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PLEASE NOTE: The following transcript is a portion of the official hearing record of the Committee on Transportation and Infrastructure. Additional material pertinent to this transcript may be found on the web site of the Committee at []. Complete hearing records are available for review at the Committee offices and also may be purchased at the U.S. Government Printing Office.

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FEBRUARY 10 and 22, 1995

Printed for the use of the

Committee on Transportation and Infrastucture


BUD SHUSTER, Pennsylvania, Chairman
WILLIAM F. CLINGER, Jr., Pennsylvania
THOMAS E. PETRI, Wisconsin
HOWARD COBLE, North Carolina
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JOHN J. DUNCAN, Jr., Tennessee
WILLIAM H. ZELIFF, Jr., New Hampshire
BILL BAKER, California
JAY KIM, California
STEPHEN HORN, California
BOB FRANKS, New Jersey
PETER I. BLUTE, Massachusetts
JOHN L. MICA, Florida
ZACH WAMP, Tennessee
RANDY TATE, Washington
RAY LaHOOD, Illinois
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NORMAN Y. MINETA, California
NICK J. RAHALL II, West Virginia
ROBERT A. BORSKI, Pennsylvania
ROBERT E. WISE, Jr., West Virginia
JAMES A. HAYES, Louisiana
BOB CLEMENT, Tennessee
MIKE PARKER, Mississippi
ELEANOR HOLMES NORTON, District of Columbia
PAT DANNER, Missouri
JAMES E. CLYBURN, South Carolina
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BOB FILNER, California

WAYNE T. GILCHREST, Maryland, Chairman
ANDREA SEASTRAND, California, Vice Chairwoman
JOHN J. DUNCAN, Jr., Tennessee
PETER I. BLUTE, Massachusetts
BUD SHUSTER, Pennsylvania
(Ex Officio)

ROBERT E. WISE, Jr., West Virginia
ELEANOR HOLMES NORTON, District of Columbia

NORMAN Y. MINETA, California
(Ex Officio)


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FEBRUARY 10, 1995
    Ginsberg, Hon. William W., Assistant Secretary for Economic Development, U.S. Department of Commerce
    White, Jesse L., Jr., Federal Co-Chairman, Appalachian Regional Commission; accompanied by: Michael R. Wenger, Appalachian Regional Commission States' Washington Representative


    Ginsberg, Hon. William W
    White, Jesse L., Jr

FEBRUARY 22, 1995

    Altman, Frank L., President, Community Reinvestment Fund, Inc., Minneapolis, MN

    Correa, Rafael, President, Machining Technologies, Inc., Salisbury, MD

    Gayheart, Linda G., Executive Director, Kentucky River Area Development District, Hazard, KY

    Gray, Jim, Chairman and CEO, Harbor Bank, Long Beach, CA
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    Herald, Hon. Jimmie, Judge Executive, Owsley County, Booneville, KY

    Johnson, Joseph E., Executive Director, Wayne County (Mississippi) Economic Development District, and President, Southeast Mississippi Economic Development Network, Waynesboro, MS, accompanied by Tom McClure, President, National Association of Management and Technical Assistance Center and Director of the EDA University Center at Western Carolina University, also Annette Jones, Assistant Manager, Economic Development Administration University Center at the University of Southern Mississippi

    Lewis, Herbert, CPA, Carvel Hall, Crisfield, MD

    Olson, Robert, Exexcutive Director, Virginia Biotechnology Research Park, (AURRP), Virginia Commonwealth University, Richmond, VA
    Pascarella, Dennis, CEO, Seneca Printing and Label, Inc., Franklin, PA, accompanied by William Steiner, Executive Director, Northwest Pennsylvania Planning and Development Commission, Franklin, PA

    Sims, Harold, Sparta, TN

    Taylor, Hon. Casper R., Jr., Speaker, Maryland House of Delegates

    Tonn, James C., President, the National Association of Development Organizations and Executive Director, the Middle Georgia Regional Development Commission, Macon, GA
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    Urban, Edward W., Senior Vice-President, Salisbury Technologies, LLC (STL), Salisbury, MD

    Vella, Nino, President and Chief Executive Officer, the New PIG Corporation, Tipton, PA


    Altman, Frank L

    Correa, Rafael

    Gayheart, Linda G

    Gray, Jim
    Hart, James A., (submitted by Herbert Lewis)
    Herald, Hon. Jimmie

    Johnson, Joseph E

    McClure, Thomas

    Olson, Robert

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    Pascarella, Dennis

    Sims, Harold

    Taylor, Hon. Casper R., Jr

    Tonn, James C

    Urban, Edward W

    Vella, Nino



U.S. House of Representatives,

Subcommittee on Public Buildings and Economic Development,

Committee on Transportation and Infrastructure,

Washington, DC.

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    The subcommittee met, pursuant to notice, at 8:30 a.m. in room 2325, Rayburn House Office Building, Hon. Wayne T. Gilchrest (chairman of the subcommittee) presiding.

    Mr. GILCHREST. The subcommittee on Public Buildings and Economic Development will come to order.

    Today is the first in a series of hearings on the subject of continuation of programs under the hearings on the subject of EDA and ARC. I welcome our witnesses—Assistant Secretary William Ginsberg, and Appalachian Regional Commissioner Federal Co-Chairman, Jesse White, and Mike Wenger is here this morning with him to help. I have a brief statement, which I will take just a few minutes to read. I too will be under the 5 minute rule, and I think that will help to move things along a little bit.

    I support the continuation of these two programs, but I recognize the need for reform in the scope and size of each program. Given the budget climate we find ourselves in today, there will be cuts in discretionary spending programs, and these two programs are no exception. But we are here to do important work in reviewing the impact and the value of both EDA and ARC, and in so doing we need the help of the witnesses in evaluating the programs and we need to establish a good record on these programs, their cost effectiveness, and the return of Federal investment in these infrastructure programs.

    I look forward to hearing from the administration this morning, as well as the witnesses in our future hearings on this important matter.

    And now I would like to recognize my colleague, Mr. Wise.
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    Mr. WISE. Mr. Chairman, you set an excellent standard for us all. I'm going to have to compete to take up less time than you did. I can see a whole set of bright opportunities opening for this subcommittee.

    I would like, first, Mr. Chairman, if I could, to ask unanimous consent to insert the opening statement of our ranking member, Mr. Mineta, into the record.

    I would like to thank you, Mr. Chairman, for holding this hearing and Secretary Ginsberg and Federal Co-Chairman White for being here today. Both these agencies and programs provide help to stress communities. There are a lot of challenges in front of them, particularly with limited Federal dollars but in both cases I think they have a story to tell and look forward to hearing much of it today and the progress that's been made.

    Thank you for holding this hearing.

    [The prepared statement of Mr. Mineta follows:]

    [Insert here.]

    Mr. GILCHREST. Thank you, Bob.

    Normally, we would just hold—in order to expedite the process, we would just have an opening statement from myself and the ranking member. But since Jim was on this committee last year and he's here, if you want to make a comment, Jim——
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    Mr. DUNCAN. Well, thank you, Mr. Chairman, but these two agencies weren't under this subcommittee in the past Congresses, and I haven't served on the subcommittee that has had jurisdiction over these two agencies. So I'm here to learn this morning.

    Thank you very much for your kindness and consideration, but I have no formal opening statement at this time.

    Mr. GILCHREST. Okay, thanks, Jim.

    We welcome Ms. Seastrand.

    Ms. SEASTRAND. I have no comment.

    Mr. GILCHREST. Mr. Ginsberg, anytime you're ready, sir.

    Mr. GINSBERG. Thank you.


    Mr. GINSBERG. Chairman Gilchrest, Congressman Wise, distinguished members of the subcommittee on Public Buildings of Economic Development, it's a pleasure and a privilege to testify before you this morning on behalf of the Economic Development Administration.
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    I do have a written statement that I would like submitted for the record please, and I will summarize it briefly for the subcommittee this morning.

    EDA welcomes this hearing, Mr. Chairman, as an opportunity to discuss the role of the Federal Government in supporting economic development in economically distressed areas of this country. It has been the bipartisan support of this subcommittee and of the Congress that has sustained a Federal role in local economic development for many years, just as it has been your continuing bipartisan support that has been instrumental in the revitalization of EDA over the last 2 years.

    I'm going to focus on four points this morning—one, the importance of economic development for economically distressed areas; two, the enduring Federal leadership role in assisting the local process of economic develop; three, the value that has been created through a Federal local partnership in support of economic development; and, four, the ways in which we at EDA are creating a new EDA that can help local communities most effectively meet their economic development challenges.

    Point one, economic development is indeed a local process, and EDA adheres to the fundamental principle that economic development is a local process. It is the public/private process by which local communities build the capacity to understand their economic challenges and build the institutions and develop the consensus strategies to create positive economic change. It's the process of raising resources to fund those strategic priority projects that will most effectively catalyze private sector investment and create private sector jobs. EDA provides resources that empower economically distressed areas to undertake this local process. In this sense, EDA is the exact opposite of the Federal Government imposing bureaucratic solutions on local communities.
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    I have the privilege, Mr. Chairman, as assistant secretary, to travel around this country and work with and see local communities that are dealing with economic change. And what I've seen in the most remote, rural areas in places like Libby, Montana, and the inner cities, and place like Detroit, and Appalachian communities dealing with chronic persistent economic decline in New England and Northwestern communities is economies that have been decimated by declining fish stocks or other loss of natural resources in communities such as Forth Worth that are adjusting to the adverse impacts of defense down sizing. I've seen the same basic challenge, which is diversification, and the same response at the local level again and again, which is a process of community collaboration to devise and implement sound long-term strategies, and I've seen the kind of pride and value that results when—with the right local leadership and with EDA support—a community implements a project that not only creates quality jobs but that reverses the long-term negative economic trend lines and leads the way to a new economic direction.

    My second point is that there remains an important Federal leadership role in supporting local economic development. What I believe is needed today is strong Federal leadership in supporting local economic development. This Federal role is to provide long-term assistance to targeted areas of economic distress in the form of investments that implement local priorities by creating jobs, generating taxes and promoting positive economic change. There is a unique and enduring Federal role in doing this, and the keys that I want to emphasize are targeting areas of economic distress and long-term investments.

    EDA's statutory purpose and track record is targeting resources to areas of economic distress, and the national experience shows that even the best funded and most innovative state economic development programs promote their respective state economies generally rather than targeting resources to urban or rural areas of economic distress.
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    Similarly, with the notion of long-term investments, EDA assistance enables communities to focus on longer term and more innovative economic development activities, and too often given constrained local budgets and given the crushing pressures on local government to meet the daily needs of the local population and those pressures are magnified in areas of economic distress, local officials are all too often unable to focus resources and attention on the longer term issues in the community that affect the economic base.

    To best target our resources toward long-term investments in distressed communities, EDA will increasingly move toward competitive processes for awarding funds. We believe competitive processes can promote the boldness, and most effective and most collaborative thinking at the local level, and we're going to start using a national competitive process through our new program initiative, competitive communities, which we believe is central to a Federal leadership role in economic development because it will provide communities with a new program tool to work with and to support their existing, expanding and emerging industrial companies in responding to the competitive challenges, which are the hallmark of this age economically.

    My third point is the value that has been created, Mr. Chairman, through Federal assistance for the local economic development process—value in terms of private sector jobs and private sector investment. What we do is help local communities develop the capacity to address economic development challenges and to implement the projects that catalyze private sector investment and private sector jobs. We build local capacity by supporting local economic development institutions, such as 314 economic development districts and 62 university centers. Our public works program has been the mainstay of EDA's traditional support for community efforts to promote private sector investment. It remains so today and will remain so in the future because infrastructure investment remains in many communities across this country the critical enabler of private sector investment.
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    Through our revolving loan fund program EDA has obligated almost $300 million over time to create and support over 400 local revolving loan funds across the country that have created the local capacity to fund business activity which is central to the economic future of these communities. This investment has leveraged $1.2 billion in private sector investment and generated approximately 4,100 loans to private sector firms.

    All of these programs, Mr. Chairman—indeed all of what we do at EDA—is undertaken with the goal of promoting private sector job creation. Since 1980 EDA funded projects have help to create or retain almost 1.4 million private sector jobs across this country. These jobs resulted from approximately $13 billion in direct private sector investment that has been leveraged by EDA expenditures of approximately $4.3 billion over the same period, which is a national record of 3 to 1 private to public investment, which I believe underscores the private sector business nature of the projects that EDA funds and has funded over the last 14 fiscal years.

    My fourth point, Mr. Chairman, is that EDA is becoming more productive and more responsive, and this administration, as I've testified before, is committed to comprehensive change at EDA. We're changing both what we do and how we do it. We're creating a new EDA that empowers communities to meet the new economic challenges of our time, that's more responsive to the communities that we serve and that's capable of assuming this broader leadership role in supporting local economic development that I spoke about.

    Our new EDA has become more productive. In fiscal year 1994, EDA obligated $628 million in grant funds, which was the third most productive year in the history of the agency, and that's an almost three-fold increase over 2 years without additional staff. We've changed our programs too. We're not just doing more but we're doing different things. We've initiated major new national efforts in defense adjustment and economic recovery in response to natural disasters, as well as new sustainable development and diversification initiatives in specific parts of the country, such as Appalachia, New England and the Northwest, to help communities meet the challenges of declining natural resources. And we're delivering our services, Mr. Chairman, more expeditiously and more effectively. We've delegated project approvals to our field staff and empowered our regional offices with the authority to deliver a quality product with a newly established processing time goals. Our goal is to process completed applications within 60 days. We're well on the way toward achieving this goal in our core programs today, Mr. Chairman, and we believe this goal will be made a reality this fiscal year.
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    EDA's progress in becoming more flexible and more responsive to the needs of our customers is also seen in our currently pending regulatory reform initiative. We've identified over 200 specific regulations that can be deleted from EDA's regulations—that's more than half of the EDA's regulations—and we plan to publish streamline regulations within the next 60 days.

    Finally, Mr. Chairman, I would like to conclude and raise the issue of EDA reauthorization. On January 25th, 2 weeks ago, I provided this subcommittee at your briefing with the new EDA strategic plan, which is based on our vision of bringing national leadership to the issue of assisting local economic development. For all the reasons set forth in my written testimony, Mr. Chairman, as well as in this statement, I believe that the EDA has solidly embarked on the path to assuming this national leadership role. An EDA that has been reauthorized by Congress would assume this leadership role and would be best able to bring the issue of economic development assistance for distressed areas to its rightful place as a significant national priority. Building on the progress of last year, reauthorization of EDA remains our priority, and, if I may suggest, I would urge the subcommittee to consider taking up the issue at the earliest possible date. And, as I said at the outset, we certainly appreciate this hearing in that context.

    I conclude, Mr. Chairman, and members of the subcommittee, by simply observing that economic development is really about supporting local communities in working with business to create quality jobs where they are needed most in this country, and I greatly look forward to working with you, Mr. Chairman, and with all the members of the subcommittee toward achieving this very important national goal.
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    Thank you very much.

    Mr. GILCHREST. Thank you, Mr. Ginsberg.

    What we will do now is have questions from the members, and what I will do is call on the members in the order that they arrived, and I'll go last.

    I'll call on first the gentleman from West Virginia, Mr. Wise.

    Mr. WISE. Thank you, Mr. Chairman.

    Mr. Ginsberg, let's get down to numbers. Regarding the budget for the public works program—and if I'm wrong, please correct me—as I understand it, EDA carried $111 million of invited public works projects into fiscal year 1994 and $94 million of invited projects into fiscal year 1995. Today the EDA has $174 million of public works projects in its pipeline and $36 million of active project profiles.

    What that means is that EDA has already exceeded its total public works budget of $195 million for fiscal year 1995, and so then my concern and question—mutual—is why have you requested $54 million less in fiscal year 1996 for this vital program?

    Mr. GINSBERG. Congressman, the budget request for fiscal year 1996 for the public works program needs to be you understood consistent with the statement I made in the testimony that public works remains a critical part of the EDA program, and indeed the critical enabler of private sector investment in many communities. I also believe, and EDA also believes, that supporting communities in dealing with the industrial base in the communities with the emerging and existing and expanding industrial base and providing the tools to communities to deal directly with business in terms of generating private sector investment and generating private sector jobs is also a priority and is a priority that has been under-served in the past by the EDA program mix. So what we have tried to do in an era of scarce resources where opportunities did not exist in terms of the budget request to increase the overall bottom line is to balance the funding for infrastructure investment programs and funding for business investment programs. We have tried to do that in a way that retains the public works budget figure, the Title 1 figure that you referred to, in the context of what have been the historic norms over the last decade or so where the public works program has ranged between $125 million and $160 million up until the current year. And what we've really tried to do, as I've said, is to balance the public infrastructure investment programs and the private business investment programs and to work programmatically to the point where they can work together.
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    Mr. WISE. Well, would I be correct in assuming that what I read as the $86 million of new money that you've requested for the untested competitive communities program basically came out of the hide of the public works program?

    Mr. GINSBERG. The portion of it—a portion of those funds came from—well, let me put it this way. There has been a reduction in the public works numbers from 1995, there has been a reduction in the Title 9 numbers from 1995 as well, and there has been a reduction—in fact, it has not proposed any budget, any appropriation, for the trade adjustment program as well.

    Mr. WISE. Is that because the assumption on trade adjustment is that the administration is going to try to move that under one training program in which you don't go to individual programs but instead you've got one blocked for dislocated workers?

    Mr. GINSBERG. Well, I would say the underlying rational behind the proposed elimination of the budget for the trade adjustment program is that—the administration's focus is really on export promotion rather than protection from damage from imports. So in all of our programs we're working with communities. They're focusing their economic development plans on export promotion. The Department of Commerce as a whole is devoting significant resources in the administration to export promotion, and that's the priority at this point.

    Mr. WISE. Okay, I appreciate that. Let me get back in my brief time left to the competitive communities program because, as you know, we've worked with you. We're willing to move it forward, but I'll be darn if I'm going to see the traditional programs that have demonstrated themselves—and in which you've invited more applications than you've got right now—I'll be darn if I'm going to see those gutted for something that at this point is untested and has yet to get a consensus, particularly at a time when we're going to—as frankly as I can put it—when all efforts are going to have to be made to save this program, which I think can demonstrate its need. I think the EDA has a very proud record, and I'm prepared to fight for it. But it makes it real hard if that which EDA uses to demonstrate its effectiveness is what's being cut in favor of a program that looks good and I think should be tried, but I'm not sure that I'm prepared to commit — if I had the ability—that I'm prepared to commit 23 percent of EDA's resources, which is what I calculate out is what you've asked for in new money for this program.
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    So put me down as having reservations on this, but definitely wanting to work with you to make sure that EDA moves forward.

    Mr. Chairman, I would like to submit questions in writing, if I could, to save time of the committee in dealing basically with some of the administrative changes you've made, the increased time or hopefully increased time in responding to applications, and so on.

    Mr. GILCHREST. That's fine. I think Mr. Ginsberg would be more than happy to continue to communicate with us.

    Mr. GINSBERG. Of course, absolutely.

    Mr. GILCHREST. Thank you.

    Mr. Duncan.

    Mr. DUNCAN. Thank you, Mr. Chairman.

    Mr. Ginsberg, in discussing what you have attempted to do at the EDA you say in your testimony that you've obligated $167 million for defense adjustment projects in fiscal year 1994, and I know you're talking about projects in communities that were affected by military base closures and things like that, but specifically what are these defense adjustment projects. Can you give me an example of one?

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    Mr. GINSBERG. Certainly. In many cases, Congressman, the defense adjustment—particularly in the communities that have had bases closes—much of the largest portion of that expenditure is often for infrastructure investment on closed military facilities. The EDA and the defense adjustment assistance also supports planning and technical assistance activities—planning undertaken generally in base closure communities—

    Mr. DUNCAN. Well, you're still talking, though, in generalities. See, I want specifics, if you can. Do you have any specifics?

    Mr. GINSBERG. Do you mean by reference to a specific—

    Mr. DUNCAN. I would like a specific example. I'm not saying you're right or wrong. I just would like to know what you're doing with that money.

    Mr. GINSBERG. Well, specifically—

    Mr. GILCHREST. Would the gentleman yield just for a second?

    Mr. DUNCAN. Yes, sir.

    Mr. GILCHREST. Maybe Mr. Ginsberg can describe a situation where Grummann was shut down and a grant/loan type of thing was given to a community to fund economic development and training to offset those unemployed workers.

    Mr. GINSBERG. Well, in the Grummann situation I think, Mr. Chairman, if you're referring to Long Island and New York, there is a relatively large—and I don't recall offhand the exact amount—but there is a relatively large EDA defense conversion grant to a Long Island wide entity that has implemented a large revolving loan fund to support local business that is going through the diversification issues, to support technical assistance to business and for other costs. Other examples, Congressman, would be in the England Air Force Base situation in Louisiana, and I'm not sure whether this was in fiscal year 1994 or not. I would have to check on that, but to give you an example where EDA assistance was used for infrastructure development in connection with the conversion of an Air Force base to bring companies in, including a large trucking company which conducts the national training program there. Other examples which come to mind are Fort Ord in California, which I know was done in fiscal year 1994, which is to pay for infrastructure improvements for the conversion of that Army base to a campus of California State University.
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    Mr. DUNCAN. When you do these things, do you ever make direct loans to businesses?

    Mr. GINSBERG. No, sir, we do not. We—

    Mr. DUNCAN. You work entirely through these—you said 300 and what development districts?

    Mr. GINSBERG. We work through development districts in the defense conversion context. We often work through a base reuse authorities that are set up at the local level. The business loan component, which you referred to, is through revolving loan funds that are set. A number of these defense conversion communities in St. Louis I know, in Long Island I know, in San Diego I know have set up dedicated revolving loan funds for the specific purpose of dealing with the defense adjustment scenario.

    Mr. DUNCAN. I know you talked a while ago about leveraging a certain amount of loans, but what is the actual dollar amount that the EDA spends in loans or what was spent to this past year in actual dollar loans from the EDA to businesses? In other words, of this roughly $400 million that we're talking about, about how much will go directly to businesses in business loans?

    Mr. GINSBERG. Let me get you that number, Congressman, if I can. That would be the number that we use to capitalize revolving loan funds in 1994. Would that be the question?
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    Mr. DUNCAN. Yes. Are you in all 50 states?

    Mr. GINSBERG. Yes, sir, we are.

    Mr. DUNCAN. And I notice that you get into the disaster loans. Do you see the EDA in the future as being primarily an agency to help communities that have been hard hit for one reason or another by base closures or disasters?

    Mr. GINSBERG. I would not say primarily. That's an important part of what we do, and I think it's an important continuing role for the EDA to deal with special kinds of economic development problems and special adjustment issues at the local level, but I would not say that that's going to be our—that we expect that to be our primary focus in the future.

    Mr. DUNCAN. All right, my time is up. Thank you.

    Mr. GILCHREST. Thank you, Mr. Duncan.

    Ms. Seastrand.

    Ms. SEASTRAND. Being a new freshman, I'm walking through these halls trying to soak up all the information I can as a sponge. I know that this agency has been suggested to be terminated by other presidential administrations, and I know you've been criticized and have tried to modernize and streamline the programs, and I understand one area of criticism was that 85 percent of the country has been eligible for EDA grants.
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    This brings me to two questions. I guess I would like— I notice in the testimony here you mention Silicon Valley. You mentioned Fort Ord. When I served in the State Assembly before reapportionment, that was included and we worked very hard to get the campus for our state university at Fort Ord. You mentioned those two. Could you give me some other ideas of what California—some of the other grants that have been given to California, and the other thing is you say that we're going to move toward a competitive process on the grants. So that kind of suggests maybe they're not currently ranked or evaluated on a cost benefit basis.

    So, for the record, could you please outline how you make funding decisions among these worthy projects?

    Mr. GINSBERG. Yes, I would be happy to. Let me take those questions, if I may, in succession.

    In terms of California we have been very active in the State of California as befits the—obviously, the State of California is the largest in the Union and it's very important to the national economy. That activity—it would be hard to kind of summarize that comprehensively, but it's very comprehensive. It's all apportioned to the state. Just to give you an example, because of the impact of defense downsizing in California, which is substantial, we have done significant work in the defense conversion defense adjustment area in Fort Ord and the joint venture Silicon Valley are two very good examples of that—Fort Ord being infrastructure and joint venture Silicon Valley being a large technical assistance project. Other examples, we've been very active in the past year, Congresswoman, in Southern California with over $80 million of special appropriations for the purposes of post-earthquake economic recovery, and we've been very active in working with communities impacted by the earthquake of 13 months ago in the Los Angeles area.
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    In the northern part of California we've been working with communities impacted by timber initiatives and undertaking economic diversification initiatives, I should say, in response to the declining ability to rely on timber as an economic development resource. So those are examples of the kinds of things we've been doing in California.

    In terms of our processes for awarding funds and making decisions and my reference to competitive processes, the EDA—we certainly do use a cost benefit analysis on a comparative basis today in terms of how we allocate funds and make decisions, but we have what I would call a rolling process where we invite applications and you heard reference before to project invitations. We get preliminary pre-applications in and we evaluate them. We would invite applications from those projects that are considered stronger, and on a rolling basis we are making invitations, receiving applications and making awards, which is a process that has worked well. I think as we try to leverage all the value we can out of every dollar that is appropriated by the Congress, what we need to be doing is putting ourselves in a position where we can do more of a comparative evaluation of the projects against one another to make sure that we're funding the strongest, the most innovative, and that we are pushing the local communities to be as innovative as possible and to be as collaborative as possible in terms of what they're doing, and I think that's the way to get the best quality product in the end.

    Ms. SEASTRAND. Would you be so kind as to let me know at a later date some of the projects that might be in the 22nd Congressional District of California so that I can familiarize myself with anything that you might have done.

    Thank you.
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    Mr. GINSBERG. Absolutely, we will give you a comprehensive picture of what we've done in California and focus on the 22nd District as well.

    Mr. GILCHREST. Are you done, Ms. Seastrand?

    Ms. SEASTRAND. Yes.

    Mr. GILCHREST. Thank you.

    I recognize Mr. Shuster, Chairman of the Full Committee.

    Mr. SHUSTER. Thank you very much. We appreciate your being here. I've always been a firm supporter of both the EDA and ARC. I'm concerned about a couple of things.

    My first concern is this proposal that funding would essentially be targeted to businesses. As I understand it, under the law it can't go directly to the business so it would go to a non-profit organization, which would in turn send it to the business. This smacks of virtually fraud, it certainly at a minimum is dissembling—so I worry very much about that.

    Further, I worry about that approach because the last time we tried this it resulted in the so-called Carter-Steel loans, which went directly to businesses, and about 50 percent of those loans were in default. Here we are trying to defend worthy programs and we have a new program that I think is fraught with problems. Beyond that I think that our historic mission is infrastructure and that's where we should put our emphasis.
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    One of the criticisms of the EDA is that it covers 85 percent of the country and 85 percent of the country, obviously, isn't economically disadvantaged. If we eliminated that grand- fathering clause, what percent of the country would be covered?

    Mr. GINSBERG. Mr. Chairman, the grand-fathering clause being the de-designation provision?

    Mr. SHUSTER. Yes.

    Mr. GINSBERG. I believe that the answer to that is that if we could de-designate districts that are no longer eligible under the criteria, that approximately 60 percent of the country would still be eligible at that point.

    Mr. SHUSTER. Okay, as I understand it, now roughly it's about one percent above unemployment to qualify over a 24-month period. Is that the criteria?

    Mr. GINSBERG. I believe that's right, I believe.

    Mr. SHUSTER. And so if we said one percent above unemployment for 24 months, that would cover 60 percent of the country. It seems a little high, but, nevertheless, accepting that, what if we raised that to two percent above employment? What percent of the country would then be covered?

    Mr. GINSBERG. I don't know the answer to that off the top of my head, Mr. Chairman, but we certainly can get you that number very quickly.
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    Mr. SHUSTER. It's a very important question, and I would appreciate it because one of the ways we can justify this program is to show that it really is focused on economically disadvantaged areas or half the economically disadvantaged areas—

    Mr. WISE. Would the Chairman yield?

    Mr. SHUSTER. Yes.

    Mr. WISE. Mr. Ginsberg, as I recall from the legislation that passed out of this committee last year which we passed on a bipartisan basis, wasn't the eligibility lowered to about 45 percent under the formula, and indeed that was with a lesser economy. A stronger economy means the eligibility would be even less today. So I think, Mr. Chairman, that we had it down to about 45 percent.

    Mr. SHUSTER. That was my recollection too, but my point still stands. I think that the more we can show that this really is targeted to economically disadvantaged areas, the stronger case we have to make.

    Thank you very much.

    Mr. GINSBERG. Mr. Chairman, could I just address quickly the question of working with businesses that was raised by Chairman Shuster?

    Mr. GILCHREST. Certainly.
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    Mr. GINSBERG. Thank you.

    I just wanted to respond, Mr. Chairman, with the observation that the proposal that's contained and the references in my testimony really builds on I think the record of success—which I know this committee has been very supportive of—of EDA's revolving loan fund program, which has been developed over two decades which has funded, as I testified, over $300 million to 400 local revolving loan funds. I had the privilege of being directly associated with one of those in my prior life. It did extremely well, both in terms of avoiding defaults and in terms of creating real value and economic development innovation at the local level, and it's a program I think that provides not only a solid track record of success within the agency but a network of 400 local institutions around the country that we can draw on in terms of expanding our work with businesses. And I want to assure the Chairman and the other members of the committee that our focus is on—yes, on the creation of private sector jobs and the promotion of private sector investment leveraging, private sector investment through both infrastructure and other kinds of investments. I think we need to find the right mix for how we do that, but I think there is a very good track record, and there is a network of institutions around the country that can deliver these services—both non-profit, as you mentioned, Mr. Chairman, and also public institutions as well and quasi- public institutions.

    Thank you.

    Mr. GILCHREST. Thank you.

    Ms. Norton
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    Ms. NORTON. Thank you, Mr. Chairman.

    Mr. Ginsberg, I would like some elaboration on the use of the unemployment rate. In an era of shifting unemployment rates and in a program which engages in long-term projects and investment, I would like to hear you respond to the use of chronic unemployment rates? Is the program capable of adjusting to the geographical differences—huge geographical differences—and unemployment rates we have seen in the country in recent years where, for example, the coasts were up at one point and others are down, and then another time the midwest is up and the coasts are down.

    How does a program like this fit that kind of shift in unemployment rates around the country?

    Mr. GINSBERG. Congresswoman, the EDA's Title 9 program — the eligibility conversations that we've been having this morning focused on Title 1 with the public works program. The EDA's Title 9 program is our economic adjustment program. It was, I think with great wisdom, designed by the Congress to provide a very flexible tool to the EDA so that the EDA could assist local communities in adjusting to sudden and severe economic distress or to long-term economic deterioration.

    So there is a—we do have flexible tools. In particularly our Title 9 authorities under the Public Works and Economic Development Act, which provide the flexibility both in eligibility, criteria and in other respects to respond to sudden and severe economic dislocation or sudden economic change of the kind that you described.
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    Ms. NORTON. Would disaster relief be regarded as short-term relief? Would an environmental disaster be under this program or the other program that you mentioned?

    Mr. GINSBERG. Our disaster programs—the way I characterize them and characterized them in my testimony was post-disaster economic recovery. So we are clearly looking to assist communities as they plan for their long-term economic recovery from disasters, but disasters, as you know, can create very sudden, and severe and substantial changes in the economic environment that sometimes require a very different kind of economic development strategy. We have funded those disaster activities for the most part through supplemental appropriations, which can, of course, be under any of the statutory authorities that—

    Ms. NORTON. What's an example? The examples that I think Mr. Duncan was looking for help us to understand the program. Can you give us examples of post-disaster developments?

    Mr. GINSBERG. Just in the last 2 years the EDA has been active in South Florida following Hurricane Andrew, throughout a nine-state region in the midwest impacted by the Mississippi River and Missouri River flooding in 1993, in Southern California in 1994 following the earthquake, in Hawaii and Guam following Hurricane Aniki, as well as in situations where—and the situations I'm going to describe now were actually conducted under our Title 9 authorities, to get back to your question—situations where sudden loss of natural resources, such as fisheries issues in New England and in the Pacific Northwest, timber issues in the Pacific Northwest, coal issues in Appalachia. These are matters where we've come in with Title 9 assistance that has been flexible and able to respond and help communities respond to these kinds of economic problems.
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    Ms. NORTON. Would you contrast the competitive processes that you speak of in your testimony for awarding funds with how they are awarded for this program today?

    Mr. GINSBERG. As I described a few moments ago, we basically employ what I call a rolling process at this point where on a rolling basis throughout and over the course of the fiscal year the EDA will accept pre-applications from applicants, invite more detailed applications, accept completed applications and either fund or, of course, not fund those depending on the merits. The—

    Ms. NORTON. Why isn't that competitive?

    Mr. GINSBERG. Well, it's competitive but our feeling is that we would be in a stronger position to evaluate the relative merits of proposals if we had a date certain for submitting applications, we had a date certain for completing review of those applications and we could compare all the submitted applications and make decisions on which ones should be funded. We hope to try out such a process through the demonstration program in competitive communities, the reprogramming for which is pending in the Congress right now.

    Ms. NORTON. Thank you, Mr. Chairman.

    Mr. GINSBERG. Thank you.

    Mr. GILCHREST. Thank you, Ms. Norton.
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    Mr. Blute.

    Mr. BLUTE. Thank you very much, Mr. Chairman. I'll be brief.

    I'm a strong supporter of the EDA. I think overall throughout our country it plays a very important role in economic development. I certainly think and believe that we have a tough fight with reauthorization and with supporting this agency in this new Congress. It's something that's a real challenge for those of us who support the EDA. I think some of the suggestions that the Chairman of the Full Committee made and the ranking member are well taken, and we should really focus in on those issues.

    I've got a question about EDA's overall philosophy in this era of increased Federalism where the Federal Government will be giving grants to the state and allowing more local management of those grants. How does the EDA fit into that type of new approach? Is that something that the EDA is matching in terms of allowing more flexibility on the local level?

    Mr. GINSBERG. Well, I think, Congressman, that really one of the hallmarks of the EDA and its approach is responsiveness to local economic development priorities, and, as my testimony indicates, I think the core of economic development is the local process of deciding on priorities, coming to a consensus, bringing public and private sector leadership together to do that. So we have a long and I think proud history of responding to local priorities, and we want to continue to do that. Economic development is also long- term investment of whatever kind that supports real economic activity, and in our case under the Public Works and Economic Development Act, it's long-term investment that targeted to areas of economic distress. Our view is that the historical record shows that the states, for example, which you mentioned in your question, have not historically responded or have not targeted their economic development programs to areas of economic distress. There are some very good long-term economic development programs, but the states have not done that and localities with their own economic development resources tend not to focus on the long-term, not because they don't see it's important but because of the short-term pressures that exist in local governments.
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    So we believe there is an important and enduring Federal role in providing resources to support long-term investment targeted to areas of economic distress and to support that local process that the EDA has helped to create and support for many years.

    Mr. BLUTE. Thank you.

    Mr. GILCHREST. Thank you, Mr. Blute.

    Ms. Brown.

    Ms. BROWN. Thank you, Mr. Chairman.

    My question is for Mr. Ginsberg. What has the EDA done to assist local communities that's been devastated by the base closures?

    Mr. GINSBERG. Congresswoman, we several years ago—3 years ago—got into that area of endeavor and have developed it into one of our major program activities at this point. We support the full process at the local level— planning, technical assistance, infrastructure investment, capitalizing revolving loan funds for working with business, the full range of economic development activities for communities impacted by base closures. And we have been doing this now over the last several years in communities literally across the country, and we see a continuing need for that kind of assistance. Many of the communities that had bases closed in the 1988, 1991 and 1993 rounds of base closures are coming to the full implementation phase now of their plans, and there is an expectation in 1995 that there will be additional base closures announced. So we believe that remains a very important—and will continue to in fact grow as a very important part of the program.
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    Ms. BROWN. Thank you.

    Thank you, Mr. Chairman.

    Mr. GILCHREST. Thank you, Ms. Brown.

    Mr. Traficant, do you have a question?

    Mr. TRAFICANT. Not at this point. I'm going to load up.


    Mr. GILCHREST. We have been duly warned.

    Mr. TRAFICANT. I'm sure that this committee so far has grilled this expert—

    Mr. GILCHREST. Thank you, Mr. Traficant.

    Mr. Ginsberg, I do have a few questions. The EDA's 1995 budget is around $400 million. Could you give us a breakdown of the percentage of how much of that will be grants and how much of that will go into the revolving loan fund?

    Mr. GINSBERG. Well, first, I would like to clarify because the monies that go from EDA—EDA funds that go to revolving loan funds on an annual basis are in fact grants. We make grants to the public or non-profit institutions that operate the revolving loan funds, and it is those institutions that in turn make loans to businesses at the local level.
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    So from the EDA's perspective, those are grant funds under our Title 9 authorities that become a revolving economic development resource at the local level—

    Mr. GILCHREST. So then it would vary depending on what the local level wants to do with the money, or how much they put into the revolving loan funds or how much is a direct grant? Do you have any control over that?

    Mr. GINSBERG. Well, we do, Mr. Chairman, make direct— we will make a grant for the purpose of capitalizing a revolving loan fund, for example. So the grantee at the local level wouldn't have the discretion to say I'm going to put this into a revolving loan fund or I'm going to do something. In other words, we know that when we make the grant, but my point was it is still a grant for EDA purposes. It is a grant to a local institution, and that money remains at the local level. It goes out as business loans, it comes back as loan repayments, principal and interest, it goes back out again. It revolves and becomes a continuing resource in the local community for economic development.

    Mr. GILCHREST. If it is then a continuing resource and is similar to other revolving loans, could someone argue that you would reach a point at which the EDA is unnecessary because they've made significant contributions to this type of revolving loan for economic development and there would be a sunset period for that? Would that be a legitimate argument?

    Mr. GINSBERG. I think not, Mr. Chairman. I think that the gap, if you will, between areas of economic distress and areas of economic prosperity in this country is not narrowing. Areas of historic and chronic economic distress still require assistance. Very fast changing economic conditions in the status of the U.S. and the world economy creates both enormous opportunity but creates grave dislocation in places which were very prosperous a short time ago or compounds economic distress in areas that were not. We—
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    Mr. GILCHREST. So you would say the infrastructure of the EDA, regardless of a revolving loan fund which goes to economically distressed areas, would be necessary because of the things like the earthquakes in California, or the hurricanes in Florida or base dislocations so that the EDA type of—the EDA's role would be significant in the foreseeable future, the unforeseeable future.

    Mr. GINSBERG. That would be my view, yes, sir.

    Mr. GILCHREST. So if the argument was why can't once— the EDA has been in practice now for 20 something years— why can't communities begin to develop the same type of— since we do work with communities and communities are necessary to understand the nature of economic development, whether it's rural or urban, the assistance—especially the funding assistance—would continue to be necessary.

    Mr. GINSBERG. Yes—

    Mr. GILCHREST. I guess that wouldn't be a question allowed in court because I would be leading the witness, but at any rate if you could just make a comment on that.

    Mr. GINSBERG. Well, again, my own view is what is needed is—what has proven to be effective over now almost three decades and what is needed today and for the foreseeable future, given the kind of pace of economic change plus natural disasters and Federal policies such as base closures and the other things, Mr. Chairman, that you referred to, what is needed is a continuing Federal role to help build local capacity, planning, technical assistance, revolving loan funds and to help fund infrastructure investments and investments in the local business base that enable communities that are in economic distress, and this Federal presence needs to be targeted to those areas to make the kind of long-term investments that create real economic change, and that I think is that continuing Federal role.
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    Mr. SHUSTER. Mr. Chairman, can you yield for one question?

    Mr. GILCHREST. Yes.

    Mr. SHUSTER. How much money has been granted to the revolving loan funds since its inception?

    Mr. GINSBERG. The number, Mr. Chairman, is approximately $400 million.

    Mr. SHUSTER. So theoretically there is—more than theoretically—there should be close to, except for defaults $400 million out there in the U.S. which is held and which is being loaned, and reloaned and recycled by the various—

    Mr. GINSBERG. Yes, indeed, and that money has been leveraged with matching contributions.

    Mr. SHUSTER. And do we know how much of that has defaulted and how much of the $400 million really is out there working?

    Mr. GINSBERG. We can certainly get for you a detailed analysis of that.

    Mr. SHUSTER. I think that's very important, thank you.
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    Mr. GINSBERG. Yes.

    Mr. GILCHREST. That's all right. If any of us have any other questions—I know I have some other questions, and maybe I can talk to you, Mr. Ginsberg, when the hearing is over. I don't want to take up any more time because I know people's days are busy.

    Mr. GINSBERG. Of course.

    Mr. GILCHREST. The one question—I would like a breakdown on some things, but I can talk to you later about that.

    If there are no other urgent questions—Mr. Wise?

    Mr. WISE. Well, actually, Mr. Traficant had a question.

    Mr. GILCHREST. Mr. Traficant.

    Mr. TRAFICANT. Thank you.

    Perhaps you can respond in writing. I had an interest and have been trying for years to implement a program that would allow for the opportunity of grants to only be used to bite on interest rates and to leverage private sector money. Now I have tried to do that with the EDA for some years. For some reason we talk about largess and just throwing money at places and worry about it being repaid. The Traficant Bill basically said, look, you're worthy of getting a normal bank deal. You're a reasonable risk in certainly a depressed or economically disadvantaged community. What the Federal Government will do is we'll bide on those interest rates and help you in fact in that regard, and I've never been able to get EDA to take a significant look at this.
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    So I don't want to belabor it here, but I would like for you in writing to present to me why we continue to throw money at problems rather than try and leverage the private sector and do it the old fashioned way, and that's what my bill is about.

    I didn't mean to make a point, and I really don't need an answer now to belabor this hearing. But I would like to have something in writing and I would like some support with that initiative. I think it would work.

    Mr. GINSBERG. We would be happy to provide that information.

    Mr. TRAFICANT. Thank you.

    Mr. GILCHREST. Thank you, Mr. Traficant.

    Mr. Wise.

    Mr. WISE. I would just request, Mr. Ginsberg, we're going to send you some questions, but if you would just sort of head them off. Mr. Blute raised a question that I thought was good and others have touched on it. It's my understanding that the House Budget Committee, and indeed perhaps even our own Clinton Administration, is looking at block granting economic development funds to states. I've heard talk of combining the EDA, REA, RDA, a whole host of economic development functions. I think it would be useful to the committee in its deliberations in upcoming months if you might address that issue and whether or not you think that's a function that is worthwhile for the EDA.
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    My personal feeling is that there is a point at which you need an EDA to deal with some specific concerns, such as the ones Chairman Gilchrest brought up. We would appreciate that information.

    Thank you.

    Mr. GILCHREST. Thank you very much, Mr. Ginsberg.

    Mr. GINSBERG. Thank you, Mr. Chairman.

    Mr. GILCHREST. Mr. White and Mr. Wenger.

    Mr. White and Mr. Wenger, we welcome you here this morning to hear your testimony on ARC, and we look forward to it.

    Dr. White.


    Mr. WHITE. Well, good morning, Mr. Chairman, and members of the committee. I would like to thank the committee for inviting us to talk about a program that we really think is unique in the Federal structure and is under your jurisdiction, which is the Appalachian Regional Commission. We particularly would like to thank this committee for its bipartisan support that has kept the ARC alive during some troubling times in the past, and we appreciate your continuing consideration of our authorization.
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    As you probably know, President Clinton has continued to support the ARC. He has submitted a budget this year of $183 million, which I think is an indication of his strong support for the commission, but, at the same time, acknowledges that we must do our share in the belt-tightening environment in which we live. This represents about a 35 percent reduction in our appropriated funds from last year, but we think represents a level of appropriations that would sustain a viable program.

    Just a word of history about the Appalachian Regional Commission, particularly perhaps for some of the new members of the committee. As you may or may not know, we were enacted by Congress in 1965 primarily at the request of a delegation of Appalachian governors that came to see President Kennedy— and then after he was assassinated, President Johnson—to make the case for a special program that would address the profound development needs of some 400 counties in the Appalachian Mountain chain.

    Even though it was a part of what is referred to as the great society program or the war on poverty program, in fact it was an economic development program and it has always been that and it is that today, although obviously one would hope that the end product of economic development would be the alleviation of poverty.

    This was called the President's Appalachian Regional Commission, and it made its report to Congress—to the President and then to Congress—finding, and I quote, ''that Appalachia is a region apart geographically and statistically.'' And it went on to paint a very vivid picture of the consequences of 100 years of neglect and underdevelopment in this region of some 400 counties—at the time some 13 million people, now about 20 million people. Congress responded to this report by passing the Appalachian Regional Development Act, which we think was a very farsighted piece of legislation and had two principal thrusts to it.
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    The first was the enactment of an Appalachian Development Highway System, which was to connect Appalachia to the mainstream of the American economy. What in fact had happened is that the interstate highway system had largely bypassed the mountains because of low traffic count and because of the very high cost of building highways. Congress concluded that a region that was not connected could not develop and so it made a very, I think, bold commitment to some 3,000 miles of an Appalachian Development Highway System that would connect Appalachia with the rest of the economy. That system is now about 75 percent complete.

    But Congress also said that a highway program is a necessary but not sufficient condition of economic development, and in addition to connecting these communities and people to the rest of the American economy, the human resource base, the business base, the basic infrastructure had to be developed. And so it enacted the area development part of the program with very broad authority to attack questions such as health, basic infrastructure, education, training, housing, business development, the development of industrial parks, on and on. It's a very broad statutory mandate.

    The goal of which, quite simply, Mr. Chairman, and members of the committee, was to make these 400 counties and millions of people contributors to the national economy rather than drains on the national resources to create self- sustaining economies and independent people, and that has been the basic mission of the ARC. This statute did it through a very unique and I think farsighted approach. As a matter of fact, I went back and read the PARC Commission Report a couple of days ago and was almost staggered by how relevant the language is today. It concluded by saying that neither the Federal Government nor the states nor the local governments acting alone could solve this problem, and so they created this unique structure called the Appalachian Regional Commission. It is a partnership between the Federal Government and the 13 states in which we operate. The Commission consists of me representing the President. I am appointed by the President, confirmed by the Senate. I have half the votes on the Commission. The 13 governors have the other half of the votes on the Commission, and Mike Wenger here is the full-time representative of the governors in our headquarters office.
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    As far as we can tell, we're the only program ever enacted by Congress in which the Federal official doesn't have the final say over how the money is spent. I have to come to agreement with the majority of the governors on policy matters and on budget matters before any regulation can be issued and before a dime can be spent. I think this represents neither dictation of policy from Washington to the states, nor does it represent the abdication of policy from Washington to the states. It requires the Federal official and the governors to sit down and craft a policy together, and that is in fact the way we do business.

    As a result of this, because of this partnership of the states, our entire staff here is only about 50 people, and the administrative overhead of the ARC since our inception has been less than three percent of our appropriated budget. The other features of our program which I would commend to you because it was the wisdom of Congress that crafted it was the flexibility. The governors have great flexibility in how they use our funds, and, therefore, our funds can be tied into their state economic development programs and the local nature of the projects—most of our projects are developed by the 69 local development districts that we support—the fact that I mentioned dealing with health, education, vocational training and so forth, basic infrastructure, and the fact that we were always set up to be supplemental to other Federal programs. We were never intended to duplicate other Federal agencies, but we were set up to be the glue money that could come in and allow a poor community to participate with other Federal agencies.

    For example, some poor communities perhaps couldn't afford the 50 percent match required from some Federal grants, and Congress authorized us to come in with an additional 20 or 30 percent.
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    In my travels throughout Appalachia in my year on the job I have heard so many people say, you know, this deal couldn't have gone without the ARC. This was the glue money that made it work. In fact, the ARC is a success story, Mr. Chairman. I could cite a lot of statistics, and there are some in my testimony, but I guess I would just like to highlight a study that was funded by the National Science Foundation 2 years ago in which professors at West Virginia University took the original 397 counties authorized by Congress and found statistical twins for them based on 1960 census data, and then tracking from 1969 to 1991 they traced how these 397 ARC counties and 397 twin counties did to measure rigorously for the effect of the investment of the Commission. And they found that the ARC counties had grown 48 percent faster in personal income, five percent faster in population, and 17 percent faster in per capita income than had the non-ARC counties.

    So the question I guess is has the ARC, therefore, done its job because we have been successful, and I think the answer to that is that Appalachia has become a region of contrast. What was once a uniformly depressed set of counties now we find some counties that have done very well, that are close to the mainstream of the American economy, but there are many counties that have not. These are mostly in central Appalachia, in West Virginia, in Kentucky, and Tennessee, in Southern Ohio, but in addition to that in all of our 13 states there is still considerable distress in the rural areas of all of our counties—central, southern and northern Appalachia. In fact, we have about 115 of our 399 counties that are designated as severely distressed. These are counties in which the per capita income is no more than two-thirds of the national average, in which the 3-year unemployment rate is 150 percent or more of the national average, and in which the poverty rate is 150 percent or more of the national average. And the Commission has responded by differentiating our counties. Designated counties that are doing well can only get 30 percent money, the distressed counties can get 80 percent money, and the counties in the middle, if you will, can get 50 percent. So we have tried to target our resources to the areas of greatest need.
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    The policies of this administration are several—one, it does support the continuation of the Commission, as reflected in its budget submission and its reauthorization requests. We also are trying to create more of a balance in our program between what we might call the bricks and mortar, which is highways, water and sewer systems, and the human resource development side, and the business development side, which you will see reflected in our budget.

    In addition, the governors and I have just voted to launch what I think are three very exciting regional initiatives. These are projects that spread across the states and address programs not just on a state by state budget. These three regional initiatives are in telecommunications, international trade promotion, and the development of leadership and civil institutions in our communities, and I'll be glad to talk a little bit more about those regional initiatives in the questions and answers if you would like me to. But this is money in which the governors and I agreed to take off the top of the state allocations, and this year it's about $6 million. We hope it will be money voted every year where we feel like we have to work on an interstate basis, which we're uniquely set up to do.

    In addition to that, Mr. Chairman, and members of the committee, we are now involved in a strategic planning process where we are trying to do what the Park Commission Report did 30 years ago, which is look at the condition of Appalachia, how it's changed, how the global economy has changed us and what the Federal, state and local role needs to be in the future. We're commissioning research and we're having consultations with experts, but perhaps most important we are having town meetings and focus groups throughout the region. We just had a terrific meeting in Ohio, in Ironton, which brought in West Virginia, brought in Kentucky, brought in Ohio. These were planned with the states and the local development districts. We're going to have three or four more of those on sort of state borders so that we can get several states involved, and in these we're hearing from the people. It was very exciting in Ohio where we had our first town meeting in Ironton, and the public television and public radio stations broadcast that gavel to gavel, four hours of live coverage. So we feel like we're getting a lot of good public input as well.
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    I think I would conclude by saying that we're in the business to help communities develop the basic building blocks of community and economic development, to allow them to sit at the table, if you will, of the American economy. And once that is done, it is, frankly, our fond hope that one of these days we can come to Congress and recommend that the ARC is no longer needed. Victory for us, frankly, will be when we go out of business, and that will mean that we have created in our 399 counties and in our 20 million people self-sufficient communities and self-reliant people.

    Thank you, Mr. Chairman.

    Mr. GILCHREST. Thank you, Dr. White.

    We have a vote going on so we'll take—unless there is a burning question right now, we'll take a 15 minute break and we'll be back here right after the vote.

    Thank you.


    Mr. GILCHREST. The subcommittee will come to order. There are a number of members who are still on the floor voting, but I think for the purpose of some efficiency we will move on.

    Mr. Wenger.
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    Mr. WENGER. Yes, thank you very much, Mr. Chairman.

    My name is Mike Wenger. I'm the States' Washington Representative for the Appalachian Regional Commission. This committee has been crucial over the years in its support for the Commission and the survival of the Commission, and we're extremely grateful, and I think I speak for all the governors in saying how grateful we are to this committee.

    It's my responsibility as the States' Washington Representative to protect and promote the collective interest of the 13 Appalachian states at the Commission, and in a sense my office is the personification of the partnership about which Dr. White spoke so eloquently. I'm the eyes, the ears, the mouth of the governors at the Commission. I'm hired by the states, I'm paid solely by the states, and I can be terminated only by the states. Each year the 13 governors elect one of their own to be the states' co-chairman. Dr. White's counterpart this year is Governor Brereton Jones of Kentucky, but he has a state to run on a day to day basis. So my office functions on a day to day basis as the representative of the states' co-chairman and the other governors. On a daily basis I meet with Dr. White and with Tom Hunter, the executive director of the Commission, to discuss policy and project issues and to ensure that the consensus of the states is reflected in any decision which is made. I talk with the governors and with their representatives on a regular basis as well to determine where that consensus may lie. We recently had a meeting of the governors attended by eight of the 13 governors. At that meeting the governors and Dr. White, as Dr. White mentioned earlier, discussed and approved the three regional initiatives—export trade, telecommunications and leadership and civic development. The plans for these initiatives were the product of numerous meetings between Dr. White, Mr. Hunter and myself, and with the Commission's Policy Development Committee composed of four states and Dr. White, and unlike any Federal agency of which I am aware these regional initiatives could not have been undertaken without the involvement of the states from the beginning and the approval of the majority of governors. This Policy Development Committee is going to get together again next week to hammer out recommended guidelines together and submit their recommendations to the full commission for action. There won't be guidelines handed down by a Federal official. There will be guidelines and allocation of resources hammered out between the states and the Federal officials sitting in the same room talking through the issues together and voting on the issues.
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    It's this partnership which I think inspires the strong bipartisan support of the governors and which has prompted governors like Brereton Jones of Kentucky, George Allen of Virginia, Jim Hunt of North Carolina, and Kirk Fordice of Mississippi, among others, to speak up strongly in support of the ARC. That is why I am here today at the request of Governor Jones and with your indulgence, and I would like to conclude my brief statement by quoting some of these governors.

    Governor Jones at the recent meeting of the governors which he chaired declared, and I quote, ''I'm willing to really fight for ARC not because I happen to be the co-chairman, but because I happen to believe in it. I believe we have to have a contract with our own conscience.''

    At the same meeting Governor Allen of Virginia called the ARC ''a model program,'' and he further stated, ''I've only been governor for about a year, but this Federal downsizing and so forth notwithstanding, this is a great way to operate a program.''

    Governor Hunt of North Carolina has called the ARC, and I quote, ''a shining example of how the system ought to work in this country.''

    And Governor Fordice of Mississippi used these words, ''I am no proponent of big spending Federal programs. Consistent with this philosophy, the ARC structure of providing Federal funds which supplement state, local and/or private sector funds, coupled with a maximum of local decision-making and a minimum of Federal bureaucracy makes for a proven and potent formula for sustained economic development.''
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    Mr. Chairman, I don't believe it can be said any better than that, and I believe it reflects the view of every governor, Democratic and Republican, from Dick Thornburgh and Lamar Alexander to Jay Rockefeller and Doug Wilder with whom I have worked during my 14 years at the Commission.

    Mr. Chairman, I appreciate your generosity in allowing me to appear, and I would be happy, along with Dr. White, to try to answer any questions.

    Mr. GILCHREST. Thank you, Mr. Wenger.

    Mr. Wise.

    Mr. WISE. Mr. Wenger, I appreciate—and Dr. White— seeing both of you—Mr. Wenger, particularly your reading quotations from that list of well-known fiscal libertines advocates of giant sprawling government, such as Governor Allen and Governor Fordice of Mississippi.

    The ARC may in some ways be a model for what much of the new leadership in the Congress is talking about and indeed the way the administration is going as well.

    Well, no sense throwing roses to each other. Let's see if we can get some stuff on the record. Let's just get to the question that always comes up on the ARC, which is you're the only regional commission, and, therefore, why should one region have a commission and other regions not?
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    Mr. WHITE. Well, we think the configuration of underdevelopment in Appalachia is very special, if not unique. It is the one area in the country in which the distressed area is concentrated and that is geographical contiguous with each other. It is an area in which the regional approach seemed to make sense to Congress in 1965 and still does.

    Throughout much of the rest of the country there is indeed economic distress, and there are Federal programs to address that. But the idea of a regional commission I think requires some geographic contiguousness and similarity in features, and that is present in Appalachia. As you know, I believe, Congressman, in your bill last year that's supported and I think introduced by you to reauthorize the Commission it called upon us to look at the applicability of our model to other areas that have similar characteristics—for example, the Mississippi Delta region, which is characterized predominately by rural black poverty whereas Appalachia is, of course, predominantly rural white poverty—I think could be instructed by our model. So I think it's the geographical contiguousness and similarity of the problem that calls for a regional approach.

    Mr. WISE. Because of the ARC the question comes up whether the region receives a disproportionate percentage of Federal dollars, and yet—Dr. White or Mr. Wenger—isn't it true that in fiscal year 1992 Appalachia with 8.3 percent of the U.S. population received 7.4 percent of Federal expenditures which I calculate out, or somebody has calculated out actually for me—truth in rhetoric here—that this is almost 15 percent less than the per capita national average?

    Mr. WHITE. Yes, we have some figures that we would be glad to supply to you that shows in almost every Federal spending category Appalachia does in fact receive less than its, quote, ''fair share'' on a per capita basis. So we would agree with that assessment.
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    Mr. WISE. Thank you. I also just want to say that I think some of the statistics you cited in your statement are very important, and we need to make sure that they get out as terms of the kind of growth that the ARC has been able to create. The figure that I'm impressed by is that in those counties with an ARC highway, the job growth, as I recall, is three times as high as those rural counties without an ARC highway.

    You used the figure 75 percent completion, but I thought I had seen somewhere that it was two-thirds, roughly 3,000 miles in the ARC system with about 2,000 miles complete. Is there more to be done or are we talking about what's under contract?

    Mr. WHITE. I think it's 2,300 miles.

    Mr. WENGER. There are 2276 miles now complete or under contract with another 25 or 30 to be done this year. So we will be over 2,300 and some miles.

    Mr. WISE. So it's 3,000 and what?

    Mr. WENGER. 3,025.

    Mr. WISE. Okay, and that applies to all 13 states within the ARC?

    Mr. WENGER. That's correct.

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    Mr. WISE. And am I also correct, Dr. White, that in your statement you spoke about looking at ways to perhaps phase some counties out that had benefitted from the ARC or the employment and prosperity was such that they probably didn't need the ARC assistance as much and then focus those resources to harder hit counties?

    Mr. WHITE. Well, Congress has made it clear in our legislation that the Commission cannot address the boundary issue; only Congress can do that. So only Congress could set up a mechanism whereby attainment counties would be graduated out of the program. As I said, we have tried to target resources by this 80 percent, 50 percent, 30 percent, three-tier criteria, but, as I have said before on the record, I would be pleased to work with Congress in a reauthorization that would attempt to come up with a mechanism whereby attainment counties could be graduated out of the program and perhaps other counties that needed this in the states that are members could be added. For example, the governor might could add some counties that had distress while the others were graduated out.

    Mr. WISE. Yes, which actually I believe there were three counties that were added in the bill last year.

    I thank both of you.

    Mr. WHITE. I think three have been added since the Commission was founded and last year's bill added three.

    Mr. WENGER. There were three in the authorization bill last year that would have been added had the bill passed, yes.
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    Mr. GILCHREST. Since we're low on members, Mr. Wise, do you have another question or two?

    Mr. WISE. Well, I've never had to fill in for others. Let's see, I'll take Mr. Traficant first, if I could, because I think it's important to take on the questions that this committee is going to be confronted with.

    There have been proposals to block grant economic development funds, as I understand it, both from the Clinton Administration as well as perhaps the House Budget Committee. We took that question up with Assistant Secretary Ginsberg, the earlier witness. Why not just take the ARC monies, put them into a pot, block grant them and send them to the states?

    Mr. WHITE. Well, I have not been a party, I must say, to any formal discussions about doing that within the administration. My own view would be that it would be very important to maintain two features of the Commission—one is the gubernatorial participation in this fifty-fifty decision-making structure that we have. The big battle apparently when we were authorized was to whether or not the Federal co-chairmen would have 51 percent of the votes, which might as well be a hundred percent and sometimes I wish I had 51 percent. But, as Mike reminds me, I don't so I have to come to agreement with the governors.

    So I think the partnership structure would be important, and the other thing is I do think there is a regionality that is important, and it allows an area that is a region to function as a region and solve some problems in an interstate fashion that just a 50 state block grant would really not allow us to do.
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    Mr. WENGER. If I might respond to that—I've had a lot of experience over the last 30 years with a variety of Federal funding types of programs from categorical grants to revenue sharing to block grants to the ARC model, and you may recall that in 1973 or 1974 when I was the Federal state program director for the City of Charleston, West Virginia, I prepared the first community development block grant program for the City of Charleston. And we were real excited about the block grant concept at that time, but what I learned from the experience in subsequent years working for the city and then for the State of West Virginia were two things:

    One, because the community development block grant program came from HUD, it was constrained by the mission of HUD. If we needed to do health care to promote economic development in a community, or we needed to do vocational education to promote economic development in a community, we couldn't do it under the block grant, and the beauty of the ARC is that it is flexible enough to let us respond to whatever that local community needs to promote economic growth and development.

    The second thing is that what happened in each subsequent year was the Secretary of Housing and Urban Development imposed more restrictive regulations. Each year the regulations and guidelines got more and more restrictive, and all we could do at the local level, at the community and the state level, was comment on the regulations as published in the Federal Register.

    That cannot happen here. Jesse White cannot impose a single rule or regulation without the consent of a majority of the governors, and a majority of the governors can't do anything without the consent of Jesse White so that we have a minimum of red tape, a minimum of rules and regulations. The Federal interest is protected but the state interest in flexibility is also protected, and I think—I'm not an opponent of block grants, but I think the ARC model has enormous advantages over block grants.
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    Mr. WISE. Mr. Chairman, I would ask unanimous consent to be able to enter into the record some questions that Ms. Brown had wanted to ask concerning the EDA, and we'll get them to the EDA.

    Mr. GILCHREST. Certainly, Mr. Wise. We'll leave the record open for three weeks.

    [The referenced material follows:]

    [Insert here.]

    Mr. GILCHREST. Dr. White, I have, first, somewhat of a simplistic, technical question. There are 13 governors and they have 50 percent of the vote, and then you have 50 percent of the vote. How does that work? I mean, if 12 governors vote one way and one governor votes with you, then it goes with you? Or 13 governors vote one way and you vote another way, so does Newt Gingrich come in and break the tie?


    Mr. WHITE. There are actually two votes. I have one vote and the governors have one vote, and so whatever a majority of the governors vote to do, that is the state vote on an issue.

    Mr. GILCHREST. I see.
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    Mr. WHITE. And I guess the question is what would happen in the case of a tie, and I don't think there has ever been one. We try to work that out in advance.

    Mr. GILCHREST. I see.

    Mr. WENGER. I think one of the beauties of this model is that we are able to do that sort of thing. I talk to the governors or their representatives on a regular basis. I try to find where the consensus is among the states so that we don't have a seven-six vote, or an eight-five vote, but that we have a consensus among all 13. And then I work with Jesse and we try to come up with a solution to a problem or a policy that reflects the consensus of the states and the Federal co- chairman. There are times when we will disagree, but we'll work it through. We'll simply discuss it until we come to a solution, and it has worked, I must tell you, with Republican Federal co-chairmen, Democratic Federal co-chairmen, a majority of Democratic governors or a majority of Republican governors. It has always worked. I'm not sure that if I looked at it objectively and had never had experience with it, I would think it could work, but I've worked with it for many years and it works.

    Mr. GILCHREST. Much of the money over the past 20 years or so has been spent for infrastructure, and, specifically, for road building so that people in those communities can access, you know, the mainstream outside those rural mountainous communities.

    Has it been a burden for the state and local government since, I would assume, the initial money went for the initial building of the highway? Have those extra roads been somewhat of a burden to maintain?
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    Mr. WHITE. I'm not really familiar with the maintenance issue. I don't think it has been a burden for them to build them, obviously, because the state has provided the 20 percent match, and in fact I think most of the communities greatly welcome them when they do come. The maintenance issue I'm not that familiar with.

    Mr. GILCHREST. I guess the point I'm trying to get at is—and I understand being from a rural area that the infrastructure is really important. You need to get those roads out there so that you can attract economic development and a host of other things, but if then you build roads, then development, let's say, comes in in the form of more housing, more schools, more maintenance of the roads, more utilities, and then that whole scheme eventually costs a lot of extra money that you wouldn't have had in the beginning. So when you build those roads, is there some sense of the cost of the maintenance of the roads, and the utilities, and the electricity, and the schools, and the fire, and the police, and the ambulance, and all that stuff?

    Mr. WHITE. Well, that's where the area development side of the house comes in. You know, in this budget we're about fifty-fifty between the highway funds and the area development funds, and it's in the area development funds where then those communities can come to the ARC, the EDA, the Farmer's Home, to a number of Federal agencies for water and sewer, education, the other elements of economic development that accompany the opening up of these communities. I hope that answers your question.

    Mr. WENGER. And, if I'm not mistaken, once our roads are completed, they go on the primary road system, and they can be maintained through funds from the Federal Highway Trust Fund. So they become simply part of the overall highway system of the state and are maintained in the same manner and from the same resources as other roads in the primary system.
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    Mr. GILCHREST. I'm just—I've seen some areas where planning, comprehensive planning, has not been adequately addressed because of some of the major problems of overdevelopment. I'm not sure about problems of overdevelopment, much in the rural regions of Appalachia, but it's not—I think it's within our frame of understanding that in 50 years from now where we want to leave those people that will come behind us.

    Looking at that, much of the money was spent for infrastructure needs and is necessary, and I know that in some rural communities that I have they don't have water and sewer, and every septic tank in one particular town is failing, and so it causes a severe problem.

    Is there some sense—now you alluded to this a little bit earlier, Dr. White—some sense as to—and one of the last things that you said before we went for the vote was your success would be coming in here to tell us that you don't need any more money—has anybody sat down and just wondered in 10-year increments, or 20-year increments, or an overall plan when the ARC will have done its job and it wouldn't be necessary to do this anymore?

    Mr. WHITE. Well, I think it's very difficult to put a time line on economic development. Who, for example, in 1965 could have really foreseen the profound impact of technology and globalization on our economy, which in fact meant that our sort of metro-economies in Appalachia began to participate in this global matrix of economic activity and they have done very well. I think that there are things that are always difficult to predict.

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    We have shared estimates with OMB about, for example, the highway program. If funds were fully utilized from our appropriations and under the Highway Trust Fund, the system would be completed in about 2005, I believe. Using only our money at sort of current appropriated levels it would be 2065, but now since this committee included most of our roads under the ISTEA Act into the National Highway System, our roads can be built both out of ARC money and Highway Trust Fund money.

    So how long it would take to bring the severely distressed areas up to a point at which the—

    Mr. GILCHREST. You did answer part of my question because there is a time frame for the construction of highways and things like that.

    Mr. WHITE. Right.

    Mr. GILCHREST. You mentioned—and I'll close with part of this question and two more quick questions—some of the money is beginning to be used for human resources. Could you give me an example of human resources. Is that training, is it a hospital, is it a sewerage treatment plan?

    Mr. WHITE. Well, it wouldn't be a sewerage treatment plan. It would be—the human resource projects range from everything from rural health care clinics to education. The Commission had a major thrust in that in the 1970s where we built some 400 rural health care clinics. We sort of got out of that. We don't do as much in that anymore. Right now we do a lot in vocational education and customized training. Governor McWherter, for example, in Tennessee esed aational resources to create self-sustaining economies and independent people, and that has been the basic mission of the ARC. This statute did it through a very unique and I think farsighted approach. As a matter of fact, I went back and read the PARC Commission Report a couple of days ago and was almost staggered by how relevant the language is today. It concluded by saying that neither the Federal Government nor the states nor the local governments acting alone could solve this problem, and so they created this unique structure called the Appalachian Regional Commission. It is a partnership between the Federal Government and the 13 states in which we operate. The Commission consists of me representing the President. I am appointed by the President, confirmed by the Senate. I have half the votes on the Commission. The 13 governors have the other half of the votes on the Commission, and Mike Wenger here is the full-time representative of the governors in our headquarters office.
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    As far as we can tell, we're the only program ever enacted by Congress in which the Federal official doesn't have the final say over how the money is spent. I have to come to agreement with the majority of the governors on policy matters and on budget matters before any regulation can be issued and before a dime can be spent. I think this represents neither dictation of policy from Washington to the states, nor does it represent the abdication of policy from Washington to the states. It requires the Federal official and the governors to sit down and craft a policy together, and that is in fr statute requires is that every year the state has to submit to the Commission its plan and its investment package, and the Commission sitting at the table votes on those 13 plans. So there is an element in which the plans are sort of aggregated, but the truth of the matter is—especially in such matters as land use, planning, and zoning, and all of that—that's pretty much left to the states. The Commission does not really address that on a regional level.

    There is one exception to that, which I think is very important, and that is the Commission has voted to designate 115 of the counties as distressed, and then the Commission votes to take 20 percent of that area development money off the top and target that to those 115 distressed counties. Four States actually step aside—four States don't have any distressed counties. So four States step aside and allow that money to be targeted to those ''red counties.'' We have a map that shows these, and we call them the ''red counties,'' the 115 distressed counties.

    So in that sense the Commission sitting as a body has made some very difficult, but I think important, targeting decisions about how the money will be used.

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    Mr. GILCHREST. We are going to try to communicate—I know before I came on this committee I had no idea how ARC worked or EDA. We're going to do our best to communicate this to the rest of the members so they have some sense of the importance of this particular activity.

    I have some more questions, but I think I can communicate them to you.

    And, Mr. Wise, any follow-up?

    Mr. WISE. No, I just simply thank you, Mr. Chairman, for holding this hearing, which I think has been very informative.

    Mr. GILCHREST. Thank you.

    Gentlemen, thank you very much.

    Mr. WHITE. Thank you, Mr. Chairman.

    Mr. WENGER. Thank you, Mr. Chairman.

    Mr. GILCHREST. The subcommittee is dismissed.

    [Whereupon, at 10:33 a.m., the subcommittee was adjourned, to reconvene subject to the call of the Chair.]

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