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Mr. CLAUSEN. Part of our ingenuity as Members of Congress is to try to develop lines of communication of our own.

Within this past week, even with our own administration, but with other agencies, I had a similar situation. I had to bring to the attention of those handling the mechanical aspects of a given application, information that these people themselves should have found out.

It is the purpose of these hearings to find out about such situations. I think in many ways that there is a lot to be said. It would be nice, however, if we could get rid of this thing of having to be political. I think it would be very nice.

It is not our purpose, but it has been traditional. Each administration seems to play the game. It must have been very difficult for the fellows sitting down in the slot actually trying to carry out the policies.

I think maybe someday we can find ways and means of streamlining this kind of communication. I think what Mr. Fagan has suggested would be helpful, if you people could get together and try to work it out.

Mr. Gray. I am certainly amenable. However, this could not be a coincidence on 12 or 15 different occasions. That is all I am complaining about.

As I said, I am a strong supporter of the program, as you know. My people are the fourth largest taxpaying State in the Nation. We have had crumbs.

This is EDA action for the entire State of Illinois:
January 6, East St. Louis, $125,000 grant.

January 14, Greater Egypt Regional Planning and Development Commission, Carbondale, $46,489 grant.

January 26, West Side Chicago Development Program, $150,000 grant.

March 2, Mount Vernon, designated as district growth center.

March 18, National Insurance Association of Chicago, $151,000 grant.

April 5, Emil J. Paidar Co., to establish new management and account procedures, technical assistance study. May 5, city of East St.

Louis, $67,645 grant.
May 6, University of Chicago, $44,852 grant.
June 14, Pulaski-Alexander Development Corp., $40,000 grant.
June 16, Chicago Economic Development Corp., $75,000 grant.

Also June 16, Opportunities Industrialization Center of Illinois, $45,000 grant.

June 21, city of West Frankfort, $678,000 grant and $452,000 loan.

We are the fourth highest taxpaying State in the country, and in my district 17 of the counties have more than 6 percent unemployed, and between World War II and 1970, we have lost 250,000 people who have migrated from the area.

It is not a question of bonafide applications. I give you a town like Galatia with two coal mines just sitting there, but no water. That application has been in for 3 years. I went down with the mayor of Galatia to EDA. I went back 6 months ago; they keep saying we want to look at it.

There are all kinds of bonafide applications pending, yet here is a State that I say is sharing the burden of Appalachia, sharing the burden all over the country, yet all we get are crumbs.

Mr. Fagan. Mr. Chairman, as I am sure you are aware, we have to choose among many, many worthy and bonafide applicants all over the United States. We have some thousand designated areas, and we can really touch about only 300 of them in any 1 year. Perhaps this is just not your year. Your district over the course of years has had some 10 projects worth some $25 million.

Mr. Gray. You say you do not play politics, but over 50 projects were approved in the last 2 years of the Johnson administration, and there is only one in the 212 years of the Nixon administration. Is that coincidence ?

Mr. Fagan. I would suggest that your area come up with more and better projects as quickly as possible.

Mr. Gray. I just mentioned the Saline River has 4 billion tons, not million, of coal reserves. The Army Corps of Engineers, when figuring the benefit-to-cost ratio agreed that this project was highly feasible. This feasibility study took into consideration only the savings created by transporting the coal by barge rather than by rail. They did not take into consideration the savings which would be created for new industry.

I sent it over to your agency, asking for a little $200,000 study in order that we could expedite this project, save a full year for those people where unemployment benefits are running about 12 percent of the population, expedite it. That is the purpose of your agency, to upgrade the economy.

Here another Federal agency, the Army Corps of Engineers has said it is a good project, and you turn it down.

Name me a project in the United States where for $200,000 you could set up a project that could bring in something like $50 million a year in benefits. Name me one economically justified project in the country that would compare with the Saline River Basin project that you turned down.

Mr. Fagan. I am not familiar with the project.

Mr. Gray. That is what I mean. You are saying we ought to submit better projects. It is a question of when you sit down to cut up the pie, we represent the hard-core unemployment areas.

Mr. Podesta, who ran for Congress himself on a Republican ticket, knows we are being frozen out, and I am tired of it.

Mr. Fagan. I am sure there are some very good reasons why that project was turned down. We will be glad to supply them to you.

Mr. GRAY. I know what the excuses are. They are the standard: considering the overall requirements of the agency and the Government, yours just does not meet as high priority; considering the number of other projects, yours does not meet the criteria.

I know what the excuses are. There is a big difference between an excuse and a reason. There is no reason why that same area gets 50 projects under 2 years of the Johnson administration and only one project in 212 years of the Nixon administration. You just cannot equate that disparity except for the reasons I pointed out, that Mr. Podesta is freezing out southern Illinois, and I do not appreciate it.

Mr. Fagan. I am quite sure he will be anxious to discuss this with you when he returns.

Mr. GRAY. Are there any other questions or comments at all?
Mr. CLAUSEN. I do not think there is much left to say. [Laughter.]

Mr. Gray. I have served with you for 161/2 years and I do not go on these tangents often. I sat here and convinced myself that it was a mistake when the EDA officials failed to notify me the first time. The next time it occurred, I said again it's just another mistake. But, when it hit my own hometown on a project I have followed very closely, and in fact, requested a status report weekly, I realized it was no mistake. I have defended the President. I have said the Nixon policy, with this $2 billion deficit, compels the President to defer some of these projects. I took up for the President, and one of his agencies shoots me out of the saddle.

Mr. CLAUSEN. Sort of leaving this on a light note, Mr. Chairman, as you recall—after listening to this discussion, we could carry it on all day—you recall in the closing days of the hearings when we were discussing the three titles of our legislation, the EĎA, and the Appalachian Development Act, we all had a part in, more and more I am convinced that they should have taken my alternate proposal which was to increase the amount of the EDA program by $2 billion instead of the APW, in which case we could have had an accelerated program, making it all Appalachian.

Mr. GRAY. California is always way ahead.

Let me state for the record that our distinguished subcommittee chairman was called to the floor.

Mr. Fagan, I understand you have prepared testimony. If that is agreeable, we can recess for lunch, and Mr. Wright will be back at 2:30. He will be glad to hear you, I know, in a concise and deliberate manner.

Mr. CLAUSEN. I think the record should show we both missed a quorum call as we pinch-hit for our distinguished chairman. Mr. GRAY. The subcommittee stands in recess until 2:30.

(Whereupon, at 1 p.m., the subcommittee was recessed, to reconvene at 2:30 p.m. the same day.)

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Mr. Kluczynski. The hearing will come to order. The Subcommittee on Investigations and Oversight of the House Committee on Public Works will resume hearings on red tape. The first witness this afternoon will be Mr. Charles A. Fagan III, Deputy Assistant Secretary for Economic Development, U.S. Department of Commerce. Would you for the record, you have some associates with you, give their names to the reporter?

Mr. Fagan. Thank you, Mr. Chairman. I am accompanied this afternoon by Mr. Gerry Conroy, Deputy Chief Counsel for EDA, and by Mr. Thomas Dunne, special assistant to the Assistant Secretary.

Mr. KLUCZYNSKI. Mr. Fagan, may I ask if you have been sworn?
Mr. Fagan. Yes, I have.
Mr. KLUCZYNSKI. You may proceed as you desire. .

Mr. Fagan. Thank you very much, Mr. Chairman. I have a statement which I would like to submit fur the record.

Mr. KLUCZYNSKI. You have a prepared statement ?
Mr. Fagan. Yes, sir, I do.

Mr. KLUCZYNSKI. Without objection, it will be made a part of the record in its entirety, and you may proceed as you wish, either summarize it or hit the high spots. The floor is yours.

(The prepared statement follows.)



ECONOMIC DEVELOPMENT, U.S. DEPARTMENT OF COMMERCE Mr. Chairman, I wish to thank you and the members of this Subcommittee for the opportunity to come before you today to report in some detail on procedural aspects of the various programs administered by the Economic Development Administration.

It is my understanding that you are especially interested in the time that elapses during the various stages of application processing from the day a request for assistance is received to the day a project is finally approved. I hope that I will be able to explain to you why application processing takes the time it does—and what we are doing at EDA to improve our procedures so as to minimize delay.

Under the Public Works and Economic Development Act of 1965, EDA administers three basic programs, each of which has the ultimate goal of fostering economic development in depressed areas of the Nation. They are :

(1) The public works grant and loan program ;

(2) The business development loan and working capital guarantee program; and

(3) The technical assistance, research, and information program. The organizational structure of EDA reflects the statutory scheme. The three major operating divisions of EDA, both in the Washington headquarters and in the six Regional Offices, are the Office of Public Works, the Office of Business Development, and the Office of Technical Assistance. Each major operating division 'has application initiating and processing procedures that are roughly parallel. However, administrative problems and difficulties vary and processing times vary.

No economist can state with any degree of certainty, for instance, that a water and sewer project in county A will have a greater impact in a local community than would the funding of a new industrial park in county B. Which is the better course-to aid with a business loan a faltering enterprise in a locality whose economy is deteriorating, or to fund a new venture in a community that is now economically stagnant? Which project has a better claim for technical assistance funds-an urban job-training program or a feasibility study to determine if a ghetto neighborhood can be revitalized ?

There are, of course, no simple formulas to apply in resolving these questions. But where funds are limited, and where a multitude of applicants can legitimately step forward to press their claims for assistance, we must know as much as possible about the specifics of an applicant's proposal, the community's need and support for a project, and about alternative solutions or sources of aid that may be available to a depressed area. For these reasons, and because a successful EDA project requires the active support and wholehearted cooperation of local officials and community leaders, the application process for each of these programs is and must remain detailed, somewhat complicated, and unfortunately time-consuming and expensive to a prospective applicant.

Before discussing these processing times I should note that there is, in truth, no very good way to measure the time from the "original request" to approval. The "original request" may be a vague idea described to one of our regional offices or a nebulous proposal made to an economic development representative in the field. It may be, on the other hand, a detailed, specific, comprehensive plan formally presented to a regional office or to Washington. Many requests for assistance involve proposals that are ineligible at first blush-defects in others turn up upon closer scrutiny. In any event, we have found it to be administratively unsound in light of the inchoate nature of many of the proposals received to accord formal application status to a proposal that has not successfully weathered an array of preliminary steps and inquiries.

There are other considerations that must be taken into account when analyzing the time-factors that are built into the application processing system. Unlike a private sector bank or other financing institution, a Federal grant and loan agency is subject to the requirements and restraints of several Federal statutes that have an effect upon the time necessary to process an application. It would be unrealistic to state categorically that a given statute requires so much extra processing time, inasmuch as the many requirements in such statutes are dealt with concurrently. Nevertheless, taken together, they do have some impact in lengthening application processing procedures. Allow me to provide you with a few examples :


1. Civil Rights Act of 1964 (P.L. 88-352) ; Title VI of this Act requires that the benefits of Federal assistance programs be distributed in a nondiscriminatory manner. Title VI and the Executive Orders and regulations issued pursuant to it call for an elaborate system of assurances of compliance to be obtained from recipients and beneficiaries of Federal funds under all three EDA programs.

2. National Environmental Policy Act of 1969 (P.L. 91-190); This Act refers to the responsibility of the Federal Government "to improve and coordinate Federal plans, functions, programs and resources" for the enhancement of environmental quality. It has led to the requirement that all projects which significantly affect the environment be accompanied by an “environmental statement" explaining how and to what degree the environment will be affected.

3. Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (P.L. 91-646) ; This Act requires "equitable treatment" of persons displaced as a result of Federal and federally assisted Public Works projects. Much preliminary work has to go into meeting relocation assistance requirements.

4. Intergovernmental Cooperation Act of 1968 (P.L. 90–577); This Act requires submission of plans for proposed projects to State or Regional Clearinghouses for comment and review. It affects all phases of EDA application processing.

There are also certain restraints within EDA's legislation, the Public Works and Economic Development Act of 1965, other than program guidelines, which in certain instances can delay application processing. For instance:

(1) Section 202 (b) (1) forbids assistance to relocate a business ;

(2) Section 101 (e) and 201 (d) restrict assistance which would result in competition with a public utility under certain circumstances ; and

(3) Section 702 forbids assistance to a business in an industry suffering from overcapacity. In many instances a simple statement from the applicant negating the existence of these conditions will suffice-in close cases, or in ambiguous situations, much more elaborate evidence and documentation may be required.

Whatever the source-Federal statutes extraneous to the EDA Act-restraints written into that Act itself-or Executive Orders or OMB directives on broad policy issues—there would appear to be a certain irreducible minimum of paperwork and attention to details required-regardless of whether these details and requirements are characterized as "administrative" or "legal”— which no internal procedural reform or administrative changes on the part of EDA alone could significantly affect.

While I know you are familiar with the organizational structure of EDA, I would like to state for the record that we operate with a headquarters staff here in Washington composed of 472 employees. In addition, we maintain 6 Regional Offices, located at Philadelphia, Pa., Huntington, W. Va., Huntsville, Ala., Chicago, Ill., Austin, Tex., and Seattle, Wash. The Regional Office staffs number about 450 people. Economic Development Representatives (EDR's) are attached to and report to the Regional Offices, however, they are stationed in field offices in local communities and engage in a large amount of field travel work. Their responsibilities for assisting in the development of applications embrace all three of EDA's major programs. Presently, 61 EDR's are located in 51 field offices

THE PUBLIC WORKS APPLICATION PROCESS The procedures for developing and processing Public Works projects, outlined in Exhibit "A," were instituted in July 1967 following the agency's first full year of operation. The objectives of these procedures are, in general, (1) to enable EDA to stimulate the economic development process within communities; (2) to help communities develop better quality projects; (3) to permit both Washington and the Regional Offices to assist in the development of projects; (4) to reduce lar backlogs; and (5) to let communities know quickly if they are approaching the appropriate agency for their project.

Exhibit “A” notes 5 major milestones in the course from the formation of a project application to its approval. The first 2 milestones are in the develop mental stages of the application. The official project review actually begins between the second and third milestones. The first milestone is reached after the following events have occurred; the idea for a project has been conceived ; discussions have been held with EDA personnel ; the EDR has submitted profiles of the project and community; the Regional Office has decided that a pre application conference is warranted; the latter is held; and the application materials are given to the potential applicant. This stage is one of laborious

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