committees and the county agents advisory boards to develop local soil and water conservation programs. A meeting of 19 Federal, State, and local organizations was held in Springfield on February 18, 1957, to discuss the development of the natural resources in the Muddy River watershed. I have brought copies of the proceedings of that meeting with me should you be interested in details of such projects as Rend Lake, Muddy River canalization, and other reservoir projects, highway plans, status of public assistance in the area, agricultural and research programs that affect the area, and the potentials of recrea tion and wildlife developments in the area. Of 21 speakers, there was only 1 pessimist in the crowd. The others felt strongly that the wise coordinated development of the water resources in the area offered a great potential source of economic development for the area. It offered hope for a whole new way of life for these communities. Just income from the recreation potential alone could come close to justifying the long-term investment needed without even considering the far greater potential public good that would stem from flood protection, municipal and industrial water supply, stabilized streamflow, the recla mation of now nearly worthless bottom lands, and new-found feeling of self respect that could be generated within these sick communities that have been slowly, but surely, starving.

That way to create wealth is to blend a mixture of labor, raw materials, and capital together with careful planning and come out with a useful and salable product. In the Muddy River watershed we have the labor, the raw materials, and the plan. Through the conservancy district, we can raise some of the capital needed locally and have a legal agency which can carry out the plan. Our governor and the State legislature have demonstrated their willingness to help us, having already financed preliminary engineering studies.

I have with me copies of a resolution that is before that body today memorializing the Congress to support the type of legislation that this bill represents. Copies should be in your hands shortly. As you would expect, citizens' groups like the Rend Lake Association are in favor of this type of matching assistance, but when a professional organization like the Southern Illinois Chapter of Professional Engineers spontaneously and unanimously resolve to support the proposed developments of the Muddy River watershed then the proposition must be well conceived.

In conclusion, when working in an area where the median family income is only $2,456 per year, where less than 8 percent of the population has $5,000 per year income, where it would take a tax rate for schools alone of $4 per $100 of valuation to raise them to the standards of a city like Philadelphia, you've got problems. The way to solve them is to take what assets you have and apply them to the problems. There are two chief exports in this southern Illinois areacoal and brains. Both are sorely needed right in the area to help it continue to be able to supply either. Long-term capital risk wisely invested in this area will pay big dividends not only in cash but in human values for many generations. Because this area is not a cut-out, mined-out, farmed-out, biological desert, but an underdeveloped area, Senate bill 964 offers us the hope that we will find that missing link that will help us to help ourselves. We sincerely hope that it may be prompty passed.

Senator DOUGLAS. Thank you very much, gentlemen.

We will recess and meet again after the 1st of April.

(Whereupon, at 12:05 p. m., the subcommittee recessed, subject to the call of the chairman.)

AREA REDEVELOPMENT

MONDAY, APRIL 8, 1957

UNITED STATES SENATE,

COMMITTEE ON BANKING AND CURRENCY,

SUBCOMMITTEE ON PRODUCTION AND STABILIZATION,

Washington, D. C.

The subcommittee met, pursuant to recess, at 10 a. m., in room 301, Senate Office Building, Senator Paul H. Douglas (chairman of the subcommittee) presiding.

Present: Senator Douglas.

Also present: Senator Clark.

Senator DOUGLAS. The subcommittee will come to order.

Mr. Mueller, we are delighted to have you here this morning.

STATEMENT OF FREDERICK H. MUELLER, ASSISTANT SECRETARY OF COMMERCE FOR DOMESTIC AFFAIRS

Mr. MUELLER. Thank you, sir.

Shall I proceed, sir?

Senator DOUGLAS. Yes, please.

Mr. MUELLER. We are glad to have the opportunity to discuss with this subcommittee legislative proposals pending before it relating to area redevelopment and area assistance.

The chairman of the Committee on Banking and Currency has requested that the Department of Commerce make arrangements for presentation to this subcommittee of the views of other departments and agencies of the executive branch most directly interested in the subject. We have made these arrangements and following my presentation, representatives of the Department of Labor, the Department of Agriculture, the Housing and Home Finance Administration, and the Department of Health, Education, and Welfare will appear to discuss activities which are of particular interest to them in this matter of area-assistance legislation.

Despite the general high economic well-being of our Nation, there remain a number of areas of substantial and persistent unemployment. The President in his economic report urged enactment of legislation to help such areas to develop and maintain stable and diversified economies by a program of technical and financial assistance by the Federal Government. He said:

The high employment levels of the last few years have facilitated economic adjustments needed to correct persistent unemployment conditions in various areas. Although the Federal Government makes its greatest contribution to the solution of local unemployment problems by following policies which promote stable growth for the economy as a whole, there are many ways in which it helps local areas with more or less chronic unemployment. In awarding Federal

procurement contracts, preference has been given to businesses located in such areas. Also, defense facilities constructed in the areas are accorded special accelerated tax-amortization privileges. Increased appropriations for the Office of Area Development in the Department of Commerce have made it possible to extend improved and augmented services to many such areas. The Department of Labor, through affiliated State agencies, has expanded community-employment programs and services.

But greater efforts are needed to help certain localities strengthen their economic base. In some cases the forces responsible for persistent unemployment are so strong and so varied that they will yield only to comprehensive measures taken jointly by private groups, State and local governments, and the Federal Government. To supplement the efforts of local and State groups, which in a number of areas have already achieved marked success in stimulating sound economic development, an enlarged Federal program of aid to areas of persistent unemployment was proposed to the Congress in 1956. The program provided for Federal loans to pay for part of the cost of purchasing and developing land and facilities for industrial usage, for grants for research to help communities evaluate their resources and needs for economic development, and for an expanded program of technical assistance through field consultation. In addition, the proposed legislation would assure better coordination of existing Federal programs so as to make them more useful in the revitalization of areas with longstanding unemployment. Under the proposed legislation an Area Assistance Administration would be established in the Department of Commerce to administer the expanded Federal services. The Congress is urged to enact legislation for this program, including the necessary appropriations.

S. 1433, introduced by Senator Martin and others, would provide necessary authority for carrying out this program of the President. This bill provides for the Secretary of Labor, upon request from appropriate State governments, to determine whether or not the area in question is classified as an "area of substantial and persistent unemployment."

If an area is so classified, it would, under S. 1433, be eligible for certain benefits from the Federal Government. Grants could be made of Federal funds for technical assistance including the study of the assets and liabilities of the area. Loans of Federal funds could be made, on a second-mortgage basis if necessary, to help establish new industries in the area. The Secretary of Labor would undertake or assist in studies of the potentials of the labor force, provide advice and technical assistance in improvement of the use of the labor force, assist in determining the vocational training and retraining needs in the area, and notify the Secretary of Health, Education, and Welfare of the vocational retraining needs of the area. The latter official is authorized to provide assistance, including financial assistance, to State vocational education agencies in their providing such services. The areas would also be given certain special benefits under provisions of the housing laws.

Areas which may not be classed by the Secretary of Labor as "areas of substantial and persistent unemployment" for one reason or another may nevertheless have problems of surplus labor. Illustrative of this group would be rural areas and communities which because of predominantly agricultural characteristics of the area suffer from seasonal underemployment. All such areas, as well as areas. designated by the Secretary of Labor, would be provided with technical assistance and field consultation to help in development of manufacturing, processing, and service activities to supplement seasonal agricultural activities, and in establishment of new industries based on local resources, in expansion of existing industries and in. economic diversification.

I have set forth in general terms authority provided by S. 1433 for carrying out the program of Federal assistance to areas which have not received their share of our Nation's economic blessings. I will now talk in some detail about the functions of the Department of Commerce under the bill, leaving to other agencies the detail concerning their operation.

Because the aim of this program "to assist areas to develop and maintain stable and diversified economies by a program of financial and technical assistance and otherwise" is closely related to the primary responsibility of the Department of Commerce-to foster, promote, and develop the commerce of our Nation-S. 1433 would center responsibility for the proposed program in the Secretary of Commerce. We believe this is proper and wise. Establishment of an independent organization to administer this program would be contrary to sound principles of Government organization announced by this administration, the three preceding Presidents of the United States, and of both Hoover Commissions on Organization of the Executive Branch of the Government. I refer to the principle against establishment of independent agencies to carry out programs closely related to main responsibilities of existing departments or agencies. In the Department of Commerce we do not in any way desire to be empire builders, but we do believe the proposed program to assist business is part of our responsibility to help all businesses be they small, medium, or large businesses. Since 1947, there has been a unit in the Department of Commerce devoted to assisting these unfortunate areas to the extent of the authority presently available. Last year the Congress on the recommendation of many Congressmen greatly increased the appropriation for this activity. A separate bureau in the Office of the Secretary has now been established to emphasize the importance we and the Congress place on this expanded function. To make clear to everyone the importance of the program, specific provision is made in the bill for an Administrator, to be appointed by the President with advice and consent of the Senate, who is to devote his entire time to the program. Such an Administration would also be assigned the duty of coordinating the functions of the Secretary of Commerce under this bill with programs of other Federal agencies affecting local conditions.

The Secretary of Commerce would be authorized to make grants for technical assistance including studies evaluating the needs and potentialities of areas classed by the Secretary of Labor as areas of substantial and persistent unemployment. This grant program up to $1.5 million annually would enable local organizations such as State universities to look into potentialities of a particular area including amounts and kinds of natural resources, and characteristics and skills of human resources in the area.

A technical assistance program would be available under S. 1433 to all areas with an unemployment or underemployment problem, regardless of whether or not they have been classified by the Secretary of Labor under section 102 (a) (1). An active program for this purpose exists at this time in the Department of Commerce. The Office of Area Development in the Department of Commerce has assembled considerable know-how in the field of assisting areas with surplus labor forces. The program would be substantially expanded under

S. 1433. Under the bill and on an expanded basis, informed Federal officials would meet with leaders of the community and with State groups to consider what should be done. Under the program there would be consultation in the area by persons skilled in techniques which have demonstrated practical benefit elsewhere in putting such communities on their feet.

The Secretary would also be authorized to make loans to help areas of substantial and persistent unemployment to purchase and develop land or facilities for industrial usage, to construct new factory buildings, to rehabilitate old factory buildings, or to alter, convert, or enlarge existing buildings for industrial use. Under the proposal, funds to attract new lasting and diversified industries by providing facilities would be obtained in this manner: 15 percent or more of the cost would be supplied locally. This share, which would be on an equitycapital or third-mortgage basis is venture capital necessary to assure that the project is of real interest locally and that there is local belief in the project. Under such circumstances, experience has shown that up to 50 percent of the cost is available from the nongovernmental sources on a first mortgage basis. There would remain a maximum of 35 percent to be raised elsewhere.

Here is where the lending authority of the Secretary of Commerce would assist the areas. On a second-mortgage basis, in a security position junior to the loan from private sources, loans could be made for a maximum of 35 percent of the cost of the project. We believe that these loans will be of considerable assistance to these areas under these circumstances and that this is particularly true of areas which have already "dug 'til it hurts" and cannot finance more than 15 percent of the venture on a risk-capital basis.

Where will the 50 percent come from necessary to make up the difference? We have discussed this matter with representatives of banks and insurance companies-private lenders and understand such loans are feasible. Other sources are the State development credit corporations and community industrial foundations. These organizations reflect the will of the people of the community to face up to problems the solution of which is primarily the responsibility of the community. This community action is truly deserving of respect. In earlier testimony before this subcommittee on this subject, Mr. Edward G. Neel, executive vice president of the Fayette County Redevelopment Council in Pennsylvania, outlined steps which the council had taken to alleviate local problems. He stressed local activitieshelp, guidance, and time of local leaders, and investment of local capital funds as the sine qua non for effective action in solving these problems. Importance of local action was also stressed by Governor Leader and the Pennsylvania secretary of state. Encouragement of such local action is a precise aim of S. 1433.

Special attention is invited to activities of the Massachusetts Business Development Corp, which in a recent report to its stockholders proudly announces as highlights of 3 years of operation:

Approval of, or participation in, 80 loans totaling $11,207,000.

Borrowers, including an industrial development project in Lawrence, were responsible for over 12,000 jobs with an annual aggregate payroll in excess of $45 million producing almost $125 million in annual sales.

Participation in the financing of 16 new buildings encompassing over 400,000 square feet of space.