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(The prepared statement follows.) STATEMENT OF CHARLES A. FAGAN III, DEPUTY Assistant SECRETARY FOR
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 Ordersor 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 large 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
work between the EDR and the community to formulate ideas into a specific project plan. We find it usual that the more depressed communities require considerably more time to reach milestone 1. For this reason, it would be meaningless to try to measure or compare the exact elapsed times from original inquiries to the pre-application conferences.
The second milestone is reached at the end of the application preparation stage, which includes the completion of complicated forms, Clearinghouse notification and submission to EDA's Regional Office. Again this period can range widely depending on the sophistication of the applicant and the kind and complexity of the proposed project. However, a sample of 200 projects approved from FY 1968-FY 1971 will give an idea of the average times involved (data not available before FY 1968).
Average number of working days from milestone 1 to milestone 2 Fiscal year:
95 After an application is submitted to an EDA Regional Office, it is given a preliminary review to check that it is complete and then is formally accepted. The project application then undergoes the following rigorous reviews : Requirements and Certifications, Engineering, Financial, Program, Civil Rights, Planning, and Legal. Milestone 3 is reached when the Regional Director recommends an application for approval or denial and sends it to Washington. Below are the average times in this phase for all projects approved in the fiscal years given,
Average number of working days between milestone 2 and milestone 3 Fiscal year:
56 1970 1971
84 When the Office of Public Works in Washington receives a recommended denial from a Regional Director, it reviews the entire project file to confirm the adequacy of the basis on which denial is predicated. If the Office of Public Works concurs in the decision to deny the application, the denial recommendation is forwarded for Legal and Executive Review. If the decision to deny is sustained, the notification of denial is sent to the applicant under the Regional Director's signature. When the Regional Director recommends approval, the Office of Public Works conducts an intensive review of the application to ascertain that all necessary legal requirements and certifications have been obtained, that the project is sound from an engineering standpoint, and that its financial backing is adequate.
Milestone 4 is reached when the Director of the Office of Public Works forwards his recommendation for approval or denial for Legal and Executive Review.
Milestone 5 is reached after the project has been reviewed by the Office of the Chief Counsel, has been through the Executive Review and is approved by the Assistant Secretary. The total number of working days for projects in Washington, Milestones 4 and 5, are given below by fiscal years.
Average working days in Washington, milestones 4 and 5 Fiscal year:
Number 1967 1968 1969 1970
Total processing time
The averages of the total processing times, from Milestone 2 to Milestone 5 are given below and are graphically illustrated on the bar chart, Exhibit “B:"
Average working days for total processing time, milestone 2–5
150 Processing delays can be ascribed to two major causes: (1) the need to conform to a variety of statutory requirements, and (2) applicant's errors.
Each project proposal, if it is to be funded, must conform with a number of Federal statutes. EDA, within the last few years, has been faced with the need to meet additional statutory requirements such as those imposed by the Intergovernmental Cooperation Act of 1968, the National Environmental Policy Act of 1969, and the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970. Each of these Acts have added to processing time, and have increased the amount of paper that must be generated, signed, distributed and filed for each project. Some of this burden is on the applicant; but most of the burden (and all the responsibility for conformity) is on EDA.
On occasion, however, project processing is delayed simply by applicant error. A change of scope, after initial submission, may delete the bulk of the economic impact a proposal would have had. It usually will significantly alter the financial arrangements, and it requires a new engineering review. When applicants include ineligible items for funding, negotiations between Federal and local engineers ensue and a restructuring of the financial plan is required. When applicants misjudge the attitude of their electorates, and an essential bond issue is rejected, the community may not be able to provide its share of the project cost. Also, local litigation, usually unforeseen, can cause delay.
The actual on-board personnel strength for public works, at the close of business on June 11, 1971, was 80 in Washington and 165 in the field. These figures include all the full-time and part-time (summer help) professional and clerical employees who work in project development, project processing and project management. In addition to the actual project processing, they handle all the administrative details and minutiae attendant thereto (letters, phone calls, personal visits) that do not lend themselves to quantification. In addition, they also provide countless manhours of assistance to other Officers of the Agency by performing such duties as making economic studies, reviewing Overall Economic Development Programs, and giving guidance to the electronic data processing units.
THE BUSINESS LOAN APPLICATION PROCESS EDA's business loan program employs the full-time services of 74 people and uses the part-time services of 117 others. Thirty-six of the full-time employees are located in Washington and 38 are in EDA's six regional offices. The 117 part-time personnel include Economic Development Representatives, their staffs and 13 attorneys. The Economic Development Representatives, stationed in the various States and Puerto Rico, are responsible for promoting all of EDA's programs: business loans, technical assistance and public works.
On April 7, 1971, EDA's Office of Business Development implemented changes recommended in a study of its business loan processing system of EDA's Management Analysis Division. Specific processing efficiencies resulting from the study recommendations are identified later in this statement. Under the newly adopted system, a business loan application passes through four basic phases prior to final action. These are:
1. Program promotion.-Both Economic Development Representatives and Regional Office Business Loan Specialists are now responsible for developing new business loan activity.
2. Application development and screening.-Once identified, a potential loan proposal is reviewed by the Regional Office Business Development Division for statutory, credit and policy eligibility. If the potential applicant appears qualified an Application Development Conference is arranged to acquaint him with the requirements of completing EDA's business loan application. During the ap plicant's preparation of a formal application Regional Office Loan Specialists are available to assist as necessary.
When the application has been completed and accepted for processing, the Regional Office obtains a flood plain study and the required State certifications,
prepares economic impact and equal opportunity analyses, and forwards the application to Washington for evaluation.
3. Credit and technical evaluation.--Upon receipt in Washington of an application, the Office of Business Development determines the extent of evaluation required. Though each case varies in complexity, most require a thorough credit and technical evaluation prior to design of the terms and conditions of an EDA loan offer. Credit and technical evaluation in certain new venture loans is performed by SBA upon request from EDA Washington. EDA conducts directly the credit and technical evaluation of business expansion loans.
4. Development of loan terms and conditions and OBD recommendation.–Upon completion of credit and technical evaluation the Office of Business Development negotiates the terms and conditions of the proposed loan with the applicant, prepares a statement of its findings, and recommends approval or denial of the loan. These findings and the recommendations are then reviewed by EDA's Office of Chief Counsel, the Deputy Assistant Secretary for Operations and the Deputy Assistant Secretary prior to presentation to the Assistant Secretary for Economic Development. Only the Assistant Secretary or the Deputy Assistant Secretary acting for him may approve a loan. Authority to deny is delegated to the Deputy Assistant Secretary for Operations.
RECENT IMPROVEMENTS IN BUSINESS LOAN PROCESSING The improved business loan processing system is designed to accomplish the following:
1. Strengthened loan promotion.--Prior to April 1971, only Economic Development Representatives were responsible for generating new business loan activity. A study made during 1970 indicated that their responsibilities to other EDA programs left them little time for business loan promotion. Assumption by EDA Washington of major responsibility for application evaluation, negotiation and recommendation has enabled Regional Office business loan staffs to devote more time to locating and assisting applicants.
2. Strengthened loan screening and development.--EDR's were previously responsible for early application screening for eligibility. Because Regional Office business loan specialists are better qualified for this task, fewer misunderstandings with applicants are resulting.
3. Reduction of double processing and processing time.-Until April 1971, Regional Office business loan specialists were responsible for guiding the preparation of an acceptable application, obtaining technical evaluations, preparation and negotiation of loan offer terms and conditions, preparing a statement of findings and recommending approval or denial of each loan. Washington review often resulted in the necessity for major re-evaluation and re-negotiation of loan offer terms, with obvious delay.
EDA Washington is now solely responsible for the evaluation, negotiation and recommendation functions. This permits a considerable reduction in total processing time. A comparison of processing times in both the old and new business loan processing system can be made.
Exhibit "C" depicts the working days required to process approvals of business development loans from fiscal years 1966 through 1970. The last bar labeled “New System" represents our present estimate of how our revised procedures instituted April 7, 1971, will work.
Exhibit "D),” Parts 1 and II show processing time for approvals from fiscal years 1966 through fiscal year 1970 under the old procedures.
Exhibit “E," Parts I and II reflects our estimates of how the revised system will work out in practice.
Exhibit "F" depicts the processing status of the 33 loans presently being handled; Exhibit "G" is a five-page chart illustrating processing steps required in connection with business development loans in the left-hand column with a brief explanation of the necessity for each step in the right-hand column.
TECHNICAL ASSISTANCE PROCESSING Exhibit “H," a flow chart, illustrates the processing steps for technical assistance grants and contracts. Applications are received either in the Regional Office or the Washington Office. Fifty-four employees are employed by the Office of Technical Assistance in Washington, and fifteen are stationed at one or another of the six regional offices. OTA Washington prepares final project files for ap