It is estimated that approximately 15 percent of the total of the contributions required from all communities will require financing from this appropriation. The following table indicates the basis for the request, based on an estimate that an average of 60 percent of the total project cost will be obtained through Federal grants: [In millions of dollars] Seventy million dollars is requested for fiscal year 1966 to make loans of up to 25 years for the purchase and development of land and facilities for commercial and industrial usage within redevelopment areas. This program assists communities in providing additional job opportunities for their inhabitants by encouraging the expansion of local industry, the location of expanding industrial facilities, or the creation of new enterprises. Every possible action is taken to assure that the jobs thus created are truly new jobs and not the mere relocation of jobs from one area to another. Loans will be available at a rate of at least 4% percent for up to 65 percent of the total project cost for projects that contribute to the overall economic development of the area. Such loans will be made only if financial assistance is not otherwise available from private lenders or other sources, including other Federal agencies, on terms which, in the opinion of the Secretary, will permit the accomplishment of the project. This program will continue the commercial and industrial loan program begun under the Area Redevelopment Act. The changes made in the new act, reducing an undue burden of financing on the local community without increasing the Federal share, should result in an increased volume of applications. Based on the previous experience under the Area Redevelopment Administration program, the requirements of the program have been derived as shown in the following table (in millions of dollars): Applications on hand, start of year__ 111 New receipts (comparable to the rate of applications received shortly after inception of the ARA program). 195 Less applications on hand and in processing, end of year___ -121 15 110 Total, fully processed applications___ Denied (60 percent). Approved (40 percent) Obligated (approximately 90 percent of approved) ECONOMIC DEVELOPMENT REVOLVING FUND Activity of the program for commercial and industrial loans [Dollar amounts in millions] 132 1 Includes reobligations of projects originally obligated in prior fiscal years. $3.2 million is requested for the working capital loan guarantee program. This program provides for the guarantee of up to 90 percent of the outstanding balance of a working capital loan made to a private borrower by a private lending insti tution in connection with a direct loan project approved by EDA. The Congress considered such a program badly needed and clearly warranted since insufficient working capital was a major stumbling block for many businesses under the Area Redevelopment Act's commercial and industrial loan program. Guarantees of working capital loans can resolve this problem and, at the same time, give private lending institutions a greater incentive to share in the program. The request for $3.2 million is based on the following estimates (in millions of dollars): Direct loan obligations under commercial and industrial loan program--- $70.0 Working capital requirements related to above loans__ 21.0 Total amount of working capital loans made by private lending institu- 14.2 12.8 Reservation of funds (25 percent). 3.2 Funds are set aside to cover the contingency of losses. While there has been no previous operating experience, it is estimated that 25 percent of the amount of guarantees outstanding will be sufficient until the program has several years' operating experience. The Public Works and Economic Development Act requires interest to be paid into miscellaneous receipts of the Treasury on the amount of loans outstanding under the act, at rates determined by the Secretary of the Treasury after taking into consideration the current average market yield on outstanding marketable obligations of the United States of comparable maturities. Interest for fiscal year 1966 was computed at a rate of 4% percent on the estimated disbursements of $12 million under the act. The estimate of $3.7 million for administrative expenses will provide for handling an estimated 300 commercial and industrial loan applications expected to be received in fiscal year 1966. An estimated 135 will be approved which, when added to the approximately 400 loans approved in previous fiscal years under the ARA cmomercial and industrial loan program, will result in a total of more than 500 loans to be serviced during the year. A table indicating the number and dollar volume of applications for commercial and industrial loans at various stages of processing follows the justification. Applications for commercial and industrial loans are examined as to their economic value to the area, their probable contribution to economic redevelopment, and the possibility of financing by other sources, as well as their feasibility and soundness. In the analysis of the application EDA must consider the extent of the project's contribution to economic redevelopment and weigh this potential against the risks of the loan. This review and analysis will be reducted by financial specialists located in eight field offices with technical supervision and final review authority maintained in Washington. Preapplication counseling will be provided as needed to potential borrowers by field loan spe cialists, with supporting services obtained from other specialists located pri marily in the field. Once a loan is approved, it will be closed, disbursed, and serviced primarily by the field staff, with the Washington office being advised of special problems, such as the need for management assistance, as they are Working capital loan guarantee requests will usually be processed at the same time as the basic requests for commercial and industrial loans. Since development facilities loan requests will be processed almost simultaneously with their companion grants, development facilities loan processing costs, which are almost impossible to isolate, have been included with those for grants The following staff will be needed to conduct the loan and guarantee program: Includes estimates for cost incurred in the care and protection of collateral. including such types of items as guard, caretaker, and other services for those projects closed or in other difficulties, and for the purchase of senior liens to avoid premature liquidations of projects temporarily in difficulty. By avoiding too early liquidation there is a greater opportunity to save the project, and more important, the employment potential and the Government investment. USE OF REVENUES The request for funds has been reduced by the utilization of $8.7 million of revenues and repayments received and estimated to be available in the fund. Under the terms of section 203 of the act such collections are placed in the economic development revolving fund where they are utilized to reduce the amount of appropriation request otherwise needed to finance the program. AREA REDEVELOPMENT REVOLVING FUND Mr. ROONEY. Reference to page 3 of these justifications prompts us to inquire is there an area redevelopment revolving fund at the pres ent time actually set up? Mr. LEWIS. There was an area redevelopment revolving fund. Mr. ROONEY. There either is or is not. Let's save time. That is a preliminary question. Mr. LEWIS. There was as of August 31; yes, sir. Mr. ROONEY. Previous to August 31? Mr. LEWIS. There was a revolving fund established from the time the act was signed May 1, 1961. Mr. ROONEY. Where did you get the funds for the administration of it? Mr. LEWIS. The funds were provided by direct appropriations, sir. Although there was a revolving fund, may I add funds received from revenues and from receipts were put into that fund; not 1 cent was ever paid out of the fund. It has been, in effect, a dormant fund for the collection of receipts and repayments. Mr. ROONEY. How much is there presently in that fund and how much has been collected to date? Mr. LEWIS. There is in the fund-and this is reflected in our schedule, sirs-if you will excuse me just a moment-the amount of $7,550,000. Mr. ROONEY. What is the total of the obligations outstanding at the present moment under the Area Redevelopment Act? Mr. LEWIS. The obligations outstanding, not yet expended? I am sorry, I am not quite sure that I understand your question. There shall also be credited to the fund such funds as have been paid into the Area Redevelopment Fund, or may be received from obligations outstanding under the Area Redevelopment Act. Mr. LEWIS. Yes. The total loans are in the neighborhood of $240 million. I would have to provide the exact figures for the record. It is somewhere between $230 and $240 million as my memory serves me, sir. (The following was subsequently filed for the record:) As of August 31, 1965, outstanding obligations for loans (less repayments of principal through May 31, 1965) amounted to $239,447,090. ESTABLISHMENT OF EDA REVOLVING FUND Mr. ROONEY. In the event the Congress should decide to make a regular annual appropriation for loans for economic development rather than for a revolving fund, would you still go ahead and set up a revolving fund? Mr. LEWIS. It is my understanding, Mr. Chairman, that the law requires the establishment Mr. ROONEY. I wonder if you would preface your remarks with a statement, yes or no, and then you can explain. Mr. LEWIS. I believe we would. Mr. ROONEY. It would be much easier to understand. Mr. LEWIS. Yes, sir; at least for the collection of receipts and repayments. Mr. ROONEY. What would you do with those receipts? Mr. LEWIS. This would depend of course on what the appropriation committees of the Congress would permit us to do with these receipts. |