generally understood. Where most of us feel that we understand displacement when you level an area and move everyone out, we don't. And that, of course, involves displacement relocation. In the area of rehabilitation you just kind of think of moving to one of the other rooms while you rehabilitate that.

Could you, if so, very quickly-if not, if you could for the record and any other members-give the subcommittee an indication of actually how much displacement occurs in rehabilitation of housing? And I ask that of Mr. Hendricks, since he raised it, and others, if you would submit it in writing.

Mr. HENDRICKS. I would be glad to do that.

[At the time the hearing went to press no response was received from Mr. Hendricks.]

Mr. PATTERSON. I want to genuinely, on behalf of the subcommittee--and those members absent missed a very fine hearing which they will have to now read rather than participate in—but it has been enlightening for me, and I have enjoyed every minute of it.

Thank you for spending your morning and part of the afternoon with us here at the Subcommittee on Housing and Community Development, and thank you for participating.

The subcommittee stands in recess until 1:30.

[Whereupon, at 1:05 p.m., the subcommittee recessed for lunch.]

AFTERNOON SESSION

Mr. PATTERSON. The Subcommittee on Housing and Community Development will come to order. And at this time we are privileged to continue our morning hearings with Mr. John L. LaCroix, staff attorney for the national economic development law project, Earl Warren Legal Institute, Berkeley, Calif.

I understand that means you are with the University of California School of Law.

STATEMENT OF JOHN L. LaCROIX, STAFF ATTORNEY, NATIONAL ECONOMIC DEVELOPMENT LAW PROJECT, EARL WARREN LEGAL INSTITUTE, BERKELEY, CALIF.

Mr. LACROIX. Thank you, Mr. Chairman.

I am also a pinch-hitter today. Our director is suffering from the flu and could not make it, so I am going to read his statement into the record.

I have also submitted a study which we did on the block grant program as it applies to special impact areas. Your staff has that, and I would like to request that that be incorporated into the record.

Mr. PATTERSON. Let me just identify it here. Is that it, "Coordinating CDC and block grant programs: An evaluation of 1975 and 1976."

Mr. LACROIX. Yes.

Mr. PATTERSON. Alright. Without objection, so ordered.

Mr. LACROIX. Mr. Chairman, I want to thank you and the subcommittee staff for the opportunity to testify today with respect to that part of the community development block grant program which calls

for a new and more vigorous development approach to the revitalization of local neighborhoods in our Nation's inner cities.

For the past 10 years the law project has worked, nationally, in the field of economic development, with special emphasis on the very neighborhoods which title I of the Housing and Community Development Act of 1974 covers.

In pursuit of our tasks we have worked with several Federal departments and agencies.

In addition, we have worked with State and local governments in initiating economic development legislation and in establishing operational programs.

We have examined various substantive approaches and designed alternative legal structures; we have studied diverse sources of financing; we have been involved in business, corporate and commercial transactions; we have studied numerous issues involving tax exemptions and security offerings; and we have provided comprehensive planning assistance with respect to operational economic development programs.

As I understand it, the primary purpose of the request for increased funding is to demonstrate a dramatic commitment by the administration to reverse the prolonged conditions of economic deterioration which exist in our inner cities.

The purpose of the urban development action programs, therefore, would be to develop and implement a strategy of comprehensive economic development; one which is geared to: the attraction of capital resources; the rehabilitation of housing; the reversal of the condition of chronic unemployment; and the revitalization and redevelopment of the business and commercial sectors of our inner cities.

Obviously no one can oppose such laudable goals; but goals are abstracts, while means and delivery systems are concrete.

It is indeed curious that given the multitude of mistakes and the failure of past experiences that a more carefully designed programmatic effort is not spelled out.

We believe that it is the solemn responsibility of this subcommittee and Congress to statutorily require and/or recommend a flexibile. strategy that works.

If not, I can only suggest that 4 years from now we might well be sitting around a room offering testimony for still yet another program that might well go the way of "public housing," "urban renewal," "model cities," and "rent subsidies."

Professionals and legislators may be able to afford the luxury of doing business in this fashion, but the people who live and work in the neighborhoods to be served cannot and should not be forced to endure yet another round of goals, rhetoric, false hopes and dashed expectations.

They must deal with the reality of everyday suffering and deprivation.

Let us begin the process of zero-based budgeting by honestly and openly confronting the issue of zero-based rhetoric.

Obviously this is an extremely complex field. We have found that there is no simple answer to the development process and the balancing of economic and social growth that is imperative to the life of your Nation's urban centers.

However, the experience of the last 10 years has taught us that certain strategies have a greater potential than others; and that certain institutional mechanisms have greater potential than others.

On the basis of our experience we are convinced that it is absolutely imperative that any institutional economic development strategy must concern itself with two critical and basic factors-that of public accountability and that of local incentive.

It is with this in mind that we welcome this opportunity to share our experience in an effort to more fully achieve the objectives of the block grant program.

First, let us look at the statutory requirements. The Housing and Community Development Act of 1974 sets forth as its primary purpose:

The development of viable urban communities, by providing decent housing and a suitable living environment and expands economic opportunities, principally for persons of low and moderate income.

This statement of purpose represented a major departure from the Housing and Urban Development Act of 1968, which has as its primary objective the provision of: "A decent home and a suitable living environment for every American family."

For the first time in 1974, Congress clearly tied economic opportunities with housing and other community development activities, and clearly intended that these community development programs were to principally benefit low- and moderate-income persons.

In the same year that the block grant legislation was enacted, Congress approved a second community development bill-the Head Start, Economic Opportunity, and Community Partnership Act of 1974, referred to as the Community Services Act.

Title VII of this act authorizes funding for community development programs in designated special impact areas. Special impact areas are areas that contain some of the Nation's poorest peoples, and we will explain further how title VII originated.

The purpose of title VII is to encourage the development of special programs by which the residents of urban and rural low-income areas may improve the quality of their economic and social participation in community life, thus contributing to the elimination of poverty and the establishment of permanent economic and social benefits.

In 1974, Congress addressed the need for a comprehensive coordinated approach to community development. Both title I of the Housing and Community Development Act and title VII of the Community Services Act mandate consultation and coordination of activities with other federally assisted community development programs. Section 114 of title I states that:

In carrying out the provisions of this title including the issuance of regulations, the Secretary shall consult with other federal departments and agencies administering Federal grant-in-aid programs.

In turn, section 748 of title VII directs the Secretary of HUD to take "all necessary steps to assist community development corporations and local cooperative associations" in their participation in HUD programs, including title I of the Housing and Community Development Act.

As we move into the third year of the block grant program, it would be useful to review a recently completed study, which you have and which is attached to the statement.

Let us review the crucial substantive issues. In the past 10 years a good deal of attention has been focused on economic development, capital investment, and commercial revitalization.

Two approaches have gained recognition: "Minority entrepreneurship" and local "community-based economic development."

Both of these critical programs were established and designed to improve the economic and social well-being of minority and lowincome citizens as well as attacking the problem of chronic unemployment.

Yet it is crucial to distinguish and outline the basic differences between these two separate, though not mutually exclusive, approaches. At one end of the spectrum are minority entrepreneurship programs which were established by the Nixon administration and were exclusively dependent upon the Office of Minority Business Enterprise and the Small Business Administration.

The underlying thesis was based on the premise that the success of a few minority people will open up opportunities for others. Former Secretary of Commerce, Maurice Stans, had often referred to the need to create some black millionaries for this purpose.

The local "community-based economic development" programon the other hand-was conceived of by the late Senator Robert Kennedy, cosponsored with Senator Jacob Javits, passed by a Democratic Congress, and enacted by a Democratic President.

It evolved from antipoverty efforts and is concerned with a broader population and a wider group of activities which included: Capital formation, the development of housing, health and public facilities, job development, private business, industrial development, credit unions, and consumer and rural co-ops.

Community economic development, a self-help approach, concentrates on the development of local financial institutions allowing lowincome and minority groups to pool their resources and talents to create jobs, income, and managerial and ownership opportunities for themselves.

It is an attempt to use traditional business methods and organization to provide economic and social benefits through comprehensive and institutional developmental projects.

It seeks to provide incentives for long-term investment by the private business and banking sectors, primarily capital sources.

In the past several years it has become clear that the problem with the "minority entrepreneurship" approach is that it is concentrated on "mom and pop" stores and is therefore subject to high failure rates.

More importantly, it does little for the disadvantaged. Individual entrepreneurs are usually not poor people. Small ghetto businesses cannot afford the financial burdens of hiring and training the unemployed.

Moreover, a program of individual aid to small businesses does not permit the kind of overall developmental planning that is absolutely essential to the economic betterment of an impoverished community, nor does it establish comprehensive institutions through which individuals can support and help each other.

This is not to say that the minority entrepreneurship programs should not be supported. Nonwhite businessmen have been systematic

ally discriminated against for generations, and compensatory programs of financing and technical assistance are very much in order.

Minority entrepreneurship, SBA and OMBE-type programs, and industrial location programs are important ingredients in an overall economic development effort.

Small- and moderate-sized independent businesses are essential in an urban economy. But to have a genuine and realistic impact, these programs must be integrated into a comprehensive economic development effort.

Every serious analysis of the growth of economically underdeveloped areas, here and abroad, demonstrates that an organizing force, capable of building and catalyzing a network of economic relationships, is indispensable.

Such a force must be able to: Develop and pool local talent; obtain outside subsidies and high-risk funds; absorb technical assistance; link business projects with new and rehabilitated housing, public facilities, energy conservation projects, HMO's, employment, and daycare programs; and provide a mechanism through which the community residents can participate in planning and decisionmaking.

Such an organizing force can only be a local economic institution. The guidelines for comprehensive local economic development are obvious. They must be broad enough to include jobs, disposable income, and local ownership.

The central purpose of community-based economic development is to promote substantial participation by individuals and groups who have been systematically denied access to capital in each aspect of the capital-generating power of their local economy.

This means a multifaceted approach directed toward: Finding jobs for the unemployed; providing training for the unskilled; providing a satisfactory income for the poor, the socially and physically disabled, and the unemployed; upgrading the skills and wage scales of low-level employees; that is, career development; increasing the responsibility and number of middle managers; establishing a parity of responsibilities and salary of local black, white, and brown managers, as opposed to having them as showpieces; providing capital and management assistance for small businessmen; and, most important, emphasizing the development of substantial minority and locally owned businesses with large infusions of capital and technical assistance; and finally, creating opportunities for talented local business leaders to develop leveraging skills and other sophisticated techniques.

The list can go on, and there are variables within each of the categories in which the managers, employees, and target residents can participate in the net capital surplus of their projects.

But the underlying basis for a future unified Nation is a vastly increased "have-not" participation in the economic development activity of the total system.

There must be a commitment to facilitate this dynamic process. The present economic system, at least as it affects minorities and lowincome citizens in our inner cities--particularly in the ghettoes and barrios-is not working; it is a self-perpetuating, debilitating, static death trap.