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any special privilege or anything else; just the same exemption that is provided in existing law.
Mr. CONTE. Do you have that study?
Mr. BERGLAND. Mr. Mazotti, as you know, the State of California had $200 million in Government bonds authorized for this purpose, of which $183 million went to what is classified as large business.
Is this attributable to the fact that the small business community was not sophisticated enough to provide the standard financial data to which you just alluded?
Mr. MAZOTTI. To the contrary, the bank became quite concerned. We produced over 5,000 booklets; we sent them out to individuals individual people, as well as to our branch offices and attempted to work out programs. We were simply unable to bring together packages that were creditworthy and salable. We could not get the issues rated. The corporations had very difficult records to represent. When you represent something like Mobil Oil, or something of this nature, you have the national credit ratings, plus your own statistical background, combined with the investors recognition of the product or the company. In the small operations we had in California, we could not achieve that kind of approach with the customer.
Mr. BERGLAND. Is that why small businessmen were not able to avail themselves of this bonding authority?
Mr. MAZOTTI. That is correct.
If the provision was such that they could have complied and could have marketed the bonds, there would be no need for them not to put in the equipment.
Mr. BERGLAND. Thank you very much.
You indicated that the tax exemption is an important part of this and would be 2.5 to 3 percent. There is a big difference in the degree of participation. Some States do not go into these kinds of programs.
Mr. ALDRICH. Two States: Oregon and North Carolina.
Mr. Suith. As a practical matter, some of them do not participate very heavily. This bill might create a tremendous disadvantage to businesses, small business, in a state that really did not have, as a practical matter, industrial revenue bonds as it might cause more shifting between States and locations for small businesses.
Mr. ALDRICH. I presume that that trend could occur if it did exist. Mr. Smith. Finally, I would like to clarify the cost per employee. You said $18,000 per employee. Do you think that is typical?
Mr. ALDRICH. That was on one end of the scale, for papermills with a 20–49 employment. Each industry has its own pattern.
Mr. Smith. What do you think would be the average cost per employee across other industries?
Mr. ALDRICH. I do not have that. I can develop those figures for you.
Mr. Smith. Mr. Mazotti, you had something about $5,530. Was that an average?
Mr. MAZOTTI. That was taken from our chart; that represents a study. Those are just average numbers of the firms we looked at. It was not a total sampling. A lot of our information was compiled principally from California. We have extensive records. In order to come up with a national number, we would have to do some additional digging
Mr. Smith. For example, your study in California probably did not include papermills.
Mr. Mazotti. We have a few woodchip mills and a few papermills. It did include some wood processing paper and other facilities in California. We do have some.
Mr. ALDRICH. That particular number is derived from the papermills with that number of employees at that cost at that single year. That single year happened to be 1973. The cost in this thing -No. 1, it varies all over the map. It is the best estimate you can come up with.
With a broad-range paper product of this size, of this category, having to meet air and water pollution standards of an average State, and so forth.
Mr. Smith. Perhaps we can get more refined figures on the average across all industries. What we are getting into is that it is a matter of people understanding.
If, for example, the cost per employee in the United States is $10,000, and if we use an 8-percent interest rate for the use of the money, that is $800 per employee less that can be paid to employees and those who furnish the capital. One way or the other, for the cost of enhancing the environment, people are going to have to accept the fact that they are going to have $800 less to spend on other kinds of goods and services.
This is something that I do not believe people, at this point, have accepted. They want to enhance the environment, but they do not want to reduce the other expenditures in their family budget. But if we are going to do this, we are just going to have to look at it; and perhaps it is worth it—it is to me. If I lived close to a papermill, I would rather not smell the sulphur and have one less steak per week. The trouble is that most people, I do not think, realize they are going to have to pay for this one way or another.
What you are talking about is a method of financing the payment that we are going to have to make.
We do appreciate your coming forward with this proposal. We probably will be in touch with you more—the staff will—to work out some details, and so forth, for a report.
Mr. CONTE. Mr. Chairman, I forgot to ask one question.
Mr. ALDRICH. That detail has not been worked out. In order to sell bonds and get a rating on the bonds, there has to be 100-percent guarantee on the bond itself. We have talked to insurance companies who would provide that kind of guarantee, and it would be reinsured by the SBA up to some limit. So that detail has to be worked out. But the bonds themselves must be insured for 100 percent in order to achieve a rating and get the maximum benefits.
There is a possibility of reinsurance here, in getting the private sector into that aspect of it for credit evaluation, et cetera.
Mr. CONTE. Seventy percent?
Mr. ALDRICH. Higher than that, I guess.
Mr. SMITH. The next witness is Norman Gelfand, Illinois Industrial Pollution Control Financing Authority.
TESTIMONY OF NORMAN GELFAND, CHAIRPERSON, ILLINOIS INDUSTRIAL POLLUTION CONTROL FINANCING AUTHORITY
Mr. GELFAND. I would just like to introduce my statement for the record and make a few comments.
Let me just describe our experience at the Illinois Industrial Pollution Control Financing Authority. The legislature, which had set up the IIPCFA, decided $75 million of the $250 million in authorized revenue bonds was to go to aid small businesses. We solicited applications from small businesses using the help of the Illinois Manufacturing Association and the State chamber of commerce.
We have had a large number of inquiries from small business. We have had a number of applications. We have reviewed these applications. We have consulted with our State environmental protection agency to determine that these programs are necessary and feasible.
In many cases, the companies have been under State pollution control board orders to comply with regulations. These are needed facilities. In only one instance after we had voted the bond resolution have we been able to find a purchaser for the bonds which we proposed to issue.
The problem is just finding people who are willing to make longterm investments in small businesses.
Mr. Smith. When you say long term, how many years are you talking about?
Mr. GELFAND. The one we did manage to sell was for 6 years. That is short term. Clearly it is to the advantage of the company to have a long-term loan or bond, so that their working capital is not deeply depleted to put in these pollution control facilities.
Mr. CONTE. What interest do you pay on that?
Mr. GELFAND. I think it was about 6% percent--a private placement to a local bank in the amount of $57,000. Clearly, the bank knew the individual business and had faith in the company. It was willing to buy the bond, in part, for the other business that the company did with the bank.
The interest paid on the bond was substantially lower for the company. It was worth the trouble for the company of going through this additional method of financing.
Mr. CONTE. A very good rate.
The basic problem is finding purchasers for the bonds. Small companies have been very active in looking for purchasers and have been unable to find them. We do not see how we can carry out the mandate of our State legislature without these Federal guarantees for the bonds. So, we support this Federal program; the Illinois Manufacturing Association supports it; the Illinois Chamber of Commerce supports it, and, of course, small industry--as far as we are able to determine in the State of Illinois-certainly supports it.
Mr. Smith. Mr. Conte?
[Mr. Gelfand's prepared statement and attachments follow :) PREPARED STATEMENT OF NORMAN GELFAND, CHAIRPERSON, ILLINOIS INDUSTRIAL
POLLUTION CONTROL FINANCING AUTHORITY H.R. 78 has been introduced in Congress which if enacted will create a badly needed pollution control financing program for small businesses. This legislation would specifically allow SBA lease payment guarantees of pollution contro) facilities. The IIPCFA enthusiastically supports this legislation.
The Illinois Industrial Pollution Control Financing Authority (IIPCFA) was established by the Ilinois General Assembly to issue tax-exempt bonds to finance the construction of pollution control facilities. The authority was given a special mandate by the general assembly to provide special assistance in this area to small businesses. Of the $250 million bonding authorization of the IIPCFA, $75 million is specifically reserved for small businesses.
The IIPCFA has experienced no difficulty in selling its bonds for large corporations. It has, unfortunately, been able to market only one small business issue, for $57,000, through a private placement with a bank. Two problems confront a small business which attempts to gain financing for pollution control equipment via pollution control revenue bonds.
First, the availability of purchasers for small business issues presents special problems. Since their credit histories are not well known, small businesses generally lack the security bond buyers look for in purchasing these bonds.
Second, there are a number of fixed costs associated with a bond financing which discourage issues of smaller size. These include bond counsel's fees, underwriting costs, printing fees, etc.
An SBA lease payment guarantee program would provide small business parity with large businesses in marketing these bonds and make it possible for them to enjoy the benefits of long-term financing for pollution control equipment.
This program of guarantees of lease payments is, in effect, a system of SBA insurance totally supported by the small businesses and therefore would not require expenditures from the Federal treasury.
It is unfortunate that small businesses are the hardest hit by necessary environmental standards and the last to be helped. It is extremely difficult to explain to these small businessmen that while the IIPCFA is able to issue $10 million in bonds for Allied Chemical Corp., and $35 million in bonds for Commonwealth Edison, it will have great difficulty in providing this same assistance to Beardstown Manufacturing for its $60,000 facility or to API Industries for its $125,000 facility.
H.R. 78 would eliminate this inequity and give small businesses the same advantages in the financing of pollution control equipment that are now enjoyed by large corporations.
API INDUSTRIES INC.,
Chicago, Ill., December 24, 1974. Illinois INDUSTRIES POLLUTION CONTROL FINANCING AUTHORITY, Chicago, Ill.
GENTLEMEN: We are a relatively small company with 1974 sales of approximately $9 million. We are job shop metal finishers and therefore have large pollution control problems, both water and air. Financing pollution control equipment out of operations has strained our working capital to the point where we are having difficulty keeping up with our trade payables.
Accordingly, I would like to know whethe we might issue long-term bonds which would not only pay for the pollution control equipment we will be required to buy by the Metropolitan Sanitary District in the next six months, but also to cover the items we have already purchased in order thay the money so expended might be retuired to our working capital.
I would appreciate it if you would send me whatever forms are necessary for filing and also if you would have someone contact me to counsel me on how to proceed with our request. Very truly yours,
ROBERT L. GIESEL, Chairman.
BEARDSTOWN HARDWOOD MFG., Inc.,
Beardstown, III., April 7, 1975. Illinois INDUSTRIES POLLUTION CONTROL, Chicago, Ill. Att: Ms. Jane Bolin, Assistant Executive Director.
DEAR Ms. Bolin: We have been advised by the EPA that we can no longer burn our waste such as sawdust and bark from our mill.
We have just about come up with a solution to our burning problen but the cost of same runs approximately 60–75 thousand dollars, which no such company such as ours can afford to spend. We have been forced into this by the EPA but can get no financing thru the government or thru the state to install this equipment.
I believe that if small businesses forced by EPA to comply with their silly standards the government should at least provide the money necessary at a very nominal interest rate.
We are one of the lucky mills, because we have a chance to convert our waste into steam and sell same to a treating plant which is near enough to us and will pay us enough for steam to amortized a loan in twenty years. Most mills do not have this opportunity.
Anything that this agency can do with congress either state or national to help small businesses in meeting EPA standards would certainly be appreciated by all Yours very truly,
John H. FLOOD,
ILLINOIS STATE CHAMBER OF COMMERCE,
Chicago, May 19, 1975. The Illinois State Chamber Small Business Council strongly supports legislation recently introduced in Congress-H.R. 78—which will establish a pollution control financing program for small businesses. H.R. 78 would specifically allow the U.S. Small Business Administration to enter into lease-payment guarantee arrangements on pollution control facilities. This measure would provide needed financial relief to many of our member firms.
The Illinois State Chamber Small Business Council was recently created to respond to the growing needs of small business throughout Illinois. Among the major concerns conveyed to the State Chamber regarding current economic problems facing business is the need for an adequate method of financing expensive pollution control facilities.
Although the Illinois General Assembly established a Pollution Control Financing Authority in 1971, the provisions of the financing act did not adequately address the problems small businesses have in securing loans for pollution control facilities. As you are aware, many small businesses lack the security bond buyers are seeking in considering the purchase of tax exempt revenue bonds. H.R. 78 could solv this problem by making a SBA lease-payment guarantee available which would provide small businesses parity with large corporations in enjoying the benefits of tax exempt financing for pollution control equipment.
According to information forwarded to the State Chamber's Small Business Council, the SBA program would be financed by guaranteed insurance payments made by the small business and therefore would not require expenditures from the federal treasury. In many instances small businesses lack the financial capability to purchase pollution control facilities required for compliance with EPA regulations, within the time deadlines prescribed. Since limited capital is available to small businesses, H.R. 78 would provide an attractive and satisfactory financial tool for purchasing necessary pollution control hardware.
In view of spiraling inflation and continuing energy and material shortages, we urge your Committee approve H.R. 78 and help foster the passage of this important legislation which will provide needed financial assistance for Illinois small businesses.