Source: Investment Bankers Association of America.

Source: Investment Bankers Association of America.

Mr. KLUCZYNSKI. Thank you for your splendid statement, Mr. Hobday. As you know, Subcommittee No. 4 of the Small Business Committee, which is the Subcommittee on Small Business Problems in Urban Areas, held a number of hearings in the large cities in the 89th Congress. Chairman Evins, the chairman of the full Committee on Small Business, in this, the 90th session, asked me and our subcommittee to visit the small cities and the small towns.

For the kickoff of these hearings, we were very fortunate to have Secretary Freeman, Secretary of Agriculture, and Secretary Weaver of the Department of Housing and Urban Development, as witnesses, and they explained the situation of the small cities and the small towns to this committee. So I am looking forward to visiting some of our smaller communities soon. I think we go to Kansas first, and from there we go to the great State of Utah. I shall be very happy to find out how they do business in the small towns and small cities.

Mr. HOBDAY. We would like to have you come to Tennessee.

Mr. KLUCZYNSKI. I come from a great big city, and I want to see how the farmer lives and how he is getting along in business. Next fall we will be in the great State of Tennessee.

Mr. HOBDAY. Good.

Mr. KLUCZYNSKI. I am looking forward to that.

Mr. Hobday, both the Department of Housing and Urban Development and the Department of Agriculture are offering assistance to smaller towns in their efforts to better themselves. Do you feel that these two agencies offer services which complement each other?

Mr. HOBDAY. Well, I am not sure that I am sufficiently familiar with the plans of the Department of Agriculture to comment on the complementary nature of their plans. Now I think taking the traditional services of the Department of Agriculture as they have been provided in the past, which I know a little about, their county extension agents and their assistance to farmers and all that, and of course we see urbanizing trends outside cities and towns across the countryside, which create some aspects of urban problems.

Their service in these areas I think would be complementary. If there should be any plans to serve or provide assistance to the officials, the city governments of small cities and towns, I think there would be direct conflict, and I feel that the HUD programs, city oriented, the personnel in HUD, the competencies, the specialists involved, and all are much more qualified to aid the small city and town governments than what you would find in the Department of Agriculture.

Mr. KLUCZYNSKI. I am very happy to know that all the agencies of the Federal Government are willing to cooperate with this committee. As you know, this committee was created to help the men who need help, the small businessmen. I am looking forward to visiting the small cities and small towns all over the United States and doing everything possible to help that man who needs help.

Mr. Burton, any questions or comments?

Mr. BURTON. Thank you, Mr. Chairman.

Mr. Hobday, Chairman Kluczynski and the subcommittee are trying to do two things in these hearings. First of all, we are trying to identify the problems of small businessmen in the small communities, the rural areas.

The second thing we are trying to do is find solutions to them. I think your statement has contributed more to the former than it has to the latter, and I say that in a complimentary manner, because you have pointed out for the committee some significant problems.

I would like to refer to page 3 of your statement, Mr. Hobday, in which you quote from a study made by the National League of Cities, the last sentence of which says:

Finally, the influential bond rating services, that evaluate municipal fiscal responsibility, usually will not rate bonds of political subdivisions unless such units have at least a specified minimum amount of debt outstanding.

This tends to indicate to me that a municipality that is in debt is better off than one that is not in debt. Is that correct?

Mr. HOBDAY. Well, it is the size of the municipality that enters into it. A small municipality is simply not going to have a debt large enough to be over the minimum that the rating services feel like is worth their efforts of evaluating.

The continuation of that is an example which we didn't quote, and it is in the full report.

For example, Moody's has followed the policy of not rating debt of governmental subdivisions unless debt outstanding totals $600,000 or more.

I think it is a matter of size. The total debt of a very small city and town just isn't going to be large enough to put it above this minimum. Standard & Poor's has a minimum figure of $1 million.

Mr. BURTON. Certainly the smaller towns are not going to have that kind of debt.

Mr. HOBDAY. No, sir.

Mr. BURTON. I think possibly the other side of the coin would be that the town would be like the person who has never borrowed money. Your credit might be good, but you don't have any record to prove it. Isn't that so?

Mr. HOBDAY. That is right.

Mr. BURTON. Unless you have incurred the debt and paid it off and done it on time, you don't establish any kind of a rating.

One other point, Mr. Chairman, if you will permit me to proceed a little bit further. On page 4 at the bottom, the last paragraph, you point out that many of these small cities lack trained personnel to operate their services and operate their administrative structure. The answer to that, simply, is higher salaries. They go where the pasture is a little greener. Isn't that correct?

Mr. HOBDAY. That is a large part of the answer.

Mr. BURTON. They leave in order to improve their situation.

Mr. HOBDAY. Yes.

Mr. BURTON. You need to have a better pay structure on the small city level.

Mr. HOBDAY. Yes.

Mr. BURTON. On page 5, Mr. Hobday, you refer to "A viable community for the purposes of attacking (these) problems***" and you say that a viable community may consist of two or more of these smaller cities that would band together to attempt to solve their problems. Now this refers to consolidation. It has been my experience, Mr. Hobday, that you have a matter of parochial pride involved here, just