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1995
ECONOMIC DEVELOPMENT ADMINISTRATION AND THE APPALACHIAN REGIONAL COMMISSION
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 [http://www.house.gov/transportation]. Complete hearing records are available for review at the Committee offices and also may be purchased at the U.S. Government Printing Office.
(104– )
HEARING
BEFORE THE
SUBCOMMITTEE ON
PUBLIC BUILDINGS AND ECONOMIC DEVELOPMENT
OF THE
COMMITTEE ON
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TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTH CONGRESS
FIRST SESSION
FEBRUARY 10 and 22, 1995
Printed for the use of the
Committee on Transportation and Infrastucture
COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
BUD SHUSTER, Pennsylvania, Chairman
DON YOUNG, Alaska
WILLIAM F. CLINGER, Jr., Pennsylvania
THOMAS E. PETRI, Wisconsin
SHERWOOD L. BOEHLERT, New York
HERBERT H. BATEMAN, Virginia
BILL EMERSON, Missouri
HOWARD COBLE, North Carolina
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JOHN J. DUNCAN, Jr., Tennessee
SUSAN MOLINARI, New York
WILLIAM H. ZELIFF, Jr., New Hampshire
THOMAS W. EWING, Illinois
WAYNE T. GILCHREST, Maryland
Y. TIM HUTCHINSON, Arkansas
BILL BAKER, California
JAY KIM, California
STEPHEN HORN, California
BOB FRANKS, New Jersey
PETER I. BLUTE, Massachusetts
JOHN L. MICA, Florida
JACK QUINN, New York
TILLIE K. FOWLER, Florida
VERNON J. EHLERS, Michigan
SPENCER T. BACHUS, Alabama
JERRY WELLER, Illinois
ZACH WAMP, Tennessee
TOM LATHAM, Iowa
STEVEN C. LaTOURETTE, Ohio
ANDREA SEASTRAND, California
RANDY TATE, Washington
SUE KELLY, New York
RAY LaHOOD, Illinois
BILL MARTINI, New Jersey
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NORMAN Y. MINETA, California
JAMES L. OBERSTAR, Minnesota
NICK J. RAHALL II, West Virginia
ROBERT A. BORSKI, Pennsylvania
WILLIAM O. LIPINSKI, Illinois
ROBERT E. WISE, Jr., West Virginia
JAMES A. TRAFICANT, Jr., Ohio
PETER A. DeFAZIO, Oregon
JAMES A. HAYES, Louisiana
BOB CLEMENT, Tennessee
JERRY F. COSTELLO, Illinois
MIKE PARKER, Mississippi
GREG LAUGHLIN, Texas
GLENN POSHARD, Illinois
BUD CRAMER, Alabama
BARBARA-ROSE COLLINS, Michigan
ELEANOR HOLMES NORTON, District of Columbia
JERROLD NADLER, New York
PAT DANNER, Missouri
ROBERT MENENDEZ, New Jersey
JAMES E. CLYBURN, South Carolina
CORRINE BROWN, Florida
NATHAN DEAL, Georgia
JAMES A. BARCIA, Michigan
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BOB FILNER, California
WALTER R. TUCKER III, California
EDDIE BERNICE JOHNSON, Texas
BILL K. BREWSTER, Oklahoma
SUBCOMMITTEE ON PUBLIC BUILDINGS AND ECONOMIC DEVELOPMENT
WAYNE T. GILCHREST, Maryland, Chairman
ANDREA SEASTRAND, California, Vice Chairwoman
JOHN J. DUNCAN, Jr., Tennessee
PETER I. BLUTE, Massachusetts
STEVEN C. LaTOURETTE, Ohio
BUD SHUSTER, Pennsylvania
(Ex Officio)
ROBERT E. WISE, Jr., West Virginia
ELEANOR HOLMES NORTON, District of Columbia
JAMES A. TRAFICANT, Jr., Ohio
CORRINE BROWN, Florida
NORMAN Y. MINETA, California
(Ex Officio)
(ii)
CONTENTS
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TESTIMONY
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
PREPARED STATEMENTS SUBMITTED BY WITNESSES
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
PREPARED STATEMENTS SUBMITTED BY WITNESSES
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
REAUTHORIZATION OF THE ECONOMIC DEVELOPMENT ADMINISTRATION AND THE APPALACHIAN REGIONAL DEVELOPMENT ACT
WEDNESDAY, FEBRUARY 22, 1995
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 call, at 2 p.m., in Room 2253, 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. This is the last in a series of hearings on the subject of the continuation of the Economic Development Corporation and the Appalachian Regional Commission programs under the jurisdiction of this subcommittee.
I would like to welcome the witnesses and the Members to this hearing. I would especially like to welcome Rafael Correa, President of Machining Technologies; and Ed Urban, Executive Vice President of Salisbury Technologies, both from Salisbury, Maryland in the district, a nice place. We had Jim Hart from Crisfield, Maryland, where my in-laws live, but he couldn't make it today; and he will be—Herbert Lewis will represent Jim Hart today.
I support the continuation of these two programs, but I think we all recognize the need to reform the scope and size of each program, given the problems with the national debt and the budget deficit. 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. In so doing, we need the help of witnesses in evaluating the programs. We need to establish a record on these programs; that is, their cost-effectiveness and the return of Federal investment in these infrastructure programs.
I look forward to hearing from our witnesses today. They are here to provide us with examples of successful projects undertaken with the help of EDA and ARC. We need to accumulate this information to reformulate these programs in light of the problems that we now face, so to educate other Members of Congress as to the positive nature of this investment.
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I would also like to make a comment about the timing of today's hearing. There are quite a few witnesses, so what we will do, with just one exception—if I may make one exception—each person testifying will have five minutes and each Member will have five minutes to ask questions. Now, this sounds like an accelerated time pace, but we are in light speed up here in Congress. So I would appreciate your cooperation in this matter. We have a very high-tech little machine up here called an egg timer, which will ding at the end of the five minutes.
I would now like to recognize the Chairman of the full committee, Mr. Shuster.
Mr. SHUSTER. Thank you very much, Mr. Chairman. I certainly join you in saying that these, both of these programs, EDA and ARC, I think have played extremely important roles in stimulating economic development and improving the lives of the people and the communities in which they have participated. There have been some tremendous success stories. There also have been some failures, and I think it is our job to tighten up and to reform the programs so we can defend the programs on the Floor and keep these important programs doing the good things that they can do.
I know in my own district in central Pennsylvania, a little company named New Pig started out with 12 employees, and as a result of the participation in these programs, now has a payroll of 270 people with sales in excess of $53 million a year. Its pays annual Federal income tax of over $1.5 million a year; which substantially exceeds the total Federal investment in the program. So it is a great success story. And across America there are other success stories and this is what we have to build upon.
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Thank you, Mr. Chairman.
Mr. GILCHREST. Thank you, Mr. Chairman.
I would now like to recognize the Ranking Member of the subcommittee, the gentleman from West Virginia, Mr. Wise.
Mr. WISE. I thank you very much, Mr. Chairman, and I thank you for this hearing. It is good to see some familiar faces, people long active in economic development. You packed the room, Mr. Chairman, and I think that is a testimony to the importance of the Economic Development Administration and the Appalachian Regional Commission.
Certainly both agencies have helped distressed communities develop the necessary economic base that has enabled our private sector to flourish. Whether it is providing a loan to a struggling business to help us commercialize defense technology or helping to build an industrial park to enable business to expand, or providing planning assistance to enable communities to assess their strengths and develop a strategic plan to attract business, you always find the EDA and the ARC present and very, very active.
These are investment programs. And as this Congress looks at further deficit reduction, as it moves ahead, and much of the budget-cutting, it must remember that the real way that we grow, the real objective here is to have a healthy economy. And a healthy economy, yes, is provided for by a balanced budget, but that healthy economy only develops its wealth through growth. So these are investment programs that help our economy to grow.
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Mr. Chairman, I look forward to working with you to reauthorize these programs, because they are essential to our distressed communities, and I believe that the experience of the witnesses we are going to hear today will prove that. I look forward to their testimony.
Thank you.
Mr. GILCHREST. Thank you, Mr. Wise.
The first person I would like to call up is the Honorable Casper Taylor, the Speaker of the Maryland House of Delegates. And Mr. Taylor, we appreciate you taking time out of your busy schedule to come before us today. We look forward to your testimony.
TESTIMONY OF THE HON. CASPER TAYLOR, SPEAKER, MARYLAND HOUSE OF DELEGATES
Mr. TAYLOR. Thank you very much, Chairman Gilchrest and Members of the committee. I wish I could say that I lived in your congressional district, but I can say that we both have the pleasure of living in a wonderful State called Maryland. As a matter of fact, I live closer to Congressman Shuster than I do to you, and probably closer to Congressman Wise, because I live in the Appalachian end of Maryland, and so I am especially proud and delighted to be here.
My sole purpose, Mr. Chairman, in being here today is to convey to this subcommittee the economic and social importance of maintaining and fully reauthorizing the Appalachian Regional Commission and the Economic Development Administration. In consideration of this subcommittee's schedule, my comments will speak primarily and directly to the ARC. Let me assure you, Chairman Gilchrest, that I consider EDA to be equally as important, and I know you do. But because of where I live and because of the role that the ARC plays in western Maryland, I would like to devote my few minutes to that.
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I am submitting for your review a compilation and summary of ARC and EDA programs, and accomplishments in Appalachian—western Maryland.
People say ''Maryland'' and, for most, what comes to mind is the Chesapeake Bay, the Baltimore Inner Harbor, or Ocean City. But there is indeed a mountain side to Maryland, an Appalachian Maryland, consisting of the three western counties within the foothills of the Alleghenies, the westernmost of which is Garrett County, that continues to carry a chronically high unemployment rate of around 11 or 12 percent, and that has been going on now for a long, long time—that is probably twice, or a little better, that of the national average—three counties which, like much of Appalachia, have their social and economic legacy deeply rooted in the development of our Nation's coal-mining, agricultural, railroading, forestry and heavy manufacturing industries.
We in Appalachia, Maryland have lost the largest part of our mature, heavy smokestack industries. But because of the ARC and through public investment within our industrial areas, industrial parks, access roads, water and sewage facilities, shell buildings, we have begun to halt our decline, stabilize our economies and establish an infrastructure for future growth and economic expansion within the manufacturing sector.
But please realize, it is not just through the public investment ARC provides that accounts for our redevelopment, our retooling, but rather, it is through the opportunities, the possibilities, the public-private partnerships, the chance ARC presents for private-sector investment, private-sector initiative and private-sector entrepreneurship.
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Congressman Wise, I think you were exactly on the mark in your opening remarks. The way to solve our budget problems is to make our economy grow and create the base for that growth.
Since the early 1970s, over a dozen industrial parks ranging in size from seven to four hundred acres and funded in partnership with these two agencies have become home to almost one hundred private sector industrial commerce or manufacturing concerns, employing over 5,000 people. The possibilities for success of small business development have expanded greatly in Appalachian Maryland where, since the late 1980s and the inception of the ARC revolving loan fund, over 32 loans have been made, leveraging over $7 million in private financing and creating almost 500 new jobs. It has, in large part, only been through the ARC that we have been able to diversify our local manufacturing small business and overall employment base.
It has always, in large measure, been through the ARC partnerships that we have been able to bring state-of-the-art telecommunications and computer technology to Appalachian Maryland, and with it, the professional and technical training for our students and our displaced workers. Through ARC alone, our regional university, the only 4-year public institution west of Baltimore, now has developed a Geographical Information System computer-mapping capability to serve the needs of local government and the private sector. Through ARC alone, we have begun building an information infrastructure, distance-learning and Internet connections to serve our public and private schools and community college; and through ARC alone, we are fermenting interstate coordination, multistate partnerships and private-sector initiatives for telecommunications and telemedicine in our less populous, rural and contiguous rural areas. And we in rural America know how important it is to develop interstate cooperation in these rural areas.
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Through ARC alone, we have Autocad and computer networking programs and training, and through ARC in partnership with the private sector, we have the Advanced Technology Center at Hagerstown serving the needs of education, industry and business; interactive classrooms meeting educational needs, providing training and retraining, and hosting regional business conferences; and through ARC, again in partnership with the private sector, we have the potential of a Federal Telecommuting Work Center site in the region and the potential for a Telecommunicating Work Center for the private sector as well.
It is the ARC and the EDA which best characterize and symbolize local part Nation and decision-making process. It is we, the stakeholders on the regional county and municipal level, who identify the problems, determine the need, and select the strategy to address concerns.
For Appalachian Maryland, it is the ARC which provides the ''chance'' and the opportunities.
In human resources, education and housing, where ARC emphasizes projects leading to homeownership and increasing the supply, choice and condition of housing stock for Appalachian Maryland's low- and moderate-income citizens.
We know we must retain our remaining industrial base; we know we need to develop new manufacturing jobs, technologies, and the training that goes with them. We also know we must promote our service and retail sectors, redevelop our urban areas and revitalize our central business districts. And all the while, we realize we must provide the health services, economic opportunities, educational technology, and adequate housing that so many—too many of our people need.
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For far western Maryland, like the rest of Appalachia's State and local governments, we are not foolish enough to believe that ARC and EDA are the economic panaceas of our region. We expect and we require local initiative and private-sector commitment, along with the public investment. But we need a partner, we need a partner for us in Appalachia, and ARC and EDA are that partner.
So please consider our request for their continuation and full reauthorization, and I thank you very much for your time.
Mr. GILCHREST. Yes, sir, Mr. Taylor. Thank you. Just in the nick of time.
Mr. WISE. That is why he is a good Speaker. I can tell.
Mr. GILCHREST. Good timing.
I would like to recognize the Chairman of the full committee, Mr. Shuster.
Mr. SHUSTER. Well, thank you. I have no questions. I just very much appreciate your testimony. In fact, I do have one question. Where do you live?
Mr. TAYLOR. Cumberland.
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Mr. SHUSTER. Well, you are practically a Pennsylvanian then. Thank you very much.
Mr. GILCHREST. Thank you, Mr. Chairman. That is a beautiful area of Maryland.
Mr. Wise.
Mr. WISE. I just want you to know, Mr. Speaker, that I spend a lot of time in your district, because driving back and forth to my district is through yours, and of course, there is a lot of similarity to the challenges we face and the same kind of rural terrain.
You made the point well, I thought, that ARC and EDA are not panaceas, and there is significant private-sector investment. In our case, we have often found that ARC and EDA are linchpins; they are often what makes a deal happen. You put together—I know in one case fairly close to your district, you put together 90 percent of the financing, but this is what puts it, cements it, and I just wonder if you would comment on that.
Mr. TAYLOR. Yes, that is a great question, and thank you for it. I would make this pitch, and I know that some people here are thinking in terms of converting this into a block grant program. Please don't do that, and I will tell you why.
This ARC is a model of all of the programs that have been developed across the country. ARC is a unique model in the way it is conducted, the way it is put together. It forces multipartner partnerships; it forces—it forces the Federal Government, the State government, the local government and the private sector to all come to the table, all putting their money where their mouth is, and forming the kinds of partnerships that are going to create that private-sector-job entrepreneurial base that you are talking about. I honestly believe if you convert it to a block grant program, it is going to lose that unique ability to force these partnerships.
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Mr. WISE. Thank you. Excellent point.
Mr. GILCHREST. Thank you, Mr. Wise.
Mr. Duncan.
Mr. DUNCAN. Thank you very much, Mr. Chairman.
Speaker Taylor, you answered one of my questions regarding the block grants, and the block grant proposal, but let me ask you this. You mentioned in your testimony 32 loans from the ARC revolving fund, and you say they leveraged—those loans leveraged over $7 million in private money.
How much money came from the ARC in those 32 loans; do you know, roughly? Rough guess?
Mr. TAYLOR. Offhand I don't; I am sorry. But I can get you the answer pretty quickly.
Mr. DUNCAN. And can you give us some examples, two or three examples of those 32 loans and what businesses they started or what they actually did?
Mr. TAYLOR. I can give you an example in my county of Superfoss, which is a company that came over here from the Netherlands and does plastic packaging and has created at least 200, 250 jobs. There are other examples in the adjoining county of Washington County. I have—I think the staff has furnished you with a complete list of programs that have created jobs in the three Maryland counties, and I would refer you to that.
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Mr. DUNCAN. I haven't seen that list, but I would be interested in seeing that. Thank you very much.
Mr. TAYLOR. Thank you.
Mr. GILCHREST. Mr. Traficant.
Mr. TRAFICANT. I appreciate your testimony, Mr. Speaker. One thing for sure is the money that would be coming would be limited and that all efforts from this subcommittee and the committee would be to create programs designed to enhance upon and to leverage private sector money. Would you agree with that?
Mr. TAYLOR. Oh, absolutely.
Mr. TRAFICANT. One of the ideas that we have is providing a fund of money that would only be allowed to be used by community development corporations, or banks or a group of banks similar to that within a community, and it could only be used to buy down interest rates once the community's development corporation or bank makes a loan.
Could that be an additional tool that could help the ARC communities with programming?
Mr. TAYLOR. That would be a great tool, and I would certainly support that.
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One of the fears I have, if you go to a block grant program in a State like Maryland, I think perhaps in Ohio also, where the entire State is not in Appalachia—we have only got three counties in Appalachia—and if the block grant comes in and it gets spread all across the State of Maryland, Appalachia, Maryland gets screwed, and I don't want to see that happen.
Mr. TRAFICANT. Well, I agree with you and everybody understands that language here, believe me. With that, I yield back my time. Good luck to you.
Mr. TAYLOR. Thank you very much.
Mr. GILCHREST. Thank you, Mr. Traficant.
Mr. Taylor, I don't want to overemphasize this, but in the light of the budget crisis, we are living in a certain fiscal reality where there are a lot of things up for cuts, rescissions, block grants, you name it, from NPR to WIC to Meals on Wheels. A number of Members on the Floor come and ask questions like, how long has ARC been in existence and how long will it continue? I have three somewhat related questions.
From your perspective, do you foresee a time frame for ARC, 10 more years, 50 more years do you see in a new formulation of these programs? And I want you to know that I am coming from a perspective that I think these kinds of programs offer not only assistance, but they offer the needs through infrastructure improvement that generate private-sector jobs, which generates revenue.
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So do you foresee a time frame for the type of ARC that we now know? Do you see, if we reformulate these programs, that the concept of how ARC is run and multigroups coordinating the effort—do you see EDA being incorporated into a national program based on how ARC is run; or do you see that ARC—and the Appalachian region is such a unique area of the United States that we should just continue a successful program, such as ARC?
Mr. TAYLOR. Well, that could turn into a 2-day symposium which would be very, very educational for all of us. Let me try it this way.
In some very serious respects, Appalachia America is sort of like a very serious welfare client. It is in some respects welfare America. I live in welfare America. As much as we want to get the individuals off of the welfare cycle and into a productive life, I think we want to do the same thing with Appalachia America. We want to get it off of welfare. But it has so many unique problems, or it has had up to this point, of poverty and the lack of fundamental education and fundamental health and fundamental amenities that the rest of America is used to living with, that we are having a difficult time doing that.
Certainly, don't tell Appalachia America that we are going to let you be on welfare forever, because that doesn't help us. I think you probably do have to give Appalachia America a deadline, a wakeup call, and keep our feet to the fire and say that, someday, Appalachia will be as productive as the rest of the country is, and as educated and as well taken care of with fundamental health care.
Now you are going to ask me, what is the time frame. I don't know; I really don't. I don't think anybody does. I don't know whether 10 years is enough. I don't think 10 years is too much; I hope 10 years is enough. If there is any way that you can apply a little more pressure on us to make us accountable and to show some performance outcome, that might help us, that might help us.
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But please don't pull the rug out from under us too quick. I will leave it up to your wisdom as to what too quick is.
Mr. GILCHREST. I don't think we want to do that. We are here trying to gather the information. Is it possible—and I recognize areas that are—I spent some time in the small rural area of eastern Kentucky, so I know the problems that are indigenous to those areas, and I have some very poor areas myself. And I know my time is up, but just one quick question.
Is it possible to have some type of overall economic plan, let's say, for your particular region, that you can begin to reach out for? You mentioned the Internet. Is it possible to have telecommuting in your area?
Mr. TAYLOR. Yes.
Mr. GILCHREST. To have some type of plan that would be suitable for the region's environment? It might not be like Baltimore Harbor or Baltimore City, a giant industrial complex area.
Are the people in your area working on an overall plan that might be suitable for your particular region?
Mr. TAYLOR. Yes, we are. We are working on a plan that encompasses two sectors, I think, tourism and recreation, for sure, and telecommunications; and we believe that we are making progress. I guess the interesting question would be, is the plan firm enough and focused enough and defined enough; and based on what you have just asked me, I am going to go back home and make sure it is.
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Mr. GILCHREST. Mr. Speaker, thank you very much.
Mr. TAYLOR. Thank you.
Mr. GILCHREST. Are there any other questions? Thanks for coming to Washington.
Mr. TAYLOR. Thank you very much.
Mr. GILCHREST. The next panel will be Nino Vella, James Tonn, and Jim Gray.
Mr. Nino Vella, am I pronouncing that right?
Mr. VELLA. Yes.
Mr. GILCHREST. Should have some interesting testimony. The New Pig corporation from Tipton, Pennsylvania; James Tonn, the National Association of Development Organizations; and Mr. Jim Gray, Chairman and CEO of Harbor Bank, Long Beach, California. Gentlemen, welcome to the committee and we look forward to your testimony.
TESTIMONY OF NINO VELLA, PRESIDENT AND CEO, THE NEW PIG CORPORATION, TIPTON, PA; JAMES C. TONN, PRESIDENT, THE NATIONAL ASSOCIATION OF DEVELOPMENT ORGANIZATIONS AND EXECUTIVE DIRECTOR, THE MIDDLE GEORGIA REGIONAL DEVELOPMENT COMMISSION, MACON, GA; AND JIM GRAY, CHAIRMAN AND CEO, HARBOR BANK, LONG BEACH, CA
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Mr. GILCHREST. I think what we will do is, we will hear from each of you and then we will have the Members ask questions.
Mr. Steve Horn from California would like to say a few words about Mr. Gray, one of his constituents.
Mr. HORN. I thank you very much, Mr. Chairman, and Members of the committee, all of whom have been Chairs at one time or the other. It is a great pleasure to introduce Jim Gray to this committee.
Jim and I worked together beginning in 1974 when the Mayor of Long Beach, which is the second largest city in Los Angeles County, a city of over 400,000 people, brought together a group to turn the city around. And he and I were fellow officers on the Economic Development Corporation, and as I have told your predecessor committee, in previous years chaired by Mr. Wise, the Economic Development Administration did an outstanding job in giving us some of the seed money which we could leverage into a success story. I would like Mr. Gray to tell the committee that success story, because EDA certainly deserves to be reauthorized based on that and many other successful experiences.
Mr. GILCHREST. Thank you very much, Mr. Horn.
Mr. Chairman.
Mr. SHUSTER. Well, I would just particularly like to welcome Mr. Vella here. I had mentioned in my earlier statement New Pig as being such a great success story. I am going to have to leave for another meeting in a few minutes, because the Supreme Court has declared the metropolitan airport authority unconstitutional as some of you know, so we are going to have to fix that do a few other things.
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However, the New Pig people, they are just going to have to tell you what New Pig really is all about, and aside from being a great success story, it is a happy story too.
I am glad you are here.
Mr. VELLA. Thank you.
Mr. GILCHREST. Thank you, Mr. Chairman.
Mr. Vella.
Mr. VELLA. Well, good afternoon, Mr. Chairman, Chairman Wise and Chairman Shuster. The company was started in 1985.
I guess my purpose here—two things: One is to tell you of our success, I guess; and the second thing to do is to tell you what the local Southern Alleghenies Planning and Development Commission, through funding by the EDA and the ARC, did for us. I guess that is the two things I want to convey.
When I started with the company, we had one employee and we made this product. It is called a pig. And what this product does, it sits around the base of machinery in factories and it soaks up oils and fluids that run off the machine. Before, the way you used to do it, you would throw clay down and someone would have to come along and sweep the clay up periodically and toss it away.
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The founders of the company had an industrial cleaning service company that went in, and they had everything they would clean up, and it was very inefficient and it was dangerous to the employees. So we thought—or they thought, let's contain the absorbent. So they put the clay in a pair of one of their wives' panty hose and they laid it down around the machinery, and it did a pretty good job, but it wasn't perfect. So they used a tube sock, an athletic tube sock, and they put the clay inside it and put it around the machine, and it still wasn't good enough. So we were fooling around in part of the warehouse that we used to call the ''pigpen'' before we even had a company name and started fooling around with different materials and finally came up with the pith and chaff from a corn cob, and that is what went into the original product. Now, since we have developed the company into—we sell about 3,000 products. Here are some catalogs that show you what we do; pass them out to your industrial friends so we can get some more sales.
But the name came from the ''pigpen.'' It kind of stuck, so we went out to try to trademark the name the Pig Corporation, but it was taken by a farmer in Lancaster, Pennsylvania, so we added ''new'' before ''pig,'' and since then we have gone from zero sales in 1985 to sales in 1994 of $53 million. We employ 280 people. So I think we are a moderate success story.
I can remember when I started with the company, I was a certified public accountant and I was the first accountant—of course, they hired me as a chief financial officer—but actually I came in and they threw invoices and everything else on my desk and said, go to it. And they stuck me in—where we worked, it was an old warehouse, an old pretzel factory; and they stuck me in a corner, and where I was seated, there used to be a bunch of trucks that would start up every morning and come back every afternoon, so I would sit there sucking up fumes the whole time.
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I can remember when we started to grow, we started to talk to Altoona Enterprises, the local economic development authority in our area, about an industrial park, the RDJ Dillon Industrial Park. And we were very excited, because at that time, while it was always collecting invoices and different things, we were stretching vendors out for 3 and 4 and 5 months trying to pay our bills because we were a fast-growing company and we didn't have any money. So when the opportunity came up to go to the industrial park, we were very excited.
At the same time, through the Southern Alleghenies Planning Commission, we had obtained loans in the amount of $100,000 for start-up manufacturing equipment to automate the process of making our product, and those have been very beneficial. Over the years, we received four of those loans, totaling $300,000; I think two of them are still outstanding.
The industrial park, we have a beautiful place to go to work. I understand that EDA and ARC are instrumental not only in helping with the development of the park, but also the access highway, and now we have a new highway, 220, that is a wonderful place to come to work, for our suppliers to come, our trucking companies to come and take our product out. We also receive Federal contract procurement technical assistance through Southern Alleghenies, and it is very helpful and beneficial.
When I was getting ready to come here, I put a little E-mail message out on our computer, and I said, I have to go to Washington to testify and what I needed to know is, what value has Southern Alleghenies Planning and Development Commission given to our company? I got about 10 or 12 responses from people. And the girl that covers this area in our business said that she calls there twice a week for advice on Federal contract procurement technical assistance.
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So I would say all in all, the question I keep asking myself, and I—can I take some more time, or should I stop?
Mr. GILCHREST. We will give you one minute.
Mr. VELLA. Here is what I came up with. I said—there is a story here. It came about that as he was sowing, some seed fell beside the road and the birds came and ate it up. Another seed fell on the rocky ground where it did not have some soil, and immediately sprang up because it had no depth of soil and the sun scorched it. Another seed fell among the thorns, and the thorns came up and choked it and it yielded no crop. And other seeds fell into the good soil, and as they grew up and increased they yielded a crop and increased 30-, 60- and 100-fold.
I am not a proponent of government spending, but I think in this case, for our company, the monies that were invested in the industrial park and the loans given to us will bear fruit over and over and over again. We paid over $9 million in 1994 out to employees and investors in taxable earnings, plus $2 million in income taxes. The $2 million exceeds the total investment in the industrial park that we live in. So I think it is a good program. It has helped us a whole lot, and to me, that is the soul and the essence of this.
Mr. GILCHREST. Thank you, Mr. Vella.
If you can tell me where that is found in Matthew, I will give you another 10 minutes.
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Mr. VELLA. It is in Mark.
Mr. GILCHREST. Oh, it is in Mark.
Mr. VELLA. Do I get 10 minutes?
I won't do that to you.
Mr. GILCHREST. Mr. Tonn.
Mr. TONN. Mr. Chairman, Members of the subcommittee, I am Jim Tonn. I am the Executive Director of the Middle Georgia Regional Development Center in Macon, Georgia; and I am serving this year as President of the National Association of Development Organizations, or NADO.
I would like to thank you, Mr. Chairman, and the Ranking Minority Member, Mr. Wise, for inviting NADO to be a part of this hearing. Our Members are grateful to you both for pledging to continue efforts started by the former Economic Development Subcommittee. The Members of that subcommittee and the full Transportation and Infrastructure Committee, have long supported the EDA. Since its inception in 1965, EDA has been the most flexible and most effective Federal program for bringing balanced economic growth and economic development to rural America.
As this subcommittee studies EDA, it should consider the following four points:
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First, Economic Development Districts provide professional and technical capacity in small metropolitan and rural communities. Not only are districts the core of EDA's delivery mechanism, they serve local communities as vital providers of professional capacity and technical assistance. In many parts of America, the district is the only economic development arm for local governments.
Second, EDA's traditional programs—infrastructure, planning and economic adjustment—are essential Federal investments that give desired communities—or distressed communities the ability to enter or reenter the economic mainstream. The EDA provides planning and technical capacity to stressed communities through its district network, which enables communities to prepare comprehensive development strategies and finds solutions to their own development needs. Congress has given EDA the tools to help communities build infrastructure and gain access to capital necessary for private-sector economic growth to occur.
In my 11-county district in Georgia, EDA has invested $6.7 million in infrastructure funding with a match of $4.4 million in local funding. That $11 million investment by local and Federal Government has leveraged over $300 million in private investment for job creation and for industrial development in the 11 counties. Over 6,500 jobs have been created because of this $11 million investment.
Third, EDA is a Federal program that delivers assistance tied directly to local private-sector growth and according to local, identified needs. EDA funds projects that create private-sector jobs and economic growth in communities outside of the economic mainstream. These projects are tied directly to community needs because they are identified by local officials.
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Fourth, efforts to reinvent EDA should focus on improving and reforming management and program delivery. EDA's existing programs do work. They help communities meet vital needs. They should be made to work better, to help EDA continue its mission of helping distressed communities.
Programs will work better if outdated regulations are removed, application processing time is improved, and authority is delegated. New missions for EDA should not be created and new programs should not be implemented at the expense of the existing EDA programs.
Some would say that Congress should study all Federal programs with the following three questions in mind: is the program a function of a reduced Federal Government? The Federal Government, through EDA assistance, provides a little over $400 million to distressed communities to create jobs. In fiscal year 1994, EDA invested $160 million for infrastructure projects, and leveraged $1.7 billion in local investment and will create, over the next 5 years, some 72,000 jobs. There are few, I believe, who would say that creating jobs is not in the Nation's best interest.
The second question to consider is, could the program be better delivered at the local level? EDA projects are local. EDA funds projects identified by local officials as essential for local growth. These are projects that distressed local governments could not undertake on their own. However, communities demonstrate that they believe in the project because there is a local share to every infrastructure project. Also, States are unable to deliver this kind of project on their own. States are interested in larger projects that do not benefit individual communities.
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The third question is, does the program perform a function that could be better performed by the private sector? EDA delivers projects to communities too distressed to support private-sector investment. EDA projects give communities the foundation upon which private-sector companies might build.
In conclusion, with approximately $400 million, EDA offers the programs that distressed communities need to compete economically. The agency helps deliver distressed communities create local private-sector jobs by providing professional and technical capacity, offering grants to build infrastructure necessary to create private-sector industry, providing small business assistance through revolving loan funds, and assistance to affected communities for defense downsizing and natural disasters. These are programs that EDA has to level the playing field for distressed communities throughout our country.
Mr. GILCHREST. Thank you, Mr. Tonn.
Mr. Gray.
Mr. GRAY. My name is Jim Gray and I am here today on behalf of the City of Long Beach, California. I am the Chairman and CEO of the Long Beach-based Harbor Bank. And by the way, we were going to call it the ''new piggy bank,'' but we didn't want to infringe.
I am also currently the Treasurer of the American Bankers Association and past President of the California Bankers Association.
The year is 1995. The place is Long Beach, California: new hotels, a recently expanded convention center, a sports arena, performing arts center, downtown urban mall, hundreds of thousands of square feet in new Class A commercial office space, a world trade center, expansive public small boat marina facilities, a renewed shopping, dining and entertainment district, substantial roadway and infrastructure improvements, growing jobs and tax base, and a future with seemingly endless potential. This is the picture of Long Beach nearly 20 years after the start of a focused redevelopment and urban economic development program bolstered at the start in what was the bleakest of times by a seemingly modest Federal partnership led by the Economic Development Administration.
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Since that starting point in 1974, the total estimated public and private investment in Long Beach's downtown now exceeds $4 billion. Yet 20 years ago, Long Beach couldn't even attract a fast food restaurant to its downtown. I know this firsthand because I, like my close friend, Congressman Horn, sat on the city's first economic development commission those years ago when we surveyed Long Beach's future with trepidation.
Boarded-up buildings and storefronts, a decaying business base and hopelessness overshadowed what had once been one of California's most dynamic mercantile, recreational and residential centers. But a variety of forces, including the 1974 closure of the Long Beach Naval Base, the growth of the suburbs, the flight of business investment from urban areas and the lack of coordinated strategy to offset these forces plunged Long Beach head first into an economic abyss that has taken years to recover from.
Thankfully, the Economic Development Administration, together with a handful of other Federal agencies, took a chance on Long Beach in the form of some basic grants and related Federal initiatives, which helped to jump-start some of the more critical elements of the city's economic recovery and public-private investment effort.
Specifically, EDA's support included:
Designation of Long Beach as a Department of Commerce ''Commerce City'' and as a Comprehensive Economic Development Strategy ''place'';
Awarding Long Beach an EDA Title XI grant of $7 million that served as a catalyst for subsequent public and private support;
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Participation in a coordinated, multi-Federal agency project which fast-forwarded Long Beach's downtown revitalization efforts.
Some years later these efforts culminated in then-President Reagan's lauding Long Beach as one of three cities nationally that had been particularly effective in leveraging Federal assistance to support the city's downtown redevelopment program.
The result of EDA's early investment in Long Beach? Long Beach is transforming itself, and the community is indebted to the Federal Government's attention to a community that in the mid-1970s lacked the wherewithal and, to some extent, the skills to help itself. This, in simplest terms, seems to be the value of agencies such as the Economic Development Administration.
When communities are affected by forces beyond their control, forces such as systemic economic adjustment, declining defense spending, military base closure, physical or civil emergencies, or other cataclysmic events, a Federal presence as a stabilizer and later as a catalyst to recovery is necessary. These are the roles that EDA best plays.
Stories like Long Beach's can be found throughout urban and rural America. The National Council for Urban Economic Development recently reported that since 1965, EDA has contributed $4.6 billion to local economic development programs, creating or retaining almost 2 million new jobs. In 1993 alone, EDA supported 141 local projects with $136.9 million, creating 46,962 new jobs at a cost of only $2,762 per job. This is a tremendous return on investment using any method of measurement.
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In the case of Long Beach, the return on investment is significantly higher. During the period in the mid-1970s I spoke about earlier, EDA assistance amounted to less than 15 million crucial dollars, which came in four grants that we had to compete for separately and on their merits with other hard-pressed communities. By 1984, at a time when we were leveraging 11 private-sector dollars for every dollar of EDA city and other Federal-State investments, President Reagan singled out Long Beach for special praise.
President Reagan's praise came in three parts.
First, he said this was the kind of result he wanted in Federal assistance to cities;
Second, he said this was a good example of demonstrating the partnerships with business and it should be the engine of community revival, and
Third, he said—and these were his exact words—''partnerships produce jobs.''
Mayors, elected officials, economic development professionals and business leaders like myself from throughout this country are indebted to the assistance of the Economic Development Administration as provided in the past. We look forward with great anticipation to the role that the Economic Development Administration will play in the future. The times we live in are too critical and too challenging to threaten those institutions which are so clearly part of the solution to the Nation's problems. EDA is one of the solution-oriented institutions, and for that simple reason, I respectfully suggest that EDA be preserved and supported for the foreseeable future.
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Thank you very much for your patience.
Mr. GILCHREST. Thank you, Mr. Gray.
Mr. Wise.
Mr. WISE. Thank you very much. I think you all said so much very, very well. To any of the panel, let me ask, one of the criticisms of many programs is that they are Washington-based and that it is Washington making the decisions. It sounds like in each of your cases that you are talking about decisions that are made at the community level about how you want to develop your communities.
Would you care to comment on that relationship and whether or not you do think that EDA is community-based or Washington-based and whether it has been effective?
Mr. TONN. I will be happy to.
In our experience, they are community-based. It is very much a city-county program, and then we work through the regional office. But very few decisions—the final funding decision, of course, is made here, but the needs are identified locally and the projects are generated at the local level.
Mr. GRAY. Mr. Wise, if I could just add on to that, one of the benefits of the program is the fact that the local agencies or the local community has got to determine what the needs are; and even though the funding source may be out of the area, the needs assessments are done locally.
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Mr. WISE. Mr. Vella.
Mr. VELLA. Well, one of the things that I have noticed, the people in the Southern Alleghenies Planning and Development Commission are very customer-focused towards us. I mean, they visit our place. When we call and ask questions, they are very, very helpful. So it really is local. I don't think Washington; I think of local Altoona.
Mr. WISE. Actually, it is. And, of course, is it also correct that in the case of EDA—and Mr. Gray, you made this point—I believe, each of you had an idea, you had your plan, your strategic plan, you knew what you wanted to do; and the question was whether EDA could come in and help you meet part of that goal.
Mr. GRAY. Exactly so. And I think that is where EDA really performs a needed service. We had a plan, and when the EDA program was made available—I think, Steve, you would concur, it made us refocus on that plan. It made us really, really take a hard look, because we knew that we would—at very best, would only get a jump start, and that we were going to have to attract the private sector. And that came about.
Mr. WISE. Mr. Gray, I was very impressed as you were reading through your opening remarks, reciting each of the accomplishments and how far Long Beach is coming. I wasn't sure where you were going, and I thought you were finished with—and that was just in Steve Horn's first 2 years.
Mr. GRAY. We will wait until closer to the election for that.
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Mr. WISE. Thank you very much.
Mr. GILCHREST. Thank you, Mr. Wise.
Mr. Traficant.
Mr. TRAFICANT. No questions.
Mr. GILCHREST. Mrs. Seastrand.
Mrs. SEASTRAND. Well, just to ask, Mr. Gray, it sounds like a grand success story for all three. But in the 20 years that you have been rebuilding Long Beach, what effect now on your tax base? It sounds like it has been tremendous.
Mr. GRAY. It has been really significant. I might say we started the bank in 1974, taking a chance on downtown Long Beach at the same time; and we are now doing, I think it is our 17th or 18th private financing of redevelopment projects in downtown; it just continues to grow. The tax base is significant in every way. And as you recall, Proposition 13 came in at a time when—in the 1970s when California all of a sudden lost redevelopment potential of paying back by property taxes, so we had to move very quickly. And it has really paid a dividend.
Mrs. SEASTRAND. Thank you.
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Mr. GILCHREST. Thank you, Mrs. Seastrand.
I just have a couple of quick questions.
Mr. Vella, I have two sons in college and I would really like to know where in Mark that is. So if you had the chapter and verse, I will mail it to them.
Mr. GRAY. Mr. Chairman, you could send them the whole book. They could probably use that too.
Mr. GILCHREST. I could get that later if you don't have it right at your—
Mr. VELLA. Here. You can have this.
Mr. GILCHREST. I will pick it up on my way out. I would really like to send that to them. It provides a lot of incentive for groundwork.
The other question I have, Mr. Vella, if the—and I assume it was partially Appalachian Regional Commission that provided the infrastructure structure, industrial parks and access roads—thank you very much.
If ARC didn't provide the early funding for the industrial park and the access roads, do you think it would have been built. If it wasn't built, what would have happened, being a Monday morning quarterback now, to your chances of being successful in this area? I understand it probably wasn't ARC that gave somebody the idea to put the clay in the sock, but what was the connection between the clay in the sock to pick up the oil and how ARC provided you with the opportunity to create over 200 jobs?
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Mr. VELLA. Well, the work in the park was done by Altoona Enterprises. They are the owner of the industrial park. They were provided technical assistance from the Southern Alleghenies Commission, and they were provided a $500,000 grant from the Economic Development Administration and a $623,000 grant from ARC to provide the access road. And based on my conversations with the head of Altoona Enterprises, it wouldn't have happened without those two grants and without the help of Southern Alleghenies.
So I can only answer that question based on those facts as, yes, it was required for it to happen.
I don't know where we would be without the industrial park. I mean, it is very hard—I always use the ''with or without thinking method,'' and it is hard for me to say without the industrial park, would we have been as successful as we have been?
It is hard to say. I think I would have to answer it, no, we wouldn't. It is part of our vision. It is a nice place, a wonderful infrastructure, a nice place to work. It is a beautiful area. We have room to expand. We have good neighbors. There are over 700 jobs in that park.
Mr. GILCHREST. So if it wasn't for the industrial park in that particular area, based in part on ARC, in order for you to be successful, you may have had to move to some area that already had an existing industrial park or had access roads?
Mr. VELLA. Right, I would have to say yes. I mean, we were looking for land all over the place and there was nothing suitable. So this was very important.
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Mr. GILCHREST. We are trying to frame this so that when we talk to other Members, they will get some sense of the importance of these particular programs.
Mr. VELLA. I would say, to us it is critical. I would have to say it is critical. It is critical even now; our business is growing, we need the room, we have to expand. It is a perfect place. The highway access is excellent for shipping our products in and out. I couldn't say that enough; the infrastructure is critical.
Mr. GILCHREST. Thank you.
Mr. Tonn, two quick questions. Nothing about the New Testament.
EDA is now experimenting with some—you made a comment in your testimony that any reforms to EDA should be thought of as trying to improve EDA; and there is one experimental program in EDA now that is a competitiveness program. And I am not sure if you are familiar with it.
Mr. TONN. You mean the Competitive Communities Program?
Mr. GILCHREST. Competitive Communities Program.
Mr. TONN. Yes, sir, somewhat.
Mr. GILCHREST. I would like your input on that; and also, much of EDA now goes for defense conversion, and in light of the base closings, in your opinion, should the bulk of the money be targeted toward that particular product, defense conversion?
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Mr. TONN. To address the first question, we, as an association, have been involved with EDA as this Competitive Communities Program evolves, and are much happier with it now than we were even 6 months ago, in that districts can be a part of it. But our feeling is that the entire program is so nebulous that we really can't say, yes, we think it is good or, no, it is bad, because it still is a very hard program to see exactly what it is.
My understanding is, it would be large grants, primarily in major urban areas, and I think rural America would suffer if traditional programs were reduced and the funding was put into this program.
Mr. GILCHREST. So maybe continue to experiment. The proposal, as I understand it, would be for the bulk of the EDA program to go into that type of grant mechanism, Competitive Community—
Mr. TONN. That is my understanding. I think most of America would suffer by that, and maybe major urban areas would benefit would be the only ones that come out the winner in that scenario.
In terms of your defense conversion, I would hate to see the bulk of the funding from EDA go just to that program, because most of us would suffer irreparable damage. The one example I could give you is that, in my district, we had a flood last summer in July and EDA was one of the very first agencies to help us. They have been tremendous, and these are things that couldn't have been done without a Federal role. And if you are putting all the money into other things, natural disasters are really going to be a problem for local government.
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Mr. GILCHREST. I see. Thank you.
If I could beg the indulgence of the other Members, very quickly, for a question of Mr. Gray, $15 million in four EDA grants over a period of a few years; is that money still out there in revolving loans in any capacity, or is that—
Mr. GRAY. No, I believe that is all—has all been done now in the form of grants, and the private sector has picked up the—all of the expansion from that.
Now, that doesn't mean that Long Beach isn't going to come back sooner or later as things continue, if we have the right kind of a program. But this was the seed money that has been generating significant—and I am not talking about a two-for-one or a five-for-one or a ten-for-one—significant private investment that couldn't have come about at a point in time without EDA.
Mr. GILCHREST. Thank you. Do any of the Members have any other questions?
Mr. WISE. Yes. I had one for Mr. Tonn just following up on yours, Mr. Chairman. Going to Competitive Communities, how do you feel when you—if you learn that the request is for $134 million for Competitive Communities which would most—most of which would come out of the traditional public works program of EDA?
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Mr. TONN. My feeling is it would be a serious mistake for the bulk of our country, if that is what was happening.
Mr. WISE. Okay. Thank you.
Mr. GILCHREST. Thank you, Mr. Wise.
Gentlemen, thank you very much for coming to Washington and offering us your inspiration and your testimony.
Mr. GILCHREST. The next panel, the Honorable Jimmie Herald, Ms. Linda Gayheart, Mr. Harold Sims, and Mr. Dennis Pascarella, who is accompanied by Mr. William Steiner. The Honorable Jimmie Herald is Owsley County Judge Executive from Booneville, Kentucky; Ms. Linda Gayheart, Executive Director, Kentucky River Area Development District, Hazard, Kentucky; Mr. Harold Sims, Sparta, Tennessee; Mr. Dennis Pascarella, CEO, Seneca Printing and Label, Inc., Franklin, Pennsylvania. Welcome to Washington.
TESTIMONY OF THE HON. JIMMIE HERALD, JUDGE EXECUTIVE, OWSLEY COUNTY, BOONEVILLE, KY; LINDA G. GAYHEART, EXECUTIVE DIRECTOR, KENTUCKY RIVER AREA DEVELOPMENT DISTRICT, HAZARD, KY; HAROLD SIMS, SPARTA, TN; DENNIS PASCARELLA, CEO, SENECA PRINTING AND LABEL, INC., FRANKLIN, PA, ACCOMPANIED BY WILLIAM STEINER, EXECUTIVE DIRECTOR, NORTHWEST PENNSYLVANIA PLANNING AND DEVELOPMENT COMMISSION, FRANKLIN, PA
Mr. GILCHREST. I went to school at Union College in Barbourville, Kentucky for a semester, and it was very intriguing.
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Mr. Clinger, Mr. Chairman, would you like to introduce Mr. Pascarella?
Mr. CLINGER. That is basically what I wanted to be able to do is to welcome Mr. Pascarella who comes from the great County of Venango and has a very remarkable story to tell and has been a very able advocate for the kinds of programs that we are dealing with in this hearing today. So I am delighted to welcome him and recommend his testimony to the panel.
Thank you very much.
Mr. GILCHREST. Thank you, Mr. Clinger.
Mr. GILCHREST. The Honorable Jimmie Herald.
Mr. HERALD. Do I need to start?
Mr. GILCHREST. Yes, sir, whenever you are ready.
Mr. HERALD. Okay. After those success stories that just came through here, I may sound a little dry; but what I have got to say comes from the heart, and I am hoping the panel gives it their full less consideration.
I am Jimmie Herald, the County Judge Executive of Owsley County. We are one of the eight counties in the Kentucky River Area Development District located in eastern Kentucky. Owsley County consists of 198 square miles and has beautiful mountains, valleys, well-tended farms, tobacco fields and barns, meadows of wild flowers, scattered houses, country stores, and an occasional wild deer and wild turkey. I love Owsley County and the other people who live there do also.
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Our county seat is Booneville with a population of 232 people and a downtown square and a mixture of old and new. There are bench sitters at the courthouse engaged in trading stories and knives. There are citizens and community leaders who gather at the local restaurants or at the courthouse to talk of ideas and plan for the future.
We are a changing community. A combination of out-migration and low birth rate has resulted in lost population. We are a small county with 5,036 people, the second smallest in the State of Kentucky.
Not only are we losing population, but the entire makeup of our population is changing. Currently, people under the age of 17 make up about a quarter of our population. But with the current trend of low birth rates, it is expected that this number will decrease, as will the number of people of workforce age. We lag behind the rest of the Nation in all income categories. Nearly a third of all households have annual incomes below $5,000. We are the fourth poorest county in the United States.
Sixty-four percent of our children live in poverty, and our real unemployment rate is about 47 percent. I think that one of the greatest single causes of poverty in the county is the low educational attainment level of the county residents. At the time of the 1990 census, nearly 50 percent of the residents age 25 and over had less than a ninth grade education, and the ones who get educated leave home. But the good news is that more of our kids are graduating from high school, increasing from 52.3 percent to 61.7 percent last year.
Because of all of our problems, we are trying to take action ourselves to bring about improvements in our county. Last year, with the help of the Kentucky River Area Development District and the Forestry Service, we formed the Owsley County Action Team, which consists of community leaders and concerned citizens. We started meeting and talking about our problems, our needs, and more importantly, what we can do to solve those problems. We spent a lot of time assessing our needs, trying to figure out exactly what is wrong with the county and how we can fix it. One of the first things we did was to develop a mission statement so that we would know what we were all about.
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The Owsley County Action Team is dedicated to providing the leadership to enable the citizens of Owsley County to achieve self-empowerment, sustainable community development, and an enriched quality of life. We realize that what is good for our neighbors is good for us, because our needs are similar. In finding solutions to many of our problems, we work with our local development district and try to develop regional programs.
My county budget is $800,000, and even though our county is small, we still have to maintain county roads, operate basic special government services, but beyond that, with this budget, we can do very little else.
By all standards, we are a very impoverished county, but we have not given up on ourselves, and we ask you not to also. ARC has been a big help to us by improving—by providing matching funds to help us run water lines and sewer lines, a senior citizen center, a vocational center in our neighboring county and our educational and health services. But you see, we still need help; and as you can see by all of this effort that we are making, we are willing and trying to help ourselves.
In closing, I would like to say thank you, folks, for serving your districts and your country. About another 30 seconds, please.
Mr. GILCHREST. Yes, sir.
Mr. HERALD. I have served 3 years in the United States Army from 1973 to 1976. I have been serving in my county in my position as County Judge Executive for over 5 years. I have served as Chairman and I am still a member of the Kentucky River Area Development District. Everything that I have done for the benefit of the people of my county, everything that I have done has been for the benefit of the people in my county and in my area district, and for the people of the Appalachian region and the people of my country.
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I realize that other areas need help, too, but please consider this: The kids that live in our inner cities, they have paved streets, clean drinking water, indoor plumbing, parks and playgrounds, warm places to sleep, accessibility to good health care facilities, but our kids don't. Some poor kids find those things to be an answer to their prayers and dreams. With the help of ARC and our continued work at the local level, we can make this a reality.
This is America. Our young people deserve it. Some of the people who need it most are the direct descendents of our soldiers who gave their lives for our country. I believe our country should do what we can for the most underprivileged people in our country. Most of them live in the rural Appalachian region. The Applachian Regional Commission is the best tool that we have to work with to accomplish it. I ask you to please support the Appalachian Regional Commission.
Thank you, sir.
Mr. GILCHREST. Thank you, Mr. Herald.
We will go next to Mr. Pascarella.
Mr. PASCARELLA. Thank you for allowing me to be here this afternoon to speak to you about an issue I feel very deeply about, economic development. I appreciate the opportunity to speak, and I also want to thank you for your assistance through ARC and EDA funding in the past. It is greatly appreciated and has had a tremendous impact upon my life.
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I am here to tell you that your programs work. Seneca Printing & Label, Inc., which I am the Chief Executive Officer of, is proof positive of their impact. We are a story of a rise from the ashes, of a phoenix, where with some help from Northwest Commission, the local development district, and ARC and EDA, a never-say-die attitude and a lot of hard work, the company was able to rise from the depths of despair to a leadership role in the printing industry.
When the Executive Director of the Northwest Commission asked me to speak here today, I had mixed emotions; the first was one of extreme honor and the second one, of great apprehension. But I knew there was no one person better able to relay the story of one of your greatest successes, and to epitomize why you must maintain your investment in the ARC and EDA programs.
I am here today to put a human face on what is right with these programs, how Northwest Commission, a local development district, ARC and EDA had a dramatic effect on my life and the lives of Seneca Printing's 150-plus employees. You have in front of you the story of Seneca Printing, and its descent and near failure and collapse and its subsequent rise. I think I have also included a package, a black envelope, with some of our literature that would give you some indication of the type of work that we do and also just give you a picture worth 1,000 words.
I also want to paint a broader picture and a more in-depth picture of life in northwest Pennsylvania and Seneca Printing and why these programs are absolutely essential to rural America. I would like to talk to you about a place that is as pretty as a postcard, a beautiful part of our country; one with mountains and hills, with valleys of pines and forests of hardwood mixed in, along the rolling Allegheny River; an area where the small towns, church steeples and schools placed against a backdrop of a beautiful Allegheny forest; a place that shows how time changes all things, a place that tells us of what was once but is no longer, how the modern day—where the modern day industrialization of the United States got started.
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How ironic that is, in stark contrast to today's business climate, in the county where factories are closed and storefronts vacant. It was the valley that changed the world, where the first oil well was drilled, where the dawn of today's industrial age began, where the fuel that powered the machines first became commercially available, where the light of the 19th century came from.
How quickly all things change. Today, where great men and women once worked, there is little to show of the past but ghost towns with names such as Pithole, where land was so expensive that over 100 years ago has sold for $1 million an acre; in contrast to that, where today between 1980 and 1990, real estate values have plummeted by 22 percent, which compares with a net gain for all of Pennsylvania of 12 percent; where during the same time span the county has lost over 5,000 manufacturing jobs in a county in a population of only 64,500 people, a place forgotten because of its rural background.
We ask you to remember us now with your support. Today, much of what was once the oil boom is gone, very little left of a bygone area in American history. Today, we rely on government assistance to sustain this population. The poverty rate has increased 73 percent between 1979 and 1989.
Venango County is not unique in northwestern Pennsylvania or northeastern Ohio. Many towns up and down the Allegheny River, which once was the heart of heavy industry in America now lie empty with fields where once stood giants of industry and jobs, jobs, jobs. Good jobs. Growing up, I could hear the sound of steel being made at United States Steel and Youngstown Sheet and Tube. I could look far down the street and see the railcars moving, and the clang of steel being processed. At night the orange-yellow glow of steel moving in the mills was a vision to behold.
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Today, there is a field of weeds where men once worked building America. All that is but a memory now. Time marches on.
I know we can never go back and maybe we shouldn't. But what we haven't replaced in the despair that many Americans feel about losing their jobs and the lack of opportunities they see.
I believe the ARC and the EDA programs offer some hope to the people of our region. That is why I am here today. I come with mixed emotions about the size of government's involvement in our lives. I commend you for your efforts to reduce the size of government, and I encourage you to work for what is right. But I come in hopes that our example may show you that these programs, ARC and EDA, are investments that have the effect of reducing government spending over the long haul.
As I sat on Sunday morning watching all the various news shows trying to develop ideas for this talk, I noticed that one theme seemed to run through all of the issues. That theme was opportunities. On one program, they talked about crime and how it could be greatly reduced if young people with time on their hands still had opportunities, jobs and futures. They talked of youths between 18 and 24 with no jobs, no opportunities, no futures. The one thing these individuals did have was time and they felt that this helped contribute to our rate of crime, the lack of opportunities.
Another program spoke of welfare, another hot issue of today. Former Cabinet member said that during his travels around the country, he never once met with a welfare mother that wanted to be on welfare. He indicated that—he indicated that they hated it and wanted opportunities to get off of it—basically that the economic opportunities needed to be presented in order to accomplish that.
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In conclusion—I just want a couple of seconds—I want to say that ARC and EDA programs are administered on a local basis by the Northwest Pennsylvania Regional Planning and Development Commission, and that they do an outstanding job of serving the region. As a CPA, I have seen and experienced a lot of various economic development agencies and I can say that these people are by far the best that I have been associated with.
Another feature of the ARC and EDA programs is that their funding is administered on a local basis, which I think is critical to the success of these programs.
The last point is that I think there is an ad campaign whose slogan is ''We are not asking for a handout, but a hand.'' I think that summarizes my feelings and I can do no more than urge you to continue your involvement in rural America. It pays dividends.
Mr. GILCHREST. Thank you, Mr. Pascarella.
We do have a vote that is on. I am going to yield to Mr. Traficant for a second.
Mr. TRAFICANT. I just want to concur with the statements of Chairman Clinger relative to Mr. Pascarella. I understand he is my constituent, that he has gone towards Pennsylvania with ARC and EDA.
Our community was not interested in the Appalachian Regional Commission and part of our county is in it. But I want to extend to you the very best. You have done a fine job here representing our district, and I have some other constituents that are here. I just want to say, my best to you.
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Mr. GILCHREST. Thank you. We do have to run now.
Now, we hope to be back in 10 or 15 minutes, max, but it is possible another vote will be called, so it could be a half-hour or so. I hope if you can stay; we would appreciate everybody staying. I will be back and many of the Members will be back. Thank you.
[Recess.]
The subcommittee will come to order again. I apologize for the length of time that we were gone.
The next person to testify will be Linda Gayheart from Hazard, Kentucky. She testified, I guess, to this committee last year on behalf of the ARC.
And, Ms. Gayheart, we look forward to your testimony.
Ms. GAYHEART. Thank you. It is good to be here.
I believe that with the time limit, this is not—it is not to my advantage to have a southern drawl, so I am going to try to speed that up today, if I can.
Mr. GILCHREST. That is all right. I am used to it. My wife is from the southern shore of Maryland. Nobody talks slower than she does. I am used to it.
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Ms. GAYHEART. I am from southeastern Kentucky, and Judge Herald, his county is one of our eight counties and contrary to what Congressman Wise thinks, we are the heart of Appalachia. He and I had that discussion before.
I think we know that we—his district and ours is in central Appalachia in the heart of the Appalachian region. Unfortunately, as Jimmy Herald told you, we are here today representing a very depressed part of our Nation. And our entire district consists of 123,000 people, just to give you an idea of the size. Our largest town is 5,000. And then the other towns range from 200 to 500 or 800 people, so as you can see, it is very rural. And even though we made a lot of progress, we are certainly hard-core Appalachia and continue to be plagued with many problems.
We are losing our population and, unfortunately, we are losing our brightest and best. Those young people who graduate from high school move away to attend college or to get a job elsewhere, and they don't return to the region; there aren't any jobs for them to return to.
Our poverty rate ranges from 25 to 48 percent. The per capita income average of $9,000, and four of our counties have an average of $6,400 per capita income. We are all classified as distressed, according to the Appalachian Regional Commission, and four of our counties are among the 10 poorest in the Nation, including Estill County.
In addition, we have clusters of severely distressed communities throughout the area, with poverty rates from Africa to 63 percent; 47 percent of our children live in poverty; and 55 percent of our citizens over the age of 25 have not completed high school. Only 23 percent of our population households have public water and only 15 percent have public sewers. So I think beyond a doubt, we are lagging behind the rest of the Nation in those measures of quality of life.
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At the same time, it may not appear so, but we have made great strides and ARC has been a key factor. They have been the ones that have enabled us to leverage other Federal and State dollars and have given us that extra edge that we had to have. And through that help, we have been able to build some basic services. Even though the percentage is small, those households that have water and sewer are as a result of the help of ARC.
Coal is our dominant industry, but according to recent study, we only have about 20 years left of minable coal, and in addition, mainly due to mechanization, the employment in the coal fields is decreasing. The official unemployment rate averages 15 percent, but we have many individuals that we call discouraged workers who are long-term unemployed and they are no longer seeking employment because the jobs just aren't there, so we do consider our true unemployment rate of about 30 percent.
We have fewer than 900 manufacturing jobs in the area. We are trying to focus on diversifying our economy, but it is difficult. It is difficult to recruit industry into the area because there is no advantage for an industry to come to Hazard, Kentucky.
They prefer to go someplace where there is an interstate highway or where there is more infrastructure. We are focusing, though, on telecommunications, the wood industry, development of small business from within, and programs such as the Revolving Loan Fund through ARC is critical in order to give us that extra edge to compete.
We have to offer industry something that other areas cannot offer if we expect to get them in the area. It certainly is critical, too, that we focus on educating our people with such a high rate of illiteracy, and it seems that funds to teach people to read and write and to help them get their GED, those are the funds that are short.
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Several people have mentioned today regionalism and the concept of local development districts, or as Mr. Tonn referred to, economic development districts. And I just cannot emphasize enough, and if I had enough time, I really want to focus on the districts as the key mechanism to make the ARC program or the EDA program work, because we are out there working with these small communities, and we are the only avenue that our communities have to sit down together at the table and to do regional programs.
As you can see, with Judge Herald's budget of 800,000, he can't do services alone, and even with our economy and our small counties and budgets, many things we can't even do on a regional basis without extra help.
So I would just emphasize regional councils, not just in the Appalachian region, but throughout the Nation as the mechanism to implement programs and to make them work.
Let me just close and say that we do a lot of planning in our area, and we recently have been engaged in strategic planning, and citizens throughout the area who have been involved identified the major problems facing the area. The number one problem is the need for jobs. And this is followed by a clean environment, better roads, more educational services, more water and sewer, better and more affordable health care, better schools and better housing.
And as you can see, these are all tremendously big problems that require complex solutions. And we are trying, we are doing our part and are willing to, and as a matter of fact, we visited with Congressman Rogers earlier, and he pointed out that we are not like Washington, D.C. We are not asking for a bailout, but we are asking for a helping hand.
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We have what we think are the important things for a good community, as others have said, a beautiful land and a loving and caring people, and a true sense of community. I leave the keys in my car in front of my house every night, and I am thankful that I can live in a region like that. But I think that any strong society has to have some basic things to be strong, and that is an opportunity for everybody to have a job and good education and training, good housing, safe drinking water. So I would urge your support of ARC and enable us to continue to improve our area.
Thank you.
Mr. GILCHREST. Thank you very much, Ms. Gayheart.
Mr. Sims.
Mr. SIMS. Thank you, Mr. Chairman.
My name is Harold Sims, I reside in White County, Tennessee, a part of the Upper Cumberland region of Tennessee. When I retired as a career officer in the State Department, I returned to my native home in Sparta, Tennessee.
In 1963, I became involved with economic development activities to help my city, county, region, and State. There was a great need to find industry which would provide jobs for the underemployed and the unemployed people of the Upper Cumberlands. In 1964, I was elected Mayor of Sparta, and in that same year, a report was submitted to President Lyndon B. Johnson titled, ''APPALACHIA - A Report by the President's Appalachian Region Commission - 1964.'' This report was requested by then President John F. Kennedy on April 9, 1963. The report was used as the basis of the Appalachian Regional Commission Act.
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This report indicated that developmental activity in Appalachia could not proceed until the regional isolation had been overcome. Its cities and towns, its areas of natural wealth and its areas of recreation and industrial potential must be penetrated by a transportation network which provides access to and from the rest of the Nation and within the region itself.
It recognized the barrier effect of the mountains as a primary factor in Appalachian underdevelopment. The strategy selected was to give highways a double priority of emphasize. The Cumberland Plateau of Tennessee was identified was one of the five areas in Appalachia that needed North and South highways. A general corridor for a North-South highway was drawn on a map and identified as Corridor ''J''.
The actual location, planning, design, and construction was left to the State of Tennessee, with approval of the U.S. Secretary of Commerce. The Corridor ''J'' highway would connect Interstate 75 at London, Kentucky, with Chattanooga, Tennessee. The alignment roughly followed existing State routes in Tennessee, from Celina, to Gainesboro, to Cookeville, to my home city of Sparta, to Spencer, to Dunlap and to Chattanooga, where it would connect again to Interstate 75.
The decision to make States provide a share of the funding and do the work of construction created a partnership, but also created problems. Highways are usually political in nature and the lack of population or voters often caused the Corridor ''J'' construction to be moved down the priority list. Mountainous highway construction is also more expensive. In fact, one of the long awaited stretches of Corridor ''J'' over the Cumberland Plateau at Walden's Ridge was only opened for traffic on December 16, 1994.
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What has been the impact of the Appalachian corridor in my area? In the five Upper Cumberland counties, Tennessee, Clay, Jackson, Putnam, White and Van Buren that Corridor ''J'' passes through, there are some 16,100 manufacturing jobs. Of that number, approximately 7,400 or 46 percent are in plants located either directly on the corridor or served directly by it.
All of these 7,400 jobs have been created since plans for the highway development were announced. These data do not include the numerous commercial developments such as restaurants, auto dealers, general retailer, motels, banks, et cetera, that have come about directly as a result of the highway or indirectly as a result of the economic growth the highway corridor helped to foster. We estimate these other employment impacts to at least equal the 7,400 manufacturing jobs.
Total employment in the area along the corridor increased by 93.4 percent for the period 1970 to 1993. This compares very favorably to the 75.5 percent for a rapidly growing Tennessee as a whole.
Another indicator of the importance of the corridor to consider is population growth. From 1970 to 1994, U.S. Census Bureau data indicate that this five-county nonmetropolitan area grew by 39.5 percent. For the State of the Tennessee and Nation, the corresponding rates were only 31.8 percent and 28.1 percent respectively, in spite of rapidly growing metropolitan areas.
In addition, bank deposit growth and per capita income growth have also exceeded comparable State and national rates since 1970.
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Today we look upon Corridor ''J'' as a foundation highway, highly suitable for developing into two much-needed alternate Interstate highways. One of which would be alternate I-665 on the Western leg of Highway 111, and the other one alternate I-775 on the Eastern side of Highway 111. Highway 111 is the designation given Corridor ''J'' by the State of Tennessee. Alternative I-665 would run from I-65 at Louisville, Kentucky, to Chattanooga.
This would reduce the driving distance from Chicago to Chattanooga, Atlanta and Florida by 100 miles. Alternate I-775 would run from I-75 at Mount Vernon, Kentucky, to Decatur, Alabama through eight Tennessee counties. This would reduce the driving distance from Detroit to the Gulf Coast and New Orleans by 75 miles. The total mileage of these two alternate highways is 310 miles. There is now a total of 148 miles of four-lane highways already in place on these two proposed alternate interstate highways.
I have a map which I will give to the council. And such alternate interstate highways would greatly relieve the highway congestion and pollution problems in Nashville and Knoxville. It is estimated that 498,000 vehicles per day use the interstate routes in Nashville, and about 276,000 vehicles per day use the two interstate routes in Knoxville.
One of the most valuable assets to be gained by two such alternate interstates would be the creation of a direct North-South connection which does not exist today. Also, the economic advantages to Tennessee and the seven States bordering Tennessee would be of incalculable benefit to millions of American citizens.
I have seen the impact of this corridor firsthand. I started in 1966 as the Mayor of Sparta. I am currently Chairman of the Highway 111 Association, a multicounty organization with a mission of completing a highway system that was begun almost 30 years ago. Those of us who serve on this association do so voluntarily, without compensation.
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Today, I serve as a consultant to the Bridgestone/Firestone Company, which bought 15,000 acres of wilderness land in the Cumberland Mountains. The Firestone Company bought this property to develop a world class resort, and Corridor ''J'' played an important role in their decision to locate in Tennessee. I count the completion of Corridor ''J'' is a one of the greatest achievements in the Upper Cumberland area of Tennessee.
Mr. GILCHREST. Thank you very much, Mr. Sims.
Mr. Wise.
Mr. WISE. Thank you, Mr. Chairman.
I want to thank all of you very much.
Ms. Gayheart, it is good to see you again and to share thoughts, and you jog my thinking a little bit. You mentioned the District of Columbia, and certainly it does have some problems. Based upon the budget request for the Appalachian Regional Commission this year, which is, roughly, $183 million, that is about 25 percent of what the District of Columbia's shortfall is this year that the Congress will be asked to address. And I might point out, the Appalachian Regional Commission covers 300 counties and 13 States, and for $183 million, and produces the kind of returns such as Mr. Sims and so many others have testified to.
I think it is also significant to note that the Appalachian region has about 8.4 percent of our Nation's population, and yet receives, even with the ARC, 7.5 percent of all Federal funding. So we are still below proportionately what the rest of the Nation enjoys in terms of direct Federal benefits.
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The Appalachian Regional Commission system of highways, which is not the entire ARC, by any means—but, Mr. Sims, makes a point well—and, Ms. Gayheart, you were talking about Hazard—but it is Corridor ''G'' that comes through West Virginia and then crosses the river into Kentucky into Pikeville. That corridor, along with Corridor ''J'' and others, it has been documented that along the corridors' route, you will see three times the job growth that you will in a nonfour-lane highway corridor in a rural county in Appalachia. And so the ARC highways are proving themselves, too.
I was encouraged when you were talking about what you are doing with timber and what the ARC is doing. In many of our rural areas, as you point out, if you don't have the transportation, it is pretty hard to get major employers to move in, so we have to grow our own jobs in Appalachia and we are doing it. And we have got resilient people, but, for instance, I was in Elkins, West Virginia, just this weekend, holding a town meeting. And in Elkins, thanks to ARC funding, partly, as well as a private contribution, we now have the Wood Technology Institute, which is taking one of our basic natural resources and adding value to it.
Your area is just like my area. We sent our coal out for 100 years. And we sent it out on those trains, and yes, we got some money back per ton, but we usually ended up paying somebody else far more as we bought our coal back in automobiles and steel and other products. But we are sending our timber out the same way. And in West Virginia, we send our timber out and have the privilege of paying much more getting it back, in the form of furniture produced in some other State.
So if we can keep our natural resources at home and add value to it, and then spread that around in terms of increased jobs—so, for instance, with the Wood Technology Institute, they developed an incubator with three areas. And I am happy to tell that we now have two tenants out of the three spots that are available. And in that Wood Technology Institute, they are running training programs in there at night, know every aspect of wood products improvement and value-adding.
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And the result is that we are—and they are creating jobs in Randolph County, and adding value to that very important natural resource. That is because of the Appalachian Regional Commission, and there is quite a story there.
Let me just ask you in the few seconds left on my time, there has been some suggestion about block granting this. That is to send the monies to the States and let the governors decide how it would be.
Of course, the irony with the ARC, it is already that in some regards, because the governors do decide, but do you have any suggestions, thoughts on how block-granting economic development, both the EDA and the ARC, might affect your areas, and whether it is something you think is a worthwhile idea?
Anybody want to jump into that?
Ms. GAYHEART. Well, I just feel that the ARC model right now is just that. It is a model for the partnership. And our local people have input into the ARC program through the development districts in partnership with the States and then the Federal office. And I think that model is a block grant program but, at the same time, it is the partnership, and I would be afraid that we would lose that.
Mr. SIMS. Mr. Congressman, I would just comment, as I mentioned in my report here, highways are somewhat political, and when you make a block grant to the Governor of Tennessee, regardless of whether he is Republican or Democrat, there is a great tendency to put that money somewhere in his neighborhood.
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We have seen this happen over the last 30 years. If there is another element such as you gentlemen here that plays an important part in where the money goes, I think you are going to have a more equitable distribution of the funds.
Mr. WISE. Also, in closing, Mr. Sims, you pointed out the future—the additional highway needs as well. The ARC has completed or has under obligation about 75 percent of its projected 3,000 miles of highway. Yet, many of the remaining miles to be built were put off because they tended to be the most difficult miles, and the most expensive miles, but the ones that are most essential to link up many communities, and that is why it is important that we at least complete the original 3,000-mile system that was envisioned 25 years ago.
Mr. SIMS. Just one other point, if I may mention it.
The Department of Transportation in Washington here, I think, released a report in 1992 which stated that it cost $38 million to build one mile of a four-lane highway in an urban area such as Nashville, Tennessee, or Knoxville, Tennessee. It costs $8.5 million to build one mile of four-lane highway in a rural area, such as we are. And we already have Corridor ''J,'' for example, and we just need two more lanes, so you are going to save a lot of money if you put the highway in the rural area. Also, it is going to reduce the congestion and the pollution in the metropolitan region.
We had a very interesting observation from the Department of Highways in Atlanta, Georgia. The gentleman told me that—I think you are familiar probably, I-825, I think it is, that goes around Atlanta, a bypass which they built, I don't know, like 20 years ago, perhaps. That was supposed to take care of the transit traffic from the populated area of the North to the South, Florida.
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Today, they call that a commuter-lane highway because developers went out and built homes, residential areas, and people moved into it, and those are the people that are using the bypass around Atlanta. This gentleman said, if we had to do it again, from our experience, we would go 50, 75, or 100 miles East or West of the Atlanta, Georgia, and put a bypass in.
I think you have the same problem in other cities, particularly in Houston, Texas. They build one bypass, and it didn't serve, and they built another, and it is a toll road. There are 12 gates on it. It costs 75 cents for each gate, and you can figure that up and figure out what it costs to drive around Houston. People don't use it.
Mr. WISE. Thank you.
Mr. GILCHREST. Thank you, Mr. Wise.
Mr. Sims, a quick question. Highway ''J,'' and your testimony was eloquent in describing the positive things that it has done for the region in an economic sense, and then you said, it needs, this was not a part of my original questioning, you said, it needs two more lanes in it now?
Mr. SIMS. Yes. We are building two more lanes. But the State is doing that.
Mr. GILCHREST. Is it a four-lane highway now and we need to make it a six-lane highway.
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Mr. SIMS. Well, certain sections of road is four-lane, not all of it.
Mr. GILCHREST. I see.
Mr. SIMS. The State is doing some work—they are working now on about seven miles, putting two more lanes in. But the two lanes on Corridor ''J'' are completed, but the State is building additional lanes to help take care of the traffic.
Mr. GILCHREST. I see.
Mr. SIMS. But it is not completed all the way.
Mr. GILCHREST. I am going to ask the unthinkable question, and understanding the nature of your testimony, and leveraging, and the Federal Government's role in the development of infrastructure, and how positive that investment can be with economic development and eventual revenue coming into the Federal Government because of that, let's just take the bleak idea that ARC is zeroed out. What would its impact be? And I would like each of you just to maybe select an example of a project that you had in the past that was heavily dependent on ARC, or your predictions for what might happen in the future? In the next few years, if ARC were zeroed out in the next year?
Mr. SIMS. Shall I go first?
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As we see it, let me speak about population for one moment. In the 30 years that we have been building this Corridor ''J,'' the population of the United States increased by 48 million people, and the Census Bureau predicts or projects that in one—in 5 years, the population will increase by 15 million people.
The State of the Tennessee doesn't have the ability to build four-lane highways. Simply don't have the money. We are only about 5 million people.
If you take away the Federal Government assistance, you are not going to solve the highway problem. The gentleman told me, and he is 92 years old, and he stopped driving to Florida because it was bumper to bumper, and he said he couldn't make any time. So he stopped driving to Florida.
I said to him: Uncle Abe, what is the solution to the highway problem? He said: There are two things that will have to be done; one, the Federal Government and the State government have to go in together and build more highways, or the people are going to have stop having children.
Mr. GILCHREST. Or both.
Mr. SIMS. I don't know whether we have come to that or not, but we are getting close.
Mr. GILCHREST. Thank you.
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Ms. Gayheart.
Ms. GAYHEART. Two points I would like to make. I think that I go back to the concept of regional councils and development districts, and I know that we are the only mechanism to pull our communities together, and without us, and without the staff that we provide to our communities, I honestly believe our district would be set back 20 years, I believe that very strongly.
At the same time, on the flip side, ARC really isn't nearly enough with all the problems that we have, and I know that you all are familiar with the empowerment zone and enterprise communities process. I guess I think that for our area, the most distressed parts of the region, it is going to take that kind of major investment. I mean, we could just tick off those dollars for all the problems facing us.
Mr. WISE. Would the Chairman yield?
Mr. GILCHREST. Yes, certainly.
Mr. WISE. Did you all apply for an enterprise zone?
Ms. GAYHEART. Yes, we did.
Mr. WISE. Were you awarded one?
Ms. GAYHEART. No, we were not. One of the problems—
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Mr. WISE. Could I just interrupt?
The point I wanted to make, you went through a strategic plan, and in preparing your application, didn't you?
Ms. GAYHEART. It was easy for us, that part, because we were already doing strategic planning. But yes, we went through the process, but we went through it knowing the competition, with the idea that we better develop plans that are workable for us and things that we can do for ourselves.
Mr. WISE. But there is a perfect opportunity, now you have a strategic plan, you didn't get the finale, the prize, the golden ring, but with means such as ARC and EDA, you could still fulfill much of that strategic plan which was the purpose of the whole process to begin with.
Ms. GAYHEART. Absolutely, and the process is going on today.
Mr. WISE. I thank the Chair.
Mr. GILCHREST. Yes.
Mr. Pascarella.
Mr. PASCARELLA. I think that without ARC and EDA monies, our area would—it would be catastrophic. With the monies, we have gone backwards, in effect, that there has been a major transition in our area. The specific example I will give you is our company. With their funding, we had 60 people when we started, when we were new, when we were on the verge of bankruptcy, and couldn't pay our bills and couldn't meet payroll and couldn't pay our vendors.
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We somehow managed to identify that and to survive long enough until we got to a point where ARC and EDA monies became available to us to leverage a major capital expenditures in the printing industry which is very capital intensive and labor intensive. The next thing that happened is sometime down the road, after we continued on that successful plan, with the assistance of ARC and EDA monies—and that is why I am here today, to urge you about that, is that we started to grow to the point where we needed a new facility.
In Venango County, being a hilly, mountainous terrain, there are very few facilities that are flat for new development of a new company, for a new facility. And there are also—there is very little infrastructure.
If there was one thing with Venango County, it is probably lack of infrastructure, where to build anything. We had to have waterlines. We had selected a site on a four-lane highway that was 13 miles from Interstate 80. Major intersection. Major highway in America.
There was no water. There was no roads. And there was no sewer acknowledge. Without ARC and EDA involvement through the Northwest Pennsylvania Regional Development Commission, there would be no industrial park, and the industrial park today—what happened, we moved in, and in the partnership with the local people, we bought 100 acres of land, and then gave all the land, the remaining usable land to the local development area. And Latrobe Steel, which is a division of Timken Companies, picked that site out of 40 sites in four States. It could be catastrophic to us if ARC was zeroed out. You might as well turn out the lights.
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Mr. GILCHREST. That is somewhat compelling.
Just one other—it would be a nice and peaceful area. Bring in some ecotourists or something.
One other quick question or comment. Ms. Gayheart, you talked about the problems of your community in jobs, environment, roads, education, housing, health, water and sewer, and just the entire gamut of things. Understanding how ARC has worked over the past 25 years or so, is there some sense of the direction that each of your communities really needs to go into in order to get the best dollar's worth from the investment from Federal, State and local government. Is it an industrial park?
Is it using existing railroad infrastructure for something other than coal? Is it another two-lane highway?
Is it telecommuting? Is it an educational center?
Is it tourism, for the beauty that you described a little while ago, Mr. Pascarella, in your testimony?
In our areas, and I know Mr. Wise goes through this as well, when we go into the poorer communities, they are saying we need jobs. But the Federal Government can't snap its finger and bring Westinghouse—maybe West Virginia might be the exception. But, I know they are not the exception to this—but it is a difficult thing to have a community that is attractive enough to bring in the private sector.
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And we have been working, and people are going to be asking us why can't—why hasn't ARC done its job? Why do we need it any more?
Some Members who want to zero out ARC and EDA say, how much longer do we need it? Do we need it 10 years?
There was one estimate that we needed 65 more years, and that was a realistic estimate, to complete the roadwork that needs to be done. So I know my time is up, but if you want to respond, do you recognize the need for very, very sophisticated planning for these areas which we find it difficult to bring in economic development, or some way to make the quality of the people's lives better.
Ms. GAYHEART. I think in an area like ours, it takes intense, sophisticated planning like you are talking about. And you know we talked about the wood industry, and Congressman Wise talked about the value of that. Trying to see what is going to work, because as I said, and I think what verifies what happened in Tennessee with the interstates, you develop those, and then the jobs come.
But in an area like ours, remote and so rugged terrain, it doesn't happen that easily. And then the idea of developing from within, small business—but with educational level that we have and the problem with that. We have got to raise that. So, you know, lots of times, we just feel like we are in a Catch-22, and what do you train people for if there aren't any jobs? And there are just so many problems that we have to try to tackle at the same time.
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Mr. GILCHREST. Well, we would like to help you with them.
Mr. Sims.
Mr. SIMS. Mr. Chairman, I would just make one comment. When I served as Mayor of the little town of Sparta, we would receive an industrial prospect and we would show him our community, and he would say, well, you have a very nice community. I know about your good workers. You have a 2 percent absenteeism in your existing plants, but one thing; you can't get there from here. So they are making products, but they can't move them out to their destination.
We went through that and Corridor ''J'' has helped to correct that. Greatly. But at the present time, on the basis of the population increase in this country, this highway serves—is a wonderful foundation to expand. And if you look at our map, we are 100 miles from Nashville, 100 miles from Knoxville.
Mr. GILCHREST. Well, I think we got the message. Highways are needed. I think your friend had a pretty good idea. And I hesitate to say it, but more highways and fewer children, and eventually—thank you very much for your testimony, ladies and gentlemen.
Ms. GAYHEART. Thank you.
Mr. SIMS. Thank you.
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Mr. WISE. Four-lanes and two kids.
Mr. GILCHREST. Rafael Correa, Ed Urban and Herbert Lewis.
Mr. WISE. Mr. Chairman, while the panel is being seated, I would just like to take this opportunity, this is the last day for someone who has been an integral part of this subcommittee for the past few years, Lee Godown. And Lee is going on to we know to bigger and better things, but someone who has been vital in working with the Appalachian Regional Commission, the EDA.
He has personally driven many of the roads that had been built and the ones we are trying to build. And so I just want to say on behalf of myself and all those who have worked with Lee, and particularly me, a very personal thank you very, very much for what you have done.
You are not going to get away completely, Lee, as you well know, but there are a lot of people who thank you for all of your efforts on behalf of this subcommittee.
Thank you.
Mr. GILCHREST. Thank you, Mr. Wise.
Rafael Correa is the President of Machining Technologies Incorporated, from Salisbury, Maryland; a beautiful town on the Eastern Shore.
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Welcome, Mr. Correa.
Ed Urban, Executive Vice President, Salisbury Technologies, another fine gentleman from the great town of Salisbury. And Mr. Hart could not make it, President of Carvel Hall, Crisfield. Mr. Lewis has been the CPA for a number of years for Carvel Hall and has seen this particular business is that—it is in an area where my in-laws live, so I know a great deal about Carvel Hall. Mr. Lewis has helped bring Carvel Hall through some rough times.
Gentlemen we look forward to your testimony.
Mr. Correa.
TESTIMONY OF RAFAEL CORREA, PRESIDENT, MACHINING TECHNOLOGIES, INC., SALISBURY, MD; ED URBAN, SENIOR VICE-PRESIDENT, SALISBURY TECHNOLOGIES, LLC (STL), SALISBURY, MD; AND HERBERT LEWIS, CPA, CARVEL HALL, CRISFIELD, MD
Mr. CORREA. Thank you very much.
I want to thank the subcommittee Chairman, Congressman Gilchrest from Maryland, for the opportunity to share today my brief comments and anxious questions about the Economic Development Administration, the U.S. Department of Commerce, and its programs that have benefited my firm through a revolving loan fund administered by the University of Maryland, Eastern Shore, in cooperation with Salsibury-Wicomico Economic Development.
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You have a copy of my statement. And I would like to in the interest of time—I am not sure if I am correct, what the procedure is correct—in the interest of time, I would like to give you just a brief synopsis of what this statement is all about.
Mr. GILCHREST. That would be fine. Your testimony will be put into the record as you have submitted it, so you can go off the record and that would be included as well.
Mr. CORREA. Fantastic. Thank you.
Our company started in Salisbury 6 years ago. And our primary business was focused on the defense industry, as a machine shop, manufacturing parts for the defense industry. Needless to say what happened in 1992, at that time, we had 23 employees and the defense downsizing obviously took a big toll on us. And we needed some change. That year we suffered losses of 200—in excess of $235,000, for a company our size, that was significant.
We needed to certainly refocus, if we were going to stay alive and survive, to change from the defense to the commercial. As a small company, it is very difficult to go to a commercial bank and see if you can get approval to continue to survive, basically, approval on a loan to survive the business. It was virtually impossible.
We knew we had a good story to tell. We had made substantial advances in the commercial field to attract for the commercial industry. And there was—the doors were actually closed at the banks.
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We approached SWED, which is the Salisbury-Wicomico Economic Development, which is a unique operation in our town in Salisbury, as it is a combination of private, and county and city funding under the direction of the Director, the Executive Director, Dave Ryan. He commented about the possibilities of the use of the Defense Adjustment Fund, which is exactly what it was meant to do. We were a company who was definitely being affected by the defense cut and we were trying to change directions. We developed the business plan.
Subsequently, as of a week today, we have now—we are now in a 50,000-square foot facility and we employ close to a 100 people. And basically, that is the basis of this success story, using the Defense Adjustment Funds in the way that they were meant to be used.
Mr. GILCHREST. Thank you very much.
Mr. Lewis.
Mr. LEWIS. I appreciate the opportunity to appear before you, and Jim Hart sends his regrets for not being able to make it.
I am going to talk a little bit about Carvel Hall, and then I would like to talk a bit about how my CPA firm works with businesses in getting them Federal funding.
Basically, Carvel Hall was a business that was out of business, and a client of mine came to me and said he would like very much to start Carvel Hall up again. It was a company that was started back in the 1920s. Had gone through some very hard times. They are a manufacturer of cutlery and knife blades.
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The company went out of business and came back into business in 1990, and since that time has struggled to survive, because it is one of the few cutlery manufacturers, or blade manufacturers in the United States today. Most of this type of work is done offshore.
Carvel Hall came back into existence simply because there was a gentleman who put his money at risk, substantial money at risk, and got money from the State of Maryland to start the project up again. Since that time, Carvel Hall has received other Federal funding, and without that Federal funding, Carvel Hall would not be in business today. It is just that simple.
We in the business community understand the term ''thin collateral'' very well. Thin collateral simply means that you are not bankable from a banking point of view. You just don't have enough assets to support whatever loans you perhaps might get from them, so, therefore, Federal funding becomes a very, very important part of the business community's economic picture.
Crisfield is a rural community which has a wonderful work force very, very dedicated people, who work very, very hard. Crisfield is a community where Carvel Hall is located, which is in Somerset County. It has lost Campbell Soup. It has lost Mrs. Pauls. The unemployment picture there is very bleak.
And again, because of the Federal funding and the State funding, Carvel Hall still is in business. It still continues to struggle, because when it first went into business, it went into business on one premise, and it went into business in 1990.
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I can only remind you that in 1990, the economy began to go downhill and so, therefore, Carvel Hall had to retrench. It had to move in a different direction and today it has moved in a different direction. It is now in a lot of R&D work. It is doing a lot of work in the ergonomics areas. It is still doing many of the things its started out to do, but it has effectively changed its focus to some degree.
There are contacts right now being made with mass merchandisers, which we are hoping are going to come to fruition, which will the effectively make a substantial difference to Carvel Hall. Carvel Hall today employs 45 people. If some of the things that Mr. Hart hopes happens do happen, there is a very strong possibility there will be a 100 people working at about the next 18 months.
So there are a lot of things on the horizon, but again, not to beat a dead horse, the funding that is received through the programs that you all administer are very important. All Federal funding is important to businesses today. And American businesses, incidentally, needs all the help they can get.
As we all know, there are other countries out there who seem to be doing a little better than we are doing it, sometimes, and what we need to do is do it better ourselves, and this is an opportunity for us to do that.
Right now, Carvel Hall is in the process of putting an application in for some additional EDA funding. And that funding will be used for machinery equipment and molds, and what that money is going to do is to provide a new avenue of revenues for Carvel Hall.
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My accounting firm, which is Lewis & Rhodie, we have been very fortunate during our existence. We have a very, very nice milieu of clients, and knowledge that those clients have used Federal funding in order to expand their businesses. And again, one of the main reasons that that becomes a necessity, everybody cannot walk into a bank and simply obtain a loan. And where a bank can't do the job, that is where the Federal Government comes into the picture and makes the difference between whether a company can survive or not survive.
My five minutes is up.
Mr. GILCHREST. Thank you, Mr. Lewis.
Mr. Urban.
Mr. URBAN. Chairman Gilchrest, after hearing about two or three hours of what we have gone through, I feel very fortunate to be living on the Eastern Shore and telling you the story that I have to tell you. Because I wouldn't want to have go through what some of the people that I have heard testify.
I would like to sincerely thank, Congressman Gilchrest, and Members of the committee for this opportunity to speak before you this afternoon. I am here today speaking not only on the behalf of the Economic Development Administration and the Revolving Loan Fund, but more importantly, on behalf of the 80 employees of Salisbury Technologies whose jobs were saved in part by the funds made available through the Revolving Loan Fund, furnished by the University of Maryland, Eastern Shore, in cooperation with Salisbury-Wicomico Economic Development.
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Let me begin by giving you the background of Salisbury Technologies. Fortunately, for the world, the Cold War came to an end. Unfortunately, no defense contractors, their businesses were forced to go through drastic downsizing.
I have spent over 30 years with the Grumman Corporation. Grumman was once a firm of over 34,000 employees, and one of the Nation's leading defense aircraft manufacturers. And today that is under 10,000. That is 24,000 people that have lost their jobs.
In 1985, in the midst of the tremendous growth within the Grumman Corporation, I led a team to open an electronics manufacturing facility in Salisbury Maryland. In less than 6 months, we hired and trained approximately 300 new employees. These employees were predominantly from the poultry processing, garment and seafood, and unemployed. We gave them technical skills and provided a significantly improved work environment.
At our peak in the early 1990ss, we employed over 550 people, over 70 percent of those were female and over 40 were minorities. However, due to the defense downsizing and cutbacks over the last 4 years, our numbers dwindled to approximately 80 employees. At this point, circumstances forced Grumman to reevaluate its facility requirements and the Salisbury site was slated for closing.
Over an 18-month period, with the cooperation and support of organizations such as Salisbury-Wicomico Economic Development, Wicomico County and the State of Maryland, the management team at Grumman fought to keep the plant alive. More than once over that period, we were pronounced dead. We put forth the proposition that the plant could be sold as an operating entity.
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However, finding someone to purchase a 107,000 square foot defense electronics manufacturing plant in the midst of the largest industry consolidation in the history of the United States, was not an easy sale. The only real possibility was to find a buyer who could convert the signature of the facility from purely defense electronics to some other industry.
After cycling through several potential purchasers, the facility was finally examined by Mr. John Corella Jr., of Corella Industries. Mr. Corella controls several companies which are each success stories in their own right. Corella Electric, Inc., a success story in the Small Business Administration's 8(a) program. His next major firm Corella Electric Wire & Cable, Inc., currently AT&T's largest minority supplier and their cooperative agreement serves as a model for large and small businesses working together.
Mr. Corella's achievements in the telecommunications arena were the impetus for asking him to explore the acquisition of the Grumman Salisbury site, the Grumman site in Salisbury.
Mr. URBAN. A small firm cannot survive for very long attempting to produce solely for the defense industry. But with the technology and experience present in the Salisbury facility, the signature could be adapted easily to other industries such as telecommunications, space transportation, medical and information technologies. The financing and the implementation of this plan was and still remains a critical focus of Salisbury Technologies.
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The defense conversion funding available from programs such as those administered by the EDA and the University of Maryland-Eastern Shore were key factors in the Corella decision to create Salisbury Technologies and acquire the Grumman facility. The continuing support of these federally sponsored programs and the support of Wicomico County and the State of Maryland are essential to the continued viability of our firm and others like us. Already, we have employed these funds to allow our firm to successfully make the technological transition from old, corporate mainframe dependence to a state-of-the-art, modern, commercially competitive MRP system.
Our goal is to grow and to create new, skilled jobs for our community. We are now in the process of diversifying our defense electronics client base, as well as intensely pushing into telecommunications, meeting with groups such as AT&T, Bell Atlantic, Ameritech, Alcatel, DSC Communications and others. If the funding programs do not remain in place, our chances for growth will clearly be adversely affected, the opportunities for new jobs in our community will greatly diminish, and the foundation for the support of the efforts of people like Dave Ryan and Matt Creamer from Wicomico County will be greatly shaken.
Again, I thank you for your time and attention here today, and I hope that I have been able to illustrate this real-world example of the benefits of this program. I would like to invite each of you to visit our community to see our facility, meet our employees, and to gain a more complete understanding of the value created through your support.
Thank you.
Mr. GILCHREST. Thank you, Mr. Urban.
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Gentlemen, we have another vote, so—I have a number of questions and I can be there and back in 10 minutes, if it is okay.
So we will dismiss for 10 minutes. Thank you.
[Recess.]
Mr. GILCHREST. Well, we are back. We will begin the hearing again. I guess we can start with questions.
Mr. Wise.
Mr. WISE. Thank you, Mr. Chairman. Mr. Chairman, if I could ask unanimous consent at this point to introduce into the record a letter from the United States Conference of Mayors prepared by Thomas Cochran, J. Thomas Cochran, the Executive Director, presenting some of the points of view of that organization regarding EDA.
Mr. GILCHREST. Without objection, so ordered.
[The information received follows:]
[Insert here.]
Mr. WISE. Thank you. I will just be very brief.
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It is my understanding that all three of you gentlemen are business people; is that correct? And you are not deriving your income—I mean, you don't get a direct salary from the Federal Government or from any unit of government.
So that is the basis under which I ask this question, which is—I think you have testified to this already, but then you see these program investments as being a good return for the taxpayers' money. Is that a safe statement?
Mr. URBAN. Yes.
Mr. LEWIS. Oh, I don't think there is any question.
Mr. URBAN. In our case, it is a loan. I mean, we are paying it back. I think one of the things that is hidden here is, that gave us the ability to go to a bank and say that there was a defense conversion loan that we were eligible for. So that helped them move. It enabled us to bring prospective buyers in, knowing that there was something there financially.
We only applied for $138,000, and we are going to pay that back.
In our marketing, going out after subcontracts, you wouldn't believe how important that is, that that defense conversion money is there if we need it. If I go to AT&T and there is a huge contract and they say, do you have this type of machine, I can say, I can get that machine, I have the available resources to go after it. I think it is a bigger—for me, I think it is a bigger marketing tool than if it was pure dollars coming across the table.
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Mr. WISE. And the loan you have, that is from the solid—I am sorry, that is from the revolving loan fund?
Mr. URBAN. Yes.
Mr. WISE. So that money, when you repay it, goes back out again?
Mr. CORREA. To the community.
Mr. WISE. Thank you very much.
Mr. GILCHREST. Thank you, Mr. Wise.
I asked one of the witnesses earlier if EDA would be—and all of this is in the light of whether or not we can save these programs. I mean, we are looking for the best package to put together to literally take to people who we need to convince that these are good programs; and your testimony here today is an excellent testament to the kinds of things that can be done.
Mr. Urban, I asked one of the witnesses a couple of panels ago if he thought EDA would be better if most of the funds went to defense conversion. He said, no, because there are so many different worthy projects out there.
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It appears, though, in light of the fiscal restraints that we are under, that defense conversion is at least a marketing tool on our behalf to save the program.
Now, you are working your way into the private sector; the defense conversion was the initial reason for the application for the loan, I guess, with the exception of Mr. Lewis. Do you see, since you are out there, would you recommend—would you make a suggestion—that the defense conversion continue to be an important part, at least as far as our lobbying efforts are concerned, in garnering or saving the program, EDA?
Mr. URBAN. If I understand the question right, I think it is very important to us, because I was solely in the defense industry, and the 500 jobs that were lost were lost due to the—you know, like I testified, the end of the Cold War. Again, it becomes another marketing tool.
When I go to AT&T, they see a facility that put the man on the moon, a facility that made the F-14 fighter. They are going to get those skills in their telecommunications industry products through the same plant, through the same employees. So taking defense conversion money and putting it out there, I think is appropriate. Whether it is my company or it is another company in Salisbury, if they are hiring ex-defense-trained people, you know, I think it is applicable.
Mr. GILCHREST. Mr. Correa.
Mr. CORREA. In our case, we look into the commercial world, we contacted a company in England who were the leaders in telecommunications and filters for the cellular telephone systems. They were looking to locate somewhere in the United States and start their market here. Their approach was to manufacture in England and basically distribute here in the United States. We tried to prove to them that manufacturing here in the United States was feasible and that we could do it in an economic way.
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This required immediate action—in other words, they actually submitted bid packages on their products in different parts of the United States. Out of our area we were able to be—the most competitive package was from our company; and they decided to locate in Salisbury, a company is Comtech Philanthropic Communications, and it is a very successful company in Salisbury today, employing, I believe, over 1,850 people and continuing to grow, building a brand-new facility also.
We needed to move and we needed to move quick to support this facility. Like I said earlier, when you have a deficit, a loss of $235,000 in a company with 23 employees, banks are not friendly. You may have a very good story, but they are not friendly. So the defense adjustment fund was our immediate access; it was something that could be done quickly. And also the commercial bank, a local commercial bank participated with this, and they gave us—seeing that defense adjustment funds were there, they immediately came in and doubled our support from defense adjustment, and we are able to have the new facility that we have today and supporting as successful as we are.
Mr. GILCHREST. Thank you. I will let Mr. Lewis give us the last word.
Any other thoughts, Mr. Lewis? I do have another bell ringing, and there are other people waiting, and I have just a quick question. You mentioned that Carvel Hall is going to begin to expand and change. Does that mean it is going to do more things than cutlery?
Mr. LEWIS. No. They are just going to take the technology that they have and they are going to expand it into areas that other people could use. For example, if money were no object, they have the ability to go into surgical blades.
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Mr. GILCHREST. And what you are saying? Is that an EDA loan or—
Mr. LEWIS. Sure. It makes all the difference—once an investor in a business, an owner exhausts his funds in terms of that company, and once a bank has loaned as much money as they can in a situation, you have very little resource of where you can go get money to make things happen within your company. And that is why Federal funding, EDA, is so important.
For Carvel Hall there has been a very large investment by both the owner and by the State of Maryland and the Federal Government, and we are very hopeful that this company is going to be very successful. Keep in mind it is one of the few manufacturers in the United States who does what it does. Everything else is offshore today because the U.S. companies could not compete. Carvel Hall is competing; they are working for some of the best companies in the United States.
For example, they are working on a patented item right now for the poultry industry that is going to solve carpal tunnel syndrome problem. A lot of people who are butchers, for example, have a very hard—very bad problem when they are cutting meat or they are cutting poultry, and ultimately they have a problem with their wrist. So they have designed a knife that effectively extends these people's lifetime—
Mr. GILCHREST. The people at Carvel Hall have designed that knife?
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Mr. LEWIS. The people at Carvel Hall have done that. These are very, very talented people who have reacted to problem-solving; that is why the R&D area has become important.
For example, they are working right now in Baltimore with Union Memorial Hospital in solving a problem for a gentleman up there who makes his living cutting things. But because he had a problem with carpal tunnel syndrome, he effectively couldn't do it. They have designed a knife that permitted him to do that. They are working with the Workman's Compensation Board today in California, and they are developing something for them. What is happening is, because this money is available—I know in the grand scheme of things in Congress, this is not a great deal of money when you talk about $200,000 or $300,000. But when you talk about something down on the Eastern Shore, you are talking about jobs. And every little thing that you do translates to another job, and in Somerset County, if you lose 10 jobs, it is like losing 1,000 jobs in Washington. It is that type of ripple effect.
And so, therefore, when we think about these monies, we think about how important they are, because they can take Carvel Hall to the next juncture. But our experience as an accounting firm—incidentally, I must tell you, we have gotten many, many, SWA loans, we have gotten EDA loans, we have gotten HUD loans. These things are extremely important to small business people. It is the difference between them surviving and not surviving, it is the difference between them going to the next level. And everybody is not bankable, and every businessman is not rich. It just doesn't work that way.
Mr. GILCHREST. It is the real world.
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Mr. LEWIS. It is the real world.
Mr. GILCHREST. Mr. Urban.
Mr. URBAN. One other point. I don't know that this is even an answer, but you hear so much about retraining and all of the retraining programs that there are in the Federal Government. Why don't you take the retraining money and put it in EDA, give it out to industry and let industry train the people? I mean—
Mr. GILCHREST. That is an interesting thought.
Mr. URBAN. The problem is, you have to bring the people in to teach them. You have to provide things for them. How many times do we train people—I don't know that the agency knows what they are training them for.
Mr. GILCHREST. They probably don't.
Mr. WISE. May I jump in?
Mr. GILCHREST. Yes, sir.
Mr. WISE. You make an interesting point. I remember several years ago visiting a job training site at home and this had been after the most recent set of layoffs in the coal industry, and the mine is available for trade adjustment assistance because they had lost their jobs due to imports.
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I asked what they are were being trained for. Two things: auto mechanics and home building, and after around three cycles, I suddenly realized that if my car ever broke down in the Upper Kanawha Valley, I was in excellent shape because every other person was trained to be an auto mechanic. Now, we didn't have jobs for them, but by golly, you could get a house built or your car fixed readily, so you make an excellent point.
Mr. GILCHREST. Yes, sir.
Mr. CORREA. Mr. Urban touched a subject very near to my heart. As we are experiencing that—
Mr. GILCHREST. I do want to—we have six or so seconds, because there is a gentleman waiting out there that needs to catch a plane, but go ahead, Mr. Correa.
Mr. CORREA. I will try to be brief.
I believe right now, as far as we are concerned, what I call—we have an overeducated, undertrained society. I made that statement yesterday in a board of education meeting, and I was corrected by a professor at Salisbury State University, and he told me a society that is undertrained is an undereducated society.
Today, we have college graduates who are bank tellers and yet we can't get properly trained people in the technical skills. The technical schools today are getting the bottom of the barrel. The problem kids are attending those, and we don't get—in the manufacturing field we don't get what we need, and that is why we are facing major problems to compete with the rest of the world.
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Mr. GILCHREST. There is no question that that also needs to be addressed.
Well, gentlemen, I thank you for your extraordinary testimony, and I think it will be very beneficial in saving the program.
Mr. CORREA. Thank you very much.
Mr. LEWIS. Thank you very much.
Mr. URBAN. Thank you.
Mr. GILCHREST. We have another vote, believe it or not, but I would like to call up Frank Altman, at least to begin his testimony, or maybe finish his testimony. Mr. Altman has a plane, unless you want to spend another night in D.C.
Mr. WISE. I don't recommend that, Mr. Altman.
TESTIMONY OF FRANK L. ALTMAN, PRESIDENT, COMMUNITY REINVESTMENT FUND, INC., MINNEAPOLIS, MN; JOSEPH E. JOHNSON, 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 UNVERSITY OF SOUTHERN MISSISSIPPI; AND ROBERT OLSON, EXEXCUTIVE DIRECTOR, VIRGINIA BIOTECHNOLOGY RESEARCH PARK, (AURRP), VIRGINIA COMMONWEALTH UNIVERSITY, RICHMOND, VA
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Mr. ALTMAN. Mr. Chairman, Congressman Wise, I appreciate your changing the schedule for me, and I will try to talk fast now so that you can vote.
I had a scriptural passage I was going to quote also, something about the last being first, but I am not exactly last here, so I do appreciate your indulgence.
My goal this afternoon is to share with you one powerful idea about how EDA and the Appalachian Regional Commission can do more with less. This committee has heard all afternoon one success story after another about how EDA and ARC programs have helped businesses create jobs or retain jobs and address problems of economic distress in communities really throughout the country.
The organization that I work for, a community reinvestment fund, is an organization that works with many of the revolving loan funds that are operated at the municipal level by regional organizations, both governmental and nonprofit organizations; and our mission, as a nonprofit organization ourselves, is to create a secondary market for loans that are held by these revolving loan funds, enabling them to recycle existing dollars that they have tied up in loans like those that you have heard spoken of this afternoon, and get the money back out of those loans faster, so that that money can be reinvested in new business development activities in their communities.
Obviously, the EDA, through its Title IX program, has funded numerous revolving loan funds in regions throughout the country and CRF, my organization, has pioneered a way of helping to unlock those loan funds held by organizations like EDA's revolving loan fund grantees.
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Our mission is to provide a new source of private capital to community-based lenders and governmental agencies that agree to reinvest the loan sale proceeds into small businesses and related community development activities. Quite simply, we purchase these economic development loans, pool them into our portfolios and issue bonds that are collateralized by those portfolios of loans to qualified institutional investors.
In other words, we are building a bridge between revolving loan funds that have received in the past capital from government, both State or Federal agencies, as well as philanthropic organizations, foundations and others, and institutional investors, private markets that are able then to recapitalize those loan funds or augment scarce public or charitable dollars. And we do this through the use of asset securitization or the technique of securitization.
We take the loans that we purchase, pay cash for them to local development organizations that they can then relend, and we obtain our cash ultimately by issuing pools of asset-backed securities to banks, insurance companies, pension funds, and foundations. As a nonprofit, we are playing another important role in this effort, and that is that we are providing a credit enhancement on the securities that we issue.
As many of the previous witnesses have indicated, when EDA or ARC gets involved with economic development, oftentimes they are dealing with an area of structural distress or companies that are facing some difficulty that would be viewed as too risky for a bank or for private institutions to make direct investments in. When a revolving loan fund makes an investment in these companies and those companies have been able to demonstrate a track record of success, they have a loan asset now that may still be too risky for a bank to invest in directly; but if that asset is enhanced with a guarantee, which is what Community Reinvestment provides, and diversified by being pooled together with other similar assets, a bank or an insurance company or a pension fund now has an investment that it can make prudently in line with its own investment goals. So it would make something that was not bankable into a bankable instrument.
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Since 1989, CRF has purchased nearly 600 loans from 30—totaling about $12 million from 35 organizations located in nine States. Our own State is Minnesota; we began operating there. But we are now active, as I indicated, in many States throughout the country, including purchasing one loan from an organization in Washington, D.C.
I am going to skip through my testimony and submit the full testimony for the record.
But I would like just to reiterate a little bit more for the committee's benefit how CRF works. Our approach works because it is based on this concept of partnership that the committee has heard about today from other witnesses.
The partnership really is three distinct groups: community-based development lenders, both public, private and nonprofit; charitable contributors, who make funds available primarily for the credit enhancement function of that Community Reinvestment Fund provides; and the most significant players, private institutional investors, who in essence are the source of capital that drives the secondary market activities. Each of these parties plays a crucial role in the success of the secondary market, and of particular relevance to Congress in its current deliberations, they do so without having to depend on new appropriations.
Now, we support full funding for EDA, and I want to make sure that that is clearly in the record. But we also recognize that Congress is facing a dilemma. How to continue to support the kinds of outcomes that we have heard about today in a period of budget deficits and, frankly, government retrenchment. And by making it possible to build a bridge between these revolving loan funds at the community level in the regions throughout the country and capital markets, here is an opportunity to augment or supplement diminishing public dollars with private dollars in a way that still accomplishes the objectives that the EDA and the ARC are trying to accomplish with their revolving loan fund programs.
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So the key issue from CRF's perspective is to build a link between these programs and capital markets.
Mr. GILCHREST. I am going to have to apologize. I know you waited a long time; and we have this other vote, and I guess you have to catch a plane. But what I think we would like to do is, we will submit questions from the committee which will be given to you and we can communicate that way, I am sure.
Mr. ALTMAN. I would be glad to respond.
Mr. GILCHREST. Yes, sir. Thank you very much.
Mr. Wise.
Mr. WISE. You presented an interesting approach and I have a feeling, just as you point out, we are going to be looking for ways to save money and utilize scarce resources, I have a feeling we are going to be back in touch. Thank you.
Mr. GILCHREST. The committee will be in recess, hopefully for 10 minutes.
[Recess.]
Mr. GILCHREST. Well, the subcommittee will come to order. Thanks for waiting, folks. I appreciate it. The room is getting a little more sparse now. So we have Mr. Joe Johnson, President of Southeastern Mississippi Economic Development Network, Waynesboro, Mississippi. It must be a nice town.
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Mr. JOHNSON. Very nice.
Mr. GILCHREST. Accompanied by Mr. McClure, Ms. Jones; and also with us is Mr. Robert Olson, Director of Virginia Biotechnology Research Park, Richmond, Virginia, representing the Association of University-Related Research Parks. Thank you very much for coming.
I guess we can start with Mr. Johnson.
Mr. JOHNSON. Okay. Thank you, Mr. Chairman. I know it has been a long day for you and everyone else, so I won't read my statement. I will just paraphrase it and get on through it and hit the hot spots.
But today I would like to introduce also Mrs. Annette Jones; as we said earlier, she is Assistant Manager of the EDA University Centers at the University of Southern Mississippi, and then Mr. Thomas McClure, who is President of the National Association of Management and Technical Assistance Centers and Director of the EDA University Centers at Western Carolina University.
We are coming today to ask your help and the committee's help in continuing funding for the University Centers program. To tell you a little bit about why I am here is to tell you what the Center has meant to my organizations and how it has helped our area.
As you said, I am the County Economic Development Director for Wayne County. I am also President of the Southeast Mississippi Economic Development Network. In the geographic area of the network, some eight counties comprised of a population of over 250,000 people, unemployment ranging anywhere from 4.5 in one county to as high as 11.2 in another county. People below the poverty level is some 18 percent in one county and as high as 33 percent in another county. Per capita income in these, average is below 12,000 as compared with the national average of over 20,000.
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Some time back, a few years ago, I had an opportunity to talk to our university president, asking him how could we get the information or the expertise that the university had into our business communities, into our rural settings; and he said it is very hard to do, for educators to relate to businesses. But with the EDA Center, this has been done. This gives us an opportunity to sort of plug in to the university through this Center and pull from it expert areas that we need.
One of those projects was the Polymer Science Project that the Center was instrumental in developing a couple of years ago. As you know, the Polymer Science Center at the University of Southern Mississippi is one of six in the United States, and this primarily has to do with the plastics industry. The State, a couple of years ago, authorized a Polymer Science Institute, but it was not funded. The Center put together a consortium of economic developers, business people and also educators and came up with an idea that we would get the Polymer Science Institute funded. The State legislature did fund the Institute, some 500,000 the first year and 550,000 the second year; and in 1993, they were instrumental in assisting the local developers in the State in securing Sunbeam Corporation to Hattiesburg, Mississippi, which is some $61 million investment for that area, resulting in some 900 new jobs as a result of this Polymer Science Institute. Sunbeam says that is one of the reasons they located in Hattiesburg, was because of the Polymer Science Institute, that it helps the plastics industry in developing new products as well as technical service.
Also, I want to tell you how it has helped our area in our rural county of Wayne County. The Centers helped me considerably in targeting industries that we can recruit for our area in doing studies as far as trade areas. They have also launched a comprehensive study of the city, which resulted in zoning and planning and hopefully some annexation later.
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They also have been instrumental—
Mr. GILCHREST. Could I interrupt just for a second there? When you said it helps with planning and zoning of the city.
Mr. JOHNSON. Yes.
Mr. GILCHREST. In what way does it—
Mr. JOHNSON. The comprehensive study of the inventory assets of the city, then forming a planning commission, so we can do some zoning and then also enter into annexation later maybe.
Mr. GILCHREST. That is interesting. Thank you. I didn't mean to interrupt.
Mr. JOHNSON. That is fine. And Ms. Jones here has been instrumental in helping us do that, and she might—could answer some questions later if you have some in that area. But certainly they have been a big help to us.
Also, about a year ago, they helped form the Southeast Mississippi Tourism Association, which is an 18-county group from the Gulf Coast all the way up to our county, in highlighting some of the rural tourism in our district. But they certainly have been an invaluable asset to us and to our community, and they made a strong impact on jobs within our area.
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As a result of Sunbeam coming to Hattiesburg, we also have a Sunbeam plant in our town. And we are looking now at a $5 million expansion for that plant in our town as a result of the one in Hattiesburg, because when they moved to Hattiesburg, then they moved some of the products that they were already making there back over to our plant, so it has had an effect also.
Also—there are some other companies that have moved into Hattiesburg that will be spinoffs of this plant also. So it has had a lot of impact on southeast Mississippi.
But today, in summation, I would just like to say that we certainly would like for you to look at the continued funding for the EDA Centers at the universities and how it has helped us and how it can continue to help us, and also help the rural areas of Mississippi and other communities.
Mr. GILCHREST. Unfortunately, there is another vote.
I am going to ask a couple of questions to Mr. Johnson, and if you want to, I will come back if you want to continue the testimony, and I can ask further questions then. If it looks like I am going to be on the Floor for another vote after this one, that is going to be another half-hour. Maybe what we will do is submit questions to you. I hate to have you come all the way up here and not have the time to discuss this.
It might—so it is final passage? Maybe what I will do, I will run down there, and I will run back; and I will be back in 10 minutes.
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Mr. JOHNSON. Okay.
Mr. GILCHREST. Final passage, so I think I will be back in 10 minutes.
[Recess.]
Mr. GILCHREST. Well, welcome back to order. I don't think there will be any more votes on, so we can stay here until midnight if you want.
Is that okay?
I appreciate your testimony, Mr. Johnson.
We do have some questions, but if there is anybody else on the panel that wants to give their testimony, we would appreciate it now.
Mr. Olson.
Mr. OLSON. Yes. Thank you, Mr. Chairman.
I represent the Association of University Related Research Parks, which is an organization of technology research parks and their affiliated universities.
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Just a quick definition, a university-related research park is a university-sponsored land development, with public and private sector partners, pursuing technology and science-driven economic development. Companies located in research parks benefit from special access to a university's ''knowledge resources.''
The research park movement in the United States is not new. It began 30 years ago at places like Stanford Research Park, Research Triangle Park, North Carolina; Cummings, in Alabama; University City Science Center in Philadelphia. And today, 24 of the Nation's 25 top research universities are actively developing or planning research parks.
These parks are far more than real estate ventures. They are supportive environments designed to bring together the research resources of universities and fast-growing companies seeking to create new products. As such, they are becoming key components of local/regional economic development strategies to retool and rebuild local economies.
There are 130 university-related research parks in the U.S. today in varying stages of development. Many have just started, but even so, these U.S. parks are already home to 4,600 small, medium and large technology-based ventures and some 250,000 employees.
A little bit about the involvement of EDA with research parks. Of all of the Federal agencies, EDA has special reason to understand the importance of these projects to economic development. EDA has been—this is because EDA has been the significant source of Federal seed investment that has launched many of them.
In the past few years, EDA grants have matched local funds for front-end infrastructure, leveraging larger investments by universities, cities and private companies, and EDA has provided funding to create revolving loan seed capital programs to assist start-up technology enterprises. And it also has supported the creation of technology incubators; some in distressed urban and rural areas, and also applied research centers where university and industry scientists are jointly developing university-generated discoveries.
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To document the importance of EDA's involvement in research parks for this hearing, AURRP conducted a 2-day fax survey of our member research parks, and received 45 fax responses in 2 days. We received more since the written testimony was submitted last week, so these figures are all updated and actually much more impressive than what was submitted late last week to the subcommittee.
Of the 45 parks responding, 15 of these parks have been recipients of a total of $16.8 million in EDA funding, and four more parks have EDA applications pending. The EDA funding has leveraged $227.2 million in additional investment in these projects. These EDA-assisted research parks are now home to 272 companies and 27,828 employees.
One dramatic example that we can cite of these parks that have received EDA money, is the Massachusetts Biotechnology Research Park in Worcester, which I believe is in Congressman Blute's district, where a $1 million EDA Title I infrastructure grant helped Worcester redevelop a vacant State mental hospital site into what has now become the largest biotechnology R&D park in the United States. Since that park opened in 1987, the project has developed nearly 1 million square feet of space, attracted $200 million in private investment and has generated 1,600 jobs.
As important as these EDA programs have been in developing fast-growing businesses and research parks, AURRP also sees an effective initiative in EDA's ''Competitive Communities'' strategy. Under this new concept, the university-related research parks with their technology incubators are the ideal vehicles through which EDA might work, because they will increasingly be the home to concentrations of the kind of entrepreneurial ventures that will represent the future of the American economy, an economy in which intellectual resources will be the key factor.
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So what we are urging this subcommittee to consider is that today's economic challenges require a Federal agency playing a leadership role to spur community and regional economic development, and that in addition to continuing the highly effective public works mission of EDA, the proposed competitive community component is now needed to give even more focus to nurturing the fast-growing companies and university-business ventures that will provide the next generation of jobs, tax base and economic well-being, community economic well-being in the United States.
EDA's business funding programs, that may include support for technology incubator, revolving loan programs grants, and other business financing mechanisms, should make use of community-based intermediary organizations, such as universities and their related research parks.
In summary, America's university-related research parks are offering themselves as partners with the Federal Government in inventing the 21st Century economy from the scientific and entrepreneurial resources in hundreds of communities across the country. A renewed and redefined EDA is the ideal agency through which this partnership can proceed.
Thank you.
Mr. GILCHREST. Thank you.
I have some specific EDA questions, but before I ask those, I am curious—and I guess both Mr. Johnson and Mr. Olson would be able to answer that—but the example you used of the Biotechnology Center in Massachusetts that was an old hospital, and with a million-dollar EDA—and that was a loan, I guess.
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Mr. OLSON. It was a grant. It was a Title I, Public Works Grant.
Mr. GILCHREST. But now it is a thriving industry.
Mr. OLSON. Right.
Mr. GILCHREST. Now, my question is biotechnology, so what does it do, and who does it sell its stuff to? Pharmaceutical companies? What does it do exactly?
Mr. OLSON. The products of biotechnology, many of them are medicine. Some are environmental. Some are food. The companies—one of the largest—the two largest companies now in the Massachusetts Biotechnology Research Park, the largest one is BASF Pharmaceutical, a multibillion-dollar German pharmaceutical company that decided to move its entire biological R&D operations to the U.S. from Germany.
Mr. GILCHREST. And this is the one you are talking about in Massachusetts in the old hospital?
Mr. OLSON. Right.
Mr. GILCHREST. If given the size of the firm, the German firm, multibillion-dollar firm, how important then was a million-dollar EDA grant to facilitating or encouraging them to come over to set the business up?
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Mr. OLSON. I am glad I know that project well, because I wouldn't be able to answer it as well as I can, I think.
BASF chose to come into the research park after it already had been seeded. After it already started out, it would never have chosen to come into that park. The park in the early 1980s when the community launched it, it was essentially a vacant piece of land.
Mr. GILCHREST. Now, what you are telling us right now, is that in your testimony anywhere? Is that the information you have given us?
Mr. OLSON. No. Not the details that you asked me about.
Mr. GILCHREST. I think those details are important to show what an investment of a million dollars can do as far as the success of this biotech firm is concerned and how it attracted a billion-dollar industry from Germany. That stuff is—that is more marketable almost than defense conversion. But could you send us some of that information?
Mr. OLSON. Absolutely. Absolutely. We will get it to you. Absolutely.
Mr. GILCHREST. I didn't mean to interrupt. But I think that is pretty important stuff.
I guess this would go to Mr. Johnson, and actually anybody that wants to answer this, but also Mr. Olson.
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Last year, the House passed an authorization bill that included provisions for evaluating the effectiveness of the current University Center Grant program. And I was just curious, do you, or would you support such an evaluation process?
Mr. MCCLURE. Could I respond?
We have worked very closely with EDA to develop what we call a peer review component of the University Economic Development Center program, and it is my understanding that that is in the policy statement at EDA this year and we do expect it to be implemented this year. Probably within the next 3 or 4 months we should be in a position to begin to carry that out in an actual review process with EDA.
Mr. GILCHREST. What would you say would be the value of that evaluation process? And not to see what your specific center does necessarily, but is there an overall benefit to an evaluation process, a peer review?
Mr. MCCLURE. The overall benefit is to strengthen the program so that the most value is there for the dollar that is being invested by the Federal Government, but it is to make sure that all of the centers are performing at as high a level as possible.
This is a program, since EDA has basically been, I guess, on the chopping block for a number of years, this is one of those programs within the agency that simply hasn't had the oversight that it should have had, and we have worked with the agency now for—actually we started that process in 1990, to develop a peer review component of their evaluation of the center program. So we see it as a real vehicle to strengthen the program.
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Mr. GILCHREST. Do you see any benefit to grants, as opposed to loans, or should there be a mixture of them, as far funding from EDA is concerned going through the center?
Mr. Olson described a grant to this hospital facility. A number of people that were on the previous panel talked about loans that were given them through the University Center at the University of Maryland, Eastern Shore, to stimulate some of their businesses. Have you used both grants and loans in your center?
Mr. MCCLURE. We do not use loans. We do work with other agencies that have the loans and that is because being a university we simply are not in that business. We do work with a couple of planning districts, for example, that do have revolving loan funds that are funded by EDA.
I like the loans because the incentive is there to, of course, repay and revolve those funds so they are used by their agencies, but sometimes a grant is what it takes to make a project come together. And in some cases, that can be a deferred low-interest, deferred repayment, low-interest loan that will help a company get established before it has to start servicing the debt.
Mr. GILCHREST. Now, you receive funds from EDA at the University Center, which then is distributed to worthy projects. What other sources of income do you have? What other sources of grants or funds?
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Mr. MCCLURE. Well, okay, the University Center program as a whole, of course, which I am sure you are aware, receives $7.5 million from EDA nationwide. It is probably the smallest program within EDA. And those funds are used to, number one, we leverage another 15 million, I believe, in program dollars, which there is a little chart on this testimony that I have submitted for the record.
At our center, for example, the other program funds come from the State of North Carolina. And we have no other income than that, because we being a State agency, we are not allowed to charge for our services.
Mr. GILCHREST. So the total funds you receive, then, would be in the neighborhood of 15—total fund State and Federal.
Mr. MCCLURE. Total funds, State and Federal in the program is about $22 million.
Mr. GILCHREST. Twenty-two million dollars.
Mr. MCCLURE. Nationwide, that is spread among 65 universities.
Mr. GILCHREST. Are you here with Mr. Johnson?
Mr. MCCLURE. Both of these. I am sort of the spokesperson for the program at the national level.
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Mr. GILCHREST. Oh, I see.
Mr. MCCLURE. The National Association of EDA Centers.
Mr. GILCHREST. If EDA—we are looking at $7 million in EDA grants to $15 million. What does the $15 million come from?
Mr. MCCLURE. It comes from State governments and local organizations. Some of it comes from private sector.
Mr. GILCHREST. And this is total, nationwide?
Mr. MCCLURE. Yes.
Mr. GILCHREST. So Mississippi gives its universities a certain amount, Maryland gives its universities a certain amount?
Mr. MCCLURE. That is correct. Our budget, just for example, we get $102,000 from EDA and the State of the North Carolina puts in about $100,000.
Mr. GILCHREST. And which university do you represent?
Mr. MCCLURE. Western Carolina University.
Mr. GILCHREST. Western Carolina University. And the State puts in 200,000-some and EDA—
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Mr. MCCLURE. The State puts in something over 100; EDA puts in 102.
Mr. GILCHREST. So you have an operating budget of a little over 200,000 Federal and State? You would not have under what you just described to me, you wouldn't have had the potential to do what Mr. Olson did to this potential biotechnology center?
Mr. MCCLURE. We probably could have had a role in that, for example, by bringing the parties to the table and leveraging the resources to make this happen. But, for example, at our center, we service about a third of the State of North Carolina with some projects, and, in fact, the whole State, with some projects with economic data that we provide and analysis for that, that we are in the processing of putting on the information highway at this point. No one else in North Carolina does that.
Another example at our center is the Norfolk Southern Railway had a line there of about 69 miles at the extreme western end of the State they were in the process of abandoning about 5 or 6 years ago. We have been able to bring groups together and put together a package that convinced the State to buy that railroad and turn it into a tourist railroad, so then it was leased by a private corporation. As a result of that, freight services continued in that 69-mile corridor in the extreme western end of North Carolina that does not have a good highway system.
Mr. GILCHREST. Now, is that in your testimony, what you are just describing to me?
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Mr. MCCLURE. No, sir, it isn't.
Mr. GILCHREST. Can we get a description of that?
Mr. MCCLURE. Yes.
Mr. GILCHREST. I think that is an excellent example of this. Now, what part—how can you, and I want to—I know everybody is tired, and I they want to go home, but what part of that railroad operation did EDA play?
Mr. MCCLURE. Well, they funded our center, for example, that provided the expertise to bring in university resources to bear on that along with some other, a planning district, for example, that is funded by EDA, bringing these parties to the table, and we were able to drive that whole process that put the package together for the State to make the decision.
Mr. GILCHREST. And that railroad right now is owned by—
Mr. MCCLURE. It is owned by the State of North Carolina and it is leased to a private corporation.
Mr. GILCHREST. And they—
Mr. MCCLURE. They haul freight about three nights a week and they haul tourists any other time. They haul about a quarter of a million people a year. Folks that are coming to western North Carolina, to the Smoky Mountains, for example.
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Mr. GILCHREST. What kind of freight do they haul?
Mr. MCCLURE. Well, there are several industries on that line. Quarries, for example. Lumber.
There is also—well, there is manufacturing industries there that bring lumber in.
Mr. GILCHREST. How long is the line?
Mr. MCCLURE. Sixty-nine miles.
Mr. GILCHREST. And it is not conducive—well, it wasn't conducive or—building a highway would have been, I would assume, somewhat out of the question back there, to do what the freight train does for the timber and everything
else.
Mr. MCCLURE. Well, that is correct and that is an area that has a lot of natural attractions, scenic rivers and there has been a lot of environmental issues involved with that. So the railroad is there and the highway is—it goes partially into that area, but it stops and that is probably an ARC-funded highway, I would imagine. But, yes, it would have been years before a highway would be built through there that would serve the same purpose that the railroad serves. And, of course, if Norfolk Southern retained the railroad, it would have to be operated as a Class I railroad, which makes it much less cost effective, whereas as a short line can operate it at a much less labor cost, so it made it more effective.
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Mr. GILCHREST. I think that is a great example for us to be able to use.
Mr. MCCLURE. Could I adjust one thing?
Mr. GILCHREST. Yes.
Mr. MCCLURE. As a result of that, there are continuing developments that are spin-offs from that railroad; tourist-related industries. Rafting is a big business in that area. So this railroad hauls people actually down to the river to one of the rafting companies and then picks them up after they finish their rafting. There have been all kinds of spin-offs, there is a continuing revolving or evolution of little companies and business as a result of that.
Mr. GILCHREST. Does the railroad operate all year or a couple days of week?
Mr. MCCLURE. It runs from the weekends, from about Thanksgiving until probably April. The rest of the time, it runs every day. A very successful operation.
Mr. GILCHREST. That is great.
Mr. Olson, just one other question about the Competitive Communities Initiative. There is a proposal in EDA to use more of the money in that direction, as opposed to the few experimental programs that they have had, some in California. Would you support spending more of EDA funds in the Competitive Community Initiative approach, or because there are going to have to be funds cut from other programs in order to do that? I would just like your opinion on that approach.
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Mr. OLSON. Let me say I don't believe the AURRP organization has taken a position on that. The Competitive Communities proposal is still very conceptual. I think there is a five-page descriptive that I have, and have read about it. I think it is hard to answer that question.
The public works money is very powerful for the research park, for launching research parks, and so my personal inclination right now is that the Public Works Grants are more important to get these projects under way. However, under the Competitive Communities, we see the possibility of research parks becoming agents for technology transfer and being a central player in that in the communities.
Mr. GILCHREST. I guess that would be useful for Massachusetts. I am not sure if it would be useful for Hazard, Kentucky, so that is something that we will have to talk about.
One final thing. We have heard the positive approaches to defense conversion, to biotechnology, to recreation, and EDA, sort of this umbrella funding organization that is the seed dollars for that.
Defenses conversion seems to—at least the fellows that testified here today, seem to prefer the loans that can be circulated in the community. The Technology Center, Mr. Olson, if it was a loan as opposed to a grant, would your Technology Center, Biotechnology Center have gotten off the ground?
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Mr. OLSON. Our specific research park has not received EDA funds. The examples that we have seen, it really depends on the terms of those loans. These parks become viable, they start throwing off cash at some point, depending on their pace of development. Most of them, like ours, have an ultimate goal of achieving economic self-sufficiency from their real estate assets at some point out in time.
Our project expects to achieve that within a five-year period. It is possible that funds that had been loaned to us or to a park to go into infrastructure might begin to be repaid at that point; that is possible.
Mr. GILCHREST. Mr. McClure, if the program is set up such that there is—it is only going to survive with a revolving loan element in it, what would that do to your program?
Mr. MCCLURE. Well, if it is set up in such a way that it only survives with a Revolving Loan program, then it probably—and if our funding were not included in that, then, obviously, a lot of our centers would probably be out of business, because a lot of our centers are unable to leverage the other dollars absent the Federal money. In other words, the little bit of Federal money that comes in is the catalyst that allows us to leverage the State money.
Mr. GILCHREST. I see.
Ms. Jones.
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Ms. JONES. I don't make a distinction between the different university centers. As you know, there is a national program. It is unique in the sense that EDA has allowed us to identify the local needs in our areas and use those as our—as our project base, so the university centers, all of us are actually very unique. When we get together, we all do different things.
Some centers are able to utilize loan programs because they work with businesses, they might work with manufacturers. They draw on their engineering programs and things like that. Others do not. And in my particular area in south Mississippi, we already had a community development corporation, our planning and development districts are very strong and provide revolving loans.
The small business development centers are very strong in our areas, so we found that the niche that was missing is a hands-on capacity, developing programs for our local communities, and especially in our rural communities that couldn't necessarily afford to pay for services, maybe, from larger consultants.
Mr. Johnson referred to the comprehensive plan that we were developing. Well, Wayne County had no resources to pay for a consultant that could come in and do that sort of thing, and so they turned to the University Center and to the University of Southern Mississippi to ask for help.
Mr. GILCHREST. So you are talking about the comprehensive plan, you are talking about the zoning, and the community planning and zoning person, if they had one, and the planning commission, or however it is set up, came to the university to use your expertise to see how they wanted to manage growth and where they wanted the manufacturing base to be, residential, or whatever, and you were able to provide that expertise with the faculty on staff?
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Ms. JONES. And again, that is what makes this program unique. Our particular program is based on faculty, from our master's program in economic development, and also our bachelor's and graduate program in community and regional planning. And again, that makes us unique, because we can't draw off an engineering program.
So we do do a lot of community development programs. And, in fact, a story, if I may share—our faculty this year, this seminar is offering a grantsmanship class, and as part of the projects for the students, we are supporting an 18-county Rural Development Tourism Association, and the program—the association is just getting started, and the counties are just getting involved, so they need a lot of help. And they want to do a lot of things.
They are tough, but they don't have money, so the faculty that are involved with our center decided to use their grantsmanship and their students to help come up with ideas and look for grant sources for Federal, State, foundation, to support some of the efforts of this local association. And it has been so interesting and so unique, and the students have gotten so excited about their projects, and are excited about the grant projects they are working on.
It will be a tremendous benefit to the students that have gotten that experience, if they get funded, extremely useful to the association that has—I think our budget is $3,000. We want to do so much with so little.
So it is extremely beneficial to that group, and then it is beneficial to us because it comes through us and we are able to work with our communities. So that is just a little bit of how our center interacts with our communities. And so in the sense that you are talking about loans, our organization is not set up to handle a loan program and wouldn't be beneficial to our clients because there would be a duplication of effort.
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Mr. GILCHREST. Well, it sounds fascinating and multidimensional. But I appreciate your patience this afternoon, and actually this evening, Mr. Johnson, Ms. Jones, Mr. McClure and Mr. Olson.
And I have no further questions. If there is anything else that you wanted to say or comment on?
Mr. MCCLURE. I would like to make just one brief statement, and that is that, as Ms. Jones said, the uniqueness of the University Economic Development Center program. This is the only program that the Federal Government invests in to do what it does; that is to leverage university resources into economic development.
Mr. GILCHREST. Well, we will take that message back.
Thank you all very much.
[Whereupon, at 6:58 p.m., the subcommittee was adjourned.]
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