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EFFECT OF FEDERAL PROGRAMS ON RURAL AMERICA

THURSDAY, JUNE 8, 1967

HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE ON RURAL DEVELOPMENT OF THE

COMMITTEE ON AGRICULTURE

Washington, D.C. The subcommitte met, pursuant to recess, at 10:08 a.m., in room 1302, Longworth House Office Building, Hon. Joseph Y. Resnick (chairman of the subcommittee) presiding.

Present: Representatives Resnick, Nichols, Montgomery, Goodling, Zwach, Mathias, Dole, and Kleppe.

Also present : Christine S. Gallagher, clerk; and Martha Hannah, subcommittee clerk.

Mr. RESNICK. At this time we will hear from Mr. Logan B. Hendricks, Associate Administrator, Small Business Administration.

STATEMENT OF LOGAN B. HENDRICKS, ASSOCIATE ADMINISTRA

TOR, SMALL BUSINESS ADMINISTRATION; ACCOMPANIED BY ANTHONY S. STASIO, DIRECTOR, OFFICE OF ECONOMIC DEVELOPMENT; AND RICHARD M. PHILBIN, CHIEF, ECONOMIC OPPORTUNITY LOAN DIVISION

Mr. HENDRICKS. Good morning, Mr. Chairman. First of all, may I extend the regrets of Mr. Bernard L. Boutin, our Administrator, who because of another conflict found it impossible to be here and has asked me to carry on for him.

Second, I would like to introduce the gentlemen at the table with me. On my left is Mr. Richard Philbin, who heads our economic opportunity loan program, and on my right, Mr. Anthony Stasio, who heads our local development program, better known internally as the 502 program.

Mr. Chairman and members of the committee, I am privileged to have an opportunity of appearing before you today to discuss what progress is being made in the very vital area of helping our rural communities.

The problems existing in our rural areas are gnawing at the very heartblood of this country.

President Johnson placed the scope of these problems in precise perspective when he said, "Not just sentiment demands that we do more to help our farm and rural communities * * * the welfare of this Nation demands it."

The hearings you are now conducting attest to this committee's concern for the grave consequences these problems hold for the Nation if they are not solved.

As the distinguished Secretary of Agriculture, Mr. Orville Freeman said, “The dimensions of the crisis are well known *** they consist of too little of everything-jobs, income, education, and services. * * *"

The problems are critical, they are current and they command our immediate attention.

I can assure you, Mr. Chairman, that no one is more concerned or is making a greater effort to meet these problems than the Administrator of the Small Business Administration, Mr. Bernard L. Boutin.

He is keenly aware that for many small towns and cities in rural America, small business holds the key to rebuilding the community, to revitalizing the economy, and to creating the new jobs that will stem the outflow of young townspeople to larger cities with better employment opportunities.

He is vitally concerned that the full strength of SBA's programs and services be brought into play and made an integral part of the administration's extensive and continuing efforts to help solve the vexing problems that face our rural communities today.

He not only is concerned; he is doing something about it.

We think the SBA has much to offer. If I may, Mr. Chairman, I would like to enumerate for the committee what SBA is doing to help rural areas and, to the extent possible, look at the effect these actions are having in rural communities, keeping in mind that many of our efforts are the result of recent innovations inaugurated by Mr. Boutin.

As the committee knows, we have a network of 73 offices throughout the country to assist small business. Although SBA has at least one office in each State, this hardly begins to reach all of the small firms that need and want our help.

For many small firms, particularly those in remote rural communities, it is expensive and time consuming to travel to our offices. Even worse is the fact that because of their location, many of these firms do not know that help is available from the agency. Some are forced to go under--further adding to the woes of their small communities.

We have met this problem by organizing teams of agency specialists that now travel throughout a given geographical area trying to bring potential borrowers together with existing lending institutions. These team members are also capable of bringing every one of the agency's services to small firms in these areas.

In addition we are supplementing this team approach by an extensive outreach program which I will relate to each of the programs we are using to help rural areas.

Essentially, three of SBA's programs are having great impact in alleviating rural area problems.

One is our economic opportunity loan program which we execute under title IV of the Economic Opportunity Act of 1964 and with a very important amendment to that act later in 1966.

Until Congress very wisely amended the act in 1966, SBA conducted the program under delegated authority from the Office of Economic Opportunity. During that time the agency only considered loans referred from locally organized small business development

centers. These centers were established in only 44 of the Nation's cities, largely metropolitan areas.

To illustrate the inequality of this system, I might take the chairman's own State of New York. Loans were available in New York City but not in the suburbs or in the upstate areas. Rural communities definitely suffered a disadvantage under the system.

Then in October 1966, Congress amended the law and placed this program under the sole jurisdiction of the Small Business Administration,

Mr. Boutin immediately made this program uniformly available throughout the Nation. Since we have reshaped the program, EOL loans have been approved in each of the 50 States.

Anuther means we are using of reaching outlying, rural areas is a call program whereby SBA staff people aotually call on applicants that have been referred to us by chambers of commerce and banks and others in small local communities that feel we can help.

In addition, we developed a joint outreach program in cooperation with the Farmers Home Administration in February of this year which involves their vast field resources in this effort to better serve rural communities.

Mr. Chairman, the effect of our EOL program has been most evident in McCurtain County, Okla. SBA has made over 70 EOL loans totaling more than $700,000 in this rural county. Nearly 200 new jobs have been created; more are anticipated; and businesses that a year ago could not qualify for bank financing are now able to get their short-term credit from banks.

The effect of our EOL program is not, of course, this dramatic in all of the rural areas where we are reaching out to help; but it is indicative of the impact the program can have when given the emphasis it now is receiving.

The second of the three agency programs I would like to tell you about is our regular business loan program. Since SBA began making loans in 1953, Mr. Chairman, 49.54 percent of the loans have gone to rural areas. Now, with our team approach, we believe we are going to be even more effective in reaching remote, rural communities and we anticipate that we can continue and even improve this record.

The third and last but certainly not the least of our programs that is having a distinct impact on assisting rural areas is our local development company, or 502 program.

As you are well aware, this program is an outstanding example of creative federalism; of bringing together the talents, resources, and efforts of the public and private sector for the benefit of the community. Corporations organized specifically to help small firms and SBA join hands to help construct new plants, purchase land and machinery and equipment, or convert and modernize existing facilities. Once established or revitalized, these firms often provide new job opportunities for people in small towns.

One of Mr. Boutin's first actions after becoming Administrator was directed at concentrating this program in small communities. I think the results are well worth citing to the committee.

Through March of this fiscal year, Mr. Chairman, 44.3 percent of all 502 loans made by SBA had been made in communities with populations of 2,500 or less. This, we think, is truly rural America, Mr. Chairman. The total cost of the projects undertaken by the smalltown local development corporations since 1958 was over $95 million. The SBA's share has been $67 million and I think it is extremely important to point out that this $67 million has generated $28 million of private capital.

Mr. RESNICK. May I interrupt you right there? How much of this $67 million have you gotten back?

Mr. HENDRICKS. Well, this is in the process of repayment. As you know, the 502 loans may have maturities up to 25 years. They very frequently avail themselves of the longer maturities so that I would say an average maturity would fall perhaps something above the 15-year mark.

Perhaps I could answer your question, Mr. Chairman, in another way. We have an extremely low rate of delinquency on these loans and the loss rate is remarkably good. In other words, we have an extremely low loss rate.

Mr. RESNICK. Can you estimate what the loss rate was, 1 or 2 percent?

Mr. Stasio. It is less than one-nineteenth of 1 percent.
Mr. RESNICK. Less than one-nineteenth.

Mr. HENDRICKS. If I may add this, Mr. Chairman, one of the reasons for this is the local interest. Where you can generate local interest they band together to raise their 20 percent or, as of now, in communities of 2,500 or less, we have lowered this participation to 10 percent. Since we so often find banks expressing great interest in these projects they take a piece of it themselves by way of participation. Since banks are often the leaders in their community, particularly on money matters, with this overall interest of local citizens desiring to help their community, having the cooperation of their financial institutions and with input on the part of the Federal Government, the project becomes a unified proposition. If a company encounters some roadblocks on the way or some problems, there are many hands to assist in working out these problems and thus prevent delinquencies, and worse, ultimate liquidations.

Mr. RESNICK. Was the new Holiday Motel in Saratoga built with a 502 loan? It was put up a few years ago by the community. The community owns it.

Mr. HENDRICKS. We will check that specifically, Mr. Chairman, and respond to you by letter.

Mr. RESNICK. It is an outstanding example that they put it up not to make money but just to help Saratoga keep its center as a resort center. Now, they are making money and they do not know what to do with it.

Mr. HENDRICKS. I am aware of this, Mr. Chairman. Many of the hotels in upstate New York or in the State of New York in the Adirondacks, and so forth, have had considerable assistance in the way of our business loan program because they are eligible for that type of assistance. In the more recent years I am sure that many of the newer resort areas have received some benefit from the 502 program, because in the State of New York I think we have made 35 of the 502' loans of all types. And almost all of these have gone to the rural areas. There is hardly anything of the nature of a 502 loan in the metropolitan areas.

Mr. RESNICK. Thank you. Mr. HENDRICKS. The proof of the pudding, however, Mr. Chairman, I believe, lies in the employment picture. The 502 loans which have gone to towns with population of 2,500 or under have provided employment for 20,800 people since 1958. This is over 41 percent of the total number of jobs created by the entire 502 program, Mr. Chairman. We believe this indicates the real effectiveness of the program in truly rural areas.

In March of this year, Mr. Boutin took another forward step to increase the effectiveness of the program to rural areas when he reduced the required local participation-and I have already mentioned thisin a 502 project from 20 to 10 percent--in those communities whose population is less than 2,500.

In these communities, as the committee is well aware, there is usually no local bank; the people have very little money, and generally unemployment is high. It is much easier for the people to raise 10 percent of the cost of a project than 20 percent and thus it makes the 502 program available in communities where it otherwise would not have been utilized.

Mr. Chairman, as I stated earlier, we are constantly striving to find additional ways to improve our programs in rural areas to provide help to hard-stricken communities. Only last week, on June 2, we took still another step to help these areas by inaugurating operation 502 outreach.

Under this program, technical action panel members, known as TAP, of the Farmers Home Administration, who blanket nearly every county in the Nation, now have been asked to promote SBA'S 502 program when they are working in the rural area.

In addition to the farmers Home Administration, we are utilizing the large reservoir of talent in the National Rural Electrification Cooperative Association to encourage their members to form local development corporations to help out in rural areas.

I believe all of this points up, Mr. Chairman, the extreme concern we have for trying to help solve the problems of creating job opportunities and of upgrading the economy of our rural areas by helping small firms to grow and prosper. I might ad lib a part here, Mr. Chairman, that since the inception of SBA in 1953, there have been upward of 70,000 business loans made, this apart from our EOL program and our 502 program, and roughly 50 percent of these loans have been made in rural areas.

Now, a good question could be: What standard do we have for a rural area? In other words, how much population must a town have before we can identify it as a rural area ? This is indeed a very difficult matter to approach. Nearly everyone will have a little different version.

We think perhaps a fair standard may be communities of 25,000 or less can be identified as rural communities, but very specifically the bulk of our help, I think, has gone into communities with even substantially less population than this, and communities that are completely oriented in agricultural pursuits; that is, they are communities that thrive if agriculture thrives and they suffer if agriculture suffers.

To resume, much has been done, but we still think much more remains to be done. We are encouraged by the results to date. We shall

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