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RENEWING THE ECONOMIC DEVELOPMENT ADMINISTRATION: NEW APPROACHES TO ECONOMIC DEVELOPMENT Y 4. B 22/1:103-125 Reneuin) the Ecoaonic Developnent: A... HEARINGS BEFORE THE SUBCOMMITTEE ON ECONOMIC GROWTH AND CREDIT FORMATION OF THE COMMITTEE ON FINANCE AND BANKING, URBAN AFFAIRS HOUSE OF REPRESENTATIVES ONE HUNDRED THIRD CONGRESS SECOND SESSION MARCH 15, 17, and 22, 1994 Printed for the use of the Committee on Banking, Finance and Urban Affairs Serial No. 103-125 AUG R < RENEWING THE ECONOMIC DEVELOPMENT ADMINISTRATION: NEW APPROACHES TO ECONOMIC DEVELOPMENT HEAKINGS BEFORE THE SUBCOMMITTEE ON ECONOMIC GROWTH AND CREDIT FORMATION OF THE COMMITTEE ON FINANCE AND BANKING, URBAN AFFAIRS HOUSE OF REPRESENTATIVES ONE HUNDRED THIRD CONGRESS SECOND SESSION MARCH 15, 17, and 22, 1994 Printed for the use of the Committee on Banking, Finance and Urban Affairs Serial No. 103-125 U.S. GOVERNMENT PRINTING OFFICE 77-352CC WASHINGTON : 1994 ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionaJSalesOffice,Washington,DC 20402 ISBN 0-16-044544-2 HOUSE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS HENRY B. GONZALEZ, Texas, Chairman STEPHEN L. NEAL, North Carolina JAMES A. LEACH, Iowa JOHN J. LaFALCE, New York BILL MCCOLLUM, Florida BRUCE F. VENTO, Minnesota MARGE ROUKEMA, New Jersey CHARLES E. SCHUMER, New York DOUG BEREUTER, Nebraska BARNEY FRANK, Massachusetts THOMAS J. RIDGE, Pennsylvania PAUL E. KANJORSKI, Pennsylvania TOBY ROTH, Wisconsin JOSEPH P. KENNEDY II, Massachusetts ALFRED A. (AL) McCANDLESS, California FLOYD H. FLAKE, New York RICHARD H. BAKER, Louisiana KWEISI MFUME, Maryland JIM NUSSLE, Iowa MAXINE WATERS, California CRAIG THOMAS, Wyoming LARRY LaROCCO, Idaho SAM JOHNSON, Texas BILL ORTON, Utah DEBORAH PRYCE, Ohio JIM BACCHUS, Florida JOHN LINDER, Georgia HERBERT C. KLEIN, New Jersey JOE KNOLLENBERG, Michigan CAROLYN B. MALONEY, New York RICK LAZIO, New York PETER DEUTSCH, Florida ROD GRAMS, Minnesota LUIS V. GUTIERREZ, niinds SPENCER BACHUS, Alabanw BOBBY L. RUSH, Illinois MIKE HUFFINGTON, California LUCILLE ROYBAL-ALLARD, California MICHAEL CASTLE, Delaware THOMAS M. BARRETT, Wisconsin PETER KING, New York ELIZABETH FURSE, Oregon NYDIA M. VELAZQUEZ, New York BERNARD SANDERS, Vermont ALBERT R. WYNN, Maryland CLEO FIELDS, Louisiana MELVIN WATT, North Carolina MAURICE HINCHEY, New York CALVIN M. DOOLEY, California RON KLENK, Pennsylvania ERIC FINGERHUT, Ohio SUBCOMMnTEE ON ECONOMIC GROWTH AND CREDIT FORMATION PAUL E. KANJORSKI, Pennsylvania, Chairman STEPHEN L. NEAL, North Carolina THOMAS J. RIDGE, Pennsylvania JOHN J. LaFALCE, New York BILL MCCOLLUM, Florida BILL ORTON, Utah TOBY ROTH, Wisconsin HERBERT C. KLEIN, New Jersey JIM NUSSLE, Iowa NYDIA M. VELAZQUEZ, New York MARGE ROUKEMA, New Jersey CALVIN M. DOOLEY, California PETER KING, New York RON KLINK, Pennsylvania ERIC FINGERHUT, Ohio (II) CONTENTS Page Hearingsheldon: March 15, 1994 1 March 17, 1994 45 March 22, 1994 87 Appendixes: March 15, 1994 141 March 17, 1994 195 March 22, 1994 415 WITNESSES Tuesday, March 15, 1994 Atkinson, Robert, Senior Analyst, Industrial, Technology and Development F*rogram, Ofiice ofTechnologyAssessment 4 Croft,Thomas, Executive Director, Steel ValleyAuthority, Pittsburgh, PA 16 Dabson, Brian, President, Corporation forEnterprise Development 6 Kutler, John, President, Quarterdeck Investment Partners, Inc., Los Angeles, CA 9 LeRoy, Gregory, Principal, GLRAssociates, Chicago, IL 10 Oden, Michael, Research Fellow, Project on Regional and Industrial Econom- ics, RutgersUniversity 12 APPENDIX Prepared statements: Kanjorski, Hon. PaulE 142 Atkinson, Robert 145 Croft, Thomas 186 Dabson, Brian 156 Kutler, John 163 LeRoy, Gregory 171 Oden, Michael 180 Additional Material Submitted for the Record The Midwest Center for Labor Research, "Industrial Retention: Proven Local andState-Level Initiatives," submittedbyMichael LeRoy 174 WITNESSES Thursday, March 17, 1994 Codey, Raymond, Director of Development, New Community Corp., Newark, NJ 61 Glasmeier, Dr. Amy K., Associate Professor, Department ofGeography, Peim- sylvama State University 49 Montgomery, Michael, Deputy Secretary for Business Development, Penn- NPaeclsisyoolcnvc,aon,MiaaRroDybee,rptPa,rretEsmxieedencnuttt,oifvBeCeotDhimermelectNrocere,wMLiidfe-,EaCshitcaCgoom,miIsLsion, Washington, NC . 655486 Phillips, Ronald, President, Coastal Enterprises, Inc., Maine 52 Plosila, Dr. Walter H., President, Suburoan Maryland/Montgomery County Technology Council 46 (III) IV Page APPENDIX Preparedstatements: Karyorski, Hon. PaulE 196 Codey, Raymond 340 Glasmeier, Dr. AmyK 201 Montgomery, Michael 332 Nelson, Marv 328 Paciocco, Robert 406 PPlhoislililpas,,DRr.onWaalldteLr. H 210967 Additional Material SuBMnrED for the Record Codey,Raymond: New Community Corp., Development Department, 1993AnnualReport ... 347 "AgainstThe Tide,"The New CommunityCorp., 1968-1993 357 Phillips, Ronald L.: Charts 215 Maine Small BusinessEconomic Conversion LoanPool "ARevolving Loan Fund Proposal," submitted to The Economic Development Administra- tionbyCoastalEnterprises, Inc., February2, 1994 222 Coastal Enterprises Inc., 1993AnnualReport 269 Various correspondence relatingtotheRevolving Loan Fund 296 Arkansas Enterprise Group, letter dated December 17, 1993, from Brian Kelley [AEG], to Vicki Stein, Raporza and Assoc., re possible EDA 304 TheNepwrojYeocrtks Timesmagazine, Feb,ruary 13, 1994, "Lettersto the Editor" 413 WITNESSES Tuesday, March 22, 1994 Atkinson, Dr. Robert, Senior Analyst, Industry, Technology and Employment Program, Office ofTechnologyAssessment 97 Frisby, Greg, ChiefExecutiveGfiicer, FrisbyTechnologies, Freeport,NY 101 John, DeWitt, Director, Center on Competitive, Sustainable Economies, Na- tionalAcademyofPublicAdministration 92 McManus, Patrick J., Mayor of Lynn, MA, representing the U.S. Conference ofMayors 88 MUler, Paul, Planning and Development Director, City of Newport News, VA, representingthe National Council forUrbanEconomic Development .... 94 RobMeDrts, Brandon, President, Brandon Roberts and Associates, Baltimore, 99 Wohlbruck, Aliceann, Executive Director, National Association of Develop- ment Organizations 89 APPENDIX Prepared statements: Kanjorski, Hon. PaulE 416 Atkinson, Dr. Robert 470 Frisby, Greg 489 John, DeWitt 455 McManus, PatrickJ 418 Miller, Paul 459 Roberts, Brandon 484 Wohlbruck,Aliceann 423 Additional Material Submitted for the Record Wohlbruck,Aliceann: "The NADO Report on Reinventing Regions," published by National AssociatonofDevelopment Organizations 430 The New York Times magazine, January 9, 1994, The Myth ofConunu- nity Development" 445 Evanston Inventure, An Economic Development Partnership, written statement 502 RENEWING THE ECONOMIC DE\^LOPMENT ADMINISTRATION: NEW APPROACHES TO ECONOMIC DEVELOPMENT TUESDAY, MARCH 15, 1994 House of Representatives, Subcommittee on Economic Growth AND Credit Formation, Committee on Banking, Finance and Urban Affairs, Washington, DC. The subcommittee met, pursuant to notice, at 10:06 a.m., in room 2222, Rayburn House Office Building, Paul E. Kanjorski [chairman ofthe suDcommittee] presiding. Present: Chairman Kanjorski and Representative Nussle. Chairman Kanjorski. The subcommittee will come to order. This morning the subcommittee meets to receive testimony on the reau- thorization of the Economic Development Administration and the Appalachian Regional Commission. This is the first of three hearings we are holding on this matter over the next 2 weeks. Last time these agencies were reauthorized was in 1980. During the 1980's both the Economic Development Administration and the Appalachian Regional Commission faced neglect and hostility under Presidents Reagan and Bush. EDA, in particular, was sin- gled out for elimination. Fortunately, through annual appropria- tions Congress managed to keep the EDA and the ARC alive. Nev- ertheless, at least in the case ofthe EDA, that agency's authorities and funding were dramatically reduced, which severely hampered its vital mission of helping communities recover from serious economic distress. The Clinton administration, however, recognizes the importance offostering economic development in hard-hit areas and especially understands the major role the EDA and ARC must play in this effort. Now imder new management, the Economic Development Administration for example has renewed a sense of mission and is making major strides, retooling its operations. The agency has put considerable effort over the last year into revising and expediting its cumbersome application process, which is both critically important and long overdue. I also am pleased with some ofthe initiatives in the EDA's budget request for 1995 on which we heard testimony at previous hearings. President Clinton's fiscal year 1995 budget request provides EDA with $50 million for loan guarantees for business development. This important new tool will leverage an estimated $269 million to help create newjobs in distressed communities. (1) However, the lack of a permanent Assistant Secretary for Eco- nomic Development within the Department of Commerce naturally limited the extent of revisions EDA made over the last year. Now with the confirmation of Will Ginsberg to that position we have a unique opportunity to move forward and enact new measures that will enable true renovation ofthe EDA. The importance of the EDA, not to mention the ARC, to Presi- dent Clinton's economic strategy cannot be overstated. Historically, especially during the 1960's, 1970's, the EDA aided numerous economically distressed commimities in their efforts to get back on their feet. Most of this assistance primarily came in the form of public works and infrastructure development grants, planning grants, and technical assistance to help communities develop com- prehensive economic strategies and public enterprise loans and loan guarantees. The EDA in the 1970's was a much larger and better funded agency than the EDA we see today. Yet, in recent years the EDA has been called upon to meet rapidly growing demands for assistance from an increasing number of regions and communities around the country experiencing economic difficulty. The Economic Development Administration has played a critical role in disaster relief, first in response to Hurricane Andrew and Hurricane Iniki, then to the Midwest floods, and most recently to the Los Angeles earthquake. The EDA is one of the key agencies involved in implementing President Clinton's Defense Conversion and Adjustment Program. Its importance in this effort are reflected in the administration's greatly increased budget for activities under EDA's Title IX Program. The EDA is expected to be involved in the President's Empowerment Zone/Enterprise Community Program. Finally, there are numerous communities, both rural and urban, EDA suffering from steady economic decline that also need services as they struggle to build sustainable economies that would compete in the global economy. The EDA, therefore, is confronted with a very substantial important challenge. How should it retool and reorganize itself to meet these very large demands. I am concerned that its current organi- zation and machinery are too outdated and underfunded to do the job. We consequently have to explore whether we should in this re- authorization devise substantial new authorities and the impetus to adopt new approaches and practices in this program. Through the three roundtable hearings the subcommittee is holding we aim to open up the discussion about what kinds of changes are needed to bring the EDA into the 21st century. We have struc- tured the hearings to allow as wide a range of ideas and experi- ences as possible. In the first hearing we ask the question what new approaches to economic development should be considered for incorporation into the EDA programs? Traditionally, the EDA approach to economic development centered around funding public works and infrastructure projects. While this type of support is still very valuable, other kinds of economic development activity, such as financing for technology-based business development and what some experts have called industrial service also need to be looked at. I have been encouraged by discussions with the Economic Devel- opment Administration's new leadership. There appears to be a great deal ofreceptivity to such new approaches within the agency. In the second hearing we ask what can we learn from State and local initiatives that have achieved some measure of success and represent the best practices in economic development? Again I am EDA encouraged that the has recognized the importance ofworking more closely with States, regions, and local communities as well as the private sector to build new engines the Nation needs for economic growth andjob creation. Finally, in the third hearing, drawing upon what we learned from the first two hearings, we ask more specifically how can we improve delivery of EDA's services? We also want to consider a number of associated issues, such as how to expand the participa- tion of private, nonprofit, and community-based organizations that up to now have had limited access to EDA's support, how to balance the services between urban and rural areas, and how to strike EDA an appropriate balance in the distribution of resources between defense downsizing, empowerment zones, and other kinds of distressed communities. Today, I am pleased to begin the important process ofevaluating EDA's role and developing a new direction for the agency which ad- dresses the needs of the Nation in the coming decade. For this end we have brought together a very distinguished group ofindividuals with wide experience and expertise in the areas. I welcome you all, and look forward to your testimonies and our subsequent discussion. [The prepared statement ofthe Honorable Paul E. Kanjorski can be found in the appendix.] In particular, I will start identifying the members of the panel, first Dr. Atkinson. Welcome back. You have testified before. We ap- preciate that testimony, and we look forward to today's testimony. Dr. Atkinson is from the Office of Technological Assessment. He is a Senior Analyst, Industrial, Technology and Employment Program. Next we have Mr. Brian Dabson, president ofthe Corporation for Enterprise Development. Next, we have Mr. John Kutler, Quarter- deck Investment Partners, Inc., Los Angeles, California. Next, we have Mr. Greg LeRoy, president, GLR Associates, Chicago, Illinois. We have Dr. Michael Oden, research fellow. Project on Regional and Industrial Economics, Rutgers University, and, finally, we have Mr. Thomas Croft, executive director. Steel Valley Authority, Pittsburgh, Pennsylvania. He comes from my home State. We would like to open with comments by Dr. Atkinson, but if I could ask the entire panel to synthesize the opening comments to 3 minutes, 5 minutes at best, and give us an opportunity really to have cross discussion ofyour ideas and what we could do. Dr. Atkinson. STATEMENT OF ROBERT ATKINSON, SENIOR ANALYST, INDUS- TRIAL, TECHNOLOGY AND EMPLOYMENT PROGRAM, OFFICE OF TECHNOLOGYASSESSMENT Mr. Atkinson. Thank you, Mr. Chairman. It is a pleasure to be here today. I will keep my remarks short. I want to start by stating the importance of Federal support for economic development, in general, and also, in specific, the role EDA that can play in helping communities adjust from economic dislocation. However, I want to focus most ofmy comments on how EDA can be improved. EDA was established in 1965 and emerged as an or- ganization in a time when the nature of economic development in the U.S. economy was significantly different than it is today. EDA has been slow to adapt to these changes. We have moved from the old economic development environment. A lot of the focus when the EDA and the Appalachian Regional Commission were formed was on long-term distressed regions that suffered from a lack of infrastructure, a healthy industrial base, and oflen the technical skills to conduct economic development. As a result, EDA's job was principally to focus on these regions, to help establish and support economic development organizations, and to fund physical infrastructure projects which would make these regions able to attract industry. However, that has changed in the past 20 years. First, many of these distressed regions now have at least reasonable infrastructure in which to perform economic development. Second, most of them have adequate technical skills in which to conduct economic development, and the U.S. economy is different. It is much more difficult for regions to attract branch plants, large manufacturers, than it was 20 years ago: (a) There are fewer branch plants; (b) most ofthese branch plants, when they are look- ing for a low-wage location, a low-cost location, they are much less likely to look in the United States than they were before. Often- times, they will look overseas for a low-cost location. Finally, technological innovation, flexibility, worker skills, qual- ity, are much more important in terms of economic growth than they were in the 1960's. As a result, basing an economic development strategy on a low- EDA cost physical infrastructure approach, as initially did, I don't think makes as much sense as today. What has happened in the past 10 or 15 years? Principally, States, local governments, and a number ofnonprofit local development organizations have recognized these changes and have forged new approaches to economic development; what some have called a second wave in economic development. The first wave was characterized as infrastructure-based, industrial recruitment. The second wave sought to create economic growth through building from within, either by helping new businesses start or helping existing industries in the region expand. As a result, there were a number of new programs created in- cluding business financing efforts, technology development and—de ployment programs, export promotion, and worker training a whole array ofnew approaches to economic development.