies. They emphasize existing talent and skill-building, and are a viable and rational
alternative to low-wage jobs or, in many of our Delta communities, no jobs.
Like many other micro-enterprise development programs, Good Faith Fund targets women
because by doing so, we meet both of our development objectives--to support self-
employment and small business development as well as to alleviate poverty in our region.
Statistics suggest that women are increasingly likely to start a business, yet, women have
less access to resources-including credit, capital, and-most critically-information. The
Good Faith Fund focuses additionally on the fact that women are also most likely to live in
poverty and, therefore, raise children in poverty. While banks are not likely to provide
access to credit to women entrepreneurs generally, for low-income women Mary Kay
Representatives,who are likely to be interested in loans of less than $5,000, (and in our
experience, often under $1,000) banks are definitively inaccessible. Internationally and
domestically, development loan funds and business assistance programs often target
women both for administrative reasons and for development reasons. Administratively,
women have proven to be less risky and more reliable borrowers. Developmentally,
women are more likely than men to spend increases in income from self-employment on
their households and children.
Savings are also a critical component to peer-group lending programs. While different
programs emphasize savings in different ways, the premise is that the poor can save and
can collectively (as a group) accumulate wealth more rapidly than is possible individually.
Savings programs are gaining increasing popularity. At the Good Faith Fund, among our
greatest accomplishments has been when borrowing groups have saved enough money to
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lend to their group members for business purposes. While the group savings loans are
small--$250 or $700, they are landmark events which demonstrate the economic power that
is possible when individuals unite and are given a supportive opportunity to accumulate
wealth and re-invest. Along these lines, measuring impact by measuring asset increases is
gaining increasing popularity among micro-enterprise development programs as well as
welfare reform advocates. (See Michael Sherraden's book, Assets and the Poor,
Finally, I'll answer the most common question we hear: Good Faith Fund charges market
rates of interest. In Arkansas, because of the usary law restrictions, the current interest rate
is 10.5%, but most micro-enterprise development programs charge approximately 15-16%,
plus loan fees. It is an important principle in the field of micro-enterprise development that
the barrier to self-employment is not the cost of credit, but the access to credit. For small
loans, subsidizing the interest rate is not a useful strategy since the differential between
12% and 18% is minimal in absolute dollars. Micro-lending practice focuses not on rate
but on loan term and structure as well as management assistance in order to enable
individuals to have accesss to affordable credit and strengthen their capacity to compete in
the market.
Challenges to the field.
Even at market interest rates, none of the micro-credit programs operating today were
started without quite significant grant subsidies, both for loan capital and for operating
support. A few programs have received program related investments (very low interest
loans) from major foundations to build their capital base. And several programs are now
being supported with public monies--state legislature allocations, local government funds,
JTPA monies, or in-kind contributions from public or publicly supported agencies. The
Good Faith Fund is entirely supported--both loan capital and operating budget--with grants
from private foundations. The Winthrop Rockefeller Foundation provided $500,000 in
loan capital and our operating budget has been supported by the Ford Foundation and the
Charles Stewart Mott Foundation among others. We are currently in the process of
applying for a grant from the Office of Community Services/Health and Human Services
Demonstration Partnership which, if granted, will be the first public support to the Fund.
A prevalent expectation in the field is that peer-group lending programs (and all micro-
credit programs) can run their operations cost-effectively. Because we operate loan funds,
there is a high expectation for programs to reach "self-sufficiency" by working to eliminate
the need for grant subsidy and to be able to cover all their operating expenses with interest
earnings. The obstacles to achieving scale and self-sufficiency seem obvious. Since
earnings on small loans, given the administrative costs, are minimal, the key to achieving
self-sufficiency is to have a high volume of lending activity. Yet, microenterprise lending
programs are often started where economic development is needed, and therefore, where
market economies are depressed, jobs are scarce, and often welfare dependency is high. In
rural areas, this also means that population density is low--so the numbers are against you.
Even in highly entrepreneurial regions, like the Mexican immigrant areas on the border
towns in Arizona and California, achieving scale is a challenge.
Practitioners and evaluators of the field are wrestling with this common expectation of self-
sufficiency since the practice to date is demonstrating that Western communities--rural or
urban, industrial or agricultural, homogeneous or diverse, welfare dependent or not--will
not be able to generate the volume of loans necessary to cover their operating expenses.
Most critically, every micro-credit program struggles with how to afford the necessary
provision of training and technical assistance. Initially, peer-group lending programs based
on international models were focused on being "minimalist credit" programs which meant
that training and technical assistance.-costly components.-were reduced to a minimum, if
offered at all. Thus, how much training and T/A can be provided was a controversial topic
in the field. Today, however, most programs do and must offer some type of training and
assistance to their customers along with credit. The intensity and level of the training or
T/A depends on their clients' needs and the extent to which the loan fund serves existing or
start-up enterprises. While it has been argued that bigger businesses require more business
assistance, there is no doubt that programs which target the smallest enterprises of welfare.
poor residents will spend more training resources on self-esteem building and assistance
with basic needs. Many of the newest micro-credit programs have emerged out of
established business development programs that have always provided planning and
management training for their clients and would like to add a financing option for their
graduates.
As the experiments persist, variations on the model emerge rapidly as practitioners become
more familiar with the needs in the local communities and the peculiar.
social/economic/cultural constraints that different communities face. Many of the variations
occur around the different technical assistance and business training needs as mentioned
above. For example, some programs require business training while others provide
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informal "orientation" programs in-house. Some new programs are requiring a fair amount
of community investment and resources before the program will operate. Finally,
variations occur based on who is funding the program and the mission of the program.
Good Faith Fund is also adapting its program to the local environment. We continue to test
new products, services, and regulations. The Delta communities in which we work have a
good deal going against them for furthering this economic development approach--
depressed market economies, little history of self-employment activity, few community-
based organizations, high welfare dependency, and low population density. The challenge
is for us to make our program easier to access for the small percentage residents who are
interested in self-employment which generally means increasing and intensifying our
outreach activities. More significantly, we are increasing our technical assistance and
training components, testing new sectoral interventions such as family home day care and
crafts to build expertise in a promising sector and build a network of customers around it.
Policy recommendations.
Currently, there is pending before the Congress new nticroenterprise legislation titled
"Small Business Economic Opportunity Act." The draft bill, introduced by Senator Dale
Bumpers in the Senate, proposes to lend funds to micro-enterprise intermediary programs
(such as Southern's non-profit affiliate, Arkansas Enterprise Group and CDCs involved in
micro-credit) to be used for re-lending to micro-enterprises in amounts of $l0-25,000.
While the intent of the bill is to make a significant contribution to a much needed area of
small business growth, there are problems with the bill given an understanding of the
practice, the context in which we work, and the nature of the businesses with which we
work. While there is provision for some brief period of grant subsidy to offset the high
technical assistance costs that microlending funds incur, the "spread" between the
program's cost of funds and use of funds--approximately 4%--will not make it feasible or
affordable for an intermediary to participate, thus making much needed loan capital
unavailable to entrepreneurs. As the grant funds and the loan terms have presently been
structured, the legislation expects that each intermediary will raise a very substantial amount
of money every year for 10 years to support the necessary costs of micro-lending--TA,
loan processing, loan losses, as well as principle and interest repayment. Fundraising is
difficult business for all non-profits and as the field grows, funds will become more
competitive, particularly for rural areas. I would urge the committee to review the
legislation and suggest the changes that will lead to a more feasible process.
The biggest policy challenge for most micro-enterprise credit programs is influencing
welfare and human services policy. Several microenterprises programs have tested training
and credit strategies and set up special benefit waiver programs to help welfare recipients
transition off aid through self-employment. The Family Support Act of 1988 opened up
some opportunities for states and non-profit programs to encourage welfare recipients to
pursue self-employment as an option for breaking welfare dependence, but a great deal of
work still remains. Good Faith Fund spent the last 18 months researching a strategy to
reach more welfare recipients and is about to start a three year welfare demonstration
program in SE Arkansas. Particularly in rural areas where wage employment opportunities
are scarce, it is critical that self-employment and business development be encouraged and
supported with transitional benefit programs as viable and rational alternatives for welfare
recipients. This welfare transition project is another example of a partnership between
community-based and public agencies--Vo-Tech schools, Adult Education programs, a
community action agency, and the Arkansas Department of Human Services at the state and
county levels.
As with this welfare demonstration project, partnerships with local banks, educational
institutions, and other community based organizations and agencies is critical to our
success. I would encourage the committee to support investment in community-based
institutions of all kinds that will further development in the Delta and I commit the Good
Faith Fund as a working partner to support such investments and subsequent projects.
PAGENO="0161"
The Good Faith Fund proudly announces
the addition of two new borrowing groups to
the Pine Bluff Center: JEMM+ and Willing
Working Females.
JEMM+ was certified on February 13,
1991. Its members are Joe Okeke of the Joe
MadokCo.,Eddie WilliamsofWilliams Bros.
Upholstery, MelvinTurner, who has ajanito-
rial service, Maxine Williams of Williams
Day Care, Annette Everett of Annette's Gifts
andSpecialty Items,andJeff Reams of Reams
Mobile Vending.
The members of JEMM+ didn't know
eachotherbeforeformingtheirgroup. Maxine
Williams was the main force in getting them
together, according to Eddie Williams.
"Maxinejustkeptcalling and calling `tilitgot
on my nerves!" Herhard work paid off when
the first4 members--Joe, Eddie, Melvin, and
Maxine--theJEMMinJEMM+--formedtheir
group. Annette andJeffjoined the group later
as the 5th and 6th members.
According to Melvin, JEMM+'s orienta-
tjon was "smooth, with no drawbackL" He
added, "I learned that many businesses fail
because of poor management. I enjoyt~d the
managementaspects of orientation."A.hnette
added, "I enjoyed th~ contacts you get to
make--and all the free advice."
According to Eddie, "It was imj~ortant
that we got to know everybody. Because of
the intensive orientatibn period, we had to
make sure we weren't jlaying. Now we send
customers to each other to keep th~ cash
flowing to our group rhembers."
Willing Working Females (WW1~') was
certified on Match 18th, 1991. Vivian
Alexander, Sharon S.tepps, and Christine
Sloan, all Mary Kay ftpresentatives, .joined
with Debbie Strawn ol' Do-Rights Clt~aning
Service to form WWE WWF also had a key
person who helped them get together. sharon
recalls, "My name wason theGFFlistforone
and ahalfyears.Thenthisenthusiasticwoman,
Vivian Alexander, got us together. There are
problems getting money to start a small busi-
ness out of your home. But we found The
Good Faith Fund."
About orientation, Vivian said, "We
learned from each other, gaining new ideas."
Sharon added, "We learned things about our-
selves. And we learned to be supportive, as
friends helping one another."
At their first center meeting, Mr. Clodis
"Mac" McCuien, the Pine Bluff center chair-
person, offered some words ofadvice: "Com-
munication is going to be the key. Don't tryto
solve your problems by yourself. Give your
group members a phone call. You'd be sur-
prised at how it can help."*
157
Fathibit I
-a bulletIn for members and frIends of The Good Faith Fund________
Vol.1, No.1 Published by The Good FaIth Fund Spring 1991
a pro~rom of Southern Development Bancorporotlon
Welcome to Sidelines
...Abulletin for you, the members and new friends of The Good Faith Fund (GFF). We'll
send Sidelines every three months and share business tips and news about GFF and self-
employment in our communities. You'll read about new borrowing groups forming an~l new
businesses getting started. You'll read about other GFF members--and maybe even yodrself!
We want Sidelines to meet your needs. Tell your Loan Representative what you'd like to
see in Sidelines. We'll do our best to put it in. And, Sidelines can be like having a (enter
meeting. When you learn something interesting, you can share it with others in Sidelihes.
New Pine Bluff Groups Certified
Chairperson"Mac McCuien and members of
JEMM+ (back row) and WWF (front row).
44-629 0 - 91 - 6
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158
~~NEY~f~ ~
Make Your Business Better
~r t~nthis page of Sidelines, you'llgetvaluable tips onhowto "MakeYourBusinessBetter."
~There will be step-by-step information on how to manage yourbusiness and your money, how
~ to sell more, and where and how you can get help for your business. There will also be ideas
~and advice about how to work with your borrowing group so that everyone wins!
~l'he TABs at the top of each "Make Your Business Better" page tell you whether the article
will be about Market, Management, Money, or Support. Keep all the articles in each cat-
egory together to look at in the future. We hope that the more you learn, the more you'll earn!
A Look at Loan Decisions
When someone in your OFF borrowing
group makes a loan proposal, you must de-
cide ifheorshehasplanned carefullyenough
to pay back the loan and help the business.
Say "Do-It Donna" is making her loan pro-
posal to your group. Here are some things to
keep in mind as your group makes its loan
decision:
1. Ask Questions! Have you ever planned
a picnic, only to find when you arrived at
your favorite spot, you forgot something
important, like salt or a can opener? The
same thing could happen when a member
plans a loan proposal. This is how "two
heads--or more--are better than one." If
Do-It Donna forgot to include transporta-
tion costs in her cash flow, you can be the
one to ask, "What about gas for making
deliveries?" Think long and hard about
what might be missing from the plan and
ASK lots of questions.
2. Remember the 3 M's-Market, Man-
agement, and Money! Every business
needs the "3 M's" to be successful: a
market (people who will buy the product
or service), management (a way to run
your business well), and money (enough
cash flow to keep you going). Be sure to
ask Do-It Donna about the 3 M's during
your loan proposal meeting:
Market
* Does she know who her target customers
are? How does she plan to reach them?
* How will she advertise her product or
service?
* Is the product or service priced right for
her target customer? Will people buy it?
Management
* Does Donna have a schedule or routine?
Does she plan her time carefully?
* Does she have all the equipment and
supplies she needs?
* Does she have space for her business?
* Is she organized?
Money
o Does the cash flow work out? Will she
make enough money to meet her ex-
penses? Are all expenses listed?
`What is the loan amount and does it make
sense? Can she borrow less and achieve
her goals? Can she afford the payments?
* Does she have good back up plans?
3. Judge Commitment! Be sure that your
group and Do-It Donna are serious about
making the business work and getting the
loan paid back. Ask yourself:
* How does she feel about her bUsiness?
Is she enthusiastic and confident?
* How do you feel about her business?
* Does Donna seek help and listen to
advice?
* How can your group support her? Pep
talks? Send her customers?
By asking good questions about Donna and
her business, you will make a better loan
decision and help her increase her earnings
and succeed in her business. Try to get as
close to a "sure thing' as possible.
Remember, you're in this together~O
Announcements
~ Chicot County-A Good Faith Fund Intro-
ductory Reception will be held on May 16,
1991, at 7:00 p.m. in the Lake Village Mu-
nicipal Courtroom. Come and learn about self-
employment and The Good Faith Fund!
C SE AR-Selling Your Crafts!, a workshop for
crafts producers, will be held onjune 8,1991,
from 9:30-3:00 in Monticello. Call OFF at
535-6233 for more Information.
t' New GFF Branch Offices- Find us in
Monticello at 102 S. Main St., tel: 367-2311,
and in McGehec at the comer of Pine and 1st
Streets.
Is your business related to recycling? If so,
check out the 1991 Recycling Conference, to
be held May 3 & 4, 1991, at the Camelot Hotel
in Little Rock. Call the OFF office for more
information.
Great acts are performed not by strength
but by persistence.
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159
PREPARED STATEMENT OF M. SCOTT LAWYER
Mr. Chairman, Congressmen, Members of the Panel, Ladies and
Gentlemen:
I appreciate the opportunity to speak with you concerning
problems facing the stimulation of economic growth in rural and
urban communities, and more particularly in minority communities.
Minority communities, for the purpose of this presentation, are
defined as those in which over fifty per cent (50%) of the
populations are from minority groups. As the Congress and members
of the banking community have known long before the passage of the
Community Reinvestment Action ("CRA"), members of minority
communities have been financially disenfranchised. Although some
progress has been made and some worthwhile programs have been
developed since the passage of the CRA; these growing minority
communities continue to be further disenfranchised at an alarmingly
increased rate.
We are all well aware of the current savings and loan debacle
which is underway in this country. Some are less familiar with the
commercial bank crisis which has been ongoing since the early
1980's and promises to continue for at least the next two years.
The net result of both of these crises is the loss of financial
PAGENO="0164"
160
institutions and branches of those institutions in minority and
otherwise undesirable communities from the perspective of
prospective purchasers. While the FDIC and RTC have diligently
pursued the sale of previously minority owned institutions to like
minority groups, their record in maintaining the character of those
institutions has been less than stellar. Their charge from the
Congress and their own internal policies is to attei~nt to maintain
the status quo. If an African American institution is placed into
a conservatorship, it is attempted to be marketed to African
Americans. While this is notable and, in the case of the RTC some
limited interim capital assistance is available; it is not
affirmative action. To be realistic, who else other than African
Americans would likely purchase such an institution? I would
submit to you that the current legislative and regulatory
environment regarding the purchase of failed minority institutions
amounts to little more than subdividing the reservation and
reselling it to the original owners. Why, in the face of the
thousands of failed institutions which must be resolved, are there
no programs designed to encourage minority groups to purchase non-
minority failed institutions which could open branches in minority
communities and restore the financial services which are almost
non-existent in those communities?
When minority communities lose a minority owned financial
institution or when branches of majority owned institutions located
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in minority communities are not purchased by other majority owned
institutions or investors; the minority community is further
disenfranchised economically. The real result is that redlining is
further exacerbated and the community sinks further and further
into economic chaos requiring more and more federal assistance.
This situation can be remedied by expanding assistance to minority
investor groups and institutions in such a manner that would
require the seed capital to come from within the minority community
but with realistic assistance from the FDIC and RTC.
I would propose the following seven point plan to be added to
the Administration's proposed banking reform bill which is now
being considered by the Congress.
1. Expand the RTC's Interim Capital Assistance
Program, originally adopted as a provision of
FIRREA to include all majority and minority
commercial banks, savings and loan
associations as well as branches of both if so
offered by the FDIC and RTC. This would also
include a mandate to the Office of the
Comptroller of the Currency to expedite the
chartering process, which now takes up to four
months, for minority investor groups.
2. Extend the repayment period for the Interim
Capital Assistance Program, now a period of
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nine months to thirty-six months with long
tern permanent financing available to minority
investor groups but only if the performance of
the new minority institution is satisfactory.
3. Amend the Community Reinvestment Act to give
credit to majority owned institutions and
their holding companies for the purchase of
preferred stock from minority owned
institutions or their holding companies and
allow such purchases of preferred stock to be
accomplished with pretax dollars. The
preferred stock purchased should be required
to meet the bank regulatory standards of Tier
1 capital.
4. Require by statute the allocation of twenty-
five percent (25%) of all asset sales by the
FDIC and RTC to be offered first to minority
institutions on a negotiated basis rather than
through the current bid process which favors
large majority owned financial institutions.
5. Allocate twenty-five percent (25%) of all FDIC
and RTC asset management contracts to minority
owned financial institutions and companies on
a negotiated basis as opposed to the current
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bid process. If the contracts cannot be
successfully awarded on such a basis, then
have them bid through the normal bid process.
With regard to this point of the program,
amend the Community Reinvestment Act to give
credit to majority owned institutions that
either subcontract with minority owned
institutions or companies when the majority
owned institution is awarded such asset
management contracts or who assist the
minority institutions or companies when the
contract is awarded to the minority owned
business.
6. Amend existing tax laws to permit minority
owned institutions that purchase failed
institutions or branches to assume the tax
loss carryforward of the failed institution or
a prorata portion of same in the case of
branch purchases. This provision should be
retroactive to the effective date of FIRREA.
In addition, any tax loss carryforward
acquired by a minority institution pursuant to
this amendment could be passed through to one
acquirer. This portion of the program would
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greatly stimulate minority investors to
purchase what are now unwanted institutions
and branches and further enhance the build-up
of capital in minority communities.
7. Amend existing tax laws to permit the use of
accelerated depreciation on all fixed assets
and leasehold improvements purchased from the
FDIC and RTC by minority owned institutions.
All seven points of this program are critical to revitalizing
minority ownership of financial institutions which will
realistically serve the needs of minority communities as opposed to
paying lip service.
The facts are that the number of financial institutions in
this country is rapidly declining. Minority communities created by
the change in demographics over the past twenty years are losing
entire institutions and branches at a disproportionate rate since
majority institutions and investors choose not to purchase them in
favor of purchasing institutions in majority or otherwise more
financially desirable communities. The loss of these institutions
and branches create disproportionate economic effects in minority
communities which currently requires and will continue to require
increasing federal assistance to those communities on a much larger
scale. The program proposed would be much more sound economically
than the current and future forms of federal assistance which are
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and will be required by these minority communities.
I would anticipate resistance to the program outlined from the
FDIC and RTC since their handling of resolutions of failed
institutions which affect and concern minority communities and
investors will be closely scrutinized. In the aftermath of the
television coverage of the handling of Freedom National Bank of New
York or the recent case of Adams National bank of Washington we
understand that such transactions need to be scrutinized. More
importantly, minority ownership of financial institutions is a
proven and effective way to provide economic stimulation to
minority communities. Such ownership, on a broad scale basis, will
only occur if federal assistance is expanded to at least include
the points in the program outlined. The tax incentives outlined
would have a de minimus effect on the budget deficit. The
expansion of the Interim Capital Assistance Program should have
been incorporated in that program from its inception. The
allocation of asset sales and asset management programs are only
fair in light of minority populations percentages. The suggested
amendments to the Community Reinvestment Act will stimulate the
investment of dollars, expertise and commitment by majority owned
institutions in the minority community. This problem must be
addressed now and by this body.
I would also like to briefly touch on one other proposed
program which could also have a profound effect on minority as well
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as majority communities. Earlier this year, my colleagues Hiram
Eastland and Wilbur Hawkins worked with Congressman Espy to draft
legislation for the ŕreation of a regional development bank for the
seven state Mississippi Delta Region. Such an institution would be
chartered under this legislation to specifically address the needs
of communities in this region that require financial services not
normally provided by traditional commercial banks. This funding
entity could work with banks in the region to increase the amount
of capital available for regional investment. The regional
institution could, for example, guarantee loans or participate in
loans with banks in the region on various projects. The regional
development bank would be initially capitalized by preferred stock
of the bank being issued to the United States Government in a
manner similar to banks which were recapitalized after' the
Depression by the Reconstruction Finance Corporation. That is to
say that once the bank is capitalized and operational investors
would be sought to invest in the common stock of the bank. The
proceeds of the common stock sales and bank earnings would be
devoted to retiring the preferred stock initially issued.
The institution envisioned would generate funds for lending
and investment through the sale of notes and debentures. As
previously noted, its lending function would target areas and
promising enterprises not currently being adequately serviced by
conventional lenders. As this legislation is further developed, we
will be seeking your assistance and support on this project.
I appreciate the opportunity to address the members of this
Task Force on what I believe is at least a partial answer to the
problem of stimulating economic growth in both rural and urban
communities.
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PREPARED STATEMENT OF RANDLE RICHARDSON
Thank you Mr. Chairman and Members of the Task Force.
I am here today at your invitation to discuss the programs
of the Farmers Home Administration relating to community
development.
Although I can speak in detail only about those
programs for which I am responsible in Tennessee, I have
been provided information on national program levels by our
headquarters in Washington.
With me today are Mr. James Huff, State Director of
Farmers Home in Mississippi, and Mr. Frank Shoemake, Chief
of the FmHA Community and Business Program in Mississippi.
As the designated witness, I have a prepared statement. Mr.
Huff and Mr. Shoemake will be available to answer any
questions you might have about their operations.
FmHA's community and business programs fall into three
primary categories: water and waste, community facilities,
and business and industry. Direct and guaranteed loans are
made in all three categories, with the business and industry~
program being nearly all guarantees. The rural housing and
farmer programs also contribute to viable community
development.
Funding allocations for the current fiscal year are:
$500 million for water and waste direct loans to
provide facilities in communities up to 10,000 population.
$35 million for water and waste guaranteed loans.
$301 million for water and waste grants to enable the
most needy communities to have water and sewer systems.
$100 million for Community facility direct loans for
such projects as health clinics and fire stations in
communities under 20,000 population.
$25 million for community facility guaranteed loans.
$100 million for Business and industry loans made by
commercial lenders and guaranteed by FmHA in communities
under 50,000 population.
$31.5 million for Intermediary relending loans made to
private nonprofit and public entities to support revolving
funds for local business development -- community size
cannot exceed 25,000.
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$20.8 million for Rural development grants to stimulate
local economic development.
Funding for rural housing this fiscal year totals more
than $2.6 billion. The major share, $1.4 billion, is
devoted to low and very-low-income single-family housing.
New to the program this year is guaranteed loans for which
$100 million is available. That is divided $70 million in
unsubsidized loans and $30 million for interest-assisted
loans.
Rural rental housing is funded at $574 million. Other
assistance such as housing repair loans and grants, farm
labor housing and rental assistance account for the balance
of the $2.6 billion.
Over the years, FmHA has invested more than $23 billion
in community and business loans and grants and almost $59
billion, in the rural housing program.
FmHA has long been an active participant in the efforts
of local communities to improve basic services for their
residents and strengthen their economic position through job
creation and preservation.
In our immediate four-State area, Tennessee,
Mississippi, Arkansas and Louisiana currently have a
combined portfolio of 2,177 such projects totaling $820
million financed by FmHA loans. In the last five fiscal
years, 355 water and waste grants have been made for $106
million.
In loans alone the total represents almost six projects
for each of the 316 counties and parishes in the four-State
area. On a dollar basis, that averages out to $2.6 million
per county or parish.
By States, the figures are 338 loans totaling $165
million and 79 grants totaling $22 million in Tennessee; 622
loans totaling $249 million and 109 grants totaling $22
million in Mississippi; 482 loans totaling $197 million and
100 grants totaling $40 million in Arkansas; and 426 loans
totaling $209 million and 67 grants totaling $23 million in
Louisiana.
Here in Tennessee, we have an overall portfolio of $1.7
billion. About $1 billion is in housing loans, $500 million
is in farm loans, $140 million is in community loan and $40
million is in business and industry loan guarantees.
We currently have a B&I caseload of 33 loans with about
$25 million outstanding. The fiscal year 1991 allocation is
$2,789,000. Our peak year in this program was ten years ago
when we had 137 loans totaling $150 million.
In Tennessee, we have a B&I program chief and one
technician. Between them, they participate in presentations
by the Tennessee Bankers Association and in Business
Development Week programs sponsored jointly by the Tennessee
Valley Authority, Small Business Administration and local
chambers of commerce, rural revitalization conferences and
seminars for business people sponsored by the private
lending sector.
Business development week usually involves a week's
stay in a community making public film presentations,
distributing program literature and engaging in widespread
discussions with community leaders, lenders, potential
borrowers, and business people.
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We make it a point to let lenders know when there is a
change in the program. We try to stay in touch with them as
a matter of our regular activity.
As with most human endeavors, there are successes and
some failures. For example:
In Crockett County, a father and son borrowed $112,000
to set up a supermarket in their community. People were
driving 20 miles to buy groceries, and responded
enthusiastically when given a change to shop locally. That
loan has been paid in full, and the father and son now have
stores in several other towns in Crockett County.
- In Bean Station, an unincorporated community of about
400 population in East Tennessee, three men took over a
defunct upholstered furniture plant in 1973. Within a few
months their initial investment had been about eaten up,
but they persisted and managed the company to good profits.
With a million-dollar B&I loan from a local bank,
guaranteed by us, they modernized and tripled the size of
their plant. Eight years later, the last year before they
paid off the loan and the last year we were privy to their
books, they paid almost $2 million in corporate federal
income tax. Bean Station Furniture Factory continues today
as a stable employer of 175 people.
If you do much driving in the Southeast today, you
probably have seen a Cracker Barrel Old Country Store. The
company was organized in 1969 and had grown to 16 stores by
1978 -- and needed a better financial structure.
With a $3.3 million B&I loan, Cracker Barrel
restructured and expanded, from 445 employees in 1978 to
more than 10,000 in 100 stores in eight states now. They
recently concluded a stock sale that netted over $50
million. They don't need us anymore, but we are happy to be
able to say we were able to lend a hand when they needed it.
mall three of these examples, the FmHA guarantee
resulted in benefits to the borrowers and to the lenders.
Stable jobs were created and the economic environment of the
community enhanced.
The borrowers were provided an opportunity to start and
grow in a rural community while using the private lending
sector as a source of credit.
The lenders were, and still are, able to make larger
and longer term loans than they are willing to make
normally; they can sell the guaranteed portion of the loan
to bring in outside capital; they can tailor loan terms more
in line with the business cash flow repayment ability and
the life of the asset being acquired; and they now can count
the entire amount of the loan toward their Community
Reinvestment Act goals.
In a broader sense, the B&I program encourages stable
employment in rural areas. This helps prevent flight to
other, unknown areas, provides employees with steady income
that supports other businesses serving the area, and helps
them reach the American dream of owning their own home while
also enjoying the utilities and services taken for granted
by urban residents.
Mr. Chairman, you also asked about the intermediary
relending program under which we lend an intermediary -- a
nonprofit corporation -- up to $2 million at 1 percent
interest with a 30-year payback.
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The intermediary -- through a revolving fund -- relends
to local businesses in rural areas at a rate less than that
charged by commercial lenders. This gives the business a
better chance of survival due to less pressure on cash flow
to meet debt service.
This program, too, involves local lenders because the
loan to the ultimate recipient is limited to the lesser of
$150,000 or 75 percent of the project cost. Involving local
lenders also puts credit decisions in the hands of people
with finance and business experience and uses their
knowledge and experience to help plan and control the growth
of their community.
In Tennessee, we have closed one intermediary relending
loan for $2 million and have issued a letter of conditions
on another one for almost $1.9 million.
We advance the funds to the intermediary on a 30-day
need basis. We have made two advances totaling $1,030,000
involving eight (8) ultimate recipients which will create
290 jobs for our cost per job of $3,551. Funds from other
sources total about $1.5 million for the eight projects,
meaning our loan funds account for about 40% of the total
involved in the projects.
That is a good mix of private and public funds aimed
toward economic development.
This completes my statement Mr. Chairman. We will be
glad to answer any questions you might have.
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PREPARED STATEMENT OF OLIVIA DOBBINS
The Black Business AssOciation was formally chartered in 1976 as a non-
profit 501 (c)(6) organization The BBA is an umbrella advocacy and service
organization. We serve as a representative on many fronts for the causes and
problems of our members, and other "socially & economically" disadvantaged
businesses in the region. Our mission is to positively advance the Black
community through upgrading its economic opportunities and position.
In December, 1989 we began a series of meetings with local lending officers,
the local FDIC, other organizations, and individuals in the financial field . From
these meetings the BBA and others realized it was time to bring the community
together to create an innovative plan truly capable of addressing the sizable
problem. We are working with the Shelby County Community Reinvestment
Coalition on a joint CRA-responsive proposal for:
1. The creation of a Comprehensive Business Development Plan to be
produced by representatives of the banking community, local government,
the BBA, Black CPA's, LeMoyne Owen College, Shelby State Community
College, Memphis State University, and other concerned organizations.
2. Funding of an economic study of the African American community to
assess for business and housing requirements.
3. Local lending institutions with CRA requirements to join with the
Tennessee Valley Authority in creating a capital pool that will provide debt
and equity capital for businesses, especially those locating in targeted census
tracts and capable of providing entry level jobs and training opportunities
for disadvantaged residents. This fund would coordinate the diverse loan
funds, and technical and management support programs currently
available, yet underutilized, in the 29 counties TVA subregion. The plan
would also link the products and land resources of north Mississippi to
the distribution capabilities of Memphis.
4. Local lending institutions to establish financial & technical assistance
partnerships with community based group and organizations that seek to
revitalize target neighborhoods, and provide housing.
Minority businesses need assistance from the Federal Government in the
form of:
1. Business Development grants to help buy equipment.
2. Programs to provide low interest loans, and assist with bonding.
3. Timely information on govermnent sponsored business seminars.
4. Removal of the barriers that make it more difficult for black businesses
to compete.
5. Increased minority participation in hearing, panel discussions, and
committees that pertain to business and economic development.
6. Requirements of a "Community Reinvestment Plan" by majority cor-
porations participating in government contracts. This should include joint
business ventures between majority and minority companies on public
sector projects and private sector projects.
7. Incentives to
a. contractors and contractor associations to train and assist minority firms.
and to train socially and economically disadvantaged individuals.
b. majority corporations for joint ventures in both public and private
sector contracts.
c. majority corporations that "Adopt-a Neighborhood".
Memphis/Shelby County has demographics not found in any other
region of the U.S. The minority population has increased to 55-60% Memphis
and 42.7% Shelby, yet there remains a vaste disparity in economics. According
to 1984 ED & A figures, we have 39.8% of the TVA subregion's minority
population. We are therefore the ideal position to share ideas on improving
the economic climate.
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PREPARED STATEMENT OF WINTHROP P. ROCKEFELLER
Mr. Chairman and members of the Committee, I want to say that it is an honor to appear
here in my role as Chairman of President Bush's Council on Rural America. On behalf of
the Council's Vice Chairman, Governor Kay Orr, and my fellow Council members, it is a
pleasure to share with you the objectives of the President's Council on Rural America. I
would like to express our enthusiasm for our work in support of rural America.
Rural communities and their economic outlooks are changing. Traditional employment in
the natural resource industries and basic manufacturing has declined. The shift in the global
economy requires that rural Americans be internationally competitive. For rural America
to remain a strong and integral part of our country, we need to understand its diversity and
complexity.
The President's goal is "to improve the employment opportunities, incomes, and well-being
of rural America by strengthening its capacity to compete in the global economy.' To
achieve this goal, the President's Initiative calls for a more effective approach to rural
development. This approach includes a central role for the private sector, a broad sharing
of rural development benefits, new partnerships between units of government and a long-
term strategic plan.
The President's Initiative on Rural America outlined six recommendations for "rural
economic development for the 90's." The Council on Rural America is one of the six.
As a national effort, the President's Initiative provides a coordinated and comprehensive
approach to rural development. The federal government begins the effort but with the
acth~e participation of state and local governments working with the private sector.
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The six recommendations are:
1. The establishment of a permanent working group on rural development as partof
the President's Economic Policy Council;
2. The appointment of the President's Council on Rural America;
3. The creation of state rural development councils;
4. The targeting of federal rural development programs;
5. The demonstration of the effectiveness of these programs;
6. Better access to rural information- by rural decision-makers.
I am here today to give you a brief status report on each of these areas and then share some
specifics on the President's Council.
Economic Policy Council Working~Group on Rural Development--The Chairman of the
President's Economic Policy Council is Treasury Secretary Nicholas F. Brady. Secretary
Brady asked the Secretary of Agriculture to chair the Economic Policy Council Working
Group on Rural Development. Eleven executive departments, two independent agencies
and two White House bodies are members of the Council Working Group (list attached).
It sets the policy for the President's Initiative. It meets quarterly. Agriculture Secretary
Edward Madigan has called the next meeting in September. In addition, a group of senior
government program officials meets twice a month to provide the staff support to the
Council Working Group and to manage the implementation efforts.
State Rural Development Councils--The key to the President's Initiative is the State Rural
Development Councils now active in Kansas, Maine, Mississippi; South Carolina, South
Dakota, Texas, Oregon and Washington. These councils are the pilot projects which include
federal officials from agencies with rural development programs, state officials, local
government representatives and members of the private sector. The full membership
participated in an intensive Rural Development Economic Institute. They produced
inventories of rural development issues and resources in their states. Now they are
developing long-range strategic plans to implement rural development programs. All levels
of government in cooperation with the private sector are working to implement these
programs. The State Rural Development Councils will be expanded to additional states
during fiscal year 1992.
Demonstration and Targeii~g of Federal Programs--These recommendations will be
implemented by the State Rural Development Councils in fiscal year 1992. Projects will
demonstrate comprehensive and innovative approaches and methods of rural development.
They will encourage federal inter-agency and inter-governmental cooperation.
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Rpral Ii~formption CeiUeir-The Rural Information Center is the single most important
source of ready information about rural development within the federal government. It is
a joint project of the USDA National Agricultural Library and the Extension Service.
During FY 91 federal departments and agencies have made active commitments to the
Rural Information Center. The Department of Health and Human Services has funded a
Rural Health Information Clearing House. The Small Business Administration is
participating in a pilot study of small business information. Farmers Home Administration
is providing a staff position. Other federal agencies are exploring participation in support
of the center.
The President!~Council on Rural America--President Bush formed the Council on July 16,
1990. Its role is to advise the President and his Economic Policy Council on what the
federal government can do to improve rural economic development. The seventeen
members of the council (list attached) have met twice. The group will meet next in late July
1991. Subgroups are studying four areas: 1) economic issues, 2) institutional and
infrastructure development, 3) individual development and lifestyle essentials and 4)
implementation factors and funding. We will hold a series of public meetings in the fall and
have scheduled a January 1992 meeting with representatives from each of the Executive
Departments.
The Council adopted the following mission statement:
"To advise the President on how rural Americans can improve their quality of life,
enhance their economy and improve delivery of federal services and resources."
The objectives of the Council are:
1. To articulate a creative vision for rural America;
2. To outline an innovative, inter-departmental structure for developing rural policy;
3. To manage the array of rural programs in support of the President's and his
Council's vision for rural America;
4. To involve local leaders as well as state and federal government and the private
sector in order to implement rural development programs.
Mr. Chairman, I would be pleased to respond to questions.
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President's Council on Rural America
WINThROP P. ROCKEFELLER, of Arkansas. Chairman. Currently, Mr. Rockefeller
serves as Chairman of the Board and CEO of Winrock Farms, Incorporated, Little Rock,
Arkansas.
KAYA. ORR, of Nebraska. ~Iice Chairman. Former Governor of Nebraska and a former
member of USDA's National Agricultural Research and Extension Users Advisory Board.
Ms. Orr also served as Treasurer of Nebraska.
HELDALBARTON, of Kentucky. Mrs. Barton serves as President and Chairman of the
Board of Health Systems Incorporated in Corbin, Kentucky.
JOIIILE. BOURNE~Jr,. of South Carolina. Currently, Mr. Boume serves as Mayor of
North Charleston, South Carolina. Member of the Board of Directors of Cooper River
Federal Savings and LoanAssociation.
NORMAN BROWN, of Michigan. Currently, Dr. Brown serves as President and Chief
Programming Officer of the W. K Kellogg Foundation in Battlecreek, Michigan. Serves
on President Bush's Thousand Points of Light Foundation.
HUGH M. FIELD, of Iowa. Mr. Field is a Partner in the law firm of Beecher, Rathert, Field,
Fister, Walker and Morris in Waterloo, Iowa. He also serves as City Attorney, City of
Waterloo. - -
OTIS 1... FLOYD~Jt, of Tennessee. Dr. Floyd serves as Chancellor of the Tennessee
Board of Regents, in Nashville.
RALPH HOFSTAD. of Minnesota. Mr. Hofstad is the Founder of Hofstad Consultants
and recently served as President and Chief Executive Officer of Land O'Lakes,
Incorporated. He is a Director of CARE, N.Y.
CHARLiE E. XRUSE, of Missouri. Mr. Kruse is Director of the Missouri Department of
Agriculture in Jefferson City, Missouri.
CHARLES I. MOYER, of Kansas. Currently, Mr. Moyer serves as Chairman of the Board
and Executive Vice President of the First National Bank of Phillipsburg in Phillipsburg,
Kansas.
-more
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-2-
~ATHV S. NOVINGER, of South Carolina. Currently, Mrs. Novinger serves as Senior
Vice President of Administration and Government Affairs for SCANA Corporation in
Columbia, South Carolina.
REYNALDO U. ORTIZ of Washington. Currently, Mr. Ortiz serves as President and Chief
Operating Officer for US West NewVector Group in Bellevue, Washington.
UNWOOD E. PALMER. Jr.. of Maine. Currently, Mr. Palmer Is President of Capitol
Consultants, Inc. and a lobbyist for Eaton, Peabody, Bradford and Veague in Augusta,
Maine~ He is the owner and operator of Tree Farm and Land Development Companies.
ALBERT HAROLD QUIE of Minnesota. Currently, Mr. Quie serves as President of the
Prison Fellowship Ministries in Minnetonka. He is a former Governor of Minnesota and
served a U. S. Senator from Minnesota.
STEVEN KRIS SYDNESS, of North Dakota. Currently, Mr. Sydness is Director of
International Markets, Great Plains Software, Inc., in Fargo. He also serves on the Board
of City Commissioners in Fargo, North Dakota.
BILL WALKER, of Mississippi. Mr. Walker was formerly Chairman of the Board of W. E.
Walker Stores, Incorporated, and has served on the Boards of the Deposit Guaranty Bank
and the Mississippi Economlo Council.
DONALD KESNER WEILMUNSTER, of Idaho. Currently, Mr. Weilmunster isthe owner
of Fort Boise Cattle Company which consists of raising cattle, farming, timber, and mining.
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PRESIDENTIAL INITIATIVE ON RURAL DEVELOPMENT
EPC WORKING GROUP ON
RURAL DEVELOPMENT
May 31, 1991
Douglas J. Aller
Deputy Assistant Secretary
for Economic Development
Economic Development Administration
U. S. Department of Commerce
Room 7804 Herbert C. Hoover Building
Washington, DC 20230
Phone: 202-377-4067 FAX: 202-377-0995
Mr. Schuyler Baab
Deputy Under Secretary
U.S. Department of Health and
Human Services
Hubert H. Humphrey Building, Room 600E
200 Independence Avenue, S.W.
Washington, DC 20201
Phone: 202-475-6060 FAX: 202-245-6699
Nicole Ballenger
Senior Staff Economist
Council of Economic Advisers
Room 323
Old Executive Office Building
Washington, DC 20500
Phone: 202-395-5040 FAX: 202-395-6947
Paul R. Bardack
Deputy Assistant Secretary
U.S. Dept. of Housing and Urban Devel.
Room 7214
451 Seventh Street, S.W.
Washington, DC 20410
Phone: 202-708-0566 FAX: 202-708-3363
Bruce Bartlett
Deputy Assistant Secretary
U.S. Department of the Treasury
Main Treasury, Room 3445
1500 Pennsylvania Avenue, N.W.
Washington, DC 20220
Phone: 202-566-2768 FAX: 202-786-8452
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* Xs. Debra Bowland
Acting Assistant Secretary. for Policy
U.S. Department of Labor
Frances Perkins Building, Room 52006
200 Constitution Avenue, N.W.
Washington, DC 20210
Phone: 202-523-6181 FAX: 202-523-9216
The Honorable Betsy Brand
Assistant Secretary
U.S. Department of Education
Room 4090
330 C Street, S.W.
Washington, DC 20202
Phone: 202-732-2251 FAX: 202-732-3897
Robert Grady
Associate Director
Office of Management and Budget
Rm. 260, Old Executive Office Bldg.
17th & Pennsylvania Avenue, N.W.
Washington, DC 20503
Phone: 202-395-4844 FAX: 202-395-5730
The Honorable L. Joyce Hampers
Assistant Secretary
Economic Development Administration
U.S. Dept. of Commerce
Room 7804 - Herbert C. Hoover Building
14th & Constitution Avenue, N.W.
Washington, DC 20530
Phone: 202-377-5081 FAX: 202-377-0995
Walter E. Hill
Assistant Under Secretary
Office of Small Comm. and Rural Devel.
U.S. Department of Agriculture
Room 2l9A Administration Building
14th and Independence Avenue, S.W.
Washington, DC 20250-0100
Phone: 202-447-8653 FAX: 202-447-2080
PTS: 447-8653 FTS FAX:
The Honorable Anna Eondratas
Assistant Secretary
Community Planning and Development
U. S. Department of Housing
and Urban Development
Room 7100
Washington, DC 20410
Phone: 202-708-2690 FAX: 202-708-3363
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The Honorable Edward R. Madigan
Secretary
U.S. Department of Agriculture
14th & Independence Avenue, S. W.
Washington, DC 20250-0100
Phone: 202-447-3631 FAX: 202-447-2166
447-3631 FTS FAX:
The Honorable James 0. Mason
Assistant Secretary
U. S. Department of Health and
Human Services
Room 716G Hubert H. Humphrey Building
200 Independence Avenue, S. W.
Washington, DC 20201
Phone: 202-245-7694 FAX: 202-245-6963
The Honorable S. Anthony McCann
Assistant Secretary
U.S. Department of Veterans Affairs
Room 500
810 Vermont Avenue, N.W.
Washington, DC 20420
Phone: 202-233-8041 FAX: 202-535-8525
Patrick Murphy
Deputy Assistant Secretary
U.S. Dept. of Transportation
Nassif Building, Room 10228
400 Seventh Street, S.W.
Washington, DC 20590
Phone: 202-366-4551 FAX: 202-366-7127
Gary Nodler
Kansas City Regional Administrator
U.S. Small Business Administration
911 Walnut Street
13th Floor
Kansas City, MO 64106
Phone: FAX: 8-867-5559
FTS: 867-3316 FTS FAX: 867-5559
Robert M. Rauner
Director of Economic Adjustment
Office of Economic Adjustment
U.S. Dept. of Defense
The Pentagon
Room 4C767
Washington, DC 20301-4000
Phone: 202-697-~.55 FAX: 202-695-1334
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The Honorable Patricia Saiki
Administrator
U.S. Small Business Administration
409 Third Street, S.W.
Washington, DC 20416
Phone: 202-205-6605 FAX: 202-205-6429
The Honorable Rockwell A. Schnabel
Deputy Secretary
U.S. Department of Commerce
Rm. 5838 Herbert C. Hoover Bldg.
14th & Constitution Avenue, N.W.
Washington, DC 20230
Phone: 202-377-4625 FAX: 202-377-8610
John Schrote
Acting Assistant Secretary
U.S. Department of the Interior
18th & C Streets, N.W.
Rm. 6116, Interior Building
Washington, DC 20240
Phone: 202-208-6182 FAX: 202-208-5048
The Honorable Roland R. Vautour
Under Secretary
Small Community and Rural Development
U.S. Department of Agriculture
Room 219-A Administration Bldg.
14th and Independence Avenue, S.W.
Washington, DC 20250-0100
Phone: 202-447-4581 FAX: 202-447-2080
Robert H. Wayland, III
Deputy Assistant Administrator
Office of Water
U.S. Environmental Protection Agency
Room 1035, East Tower
401 1! Street, S.W.
Washington, DC 20460
Phone: 202-382-5711 FAX: 202-382-5711
Wylie Whisonant
Deputy Under Secretary
U. S. Travel & Tourism Administration
U.S. Department of Commerce
Rm. 1865 Herbert C. Hoover Building
14th and Constitution Avenue, N.W.
Washington, DC 20230
Phone: 202-377-0136 FAX: 202~377-4279
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Rural
Economic
Development
for the. 90's
A Presidential Initiative.
PAGENO="0186"
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THE WHITE HOUSE
Office of the Press Secretary
For In~ediate Release January 22, 1990
STAT~4ENT BY THE PRESS SECRETARY
Today the President ordered the implementation of a report
f rem the White House Economic Policy Council's Working Group on
Rural Development, formed in April 1989 to analyze and evaluate
existing Federal rural development programs and devolop policy
options for improving their coordination and execution.
The President has instructed Secretary of Agriculture
Clayton Yeutter to implement six proposals designed to improve
the coordination of rural development programs and servo as a
catalyst for future initiatives. They are:
Preside _C~ncil on Rural America. A Presidential
Council will be formed with membership drawn from farmers,
state and local governments, rural businesses and high
technology industries to advise the Federal government on
improving Federal rural development policy.
State Rural Devel~pment Councile. Each state will establish
a Rural Development Council to coordinate Federal rural
development programs in its region. Council members will
include representation from the office of the governor and
the state representatives of all Federal departments
administering rural development programs locally. The
council will identify and assess local rural development
needs and coordinate the delivery of Federal and state rural
development programs to meet those needs.
Bural Development Demonstration P_r~arazi. Under existing
budgetary resources and programs, a series of Rural
Development Demonstration Programs will be organized to:
identify regional rural development needs; develop plans of
action to meet those needs; bring together the necessary
resources; and evaluate the process and its results for
possible application on a broader basis.
Rural Development Technical Assistance Center and Hot ~
The U.S. Department of Agriculture will establish a center
to provide technical assistance and detailed information on
Federal programs that serve rural communities. The center
will also link callers with Federal, state and regional
program officials who can provide additional assistance.
-MORE-
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tra3ur~veJ~p~~ Given limited
Federal budget resources, the Federal government will
attempt to target rural development programs on those
activities that generate the maximum net oconomic benefits.
t~hile most Federal rural development programs allocate funds
by formula, programs with discretionary accounts will
allocate funds to those activities where the payoff. is
greatest.
I~cQz1omic PoUcv Council's Working Gr~u~~ on Ru~
~yeiopment~. This working group will become a standing
~ommfttee of the President's Economic Policy Council and
will implement any rural development initiatives developed
by the President's Council on Rural America and approved by
the Administration,
Secretary Teutter.will hold a press availability at the U.S.
Department of Agriculture today at 10:30 a.m. to discuss these
initiatives.
FOR FURTHER INFORMATION CONTACT: At the U.S. Department of
Agriculture, Kelly Shipp (202) 447'4623.
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WORKING GROUP on RURAL DEVELOPMENT
PRESiDENTiAL RURAL DEVELOPMENT INITIATIVE
Room 5405 South BuUdlng
I (~~1II U.S. DEPARTMENT OF AGRICULTURE
W iA~' WASHINGTON, D.C. 20250
(202) 245-7583
FAX 202/382-1077
PRESIDENTIAL INJTL4TIVE ON RURAL DEVELOPMENT
SUMMARY OF PROGRESS
July 9, 1991
SUMMARY
Two of the major action items of the President's Rural Development Initiative are the
President's Council on Rural America, and the pilot State Rural Development Councils
(SRDC). President Bush has appointed seventeen members of his Council and they are
actively pursuing a plan of work with recommendations to be to the President in the latter
part of 1992. In cooperation with State and local gnvernments, eight pilot SRDCs have
been organized. An Executive Director is assigned to each SRDC, methods for flna.ncing
the Councils worked out, and working relationships developed with State and local
governments, as well as the private sector. A National Rural Economic Development
Institute was organized which provided rural development training for the Washington-based
inter-departmental Initiative staff; a one-week intensive course for the SRDC members
(Federal, State, local and private interests), and a three day follow-up session.
A twenty one member Economic Policy Council Working Group on Rural Development
(EPC/WGRD), chaired by the USDA Secretaiy, Edward R. Madigan, represents fifteen
departments two independent agencies, and two White House bodies. The EPC/ WORD
is the policy making body for the initiative. A Management Group of inter-departmental,
senior program managers advises the EPC-WGRD on the implementation of the Initiative.
During the next 6 months the President's Council will hold three working sessions and
conduct a series of public hearings.
Based on rural development needs and resource assessments, the SRDCs will be writing a
SRDC strategic plan, and implementing demonstration programs. The pilot phase will
conclude with an assessment of the SRDC implementation models by the end September,
1991. At that time, other States will be invited to participate the Rural Development
Initiative.
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2
THE INITIATIVES
The Presidential Initiative on Rural Development, announced in January 1990, called for
the following major steps:
* Establish the Economic Policy Council Working Group on Rural
Development a permanent Cabinet-level policy body with responsibility for
implementing the President's Rural Initiative;
* Create a President's Council on Rural America to advise the President on
how the Federal government can improve rural development policy and
programs;
* Create State Rural Development Councils of rural development officials to
conduct comprehensive federal/state rural development. programs;
* Demonstrate promising rural development practices, and improve the
targeting of Federal rural development resources; and
* Expand the provision of rural development information through the Rural
Information Center.
PROGRESS
This report updates the progress achieved to date in implementing the President's Rural
Development Initiative.
EPC Working Group on Rural Development
The President's Initiative called for the Economic Policy Council Working Group on Rural
Development (EPC-WGRD), as a Cabinet-level, inter-departmental decision-making body,
to exercise continuing responsibility for managing implementation of the Presidential Rural
Development Initiative. The EPC-WGRD meets three to four times a year. The next
meeting is being scheduled for mid~September, 1991.
A staff-level Monday Management Group (MMG) of senior program managers, operating
under the authority of the EPC-WGRD, meets regularly to provide detailed definition to
the Presidential Initiative. This group meets on the second and fourth Monday of the
month, is chaired by the USDA Deputy Under Secretary for Small Community and Rural
Development, and rotates meetings among the EPC-WGRD departments. The MMG is
responsible for the design of an implementation strate~', and for giving definition to the
action items contained in the Presidential Initiative. The MMG operates through project
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186
3
Task Forces:
* State Council Coordinating Task Force (no longer operational) helped to
define the role for the SRDCs, determined methods for staffing, and
developed the structure under which SRDCs were organized;
* Rural Economic Development Institute Task Force (no longer operational)
defined the curriculum for the National Rural Economic Development
Institute training for SRDC members;
* Demonstration Task Force is drafting the guidelines for implementing SRDC
demonstration projects,the Demonstration and Targeting action item in the
Presidential Initiative;
* Federal Employee Trainuzg Task Force is responsible for defining rural
development training needs for Federal employees and assessing the capacity
of the existing training system to meet those needs;
* Outcome Monitoring Task Force is responsible for evaluating the success of
SRDCs and the methods used to support them during the pilot phase;
* Public Affairs Management Task Force is responsible for preparing public
* information materials in support of the Presidential Initiative;
* &pansion Task Force is responsible for designing the procedures for moving
the SRDCs from the pilot phase of the eight States to full national
implementation in all 50 states and territories; and,
* Rural &onomic Development Resource Centers is reviewing a proposal to
utilize the Small Business Administration 503/504 Certified Development
Companies for accessing inter-departmental rural economic development
financing,
As the Initiative is implemented, the EPC-WGRD will continue its oversight role in rural
development policymaking, including the following:
* The EPC-WGRD will ensure the continued availability of inter-departmental
resources to support the initiative and promote collaboration on the Initiative
among Federal departments and agencies;
* The EPC-WORD will serve as a policy-making body to resolve inter-
departmental issues identified by State Councils and elevated to the EPC-
WORD for national policy action
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187
4
The EPC-WGRD will serve as the point of contact between the Federal
executive branch, at the national level, and state governments to discuss and
recommend appropriate policy responses to Federal-State issues that are
identified through Federal-State activities in the SRDCs.
President's Council on Rural America
The President's Council on Rural America was formed by Executive Order c~12720 to advise
the President on rural development policy needs and to provide guidance in setting a
national policy agenda for rural economic development. A seventeen member Council has
received Presidential Commissions, and a chair (Winthrop P, Rockefeller) and vice-chair
(Governor Kay Orr) has been appointed. The orientation meeting of the Council was held
in Washington, D.C., on January 23-24, 1991. At this meeting the Council was briefed on
current conditions in the rural economy, rural development procedures, and steps being
taken to implement the Presidential Initiative.
A working session was held in Morrilton, Arkansas, on May 28-19, 1991. At this meeting
the Council adopted the following mission statement: `To advise the President on how rural
Americans can improve their quality of life, enhance their economy and improve delivery
of Federal services and resources." The Council organized four work groups: (1) Economic
Issues, (2) Institutional and Infrastructure Development, (3) Individual Development and
Lifestyle Essentials, and (4) Implementation Factors and Funding.
Future meetings are scheduled for July 30-31 (Kennebunkport, Maine), September 23-25,
November 25-27; and, during 1992, January 27-30 (Williamsburg, Virginia), March 24-26,
and May 25-27.
State Rural Development Councils
The SRDCs are the key element of the Presidential Initiative. The Councils are composed
of the heads of State offices of Federal agencies with rural development responsibilities;
Federal regional representatives in the case of agencies without State-level offices;
representatives of State government agencies; representatives of local governments; and
representatives from the private for-profit and non-profit sectors.
The State Councils have the following responsibilities:
Mission : To improve the employment opportunities, incomes, and well-being
of the Nation's rural people by strengthening the capacity of rural America to
compete in the global economy.
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188
5
* Goal: To develop and implement a strate~' for the efficient and effective
employment of public and private, rural development resources within the
State.
* Objectives: (1) To develop, at the state-level, inter-departmental and inter-
governmental collaborative rural development programs; (2) To involve the
private sector in the collaborative efforts; (3) To ensure that the benefits of
rural development are widely shared among rural citizens; and, (4) To
undertake a comprehensive, long-term and strategic approach to rural
development efforts.
* InitialAction Steps: (1) Inventory of State rural economic development needs-
-to be completed during FY `91; (2) Inventory of the State rural economic
development resources-to be completed during FY `91; (3) Develop a long-
term, State Council Strategic Plan for the involvement of all rural
development resources-a "living document", constantly reviewed, to be
available early FY `92; and, (4) Implementation of a Council rural
development action agenda, including one or more SRDC demonstration
project(s)-to be implemented during FY `92.
SRDC progress to date includes the following:
Councils have been formed in 8 pilot States (Kansas, Maine, Mississippi,
Oregon, South Carolina, South Dakota, Texas, and Washington);
* Initial organization meetings were held during October and November 1991,
with strong participation by Federal, State, and local organizations;
* Executive Directors have been identified and funded for one year (by the
Departments of Transportation, Commerce-Economic Development
Administration, USDA-Extension Service, Farmers Home Administration,
Forest Service, and Soil Conservation Service) for all pilot States;
* The Rural Economic Development Institute has been formed at the
University of Wisconsin-Madison, and has conducted a three-day training
session for Washington-based MMG'staff. Also, conducted two six day, multi-
state National Institutes for 250 SRDC members. Those in attendance
included senior administrators from both Federal and State agencies,
Governors' staff~ State government commissioners and private sector
representatives. A second, in-state, three day Summer Institute is being
conducted in each SRDC state.
* Funding for the National Institute was provided by the Departments of
Commerce (Economic Development Administration), Health and Human
PAGENO="0193"
189
6
Services, Interior, Transportation, Small Business Administration, and the
USDA (Cooperative State Research Service, Economic Research Service,
Extension Service, Forest Service, Office of Transportation, and Rural
Electrification Administration).
All eight SRDCs have held numerous follow-up meetings to complete the
organizational effort, including the drafting of SRDC by-laws, and selected
SRDC chairs. In three States the SRDC is led by State and Federal co-chairs.
All SRDCs have completed rural development needs assessments and
resource inventories and are in the process of drafting their strategic plans.
To provide guidance for the expansion of the SRDCs to additional States, the
Outcome Monitoring Task Force is conducting evaluations on: (1) The
National Rural Economic Development Institute (completed); (2) The
organization and work of the SRDCs; (3) The MMG operational and support.
structure for the SRDC; and, (5) The SRDC demonstration and targeting
projects. In addition, The Aspen Institute and the Ford Foundation are
collaborating to support the University of Southern California's Washington
Public Policy Institute in writing case studies on the eight pilot SRDCs.
Rural Information Center
The Rural Information Center (RIC) has emerged as the single most important source of
ready information about rural development within the Federal Government. The RIC is a
joint project of the USDA National Agricultural Libraiy and the Extension Service. The
range of activities, as well as resource levels, have been expanded. During FY'91 a number
of Federal departments and agencies have made active commitments to RIG
* The Department of Health and Human Services has funded a Rural Health
Information Clearinghouse at the RIC;
* The Small Business Administration is participated in a small business
information pilot study;
* The Farmers Home Administration provided a staff position.
In addition, other Federal agencies, including both the Department of Transportation and
the USDA Forest Service, are exploring participation in support of the RIG
44-629 0 - 91 - 7
PAGENO="0194"
190
THE WHITE HOUSE
Office of the Proec Scactery
For Immedleto Releeco Juty 10, 1000
EXECUTIVE ORDER
PRESIDENTS COUNCIL ON RURAL AMERICA
By the outhority vootod in me cc Procidont by the Conetliution end lowe of the Untied Stotoc
of Americri, end In order to octebllzh, In occordonco with the provicione of the Federal Advlcory
Committee Act, cc emended (5 U.S.C. App.), en cdvIeory council on the rural economic development
policy of the United Statoc, it Ic hereby ordered cc followe:
Soctioni. tnbflahrncol. (e) There Ia cetebilcihed the Preeldont'c Council on Rural Ametice
(`Council'). The Council aheil be compoiicd of not more then twenty (20) rncmbere to be cppointcd
by the Procidont
(b) The Procldont thrill appoint a Chelrrnen end Vice Choirmon from cmon~ the mombera
of the Council.
~ Eunotione. (a) The Council thrill advice the Preoldont and the Economic Pŕilcy
Council on how the Federal Government can improve Ito rural economic development policy.
(b) In the performance of lie cdvlcorV dutioc, the Council chali conduct cuoh contInuing
roviowe rind cecocemento of the Federal Govcrnmont'c rural economic development policy cc deemed
nececcery or cpproprlate by the Council.
~ AdcnInIctrnIi~ii. (a) The heade of executive cgoneiee thrill, to the extent permitted
by low, provide the Council ouch Information with reopeot to rural economic development policy
mattere cc the Council doomo rc~uIrcd for the purpoco of carrying out ho functionc.
(b) Mombero of the Council who are not otherwlco offlccrc or empioyc-oe of the Federal
Government thrill corvo without any componcotion for their worh on the CounciL However, they ehall
be entitled to travel oxponcoc, including per diem In lieu of cubcictonco, cc authorized by tow for
pereonc caving Intermittently In tho Government cervtce (5 U.S.C. 0701.5707).
(c) To the extent permitted by law and cubloct to the availability of eppropriatlono, the
Frirmere Home Admlnietratlon thrill provide the Council with cdmlnlctratlve ccrvtcec, lecllltloe, otaft,
and other aupport cavlcec noceecery for the performance of Ito functlonc. Funde for the operation
of the Council thrill he provided by the Department of Agriculture.
(d) Notwithetrindlng cny other Executive order, the lunctionc of the Precident under the
Federal Mvtccry Committee Act, cc emonded, except that of reporting to the Congreco, which crc
eppllcablo to the Council, thrill be performed by the Secretary of Agriculture in eccordance with
guldellnoc baud by the Adminletretor of General Sorvlccc,
(o) The Council thrill terminrito 2 ycrira from the date of thic order unloco cooner extended.
GEORGE BUSH
ThE WHITE HOUSE,
July 16, 1990.
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President's Council on~Rural America
WINTHROP P. ROCXEFE?LL~R, of Arkansas. Chairman. Currently, Mr. Rockefeller
serves as Chairman of the Board and CEO of Winrock Farms, Incorporated, Little Rock,
Arkansas.
KAY~ORR. of Nebraska. Vice Chairman. Former Governor of Nebraska and a former
member of USDA's National Agricultural Research and Extension Users Advisory Board.
Ms. Orr also served as Treasurer of Nebraska.
N~LDAL~ARmN. of Kentucky. Mrs. Barton seives as President and Chairman of the
Board of Health Systems Incorporated In Corbin, Kentucky.
J~NNE.BQURNE,~J~L, of South Carolina. Currently, Mr. Boume serves as Mayor of
North Charleston, South Carolina. Member of the Board of Directors of Cooper River
Federal Savings and Loan Association.
IiQRMAN BROWN. of Michigan. Currently, Dr. Brown servos as President end Chief
Programming Officer of the W. K Kelbgg Foundation in Battlecreek, Michigan. Serves
on President Bush's Thousand Points ofUght Foundation.
HJVLMffiJ), of Iowa. Mr. Field is a Partner in the law firm of Beecher, Rathert, Field,
Fister, Walker and Morris in Waterloo, Iowa He also serves as City Attorney, City of
Waterloo.
~SJ~EkCD~4r,. of Tennessee. Dr. Floyd serves as Chancellor of the Tennessee
Board of Regents, in Nashville.
RALPH HCWSTAP~. of Minnesota. Mr. Hofstad Is the Founder of Hofatad Consultants
and recently served as President and Chief Executive Officer of Land O'Lakes,
Incorporated. He is a Director of CARE, N.Y.
~HARUE EJ~U~, of Missouri. Mr. Kruse is Director of the Missouri Department of
Agriculture in Jefferson City, Missouri.
CHARLESLMQYEB, of Kansas. Currently, Mr. Moyer servos as Chairman of the Board
and Executive Vice President of the First National Bank of Philiipsburg in Phillipsburg,
Kansas.
-more-
PAGENO="0196"
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CATHY B. NOVINGEFI. of South Carolina Currently, Mrs. Novinger serves as Senior
Vice President of Administration and Government Affairs for SCANA Corporation in
Columbia, South Carolina
REYNAL.DO U.ORTIZ of Washington. Currently, Mr. Ortiz serves as President and Chief
Operating Officer for US West NewVector Group in Bellevue, Washington.
UNWO±ODE. PALMEFILAtI. of Maine. Currently, Mr. Palmer is President of Capitol
Consultants, Inc. and a lobbyist for Eaton, Peabody, Bradford and Veague fri Augusta,
Maine. He is the owner and operator of Tree Farm end Land Development Companies.
ALBERT HAROLDQIJIEI of Minnesota Currently, Mr. Oulo setves as President of the
Prison Fellowship Ministries in Minnetonka He is a former Governor of Minnesota and
served a U. S. Senator from Minnesota.
STEVEN KRISSYDNESS. of North Dakota. Currently, Mr. Sydness is Dfrcctor of
International MarketS, Great Plains Software, Inc., in Fargo. He also serves on the Board
of City Commissioners k~s Fargo, North Dakota.
BEJ~WALKER. of MississippI Mr. Walker was formciiy Chairman of the Board of W. E.
Walker Stores, Incorporated, and has served on the Boards of the Deposit Guaranty Bank
and the Mississippi Economic Council.
DONALD KESNER WEILMUNSTER, of Idaho. Currently, Mr. Weilmunster is the owner
of Fort Boise Cattle Company which consists of raising cattle, farming, timber, and mining.
PAGENO="0197"
193
U.S. OEPA~MENT 0, Ao~,cUL'ruflg
DRAFT
P DEPARTMENTAL
cueJCCT~
I EsrABLL~r OF S~ ~3RAL
DEv~op!~7r ca.iNc~s
REGULATfiON
OATS:
0~~
On January 22, 1990, President Bush ordered implementation of the White
House Economic Policy Council's Working Group on Rural Development
report, 1Rural Economic Development for the 90's: A Presidential
Initiative.' The actions: (1) form a Presidential Council on Rural
America, (2) establish State Rural Development Councils, (3) conduct
rural development demonstrations, (4) expand the Rural Information
Center, (5) target Federal rural development programs, and (6) make thE
Working Group a standing committee of the President's Economic Polic)
Council. The Secretary of Agriculture chairs the Working Group.
The Federal rural development mission is to improve the employment
opportunities, incomes and well-being of the Nation's rural people by
strengthening the capacity of rural America to compete In the global
economy. Implementation of the mission is guided by four main
principles:
- The private sector must be involved;
- Benefits of development must be shared;
- New governmental partnerships are required; and
- A strategic approach is needed.
Piüpose -- The State Rural Development Councils (States and territories)
are the functional committees responsible for implementing the
Presidential Initiative at the State level. They have four functional
responsibilities.
- To develop better State level inter-departmental and inter-
governmental RD relations;
- To inventory rural economic development needs in the State and
identify alternative solutions for dealing with RD needs;
- To design a State strategy for applying availatle resources to
achieve long-term rural economic development; and,
- To implement (in cooperation iith the States, local governments,
and the private sector) the State rural economic development
strategy, and make progress reports.
Nembership -- Each State Council is to be composed of (1) Federal RD
program representatives, and (2) members which represent State RD
programs, local government organizations, tribal governments and private
enterprise.
Dl$TSISUT1OP4:
PAGENO="0198"
194
Qrgiatzatl-on -- Each Council is to organize Its own executive structure
and select leadership positions. Each Council will have a senior level,
Federal employee as a full-time Executive Director.
EstiMated Omerating Costs -- Council members (Federal, State and local
government, and private interests) will not be entitled to reimbursement,
except from their own agency funds, for any Council activity. This does
not apply to the Executive Director, who as a full- time employee
assigned to the Council is compensated for work in support of the State
Council.
PAGENO="0199"
195
WORKING GROUP on RURAL DEVELOPMENT
PRESIDENTIAL RURAL DEVELOPMENT INITIATIVE
Room 5405 South Building
0 ~ ~ U.S. DEPARTMENT OF AGRICULTURE
WASHINGTON, D.C. 20250
(202) 245-7583
FAX 202/382-1077
RURAL DEVELOPMENT MISSION --
To improve the employment opportunities, incomes, and well-being
of the Nation's rural people by strengthening the capacity of
rural America to compete in the global economy.
-- STATE COUNCIL GOAL --
To develop and implement a strategy for the efficient and
effective employment of public and private, rural development
resources within the State.
-- OBJECTIVES --
To develop, at the state-level, inter-departmental and inter-
governmental collaborative rural development programs.
To involve the private sector in the collaborative efforts.
To ensure that the benefits of rural development are widely
shared among rural citizens.
To undertake a comprehensive, long-term and strategic approach to
rural development efforts.
-- INITIAL STATE COUNCIL ACTIONS --
Inventory of State rural economic development needs.
(Completed during Fl `91)
Inventory of the State rural economic development resources.
(Completed during Fl `91)
Develop a long-term, State Council Strategic Plan for the
involvement of all rural development resources.
(Draft CSP for Summer Institute)
Implementation of a Council rural development action agenda.
(Fl `92 implementation)
PAGENO="0200"
STATE RURAL DEVELOPMENT COUNCIL LEADERSHIP
5/21/91
Working Group on Ibiral Develognent
Roan 5405-South Building
U. S. Departh~ent of lcrictilture
14th & Independence Avenue, S .W.
Washington, D.C. 20250-0100
tate
Kenue
M~ne~
~i~&pp~
Jack Su~9vsn
6~i~
~th~&o~na
s~bikŕta
oxas
W~gton
~a1rs
John Price
Leroy Perry
Don Thornpaon
Pat Dixon
MeMe Hogon
John Klrchhoft
Fred Poston
Agency
FmHA
SBA
FHwA
FmHA
EDA
FmHA
FmHA
ES
Phono
913-295-2870
207-622-8382
601-965-4215
503-326-2731
803-765-5676
605-353-1430
817-774-1301
509-335-2933
Fax
913-295-2669
207-~-8277
601-965-4231
503-326-6898
803-765-5677
605-353-1220
817-774-1477
509-335-2959
Che~r
Laura Nlcho~1
Bernard Shc,~i
Doug McKay
Agency
KDOC
St/ME
.
Oft/Qov.
Phone
913-283-3481
207-289-3071
803-734-9818
Fax
913-286-6066
.
ixocu~vo Director
Richard Cox
Robert Ho
Poto Pony
Rick Rooo
Frank Garcia
Bob Hartford
Stephen Buxboum
Sponoor
SCS
ES
EDA
FS
DOT
FmHA
ES
Phone
913-288-2688
207-681-3192
801-857-2284
503-373-7258
803-737-0449
605-773-6001
206-686-8979
Fax
913-283-0183
207-681-1387
601-057-2358
503-601-6115
803-737-0410
605-773-8041
208-686-0873
Ad~rooo
KDOC
400S.W. 6th
102 LIbby Hal
Univ/ME
1320 Seven
Sp~Inga Rd.
do OR Econ.
Dovcicp. Dept
P.O. 8o2c 827
Cc~umb!o, SC
800 Gov~'o
Drive
MS/GH-61
9th 9* Co'umbIa
*
Su~to 600
Topeka, KS
69603
Orono, ME
04499
Raymond, MS
39154
775 Surrtrner St
Sc3em, OR.
07310
29202
Pleffo, SD
57601-2217
*
Cyrnpla, WA
83504
Monitor
Den GIbb
Coil Bouchcsd
Pat O'Brien
Stephen Frcrtcko
John Sebetue
Joanne Kt~ng
Richard Tcrbl
Dave Seem
Agency
SBA
SCS
DoD ..
0MB
FS
FrnHA
DOT
ERS
Phone
202-205-7520
202-392-0767
703-397-3822
202-395-4752
202-453-8233
202-447-4439
202-383-0233
202-219-0544
Fax
202-205-7034
202-472-1452
703-697-3021
202-395-4341
282-453-3271
202-475-5033
202-396-3713
202-219-0202 -
Walter E. Hill
(202)
447-8653
FAX:
(202)
447-2080
W. Robert lovan
(202)
245-7583
FAX:
(202)
382-1077
3. Norman Reid
(202)
245-7582
FAX:
(202)
382-1077
Linda Deniijson
(202)
382-0394
FAX:
(202)
382-1077
Address:
PAGENO="0201"
197
PRESIDENTIAL INITIATIVE ON RURAL DEVELOPMENT
EPC WORXING GROUP ON
RURAL DEVELOPMEW~
June 12, 1991
Douglas J. Allor
Deputy Assistant. Secretary
for Economic Development
Economic Development Administration
U. S. Department of Commerce
Herbert C. Hoover Building, Room 7804
Washington, DC 20230
Phone: 202-377-4067 FAX: 202-377-0995
Mr. Sqhuylor Saab
Deputy Under Secretary
U.S. Department of Health
and Human Services
Hubert H. Humphrey Building, Room 600E
200 Independence Avenue, S.W.
Washington, DC 20201
Phone: 202-475-6060 FAX: 202-245-6699
Nicole Ballenger
Senior Staff Economist
Council of Economic Advisers
Room 323
Old Executive Office Building
Washington, DC 20500
Phone: 202-395-5040 FAX: 202-395-6947
Paul R. Bardack
Deputy Assistant Secretary
U.S. Dept. of Housing and Urban Devel.
Room 7214
451 Seventh Street, S.W.
Washington, DC 20410
Phone: 202-708-0566 FAX: 202-708-3363
Bruce Bartlett
Deputy Assistant Secretary
U.S. Department of the Treasury
Main Treasury, Room 3445
1500 Pennsylvania Avenue, N.W.
Washington, DC 20220
Phone: 202-566-2768 FAX: 202-786-8452
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198
Ms. Debra Bowlarid
Acting Assistant Secretary for Policy
U.S. Dapart17~ont of Labor
Frances Perkins Building, Room 52006
200 Constitution Avenue, LW.
Washington, DC 20210
Phone: 202-523-6181 FAX: 202-523-9216
The Honorable Betsy Brand
Assistant Secretary
U.S. Department of Education
Room 4090
330 C Street, S.W.
Washington, DC 20202
Phone: 202-732-2251 FAX: 202-732-3897
Robert Grady
Associate Director
Office of Iianagcuont and Budget
~a. 260, Old Executive Office Bldg.
17th & Pennsylvania Avenue, N.W.
Washington, DC 20503
Phone: 202~395-4844 FAX: 202-395-5730
The Honorable L. Joyce Hampero
Assistant Secretary
Economic Development Administration
U.S. Dept. of Commerce
Room 7804 - Herbert C. Hoover Building
14th & Constitution Avenue, N.W.
Washington, DC 20530
Phone: 202-377-5081 FAX: 202-377-0995
Walter E. Hill
Assistant Under Secretary
Office of Small Comm. and Rural Devel.
U.S. Department of Agriculture
Room 219A Administration Building
14th and Independence Avenue, S.W.
Washington, DC 20250-0100
Phone: 202-447-8653 FAX: 202-447-2080
FTS: 447-8653 FTS FAX:
The Honorable Anna Kondratas
Assistant Secretary
Community Planning and Development
U. S. Department of Housing
and Urban Development
Room 7100
Washington, DC 20410
Phone: 202-708-2690 FAX: 202-708-3363
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199
The Honorable Edward R. Madigan
Secretary
U.S. Department of Agriculture
14th & Independence Avenue, S. W.
Washington, DC 20250-0100
Phone: 202-447-3631 FAX: 202-447-2166
FTS: 447-3631 FTS FAX:
The Honorable ~7ames 0. Mason
Assistant Secretary
U. S. Department of Health and
Human Services
Room 716G Hubert H. Humphrey Building
200 Independence Avenue, S. W.
Washington, DC 20201
Phone: 202-245-7694 FAX: 202-245-6963
The Honorable S. Anthony McCann
Assistant Secretary
U.S. Department of Veterans Affairs
Roon 500
810 Vermont Avenue, N.W.
Washington, DC 20420
Phone: 202-233-8041 FAX: 202-535-8525
Patrick !4urphy
Deputy Assistant Secretary
U.S. Dept. of Transportation
Nassif Building, Roon 10220
400 Seventh Street, S.W.
Washington, DC 20590
Phone: 202-366-4551 FAX: 202-366-7127
Gary Nodlor
Kansas city Regional Administrator
U.S. Small Business Administration
911 Walnut Street
13th Floor
Kansas city, MO 64106
Phone: (816) 867-3316 FAX: 8-067-5559
FTS: 867-3316 FTS FAX: 867-5559
Robert M. Rauner
Director of Economic Adjustment
Of f ice of Economic Adjustment
U.S. Dept. of Defense
The Pentagon
Room 4C767
Washington, DC 20301-4000
Phone: 202-697-9155 FAX: 202-695-1334
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200
The Honorable Patricia Saiki
Administrator
U.S. Small Business Administration
409 Third Street, S.W.
Washington, DC 20416
Phone: 202-205-6605 FAX: 202-205-6429
The Honorable Rockwell A. Schnabel
Deputy Secretary
U.S. Department of Commerce
Rm. 5838 Herbert C. Hoover Bldg.
14th & Constitution Avenue, N.W.
Washington, DC 20230
Phone: 202-377-4625 FAX: 202-377-8610
John ~Schroto
Assistant Secretary
U.S. Department of the Interior
18th & C Streets, N.W.
Rm. 6116, Interior Building
Washington, DC 20240
Phone: 202-208-6182 FAX: 202-208-5048
The Honorable Roland R. Vautour
Under Secretary
Small Community and Rural Development
U.S. Department of Agriculture
Room 219-A Administration Bldg.
14th and Independence Avenue, S.W.
Washington, DC 20250-0100
Phone: 202-447-4581 FAX: 202-447-2080
Robert H. Wayland, III
Deputy Assistant Administrator
Office of Water
U.S. Environmental Protection Agency
Room 1035, East Tower
401 K Street, S.W.
Washington, DC 20460
Phone: 202-382-5711 FAX: 202-382-5711
Wylie Whisonant
Deputy Under Secretary
U. S. Travel & Tourism Administration
U.S. Department of Commerce
~. 1865 Herbert C. Hoover Building
14th and Constitution Avenue, N.W.
Washington, DC 20230
Phone:* 202-377-0136 FAX: 202-377-4279
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201
SCHILLINGER & ASSOCIATES
MARKETING CONSULTANTS 8128 DOGWOOD RD. * GERMANTOWN, TN 381384129 o .9O1/7E4~5422
July 11, 1991
To Honorable,
Mike Espy. Chairman
Richard Durdin
Harold Ford
James Oberstar
House Of Representatives
Washington, DC 20515
Re: Delta Regional Investment Fund
Dear Honorable Representatives,
Attached is a development report on the progress of an
"established community development laboratory" for enriching
the auality of community life, stimulating economic renewal,
and motivating Iccal initiative.
The program began in 1987 under the efforts and ingenuity
of, Richard 7. Fasten, Ph.D
Professor Of Community Development
Southern Illinois University
35 Hillcrest Drive
Carbondale, IL 82901
618/549-2461
My first meeting with "Doc" Poston was on May 18th, 1990 at
my home in Germantown. That meeting revealed accomplishments in
Cairo. IL that the entire Delta Area communities can use as a
model. At that time I offered my services to assist him in any
way possible in accomplishing his community development goals.
The accomplishments, under the guidance of "Dec' Fasten
through the CONFLUENCE CO)9!UNITY DEVELO?MENr INC. . . A Not For
Profit Organization Dedicated to Human Progress. . . are in the
enclosed report. Smell amounts of financial assistance have
been received from two private foundations.
PLEASE take one minute to read the Foreword and the
Executive Summary. This could become the "model program" that
could change the lives of many people in the Delta Area.
Resre~tfully Submitted,
R~~' ~chjl~['iLn~ev ~
SCHILLINGER & ASSOCIATES
RPS/kv
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202
L~ QP I~L~I~ DF~ A MA~T'ER I~ I~ A~
P' DR `I' I-I R 1-1 I ~ cJ R I ~ It 8 `I' C) It A r I C) N
QP' ~ A I RQ, I L, L, I N~J I ~
A Model ?artnership Between a Town And Its State University
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203
CONTENTS
FOREWORD
Background on Cairo
A Laboratory for Community Development
II. EXECUTIVE SUMMARY
Three Page Condensation of Report 2
III. THE LABORATORY
Genesis, Organization and Action 4
Workshop and Formulation of Master Plan 8
IV IMPLEMENTATION OF THE MASTER PLAN 10
V. MANAGEMENT 13
VI. MARKETANALYSIS 14
ExhibitA-Population by Market Segment 15
Exhibit B - Projected Attendance Penetration 16
Exhibit C - Demographics 17
Exhibit D - Estimated Park Attendance by Month and Day 18
Exhibit E - Design Day, Arrival and Departure by Hour 19
VII. FINANCIAL ANALYSIS 19
Exhibit F- Toll House Restaurant and Gift Shop,
Projected Revenue and Operating Expense 20
Exhibit G - Boatman's Memorial Concession Stand,
Projected Revenue and. Operating Expense 21
ExhibitH-Projected Income and Other Expense 21
PROJECIED COSTS FOR PARK DEVELOPMENT STAGE NUMBER ONE,
PHILOSOPHY AND RATIONALE 22
Exhibit I- Toll House Restaurant and Gift Shop,
Projected Remodeling and Equipment Costs 22
Exhibit J - Boatman's Memorial With Concession Stand,
Projected Renovation and Equipment Costs 23
Exhibit K- Expansion of Picnic Grounds,
Projected Building and Equipment Costs 23
Exhibit L - Children's Playground and Sports Area.
Projected Building and Equipment Costs 23
CONSOUDATED BUDGET 24
CONCLUSION 24
DRAWINGS 25
REFERENCES 32
PAGENO="0208"
204
FOREWORD
The National Register of Historic Places refers to Cairo as a community that despite decades of
decline and depression, remains one of the most fascinating in the state of Illinois. "Its past glory,"
says The Register, "stands recorded in the streets and buildings that remain. . .works of architectural
brilliance.. . its history among the most colorful and complex of any municipality. .. rife with
schemes, skirmishes, phenomenal growth and equally phenomenal decline. . . a history of promise
unfulfilled."
Located at the confluence of our nation's two mightiest waterways--the Mississippi and the
Ohio--where twenty thousand miles of tributaries from the Rocky Mountains to the Appalachians
converge, and Illinois, Missouri and Kentucky are linked geographically and culturally in a instate
region, Cairo is one of the most publicized cities in the Midwest, which for more than a century and a
half has claimed a near mythic hold on the visionary dreams of Americans.
No other American river town possesses a more abundant supply of resources yet to be
capitalized upon. In a setting reminiscent of the Old South, prominent in the writings of Charles
Dickens and Mark Twain, the western headquarters of Union Army forces during the Civil War, a
steamboat terminal for settlers from the East who forged the opening of the West, more than a fourth
of the entire community is listed on The National Register of Historic Places.
Here at the meeting point of those two mighty rivers the tonnage of commercial navigation
exceeds that which passes through the Panama Canal. Mainline rail service and a network of
interstates reaching out to teeming consumer and industrial markets less than a day's travel away,
make Cairo a natural hub for river, rail and highway transportation.
By virtue of its strategic geographical location and its historic fame, Cairo should be a thriving
center of prosperity. Instead, it is mired in poverty, afflicted by double-digit unemployment,
substandard housing, the ugliness of physical deterioration and boarded-up storefronts.
Decade after decade Cairo consistently lacked the capacity to deal with its adversities and
constraints. It suffered a history of civic resignation, bitter internecine factions, bigotry and racial
violence, wasteful local government, power elites in positions of domination that engaged in
intimidation, vindictiveness, and unethical tactics to discourage competition. Bribery, favoritism,
insensitivity, bossism, vice, political corruption, sheer indifference to the general welfare run through
its history as recurring parts of the theme--classic examples of practices and policies that have
suppressed the workings of democracy and killed community life in countless numbers of American
towns and cities.
It is in this locality that Southern Illinois University in partnership with concerned citizens has
established a community development laboratory in which to formulate policies and methodologies
for enriching the quality of community life, stimulating economic renewal, and motivating local
initiative to resolve internal problems in all areas of need--an experiment in which actions that will
strengthen and advance the workings of democracy at the local base of American society, taking into
account the complexities our nation faces as we move toward the year 2000, are being tested and
demonstrated.
PAGENO="0209"
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2
II
EXECUTIVE SUMMARY
This report concerns ajoint effort by a town and a state university to create a living example of
how we can regenerate our disintegrating sense of community--the socioeconomic cancer now
growing in the fabric of American society of which the more visible issues confronting our towns and
cities today are merely symptomatic.
The array of internal ills now plaguing towns and cities across our nation do not define their
underlying problem. They cant pull themselves together to make democracy the working way of life
that enables them to tackle their ills. They can't think and act as communities. Vision and leadership
are impossible in the absence of shared values, and vibrant local communities are the soil in which
shared values are generated. This, in essence, is the premise on which the laboratory established by
Southern illinois University and the people of Cairo is based.
With guidance from the university, the people of Cairo, long beset by decay and deterioration,
are in the process of coming together as neighbors and creating that sense of community towns
throughout America so desperately need. Cairo still has a long uphill journey ahead, but through
community self-study and analysis, citizen fact-finding, discussion at a series of thirty-two public
forums or "town meetings," and volunteer labor invested in scores of action projects that have
become instruments for the development of community, the moment may now be at hand for Cairo to
finally seize hold of its deferred destiny--and, in so doing, cast a beacon of hope outward to all of our
nation's struggling towns and cities.
The Cairo laboratory began in 1987 with a handful of people who quickly multiplied their
number into the hundreds--black and white, young and old, and all in between. After intensive
training, volunteer workers took a complete census of population and housing which became a means
of eroding the color line, assessing needs and generating a spirit of togetherness and determination
that had not existed before.
Upon learning that Fort Defiance State Park where the Ohio River joins the Mississippi was
scheduled to be closed, Cairo's growing sense of community had given its people the will to form a
nonprofit development corporation with which they leased the park from the state, then turned out en
masse to clear away its jungle overgrowth and begin maintaining it themselves. Now that point of
geographic wonder is a place where tourists can view the confluence of our nation's two mightiest
waterways.
In the context of their comprehensive program of civic awakening, the people of Cairo,
examining every component part of their community as a social organism, have identified their unique
combination of historic resources coupled with their strategic geographical location as their major
asset for economic renewal. And they have seen that by pulling together to make use of those
resources they will continue rekindling their sense of community, thus further strengthening the
workings of democracy.
In June 1990 they held a three-day "think tank" workshop to review their many achievements and
begin consolidating their ideas for future economic development into a master plan.
Ronald P. Schillinger, President of Schillinger & Associates of Germantown, Tennessee, a
management and marketing consulting firm, was brought in for the three-day workshop to lend its
business expertise in drawing up the master plan.
To provide jobs for the unemployed the ultimate objective of the master plan which has grown
out of the past three years of community self-study and discussion is to restore Cairo as an early
American river town in the manner that Williamsburg, Virginia has been restored as an early
PAGENO="0210"
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3
American colonial town. This will enable Cairo to capitalize on its lucrative economic potential in the
rapidly growing U.S. tourist industry. Every trade and service related to restoration, construction,
cultural development, education, entertainment, recreation, tourism, eating establishments, and
overnight accommodations will be invigorated. It will be a transformation of nationwide historic and
cultural significance.
Development projects leading to this ultimate objective will be carried out in a series of steps
designed to make the restoration insofar as possible a self-supporting enterprise, and produce
investment capital for each succeeding project to help carry the complete restoration through to full
realization.
With this ultimate objective in mind, the three-day workshop focused on a listing of projects
according to location and image to be included in the master plan, each of which will contribute to the
production of income and be of specific historic value. The development of Fort Defiance State Park
into an income-producing enterprise is the central beginning point, the "hub." This will provide
capital with which to initiate subsequent projects eventually reaching out through the city and beyond
into the instate region of southern illinois, western Kentucky, and southeast Missouri.
As the restoration goes forward tours will be conducted for entertainment and educational
purposes, giving travelers a memorable experience of the life-styles and conditions that faced our
country's builders as America began her westward expansion into Lthiisiana Territory. Tickets for
the tours will be sold at the historic Toll House Restaurant Gift Shop located at the entrance to Fort
Defiance State Park.
Persons within a 100-mile radius of Cairo provide the best'~otential market, but the vast
recreational and historic resources of Cairo as a tourist destination for travelers from outside this
radius are of major significance. The Southern Illinois Tourism Council receives numerous inquiries
about the site from sources national and worldwide.
With 1.7 million residents within a radius of 100 miles--close enough to make several trips a
year.-plus 2.6 million tourists now visiting 16 illinois state parks within 100 miles of Cairo, the
potential market is approximately 4.3 million people. This does not include visitors at Missouri and
Kentucky state parks which are also within 100 miles.
To assist in planning, market analysis has been divided into four segments: Core, the City of
Cairo; Primary, persons within a 50-mile radius; Secondary, those within a 100-mile radius; the
Tourists, persons from a wider area. Each of these four segments will require a different marketing
program to maximize income from return visits.
Demographics and economic impact factors are measured in these market segments and compared
with similar markets and projects to help calculate comparable control factors for analysis.
As shown in Exhibit B, Section VI, Market Analysis, it is anticipated that the first development
stage of Fort Defiance State Park outlined in Section IV, Implementation of the Master Plan, will
attract 7.2% of the potential market, or 308,700 persons. This includes groups from churches, social
clubs, schools, motorcoach tours, international and domestic tourists, and residents within 100 miles
attending specially-planned events, activities, and attractions.
Some of the characteristics of the general population obtained from research are:
65% are warm-month travelers, April through October.
46% enjoy sight-seeing, historic sites and scenic viewing.
55% desire to take something home, a souvenir.
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207
4
60% will spend money on food.
85% base their return visit on enjoyment, not price.
These statistics along with other information help in estimating potential attendance, revenue,
costs, and marketing planning.
Specific characteristics of the warm-month traveler, April through October, are:
78% travel during the months of June, July, and August
64% have incomes over $20,000
73% are married.
74% are over 30 years of age.
71% will arrive at the park before noon.
This information helps with administrative budgeting, inventory and staffing of facilities;
marketing to create specific programs within the marketing plan for special events and communication
distribution; and operations to prepare service requirements to meet the expectations of tourists and
residents.
As indicated in Section IV, Implementation of the Master Plan, facilities needed to build Fort
Defiance State park into an income and job-producing enterprise will proceed in four development
stages, each generating revenue to help finance the next, ultimately providing capital for the
rebuilding of historic Cairo.
The initial phase of the overall park development will focus on two income and job-producing
properties:
1. Remodeling of the building vacated by the State Police near the park entrance into the Toll
House Restaurant with turn-of-the-century ambience, a Gift Shop and Tourist Information.
Estimated income $825,797 gross, $331,143 net.
2. Equipping and putting into operation the Concession Stand on the second floor of Boatman's
Memorial, and installation of coin-operated viewing scopes. Estimated income $342,900 gross,
$194,471 net.
Ordinarily the start-up costs needed to put these two facilities into operation would be based on
average conditions that exist within the industry. However, through the use of frugality and in-kind
service the costs here will be considerably below average.
III
THE LABORATORY
On February 11, 1987, Richard W. Poston, Professor of Community Development, Southern
Illinois University at Carbondale, met with fifteen Cairo citizens in a private home where he outlined
a self-help development program that would structure and set in motion a people's movement
involving insofar as possible the entire communituy--men and women, black and white, young and
old--all working as one.
Using a policy of participatory democracy as old as America herself, now applied to modern
times, citizens of this historic river town would analyze themselves as human beings, as a
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5
community, examine their strengths and weaknesses, face up to their needs, and take whatever
actions they found necessary--depending primarily on their creativity and initiative.
After adopting the proposal unanimously and with high enthusiasm, the fifteen appointed
themselves as a temporary steering committee to promote the program through the community,
elected two talented women--one white, one black--as co-chairpersons, and all fifteen raised their
right hands making a solemn pledge.to see it through no matter how many years it might take.
Then age-old habits emerged. As could be expected in any of the numerous communities across
America suffering the ills of Cairo, nine of those fifteen soon dropped out--a moment of great drum
beating quickly forgotten by most of the drummers. But the remaining six formed a solid core, and
within the two months that followed mobilized a civic force unlike anything in the memory of the
oldest citizen.
Two hundred and twenty-five black and white volunteers went through a week of intensive
training learning how to take a complete, up-to-date census of population and housing, climaxed by
an all-community outdoor religious service where 500 people joined hands singing "Amazing Grace."
Normally, the purpose of taking a census is to gather demographic data. Here it was for a much
larger purpose. In keeping with the principle of carrying out every project, not as an end in itself, but
as an instrument for the development of community, the census became an exercise in cross-cultural
relations, a tool for eroding the color line--blacks and whites enumerating each other, assessing
community needs and inequities, creating a new sense of neighborliness--and, as a by-product,
gathering demographic data.
For eight weeks, often until three in the morning, their census headquarters bristled with activity,
detailed questionnaires on population characteristics, oocupational skills, and housing being checked,
for accuracy, coded and made ready for computer tabulation. Never had so many people from the
two races and from differing walks of life come together for so complex and difficult a project.
In each household the enumerators also left opinion questionnaries for the probing of human
attitudes--attitudes that form deep-seated barriers every community in today's America must
overcome if it is to rise to its full potential for quality living-these questionnaires to be filled out in
private with no names signed, then picked up in secret ballot boxes, thus providing a means by which
the people could express without fear exactly what they thought of themselves and each other, of their
community, its problems, its internal obstructions to progress and prosperity. This, then, became the
basis for a report presented for discussion at public meetings.
The new movement, called Operation Enterprise, had become everyday conversation. Neighbors
who had rarely spoken were becoming friends. A nonprofit community development corporation
was in the talking stage. In the process of taking the census and providing an outlet for the
expression of hidden attitudes, citizen participation on a community-wide scale had been activated and
a community that for decades had been civically dormant was showing signs of awakening from its
slumber.
As these early signs of social change were emerging, word came from the state capital in
Springfield that Cairo was about to lose one of its paramount cultural and economic assets--Fort
Defiance State Park, situated on that picturesque peninsula at the very point where the Ohio joins the
Mississippi, and "Old Man River" surges relentlessly on to the Gulf.
/ Named for General Grant's Civil War Fort Defiance, dedicated by the state in 1960, then
neglected and ravaged by filth and jungle overgrowth, state officials had decided that unless the
people of Cairo wanted to lease the park and be responsible for its maintenance, it would be closed,
shut down permanently as of the end of that year.
PAGENO="0213"
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6
Had this news come during the days of indifference that prevailed before the laboratory for
community development was established, it would have been greeted as just another defeat to which
the people had become accustomed. Now it came as a shock the truly concemed refused to accept.
As the people's representative, Professor Poston began negotiations with state officials in
Springfield and gained acceptance of the nonprofit community development corporation then being
contemplated as the legal vehicle for leasing the park, thus making it an economic development
project the people as a whole could have a direct and personal part in planning and accomplishing.
Fort Defiance State Park could be theirs, an instrument for community problem solving, a means of
adding fuel to the momentum then under way for the development of community, for strengthening
and advancing the workings of democracy.
Articles of incorporation for Confluence Community Development, Inc. were filed, and on July
11, 1987 hundreds of citizen volunteers, along with members of their Army National Guard,
launched their first attack on the filth, driftwood, and entangled growth that had despoiled that
historic site.
Through the rest of that summer of 1987, on into the fall, increasing numbers of citizens with
new hope for a brighter future--black and white, who over a period of decades had been separated by
suspicion and predudice--expended thousands of hours of voluntary labor with donated materials and
equipment working together at Fort Defiance State Park, infusing themselves with the sparkling
essence of community.
Boatman's Memorial, a three-level observation platform, was sandblasted and painted, bronze
historic plaques cleaned and polished. Rest rooms and a concession stand that had been sealed off by
iron doors and cement blocks were opened. Barbecue grills were installed, trash hauled away, riprap
sprayed. Trees were trimmed, grounds kept mowed.
On November 30, 1987, after nearly a year of intensive preparation, citizens jammed their high
school cafeteria for the first in a series of public forums known as "town meetings" to help the people
make themselves aware of every community problem conceivable, along with the will, the spirit, the
unity needed to mount necessary action.
Subject matter for the town meetings came from citizen fact-finding committees on every
component part of community life: economic development, education, local government, the physical
environment and aesthetic features, housing, public health and health care, social services, recreation,
cultural development, historic preservation, etc. Nothing was left untargeted for investigation and
improvement, and the intricate relationships among all of the community's varied parts were carefully
pointed out.
At each town meeting after the committee scheduled for that evening made its presentation, the
crowd broke into study groups, each going into a room in the high school with a trained discussion
leader and notekeeper, then reconvened in general assembly to hear the notekeepers' reports and
proceed with decision making.
On Christmas Eve of 1987 they received their 501(c)(3) tax exempt status from the Internal
Revenue Service for Confluence Community Development, their legal arm for economic renewal, and
the town's church choirs joined in Christmas caroling.
Early Saturday morning, April 30, 1988, a seemingly endless caravan of cars, trucks, and heavy
equipment rolled into Fort Defiance State Park to push on with the work citizen volunteers had started
the summer before. People from teenagers to some in their eighties literally swarmed over that fifty
acres, the cool morning air rent by the ear-splitting roar of mowing machines.
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Concrete slabs were laid for new picnic tables. At the park entrance craftsmen using a crane
fined into place a rustic overhead arch for a stockade gateway carved with the words "Fort Defiance,
Confluence of America," accented by a landscaped wooden rail fence along the park boundary. And
on through another summer, another fall, into 1989, 1990, and 1991 the work has continued, the
park becoming a scene of memorial services, celebrations and musicfests performed by local talent.
From the spirit of determination gained in taking their census, their surveying of human attitudes,
their reclamation of Fort Defiance State Park, and the research coming from their battery of citizen
fact-finding committees, coupled with thirty-two town meetings since that night of November 30,
1987, the people have exhibited a degree of civic consciousness that has provided the basis for a
genuine philanthropic partnership, a solid effort to assist, a priceless lesson for communities in
trouble throughout America. Rarely has there been a greater opportunity for philanthropic assistance
to reap a multiplier effect of nationwide significance.
Following, is a partial listing of other actions this growing spirit of civic initiative with university
assistance has made possible.
*Staged weeks of workdays along the Ohio River front in the community's business district
cutting weeds, removing truckloads of debris, painting and cleaning up.
*Cleared acres of jungle at the northern and southern approaches to the city that seemingly
forever had grown unabated.
*Formed work crews that have circulated through run-down residential areas helping the elderly,
the indigent, the infirm with grass mowing and other yard chores.
~ an imposing red granite welcome structure at the northern entrance to the
community coming in from Interstate 57, which when completed will be landscaped,
floodlighted, and fly the American flag.
*Established an independent ambulance service which is in operation twenty-four hours a day,
seven days a week. Thirty-five volunteers have completed 116 hours of training and been
certified as emergency medical technicians.
*Made it possible for and out-of-town entrepreneur to purchase a historic Victorian mansion and
restore it to its original condition for a bed and breakfast.
*Enabled Confluence Community Development to acquire a three-story residence known as the
Maud Rittenhouse House, and a two-story commercial building, both listed on The National
Register of Historic Places, for restoration.
*Established the Alexander County Historic Preservation Commission to survey, protect, and
help bring about the restoration of all the extensive historic sites and buildings in Cairo and its
surroundings, thus expanding the laboratory for community development to include the entire
county.
*Increased citizen attendance at meetings of the city council, thereby opening the way for greater
citizen participation in local governmental affairs.
*persuaded the U.S. Army Corps of Engineers to conduct engineering studies to determine the
feasibility of constructing a major slackwater harbor at Cairo. These studies, now well along,
indicate a highly favorable cost-benefit ratio; and 31 companies, each of which employs 500
or more workers, have expressed interest in using the harbor when it is constructed.
*Persuaded the Illinois state government to build a modem two-lane paved road into Fort
Defiance State Park.
As these and numerous other actions emerged from the committee research, town-meeting
discussions, and university assistance it became increasingly clear that Cairo's prime economic
resource for solving its chronic unemployment problem and building a new prosperity is its richness
in history, together with its strategic geographical location at the confluence of the Mississippi and
Ohio Rivers.
Having recognized this fundamental asset, a wide-ranging series of projects were envisioned that
would culminate in the historic restoration of Cairo as an early Amercan river town, thus providing
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the American public with a living image of a significant era of our nation's history. Beginning with
the development of Fort Defiance State Park into a major income-producing enterprise, these projects
were conceived as actions that would create a new self-contained economy.
In the manner that Williamsburg, Virginia provides a study of American history during the 17th
and 18th centuries, the historic restoration of Cairo and its surroundings will provide a study of
American history as it was during the 19th and early 20th centuries.
As these opportunities came increasingly into focus it became clear that if the projects necessary
to translate those opportunities into reality were to be initiated on a sound business basis, professional
feasibility studies, market analysis, cost and revenue estimates, plus engineering design work will be
essential, and the scores of actions then being contemplated had to be consolidated into a master plan.
For assistance in this essential step, Professor Poston made contact with a highly reputable
management and marketing consulting firm, Schillinger & Associates, of Germantown, Tennessee,
and arrangements were made to bring Ronald P. Schillinger, the firm's president, to Cairo for a
three-day "think tank" workshop.
Similar to the town meetings, though extended and intensified, this workshop was held in the
Cairo High School Cafeteria June 21, 22, and 23, 1990. Beginning at nine o'clock each morning
and continuing into the late night hours with appropriate breaks, past accomplishments were reviewed
and the future projects were listed focusing on specific site locations, historical significance, land,
buildings, image, services, activities, recreation, and landscaping and environmental considerations.
Participants divided into dicussion groups, each with a notekeeper to report on its daily planning,
and ideas growing out of these three days of discussion were summarized into the project outline set
forth below for conversion into the master plan.
A. FORT DEFIANCE STATE PARK
1. As the focal point for the master plan, develop Fort Defiance State Park into an
income-producing tourist and recreation attraction. From this central hub make tours of
historic sites available with costumed guides by horse-drawn carriages, trolley cars, steam
engine trains, and buses. Make message recorders available for self-guided tours.
2. Reconstruct General Ulysses S. Grant's Civil War Fort Defiance and related military
installations, which served as the western headquarters of union Army forces.
B. HISTORIC RESTORATION OF 19TH AND EARLY 20TH CENTURY CAIRO
1. Continue restoration of the Maud Rittenhouse House, currently in progress.
2. Continue restoration of the Custom House, currently in progress.
3. Renovate the Firehouse, and convert into a museum for the display of historic fire fighting
equipment.
4. Reconstruct the Train Station with historic displays.
5. Remodel an existing building into a historic brothel with mannequins, authentic furnishings,
decorations, and appointments.
6. Remodel an existing building into a historic dance hail fully equipped and open for use by
local residents and tourists.
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7. Renovate the Gem Theater and make operational for dramatic performances, concerts,
movies, and special meetings.
8. Restore the frontispiece of General Grant's bank, columns of which will be excavated from
where they are buried in Fort Defiance State Park.
9. Identify and renovate and/or restore all other historic buildings, including storefronts
throughout the commercial downtown area.
10. Conduct research for opening underground rooms and passageways.
11. Restore brick streets and sidewalks.
12. Install historic street lights, including gaslights.
13. Install informational plaques on all historic buildings.
14. Create graphic displays and erect appropriate signs.
15. Install landscape gardens, water features, and other aesthetic attractions to support the
general image.
16. Designate pedestrian and public-service-only traffic routes for horse-drawn carriages, trolley
cars, steam engine trains, and buses.
17. Renovate the pavilion at St. Mary's Park and erect illustrative graphic displays depicting
historic events in the park.
18. Redevelop the riverfront with docking facilities for tour boats, a park area with benches on
the levee, and graphic displays of river transportation.
19. Make maximum use of historic structures now operational, such as Magnolia Manor and the
Cairo Public Library housed in the Safford Memorial Building.
C. MUSEUMS
I. Construct a Riverboat Museum on Ohio Street next to the Ohio River interpreting Cairo's
riverboat history.
2. Construct a Civil War Museum and Research Center near reconstructed Fort Defiance.
3. Adjacent to the Civil War Museum, construct a Geological Museum showing how the rivers
have changed the terrain over the past centwy, along with graphic interpretations and
explanations of the New Madrid Fault.
4. Immediately south of the Geological Museum, construct an Indian Museum featuring the
history of American Indian Tribes in the taistate region.
D. SPECIAL EVENTS
A wide range of activities including celebrations, musical concerts, comedy presentations.
dramatic performances, period dances for both spectators and participants, arts and crafts, Civil
War living history encampments and reenactments, and other special events will offer
opportunities for the Amercan public to visit and experience the life-styles and conditions that
faced the builders of our country following President Jefferson's Louisiana Purchase.
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E.TOURS
Along the designated public-service-only routes conduct tours with costumed guides and
receptionists for educational and entertainment purposes in horsedrawn carriages, trolley cars,
steam engine trains, and tour buses. And make tape-recorded message machines available for
self-guided tours.
F. EXPANSION OF CURRENT TOURIST ACTIVITIES
1. Riverboat Days and related activities held the last week of June and the first week of July.
Give special attention to planning the week of closing ceremonies scheduled by "Always A
River" for September 1991, sponsored by the six state humanities councils and the National
Endowment for The Humanities.
2. Tour of historic homes.
3. Holiday House at Magnolia Manor beginning at Thanksgiving and running through the
Christmas Season.
4. Highlight mini-parks such as the Halliday and Lansden.
0. SERVICES
Provide all necessary services to accommodate tourists, local residents, and associated business
enterprises--infrastructure, parking lots, utilities, plazas, signage, lighting, sanitary facilities, and
other accommodations.
H. ADMINISTRATION
Confluence Community Development will negotiate development opportunities and coordinate
expenditures. Revenue generated by ticket sales for tours, and for special events and
income-producing facilities at Fort Defiance State Park in excess of operational expenses will be
invested in park development, and in the historic restoration indicated above.
IV
IMPLEMENTATION OF THE MASTER PLAN
Fort Defiance State Park, leased by Confluence Community Development from the Illinois
Department of Conservation, creates the central point, the "hub," providing the common point of
orientation here at the confluence of our nation's two mightiest waterways, the Mississippi and the
Ohio. From this hub development "spokes" will reach out through Cairo and beyond into the tristate
region of southern Illinois, southeast Missouri, and western Kentucky.
Driving south into the southernmost tip of illinois the highway forks, one fork turning left across
the bridge over the Ohio River into Kentucky, the other reaching straight ahead across the bridge over
the Mississippi River into Missouri.
There at that fork adjacent to the entrance to Fort Defiance State Park where Routes 51, 60, and
62 converge sits a picturesque yellow brick building, the last building in Illinois going south, the tint
coming north.
fU U U
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Originally the Toll House Office for the Ohio River Bridge built in 1938, relieved of tolls only ten
years afterward in 1948, later enlarged and equipped with a towering radio antenna for a State Police
Station, this building was vacated by the State Police in September 1990 after construction of new
quarters was completed. Following that it was transferred to the Illinois Department of Central
Management Services, then to the Department of Conservation.
Confluence Community Development has now signed a new lease agreement for Fort Defiance
State Park, including the vacated State Police Station, extending over a forty-year term commencing
January 1, 1991, and ending December 31,2031 for a consideration of ten dollars, which by mutual
consent may be renewed for subsequent forty-year terms.
This building, in excellent structural condi~on, will be remodeled into the historic restaurant with
mm-of-the-century ambience, gift shop, and a center for tourist information referred to earlier in this
report, which will be known as the Toll House Restaurant.
The Toll House Restaurant will serve breakfast, luncheons, dinners, sandwiches, beverages,
salads, appetizers, breads and pastries, and desserts at prices affordable to residents of the tristate
region and the general traveling public. It will also provide catering services, and will be appointed in
attractive and inviting decor with a late 19th and early 20th century theme.
The Gift Shop will include merchandise found in other tourist shops, along with booklets on the
history of Cairo, the history of Fort Defiance, and Civil War souvenirs. As the restoration of historic
Cairo goes forward it will also serve as the office for the sale of tour tickets.
Only a few hundred yards from the Toll House Restaurant tourists and residents enter Fort
Defiance State Park driving under the rustic overhead arch carved with the words "Fort Defiance,
Confluence Of America-" Proceeding down the recently paved road for almost a mile toward the
parking area, you are surrounded by trimmed trees, mowed grass, picnic tables, and a view of busy
tug boats and barges on the two rivers. Boatman's Memorial, the three-level cement observation
platform shaped like the bow of a tug boat is about twenty yards from where you have parked your
car.
Ascending to the first level of Boatman's Memorial you have a view of much of the park. On the
second level you have a larger view of the park, the activity on the rivers and an opportunity to use
the Concession Stand and rest rooms. Moving on to the third level you feel the total beauty of the
park, the mighty strength of the landscape. It is a breathtaking view, a feeling of land, water, and
commercial activity, creating a memorable impression. The vastness and richness of the view is itself
a treasure.
This is the park that three years ago was ravaged by filth and jungle overgrowth, the park the
people of Cairo saved by their own sweat equity and converted into a place for citizens to hold festive
events. It is a place where tourists from across the land and around the world can experience the
results of democracy at work.
But at the present time there is nothing in the park for either local citizens or tourists to spend
money on. That, the people of Cairo are determined to change, thereby creating jobs for the
unemployed and generating revenue to help bring about the historic restoration of one of America's
most famous old river towns that for decades has been locked in poverty. Outside funding sought by
Confluence Community Development with continuing volunteer labor will provide the initial capital to
make this planned change possible.
The facilities needed to build Fort Defiance State Park into an income and job-producing
enterprise will proceed in four development stages, each generating revenue to help finance the next,
ultimately providing capital for the rebuilding of historic Cairo. These four park development stages
are as follows:
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PARK DEVELOPMENT STAGE NUMBER ONE
1. Remodel the vacated State Police Building into the Toll House Restaurant with its Gift
Shop, and Tourist Information. This is will include a 12 X 14 foot addition to the front and
a 11 X 12 foot addition at the south end of the building.
2. Put the Concession Stand on the second floor of Boatman's Memorial into operation
equipped for serving drinks, food, snacks, gifts, and install coin-operated viewing scopes.
Provide appropriate lighting. Equip the rest rooms with new fixtures. Paint and secure the
doors.
3. Expand the picnic grounds with additional tables and benches, shelters, cooking grills,
water taps, trash containers, and parking spaces that will extend the tourists' stays.
4. Install a children's playground, an area for outdoor sports, and a hiking or jogging
trail winding along the rivet-fronts.
5. Build models of General Grant's Fort Defiance and the first French Trading Post for display
in the Toll House Restaurant.
PARK DEVELOPMENT STAGE NUMBER TWO
1. Construct a Civil War themed miniature golf course with a mobile concession stand for the
rental of clubs and balls, and the sale of snacks and soft drinks.
2. Install a large bricked-in flower garden known as Heritage Circle with the American flag at
the center, and benches and smaller flagpoles around the perimeter flying the flags of the
twenty-five states of the Union whose water comes together here at the confluence of the
Mississippi and the Ohio.
3. Construct a stairway down to the rivers' confluence point where a 30-inch stone wall will
form a V-shaped fortress extending 150 feet along each riverbank with cannons and
informative historic plaques in the fortress arms.
PARK DEVELOPMENT STAGE NUMBER ThREE
1. Construct a fishing shop for the sale of bait and sporting goods.
2. Install monuments to Indian culture and the Lewis and Clark Expedition.
3. Create an arboretum featuring trees and plants that grow in the tristate region.
4. Erect fifty camp sites at the end of the park away from the picnic grounds with necessary
faciltites, an entry station for guest registration and the collection of camping fees, and a
general store.
PARK DEVELOPMENT STAGE NUMBER FOUR
1. Erect an outdoor amphitheater with a seating capacity of 2,000 for dramatic and historical
productions, musical performances, conferences, lectures, political debates, and other public
gatherings for which there may be admission charges or user fees.
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2. Reconstruct General Ulysses S. Grant's Civil War Fort Defiance which served as the
western headquarters of the Union Army. Some of the most important campaigns of the war
were launched from Cairo, including the siege on Vicksburg which made it possible to save
the Union.
3. Acquire, equip, and place in operation an authentic 19th century river showboat dinner and
entertainment house anchored near the confluence of the two rivers, which may also be used
for conferences and other special events. The showboat will offer vintage entertainment and
will be leased by Confluence Community Development to a private management firm.
COMMENT CONCERNING THE FOUR-STAGE PARK DEVELOPMENT
As noted above, all revenue from income-producing facilities will be used by Confluence
Community Development for park operating and development expenses, and the historic restoration
of Cairo as an early American river town.
Attendance analysis for the development of the park as an income-producing enterprise is set
forth in Section VI, Market Analysis, of this report. Estimated costs and revenues are given in
Section VII, Financial Analysis.
Architectural, engineering, and landscaping expertise will be needed to assist in the final three
stages of total park development, and help direct the restoration of historic Cairo.
V
MANAGEMENT
Confluence Community Development interprets management as the process of acquiring and
combining human, financial, and physical resources to produce a service desired by society; and has
sectioned it into the three departments indicated below, administration, operations, and marketing.
ADMINISTRATION
Initial funds will be needed for a full-time manager to hire, train and supervise employees in the
Toll House Restaurant with its Gift Shop, and in the Concession Stand at Boatman's Memorial.
General park management will be supplied by Confluence Community Development volunteers with
technical assistance and direction from Southern illinois University at Carbondale.
As sufficient revenue is generated other full-time management personnel will be hired as needed,
including a general manager, a group sales/public relations manager, a park operations manager, and
a secretary.
OPERATIONS
Operational policies and procedures will be detailed for facility research, planning, maintenance,
scheduling and forecasting, special activities, safety, security and parking. Operational research will
help identify any problem that may increase expenses.
MARKETING
Marketing will estimate the magnitude of the demand and the conditions that determine the
supply. Planning and strategy include pricing, forecasting, auditing, department coordination,
consumer motivation, and communication--television, radio, newspaper public relations, and special
promotion tie-ins with local area businesses and suppliers.
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Administrative, operational, and marketing planning have a direct correlation with revenue,
expenses, and return on investment. Planning must be a systematic process that formulates objective
criteria into a plan that will identify problems and increase efficiency and operational profit.
VI
MARKET ANALYSIS
The Southern illinois Tourism Council which has been promoting tourism in southernmost
Illinois since 1963 is well aware of the vast recreational and historic resources of the Cairo area, and
is prepared to pursue an aggressive marketing program to capitalize on the area's economic potential
as a tourist destination as the developments in this report unfold.
"The value of historical development relative to the tourist market," says the Council, "is evident
from the increasing interest in historic sites. This trend has been confirmed by recent surveys of both
U.S. and foreign tourists. . .Calro's marketability is of special significance because of the national
and international recognition of the confluence of the Mississippi and Ohio Rivers as a site of
wonder. The Council receives numerous telephone and mall requests from across the nation and
overseas for information on this site. Promotional efforts combined with regional marketing plans
are in place and ready to assist Cairo's marketing needs."
This means Cairo attractions will be included in millions of printed materials distributed by the
state tourist council each year. A similar agreement will be negotiated with the states of Missouri and
Kentucky.
The flow of traffic on Interstate 57 at the Cairo exit as of 1989 totaled 2,993,000 vehicles. At the
point where Routes 51, 60 and 62 converge in front of the building where the Toll House Restaurant
will be located the flow of traffic during 1989 was 2,044,000 vehicles. Travelers' expenditures in
Illinois were in excess of $9 billion. The developments set forth in this plan will open the door to the
rapidly growing $150 million motorcoach market in the state of illinois.
In addition to the national and international tourist market, area demographics within a 100-mile
radius of Cairo are of great significance. These are the people and businesses that will benefit most
frequently from the use of the facilities, and become sales persons for Fort Defiance State Park and
Cairo's historic restoration. Today Cairo has approximately 4,800 residents. The population within
50 miles is 465,800, within a 100-mile radius 1,661,600.
Exhibit A shows the population by market segment and the estimated population growth over the
next five years. Each market segment will need a different marketing program to maximize the
potential visits of attendees and their return visits.
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EXHIBIT A
POPULATION BY MARKET SEGMENT
ESTIMATED POPULATION
MARKET SEGMENT 1990 1992 1995
(000) (000) (000)
CORE --City of Cairo 4.8 4.8 5.0
PRIMARY-- 50-Mile Radius 465.8 467.0 468.7
SECONDARY -- 100-Mile Radius 1,661.0 1,667.5 1,677.3
TOURISTS -- State Park Visitors 4,333.0 4,333.0 4,333.0
(within 100 miles)
Within a 100-mile radius of Cairo, the total estimated population including tourists is
approximately 4.3 million--secondary segment 1.7 million, plus 60% of the tourist count 2.6 million.
It is estimated that 40% of visitors to the state parks are local residents covered in the other market
segments.
The population of Cairo has been decreasing for the past 50 years. The restoration program will
create jobs, revitalize the economy and increase the population Within five years.
Increases in the primary and secondary market population are based on growth patterns from
previous years.
The tourist estimate includes the count from sixteen Illinois state parks within a 100-mile radius of
Cairo. It does not include tourist counts from any state parks in Missouri or Kentucky within 100
miles of Cairo.
The population figures are used to calculate market penetration of potential attendees for Fort
Defiance State Park, historic sites, tours and activities as the Cairo restoration and revitalization plan is
implemented.
ATTENDANCE PROJECTION
Demographics, along with social and economic impact factors, are measured in the market
segments indicated above and compared with similar markets and projects to calculate comparable
control factors for analysis. Market surveys on park attendees reveal participation by age, income,
frequency of use, return visits, drive time, attendance by day of week, time of day they entered the
facility, acitvities, money spent, plus other statistics that can be used to estimate similar attendance at
Fort Defiance State Park and other planned Cairo developments.
Exhibit B is a three-year attendance projection by market segment: Core, Primary, Secondary,
and Tourist markets. The penetration percentage is obtained from a formula consisting of weighted
factors that include demographic, psychographic, and typology survey research. The projection
formula includes statistics and calculations for age groups, return visits, drive time, decision time and
reason, other attractions in the area, and economic and social conditions.
The three-year projection is based on the development of Fort Defiance State Park with the
attractions and activities outlined in Section IV, Implementation of the Master Plan. These
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developments will make Fort Defiance State Park equal to or greater than similar historic state parks in
Illinois.
EXHIBIT B
PROJECTED ATTENDANCE PENETRATION
CORE -- PRIMARY -- SECONDARY -- TOURIST
MARKET SEGMENTS PROJECTED ATTENDANCE
lstyr. 2ndyr. 3rd yr.
(000) (000) (000)
CORE --City of Cairo 3.3 3.5 3.7
PRIMARY-- 50-Mile Radius 65.7 75.3 83.1
SECONDARY -- 50 to 100-Mile Radius 83.7 98.3 105.9
TOURIST -- State Parks
TOTAL PROJECTED ATTENDANCE 308.7 345.6 378.1
PERCENT OF PENETRATION
1st yr. 2nd. yr. 3rd yr.
(%) (%) (%)
CORE -- City of Cairo 68.8 72.9 75.5 -
PRIMARY -- 50-Mile Radius 14.1 16.1 17.8
SECONDARY -- SOto 100-Mile Radius 7.0 8.0 8.8
TOURIST -- State Parks ith.Q
TOTAL PERCENT OF PENETRATION 7.2 8.0 8.8
The above figures include group business--churches, social clubs, schools, motorcoach
tours--which will comprise approximately 20% of the total attendance. Group business requires a
special marketing program and is an important section of the total marketing plan.
The projected attendance is calculated on the population base of 4.3 million in the Cairo market
segments. The projections divide the visitors into two groups. The warm months of April through
October account for 98.7%, and the cold-month travelers of November to March represent 1.3% of the
projected attendance.
RESIDENTIAL AND TOURIST TRAVEL DEMOGRAPHICS
The following figures and statements are characteristic of the sight-seeing traveler in general. The
various components of the summer traveler are averages from surveys taken at state welcome centers,
hotel and motel guest surveys, park surveys, and state university research reports. Common
components were selected that revealed similar characteristics among all the upper Midwest area
summer travelers.
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TOTAL POPULATION
*65% -- Warm-month travelers.
*46% -- Enjoy sight-seeing, historic sites and scenic viewing.
*85% -- Return visit is based on enjoyment, not price.
*60% -- Food is the one thing they will spend money on.
*55% -- Desire to take something home, souvenirs
EXHIBIT C
DEMOGRAPHICS
Warm-Month Travelers By Category Residential Tourist
% %
Income
Less than $10,000 9.4 7.9
$10,000 to $19,999 26.6 22.2
$20,000 to $29,999 34.7 31.5
$30,000 to $39,999 20.6 19.4
More than $40,000 8.7 19.0
Marital Status
Single, no children 20.0 22.5
Single, with children 6.2 7.0
Married, no children 32.9 32.4
Married, with children 40.9 38.1
Age
Under 30 25.8 26.3
30 to 39 29.7 28.1
40 to 54 - 20.8 24.4
55 and over - 23.7 21.2
Not Retired 90.5 94.1
The above percentages represent the distribution for income, marital status, and age for the 65% of
the population that are warm-month travelers, April through October. This distribution is a guide tool
for marketing planning, but is not intended as an absolute. It is an assessment of comparables for
attendance projections.
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EXHIB1TD
ESTIMATED PARK AUENDANCE BY MONTH AND DAY
Operational % Attendance Approximate Attendance
Days Per Month Per Month Per Month Per Day
January 30 .2 620 21
February 28 .3 930 33
Maich 30 .4 1,230 41
April 30 .9 2,790 93
May 31 4.5 13,890 448
June 30 21.0 64,830 2,161
July 31 27.0 83,350 2,689
August 31 29.5 91,060 2,937
September 30 12.9 39,820 1,327
October 31 2.1 6,480 209
November 29 .4 1,230 42
December 28 .8 2,470 87
Total 359 100.0% 308,700 860
On Easter, Thanksgiving, Christmas Eve/Day, and New Year's Eve/Day the park is open, but
operations and services are closed. Exhibit D is a measuring tool for estimating peak months and days
which assists in food ordering, personnel assignments, traffic control, and planning cash flow.
It is important to plan for peak attendance days that occur during the month of August, and for
special promotions and events. The weekly attendance ratio is 60% Monday through Friday, and 40%
for Saturday and Sunday. Warm-month attendance figures can vary in total attendance from month to
month depending on special events, weather conditions, and the state of the economy.
A large attendance day, known as a "peak design day," is estimated to occur in the month of
August--2,937 average attendees per day. If this average daily attendance of 2,937 is increased to a
weekend day, based on the 60-40% ratio, the peak design day for a weekend day could be 4,112
attendees. This does not mean there would be 4,112 people in the park at one time. They arrive and
depart at different times throughout the day.
44-629 0 - 91 - 8
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Exhibit E estimates the arrival and departure of attendees by the hour.
EXHIBITE
DESIGN DAY
ARRIVAL AND DEPARTURE
BY HOUR
Arrival % Departure Design
Time Period Hour Cumulative Hour Cumulative Level
8:OOto9:59AM 16% 16% 16%
10:00 to 10:59 AM 20% 36% -- -- 36%
ll:OOto 11:59AM 21% 57% 5% 5% 52%
Noon to 12:59 PM 14% 71% 8% 13% 58%
l:OOto 1:59PM 10% 81% 10% 23% 58%
2:00 to 2:59 PM 8% 89% 14% 37% 52%
3:00 to 3:59 PM 5% 94% 15% 52% 42%
4:00 to 4:59 PM 3% 97% 15% 67% 30%
5:OOto5:59PM 2% 99% 14% 81% 19%
After6:OOPM 1% 100% 10% 91% 9%
The design level shows peak park service demand to be between 11:00 a.m. and 3:00 p.m. The
design level chart is used for assigning additional park personnel at key positions to service park
attendees: Concession stand, parking, trash pick-up, tours, cash control, first aid, safety, and the Toll
House Restaurant.
The projected design day estimate is 4,112 attendees, the largest number of people entering the park
in one day. Exhibit E shows the highest service level will occur between Noon and 2:00 p.m., 58%
or 2,385 attendees requiring services. Special service charts and planning are needed for celebrations,
large corporate picnics, and special activities in addition to general public services.
VII
FINANCIAL ANALYSIS
Remodeling of the building vacated by the State Police will take place in stages. First, the ground
floor will be readied for the Toll House Restaurant with its Gift Shop and Tourist Information.
Basement areas can be arranged for storage, employee rest moms, and office space at the present time
with minimum alteration. As the business becomes well established and produces sufficient income in
excess of operating costs, further alterations will be made in the basement area. Attic remodeling will
come later. As income permits, an outdoor patio overlooking the Ohio River will be added to the Toll
House Restaurant.
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20
Current plans are for the Toll House Restaurant to be open 359 days a year from January through
December, closed for Easter, Thanksgiving, Christmas Eve, Christmas Day, New Year's Eve, and
New Year's Day.
Based on projected visitors at Fort Defiance State Paik, data from other such recreational parks,
motorist surveys, average daily traffic counts, and extensive interviewing of knowledgeable persons in
the tristate region, it is estimated that approximately 237,287 customers will patronize the Toll House
Restaurant and Gift Shop during the first year of operation.
Calculations based on similar existing facilities indicate the cost of food and beverages will be
approximately 35% of gross revenue. Gift merchandise will have a 50% cost factor. Projected
revenue and operating expense for the Toll House Restaurant and Gift Shop is shown in Exhibit F.
EXHIBIT F
TOLL HOUSE RESTAURANT AND GIFT SHOP
PROJECTED REVENUE AND OPERATING EXPENSE
$825,797
759,357
uup 66,440
~`ROSS IN'~~
Restar"~
GiftS'~--
OPERATING COSTS
Food & Beverage Costs..
Gift Merchandise
Payroll
UtiP~'
Tele~
urance 801
1,000
Miscellaneous 1,000
NET INCOME $331,143
BOATMANS MEMORIAL CONCESSION STAND
The Boatman's Memorial Concession Stand will be open from April through October. It will sell
soft drinks and various snacks and fast foods including hamburgers and hot dogs. It will offer
selected gift items similar to those in the Gift Shop in the Toll House Restaurant.
Four coin operated viewing scopes will be mounted on the top deck of Boatman's Memorial to be
used from April through October.
Revenue and operating expense for the Concession Stand are calculated by selecting, comparing
and grouping the financial results of existing facilities in other areas in which historical and recreational
facilities have been developed similiar to those being planned here, and on the estimated attendance at
Fort Defiance State Park.
Food, snacks and beverages will be approximately 33% of gross revenue. Gift merchandise will
have a 50% cost factor.
223
U
.265,775
.33,220
.179,690
...lO,768
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21
Projected revenue and operating expense for the Boatman's Memorial Concession Stand are shown
in Exhibit G.
EXHIBITG
BOATMAN'S MEMORIAL CONCESSION STAND
PROJECTED REVENUE AND OPERATiNG EXPENSE
GROSS INCOME
Food, Snacks & Beverages 287,500
Gift Sales 41,400
Viewing Scopes 14,000
A `T'TXT/~ (`c~C1'C 1 ~f 2 iI')O
Food, Snacks & Beverages 94,875
Gift Merchandise 20,700
Payroll 30,000
Utilities 2,354
500
NET INCOME
PARK MAINTENANCE AND OTHER EXPENSE
Beginning with the first assault on the jungle overgrowth that had despoiled Fort Defiance State
Park hundreds of volunteer workers have kept the park in immaculate condition. However, with the
planned development now under way, it would not be realistic to assume that necessary maintenance
can be done on a permanent basis without paid maintenance employees. Arrangements have been
made with the Shawnee Development Council for six workers each summer through the Job Training
Partnership Act (JTPA) for cleanup work at no cost to Confluence Community Development, except
for supervision. Other maintenance workers will be paid out of the proceeds of park
income-producing facilities and an annual stipend of $5,000 received from the Illinois Department of
Conservation (IDOC).
Projected maintenance cost and other operating expense are shown in Exhibit H.
EXHIBIT H
PROJECTED INCOME i~ND OTHER EXPENSE
GROSS INCOME
Toll House Restaurant & Gift Shop 331,143
Boatman's Memorial Concession Stand 194,471
MAINTENANCE AND OTHER OPERATING COSTS 28,977
Maintenance Payroll 10,477
($15,477 less $5,000 from IDOC)
Equipment Repair
-- ~ Replacement 1,000
Marketing 10,000
Office Supplies & Postage 2,000
Telephone 1,500
NET INCOME.
c/la?; (.27
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22
PROJECTED COSTS FOR PARK DEVELOPMENT STAGE NUMBER ONE
Normaily, as pointed out earlier in this report, the required financing for facilities being planned in
this first stage of converting Fort Defiance State Park into an income-producing enterprise would be
calculated in accordance with the usual expenditures for the development of similar recreational parks
and attractions.
However, it must be constantly borne in mind that the ultimate purpose of the Cairo laboratory is to
demonstrate ways and means of strengthening the workings of democracy at the local base of
American society, creating a deeper sense of community, lifting the level of civic performance and
energizing self-help initiative for the solution of problems in all areas of human need. Policies and
procedures for this purpose have a direct relationship to cost estimating.
A considerable amount of construction and renovation work will be done as projects of the Cairo
High School Manual Arts Class, and the General Maintenance Class of the Regional Adult Education
Program. This will provide practical training in the various trades, help upgrade the labor force, and
of even greater importance instill a sense of pride among the youth, a feeling that they are participating
as responsible citizens, playing a significant role in the building of their community.
Thus, in keeping with the fundamental community devleopment principle that no project is looked
upon as an end in itself, but as an instrument for enriching the quality of community life, citizen
participation with assistance from the university is being utilized to the fullest possible extent, thereby
holding development costs to a minimum. Here, in effect, a town and its state university are forming a
business partnership, capitalizing on existing natural and human resources to rebuild the town's
economy, provide jobs for its unemployed, and break the age-old habit of dependency.
With this policy in mind, projected costs of Park Development Stage Number One are shown in
Exhibits I, J, K, and L set forth below.
EXHiBiT I
TOLL HOUSE RESTAURANT AND GIFT SHOP
PROJECTED REMODELING AND EQUIPMENT COSTS
General Remodeling including 12 X 14 Foot addition Of Entrance Waiting
Room With 5/12 Hiproof, Cedar Singles, Double Doorway; And 11 X 12
Foot Cooler Addition With Shelving, Hiproof and Cedar Singles.
Carpentry, Bricklaying, Electrical, Plumbing $41,280
Kitchen Layout, Equipment and Installation 15,810
Restaurant Furnishings, Dinnerware, Serving Equipment,
Cookware, Cutlery, Cash Register And Other Supplies 4,280
Restaurant Interior Decoration, Carpeting,
Lighting, Windows, Wall Covering 6,160
Gift Shop And Tourist Information Counter, Shelves,
Display Cases, Racks, Other Supplies And Equipment 1.570
$69,100
In addition to these costs listed in Exhibit!, start-up capital of $40,000 will be needed for initial
operating costs including inventory and wages.
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23
EXHIBITJ
BOATMANS MEMORIAL WITH CONCESSION STAND
PROJECTED RENOVATION AND EQUIPMENT COSTS
Electric Wiring and Lighting
Renovation, Parts And Fixtures $ 4,800
Public Rest Rooms
Renovation, Parts And Fixtures 3,360
Concession Stand
Alterations And Equipment 3,620
Coin Operated Viewing Scopes --4 @ $250 _~L~Q
$12,780
EXHIBIT K
EXPANSION OF PICNIC GROUNDS
PROJECTED BUILDING AND EQUIPMENT COSTS
Picnic Tables--SO @ $70 Each $3,500
Benches-~ 10 @ $32 Each 320
Shelters -- 8-15 X 20 Feet, 3005F@ $1,231.25 Each 9,850
Grills-- 25 @ $60 Each 1,500
Water Taps --4 @ $75 Each 300
Trash Containers --25 @ $1 Each
$ 15,495
EXHIBITL
CHILDREN'S PLAYGROUND AND SPORTS AREA
PROJECTED BUILDING AND EQUIPMENT COSTS
Children's Playground
Swing Sets, Slides, Climbing Wall,
Chinning Bar, Modular Equipment $ 5,500
Sports Area
Baseball Field, Basketball
And Volleyball Courts 6,375
Hiking/Jogging Trail 2~Q
$12,625
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24
CONSOLIDATED BUDGET
Toll House Restaurant And Gift Shop
Remodeling And Equipment Costs $ 69,100
Start-Up Capital for Wages, Inventoiy,
And Other Initial Operating Costs 40,000
Boatman's Memorial With Concession Stand 12,780
Expansion Of Picnic Grounds 15,495
Children's Playground and Sports Area ~J2.625
$150,000
CONCLUSION
This programmatic funding will make it possible to implement Park Development Stage Number
One with its Toll House Restaurant and Gift Shop, and Boatman's Memorial Concession Stand,
which will generate capital for implementation of the final three stages of park development and the
restoration of historic Cairo.
It will be a philanthropic investmentresulting intangible income-producing facilities that will
alleviate double-digit unemployment and further motivate local initiative for social and economic
problem solving in all areas of human need.
It will create a partnership model of a town and its state university working together in ways that.
can enable communities throughout the Lower Mississippi Delta to rise out of the quagmire of human
deprivation which for decades has made this t~e most poverty-stricken region of the United States. It
will demonstrate the aw~some power of democracy at work, the most potent force yet invented for
human well-being. It will further strengthen the sense of community now taking root in Cairo and its
surroundings. And it will restore for the American public a significant era of our nation's history.
The Toll House Restaurant with Boatman's Memorial Concession Stand as a seasonal extension
will be an integral part of the laboratory for community development, another innovative policy in this
national demonstration. Unlike any other business in the tristate region, its entire profit will go into
the development of the community. Not one dollar of profit will go into anyone's private bank
account. It will be a practicum for the education of currently unemployed persons in the professional
food service and hospitality industry, ranging from management to nutrition, emphasizing excellence
and knowledge in all aspects of the business.
Robert T. Poston is a 1949 graduate of the Michigan State University School of Hotel and
Restaurant Administration with 35 years experience as manager of some of the finest dinner houses in
the United States. He has a track record of turning establishments that were operating at a loss into
profit-making enterprises. He has been recruited from retirement to establish the Toll House
Restaurant on a sound financial basis and train its entire work force Thus, the restaurant with its
seasonal extension at Boatman's Memorial, will be used not only to earn income for park development
and the restoration of historic Cairo it will become a practical educational institution for persons in the
construction trades and in the food service industry.
Additional research concerning cost and revenue projections will be neces4' to bring the overall
master plan to completion, requiring consultation with essential areas of expertise such as surveying
and engineering, site analysis, architectural design, landscaping, marketing and management.
But with this first stage of the master plan set in motion these follow-up actions will come within
reach.
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00
Ohio River Bridge Toll House Office Building
Vacated By Illinois State Police
.:.
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TOLL
GiFT SHOP
HOUSE
RESTAURANT
TOURIST f'~F0IRMATK)N
0)
Fl (~rlr? P1 i~N
SCALE: 3/ 3~a ~-O
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Boatman's Memorial
t:;~:' .:~
-~
-~-~
\ \~~c:~ ~L-)_*~
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47
Picnic Shelter
Volleyball Court
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\`S ~
~ /:,/~\~ /
r~4I~~(
hull/I -
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a
Th
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32
REFERENCES
The following sources were used for information in preparing this report.
Southern illinois University at Carbondale
illinois Department of Conservation
Illinois Department of Transportation
illinois Department of State Police
illinois Department of Central Management Services
Illinois Historic Preservation Agency
illinois Department of Commerce and Community Affairs
United States Bureau of the Census
United States National Park Service
United States Army Corps of Engineers
University of Wisconsin
Schillinger & Associates
Scarborough Research Corporation
Donnelly Marketing Information Service
Purchase Construction Company
Harrell's Electric Company
Klein's Plumbing & Heating
Cairo Public Utilities Commission
illinois-American Water Company
Central fllinois Public Service Company
Southern illinois Regional Tourism Council
Confluence Community Development, Inc.
National Restaurant Association
McDonald's Fixtures & Equipment Company
Modern Floor Coverings Company
Niemann Flooring
The House of Color
Webb-DeCota Electrical Suply, Inc.
Greco Sales, Inc.
Missouri Butcher & Cafe Supply, Inc.
Berfield Recreation, Inc.
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PREPARED STATEMENT OF MALCOLM T. SHEPHERD, MANAGER MADISON
MADISON INTERNATIONAL, JACKSON, MS
I take thin opportunity to thank Congroceman X~2i1to Ecpy,
Chairman of thin Tank Force, for inviting me to addroco thin
gathering of concerned and committed people to rural deVelopment.
I ctioo take thin opportunity to thank Tack Force bore for being
a part of thin proceec and for your interoct in invootigating the
activitico needed in thona aroac that arc comotinoc overlooked by
the development proco~3c.
Regrettably, I cannot attend the Hearing but my hopo~ are that
this writton etatement to you will provide you with come icouec to
addrcne in opeci~ic ctreac for email, minority-owned bucinece
development in both urban and enpecimily rural areac.
Hy address to you in geared to financing of emerging email,
minority-owned bucinoseec. Thin in a oboe topic to no omen my
background and experienoco cc an entrepreneur, financing official,
and a privuto-coctor email, ninority bueincccporoon placoc no in
the name cituation thin Tack Force in invectigating.
?doct jobc in thin county are generated by email firmo thoce
firms employing 100 or ieee; yet, rocearek ohowo that thoce firmo
are limited when actual data on accecoing theec progrctmc are
reviewed. Snail and ninority~'owned hucineocco cannot accecc
federal, regional, ctmto, and local prograuc cc readily an major
2 irme. Thin is true given that the reoource bane in omaller, lena
employoen to decipher rogulationc and roguirementc, and given the
fact that financial inetitutiono are cooking °oafe" leone. Among
small bucinescoc, minority-owned firmo have oven grantor problonc
acceneing aid progranc.
Small and minority-owned bucinencoc face opacial development
probiemc. Programe docignod to neat their macdo must be
otrategicaily denigned and ~iccccsiblc in both urban and rural
areac. I firmly believe by addreccing the accoooibiiity iccue,
email and minority-owned bucineccoc would have an increased chance
of becoming oucccncful bucinecoec.
Any bucinoeaec regniroc a market opportunity, capital, oound
management, salon, and technical aocictance. Those reguiramontc are
no different, than reguiremonto majority buolneococ have either at
start-up or advanced etagee. For minority groupo enpecially, theco
problems are compounded by lack of connoctionc or accocc into the
capital and other narkotc. Among thone iooues, capital appearo to
be the most critical iccue to address in programc decigned to
accist in creating emall and minority-owned bucineonoo.
The level of businoco development activities io a direct
result of the amount and accoocibility to capital narketo. The
banking industry accounts for the majority of funde in the US
capital market for buoinooaes devobopment. However, banko are not
the only source of financing, but in many inctancoc, nay be the
only local source for rural areas sepocially. Other participante in
the capital market include crodit uniona, federal, ctate, regional
and local loan programs, venture capital and inveotment groupc,
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foreign investors, pension funds, and foundation and grant sources,
among others. Banks arid loan programs mostly provide financing in
the debt market; while, foundations end grant programs, investment
groups mostly provide financing in the oguity market, Pedoral,
regional, end local programs have a mix of financing they can
provide.
Debt financing usually requires come type of collateral having
to do with the business and/or the personal assets of the borrower.
collateral, if any, for equity financing is.ueually in the form of
stock or future earning power of the business or a certain
percentage of ownership in the business.
Collateral requirements of banks and other lending
institutions are often times more stringent on small and minority-
owned bucinec~ groups than non-minority groups. These groups are
usually labeled `thigh risk" by lending institutions end banks
usually over-collateralized loans to these groups. Since federal
and state financing programs arc geared to further secure banks to
encourage loans, one would think that banks will relax their
collateral requirements when these type of loans are made. This is
not the case! ~vcn when those programs are used by minority
groups, banks still require the came or an increased love? of
security/collateral to increase their comfort level with such
loans.
Small and minority-owned business in both urban and rural
areas are viable means of improving the quality of life for all
citizens. In order to improve the ac~esc to financing programs,
non-traditional methods of developing these businesses should be
employed on the part of federal, regional, state and local lending
programs and institutions. Those typo of programs are tied into
existing financial institutions, the community, and encouraged by
governmental programs.
Severe? programs of this type have developed in the last few
years under the Community Reinvestment Act (CPA). The CPA focus on
activities that foster development within the bank's delineated
community, including low- and moderate-income neighborhoods. It
particularly encourages housing-related extensions, participation
in community development corporations, and smell business
financing, including loans to small farms through Community
Development Corporations (CDC).
Another technique for small and minority-owned business
develop is the use of Development Banks (DD). DB' c have the same
basic intent and purpose as CDC'c but are usually sponsored by
governments. This has a unique meaning end opportunity for rural
development since often times local banks have a limited capital
base anyway.
DB's are structured to foster and promote a reasonable moans
to access capital markets. DB'c are useful in borrowing money to
finance infrastructure improvements to governments and to provide
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238
low cost capital and usually offer no technical assistance progranc
to individual, or businesses, but servo ~s a source of financing.
CDC's and DB'a were recommended by the recent Delta Comniesion'c
~port tothe NatJ~n. DB'9 can also be structured to provide low
interest funds to local governments to be reloaned for small and
minority business development.
By recommending these two techniques for business development,
especially for rural areas, they could have major impact upon
encouraging local financial institutions to become more responsive
to small and minority-owned business. I will be more than happy to
provide additional information on these and other financing
opportunities should you request.
There is no greater opportunity to assist small and minority-
owned business than to provide an opportunity to finance the next
succeesful business. Thank you for this opportunity to address
you.
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239
Ce RICHARD C. HACKETE. Mayor
1 O[ * JAMESE. BROUGHTON . CbiefofStaff
I MEMPHIS ECONOMIC DEVELOPMENTCENTER
C E. BOBBY WELCH. Director
M~mpbis__~
TENNESSEE
PREPARED STATEMENT OF E. BOBBY WELCH
USING A BUSINESS INCUBATOR IS A WAY FOR NEW COMPANIES TO
GET COST EFFECTIVE RENTAL SPACE, SHARE OFFICE SERVICES AND
ACCESS EXPERTISE IN MANAGEMENT AND TECHNICAL ASSISTANCE.
THE NUMBER OF BUSINESSES USING INCUBATORS OVER THE PAST 2
YEARS HAS INCREASED OVER 250% MAINLY BECAUSE NEW FIRMS
STARTING IN INCUBATORS HAVE AN 80% CHANCE OF SUCCESS. THIS
RATE IS A STUNNING CONTRAST TO THE FIGURES COMPILED BY THE
SMALL BUSINESS ADMINISTRATION WHICH SHOW THAT 80% OF ALL NEW
BUSINESS FAIL WITHIN THE FIRST FIVE YEARS.
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240
City of Staff
1'Aernphis
TENNESSEE
The Memphis Economic Development Center continues to maintain
its posture of leadership in minority economic development.
The lack of access to capital for business expansion has not
affected the quality and scope of our service. The MEDC has
continued to provide opportunities for low and moderate
income persons through technical assistance and training,
public service; and office space for new business start-ups.
I. The Incubator ConCept
Small business have substantially contributed to the economy
in job creation, innovation and productivity. As the small,
homegrown businesses are becoming an important focus of
local economic development efforts, the small business
incubator has become an increasingly popular economic
development tool which helps improve the success rate of new
finns.
Incubators are buildings characterized by low rent structure,
availability of centralized services and administrative
support services, receiving and shipping facilities,
conference rooms, computers and word processors, other
business services (e.g. technical, management, financial
assistance). The arrangement reduces business failure by
making them able to survive the critical stages of early
business development. This is achieved by providing the
business a means of reducing overhead costs. It also seeks
to "graduate" their tenants to conventional quarters when
they have become economically and financially viable.
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241
II. ~.. ~ development of incubator facilities:
1. Establish as working group.
Determine a. lead sponsor agency - the initiator
b. local working group - responsible for
plans through implementation
c. other community organizations - provide
support and publicity.
2. Define goals and overall objectives.
- Determine overall economic development objectives and
how the incubator facility can help achieve the goals
and objectives. This will help to determine the
types of tenants, location of facility, financing
sources and technical expertise needed.
3. Collect information on other incubator projects.
- Use the overall goals and objectives of the incubator
project in researching information on existing
facilities in comparable cities.
4~ Analyze local economic base.
- Analyze the characteristics of different businesses
in the area, level of entrepreneurial activity in the
community, and the supply and demand of
incubator-type space and support services by industry
type.
5. Assess small business support network.
- Examine the degree to which a community has
formalized its support for small businesses.
6. Perform preliminary, financial feasibility study.
- Estimate total project cost and list available
financial resources for the project.
7. Review data.
- Examine major strengths and weaknesses, gaps in
information collect and/or resources identified.
Develop strategies for gathering additional
information and gaining other resources and involving
other organizations.
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242
8. Develop a management plan for the facility.
- Decide on the type of organizational structure, need
for and make-up of Board of Directors, daily
management facility, tenant selection policies,
tenant services and tenant "graduation" policy.
9. Financing the incubator.
- Evaluate available financing resources with the
following financing issues in mind: funding for
pre-developinent cost, the facility 2and tenants.
The MEDC is a joint venture between the City of Memphis, the
Chamber of Commerce, and the Black Business Association. We
are funded by a BUD Grant for operational cost via the
graces of Mayor Richard C. Hackett.
In finality, only new businesses and the expansion of
existing businesses' which create jobs will eliminate the
social ills of any community. Specifics for funding
actualization should. include but not be limited to the
following:
A. Establishment of a venture pool of money for
financing new and existing businesses capital
requirements.
B. Develop a joint venture with local lending
institutions in which traditional lending
constraints to new/disadvantaged businesses be
waived.
C. Finance the development of a school for
entrepreneurs.
D. Structures and finance a curriculum for the public
schools at the junior and senior high levels which
speak to the American way of life free enterprise
and capitalism.
Thank you,
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243
PREPARED STATEMENT OF ED JONES, CHAIRMAN, BOARD OF DIRECTORS,
LOWER MISSISSIPPI DELTA DEVELOPMENT CENTER
Mr. CHAIRMAN AND MEMBERS OF THIS TASK FORCE:
IT IS MY DISTINCT PLEASURE TO BE ABLE TO SUBMIT THIS BRIEF
TESTIMONY ON THE FINANCING ECONOMIC DEVELOPMENT. I APOLOGIZE FOR
NOT BEING ABLE TO BE WITH YOU IN PERSON TO DELIVER MY VIEWS.
ONE OF THE PROBLEMS IDENTIFIED BY THE LOWER MISSISSIPPI DELTA
COMMISSION IS THE SHORTAGE OF CREDIT FOR ECONOMIC EXPANSION IN
THE DELTA. SOME OF THIS SHORTAGE DERIVES FROM THE FACT THAT
MILLIONS OF DELTA DOLLARS ARE DEPOSITED OR INVESTED OUTSIDE THE
AREA. OUR CITIZENS ROUTINELY SEND THEIR SAVINGS TO MUTUAL FUNDS,
MONEY MARKET ACCOUNTS, INDIVIDUAL RETIREMENT ACCOUNTS AND VARIOUS
INSURANCE-TYPE INVESTMENTS THAT ARE MANAGED BY INSTITUTIONS
LOCATED IN NEW YORK, BOSTON OR CHICAGO. MANY OF OUR
CORPORATIONS, BUSINESSES AND EVEN GOVERNMENTAL INSTITUTIONS (SUCH
AS SCHOOLS) WHICH MAINTAIN MILLIONS OF DOLLARS IN RETIREMENT OR
PENSION FUNDS, INVEST THAT MONEY WITH PROFESSIONAL FUND MANAGERS
OUTSIDE THE AREA.
THERE IS NOTHING ILLEGAL OR EVEN WRONG WITH OUR PEOPLE SEEKING
THE BEST FINANCIAL RETURN ON THEIR SAVINGS, BUT THE OUTFLOW OF
CAPITAL CURTAILS THE AMOUNT OF CREDIT WHICH SHOULD BE AVAILABLE
TO US IF THESE FUNDS WERE DEPOSITED LOCALLY.
IT SEEMS TO ME THAT WE NEED TO FOCUS SOME ATTENTION ON HOW TO
KEEP THAT MONEY AT HOME DEPOSITED IN LOCAL INSTITUTIONS AND
ALSO HOW TO ATTRACT MORE CREDIT AND INVESTMENTS IN THE DELTA FROM
OUTSIDE FINANCIAL INSTITUTIONS.
MR. CHAIRMAN,. I DO NOT HAVE AN OVERALL PLAN TO ACCOMPLISH THESE
GOALS, BUT I WILL OFFER .A FEW IDEAS.
I SUPPORT YOUR SUGGESTION OF A DELTA INDUSTRIAL DEVELOPMENT BANK.
WHILE I REALIZE THAT CAPITALIZING SUCH A BANK WOULD BE DIFFICULT
IN THIS TIME OF BUDGET CRISIS AT BOTH THE FEDERAL AND STATE
LEVELS, I ENCOURAGE YOU TO CONTINUE TO PURSUE THE IDEA AND LOOK
- FOR CREATIVE WAYS TO CAPITALIZE IT.
PERHAPS IT WOULD BE WISE, IN THE MEANTIME, TO TAKE SOME SMALLER
STEPS WHICH WOULD BE USEFUL AS WELL. FOR INSTANCE, CONGRESS IS
WORKING VERY HARD ON BANKING REFORM LEGISLATION. A MAJOR THRUST
OF THE LEGISLATION, I UNDERSTAND, WOULD BE TO EXPAND THE POWERS
AND ACTIVITIES OF BANKS. WOULD IT BE POSSIBLE TO DEVELOP
INCENTIVES FOR COMMERCIAL BANKS IN DESIGNATED UNDERDEVELOPED
AREAS TO SET UP DEVELOPMENT LOAN FUNDS FROM WHICH LOANS WOULD BE
MADE FOR. JOB CREATION PURPOSES. PERHAPS THE FUNDS WOULD BE
RELIEVED OF SOME REGULATORY REQUIREMENTS OR PROVIDED TAX BREAKS
TO COMPENSATE FOR ADDITIONAL RISKS.
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COMMERCIAL BANKS IN THE DELTA REGION CONTROL THE HEARTBEAT OF OUR
ECONOMY. SOMEHOW, NATIONAL POLICY MUST FIND WAYS TO UNLEASH THE
FINANCIAL TALENT, CREATIVITY AND RESOURCES OF THESE INSTITUTIONS.
I FIRMLY BELIEVE THAT THE PENDING BANKING REFORM LEGISLATION IS A
GOLDEN TARGET OF OPPORTUNITY FOR THE DELTA AND I ENCOURAGE THE
HOUSE AND SENATE DELTA CAUCUSES TO EXPLORE ITS POTENTIAL.
TWO OTHER SOURCES OF CREDIT COME TO MIND AS HAVING THE CAPABILITY
OF ENHANCING ECONOMIC ACTIVITY IN THE DELTA. THEY ARE THE
COOPERATIVE FARM CREDIT SYSTEMS AND THE FEDERAL AGRICULTURAL
MORTGAGE CORPORATION (COMMONLY REFERRED TO AS FARMER MAC). BOTH
OF THESE INSTITUTIONS ARE IN THE POSITION TO FACILITATE THE FLOW
OF CAPITAL FROM AREAS WITH MONEY TO INVEST INTO AREAS WHERE
CREDIT IS NEEDED. BOTH ARE DESIGNED TO PRIMARILY SERVE
AGRICULTURE, BUT HAVE LIMITED AUTHORITIES AND GREAT POTENTIAL IN
RURAL HOUSING AND OTHER RURAL INFRASTRUCTURE LENDING.
FOR INSTANCE, DUE TO THE FEDERAL REGULATOR'S MISMANAGEMENT OF
FARM CREDIT SYSTEM LENDING IN MISSISSIPPI, LOUISIANA AND ALABAMA,
FARMERS MUST GO TO A PRODUCTION CREDIT ASSOCIATION FOR SHORT-TERM
LOANS AND TO A COMPLETELY SEPARATE FEDERAL LAND BANK ASSOCIATION
FOR LONG-TERM LOANS. I AM HAPPY TO REPORT THAT THE FEDERAL
INTERMEDIATE CREDIT BANK IN JACKSON, MISSISSIPPI AND THE FIRST
SOUTH PRODUCTION CREDIT ASSOCIATION HAVE APPLIED TO THE REGULATOR
TO BE CHARTERED AS FULL-SERVICE LENDING INSTITUTIONS. WHEN THIS
IS FINALLY ACCOMPLISHED, FARMERS AND RURAL HOME BUYERS IN THOSE
THREE STATES WILL BENEFIT GREATLY. UNTIL IT HAPPENS, THEY WILL
CONTINUE TO SUFFER FROM A VERY INEFFECTIVE AND INEFFICIENT FARM
CREDIT SYSTEM SERVICES. THIS IS A REAL SHAME AND A HARDSHIP ON
DELTA FARMERS. I. HAVE TRIED TO ASSIST IN THIS EFFORT.
HOWEVER, THERE ARE SEVERAL LEGISLATIVE INITIATIVES WHICH ARE
NEEDED TO ALLOW THE FARM CREDIT SYSTEM TO PROVIDE BETTER SERVICE
TO RURAL AMERICA INCLUDING THE DELTA.
FIRST, IN ORDER TO FINALLY ACCOMPLISH ONE-STOP CREDIT SHOPPING
NATIONWIDE, PRODUCTION CREDIT ASSOCIATIONS SHOULD BE GRANTED
AUTHORITY TO MAKE THIRTY-YEAR REAL ESTATE MORTGAGES. OVER A
DECADE AGO, I SPONSORED THE LEGISLATION WHICH GRANTED THEM
AUTHORITY TO LENGTHEN THE TERM OF THEIR LOANS TO TEN YEARS. THIS
CHANGE ALLOWED THEM TO PROVIDE MUCH BETTER CREDIT SERVICES FOR
THE CATFISH AND POULTRY PRODUCERS AND OTHERS IN OUR AREA.
HOWEVER, TIMES HAVE CHANGED GREATLY. IN THE LAST DECADE, AND A
THIRTY~YEAR PCA LOAN WOULD BE A VERY SIMPLE, BUT POSITIVE CHANGE.
IT COULD HELP END A LOT OF BICKERING INSIDE THE FARM CREDIT
FAMILY WITH BORROWERS BEING THE SYSTEM'S WINNERS.
SECONDLY, FARM CREDIT SYSTEM LENDERS ARE LIMITED TO MAKING RURAL
HOUSING LOANS IN COMMUNITIES OF LESS THAN 5,000 IN POPULATION.
THIS SHOULD BE INCREASED TO AT LEAST 20,000 IN POPULATION AND THE
PRICE LIMITATION NEEDS AN ADJUSTMENT TO TAKE INTO ACCOUNT
INFLATIONARY PRESSURES.
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THIRD, THE NATIONAL HANK FOR COOPERATIVES CURRENTLY MAKES LOANS
FOR WATER AND SEWER LOANS IN COMMUNITIES OF LESS THAN 20,000
POPULATION. I DO NOT BELIEVE THAT THEY ARE AS ACTIVE IN THE
DELTA AREA AS THEY SHOULD BE. PERHAPS SOME COORDINATION IS
CALLED FOR. PERHAPS ADDITIONAL LEGISLATION IS NEEDED TO HELP
PROVIDE WATER AND SEWER SERVICES TO ALL DELTA CITIZENS.
FOURTH, SOME PEOPLE ARGUE THAT THE FARM CREDIT SYSTEM SHOULD
BECOME A PRIMARY LENDER TO RURAL BUSINESSES WELL BEYOND ITS
TRADITIONAL AGRICULTURAL CLIENTELE. I AM NOT READY TO GO THAT
FAR BECAUSE, AS A GOVERNMENT SPONSORED ENTERPRISE, THE SYSTEM
WOULD HAVE A COMPETITIVE ADVANTAGE OVER COMMERCIAL BANKS.
HOWEVER, THE CREDIT NEEDS OF RURAL AMERICA, ESPECIALLY IN
ECONOMICALLY DEPRESSED AREAS SUCH AS THE DELTA, ARE NOT BEING
MET. AS A MATTER OF POLICY, I BELIEVE THAT THE U.S. CONGRESS AND
STATE GOVERNMENTS NEED TO EXAMINE WHETHER RURAL AREAS ARE GETTING
A FAIR DEAL.
ONE NEW ORGANIZATION WHICH IS JUST NOW GETTING OFF OF THE GROUND
AND SEEMS TO HAVE GREAT POTENTIAL IN THE FEDERAL AGRICULTURAL
MORTGAGE CORPORATION, OR FARMER MAC. THE LEGISLATION CREATING
FARMER MAC WAS ONE OF THE LAST MAJOR PIECES THAT I WORKED ON
BEFORE RETIRING. ITS PURPOSE IS TO ASSIST LOCAL BANKS AND OTHER
AGRICULTURAL LENDERS AS WELL AS THE FARM CREDIT SYSTEM TO MAKE
LONG-TERN FARM REAL ESTATE LOANS AND THEN SELL THAT LOAN INTO A
SECONDARY MARKET CREATED BY FARMER MAC. IT WAS PATTERNED AFTER
SECONDARY MARKETS FOR HOUSING LOANS, STUDENT LOANS AND OTHERS
WHICH HAVE PROVEN TO BE VERY SUCCESSFUL. RECENTLY, FARMER MAC
HAS BEGUN MAKING A SECONDARY MARKET FOR THE FARMERS HOME
ADMINISTRATION GUARANTEED LOANS WHICH ARE VERY IMPORTANT TO OUR
AREA.
ADDITIONALLY, FARMER MAC CAN BE A BOOST TO RURAL HOUSING LENDING
BY MAKING A SECONDARY MARKET FOR HOUSING LOANS IN COMMUNITIES OF
20,000 POPULATION. THIS SHOULD ASSIST RURAL BANKS, CREDIT
UNIONS, SAVINGS BANKS AND OTHERS CAUSING RURAL HOUSING LOANS TO
BE MORE ACTIVE.
THE BASIC BENEFITS OF FARMER MAC ARE: -
-TO PROVIDE LIQUIDITY TO RURAL LENDERS
-T~ ALLOW RURAL LENDERS TO OFFER LONG-TERM FARM AND RURAL
HOUSING LOANS AT THE MOST COMPETITIVE INTEREST RATES.
I AN VERY OPTIMISTIC ABOUT FARMER MAC'S FUTURE AND ITS POTENTIAL
TO HELP US HERE IN THE DELTA. IT IS NOT AN ANSWER TO ALL OF OUR
PROBLEMS, BUT IT IS A HELP AND AT NO TAXPAYER EXPENSE.
MR. CHAIRMAN, AS FARMER MAC COMES ON-LINE AND PROVES ITSELF, YOU
MAY VERY WELL WANT TO EXPAND ITS MANDATE IN RURAL AREAS. THIS
WOULD BE ONE WAY TO KEEP COMMERCIAL LENDERS MORE ACTIVE IN THE
DELTA.
[Whereupon, at 2:45 p.m., the Task Force adjourned.]
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