Ask the Scholar
Document scope · 1 page
Scholar
Ask about this object, its catalog metadata, its source description, or the page inventory.
For page-specific OCR and visual context, open one of the page chats.
Scholar Source Context
Document identity
localId
16989414
label
Urban Policy (3)
core
doc
dtoType
document
citationUrl
pageCount
1
Source metadata
id
16989414
sourceUrl
contentType
document
title
Urban Policy (3)
citationUrl
collections
James M. Cannon Files (Ford Administration)
James Cannon's Issues Files
subjects
Finance
Urban policy
iiifBase
thumbnailUrl
largeImageUrl
imageCount
1
hasImages
yes
source
import
hasTranscription
no
Source extras
naId
16989414
coverageEndDate
logicalDate
1976-07-31
month
7
year
1976
coverageStartDate
logicalDate
1975-07-01
month
7
year
1975
levelOfDescription
fileUnit
recordType
description
ocrSource
nara-archive
Single page context
seq
1
pageIndex
0
type
document
url
mediaId
ec81d86c0a899e10
ocrText
The original documents are located in Box 39, folder "Urban Policy (3)" of the James M.
Cannon Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 39 of the James M. Cannon Files at the Gerald R. Ford Presidential Library
5/3/76
THE WHITE HOUSE
WASHINGTON
April 21, 1976
Art M on
a
MEMORANDUM FOR:
JIM CANNON
someone qui we
FROM:
ART QUERN
truiter written
SUBJECT:
Opportunity Funding Corporation
Wepnt on
The attached materials describe an OEO initiated corporation
you
which is designed to support economic development in
minority and low income areas.
It is an operation which has had some success and may
offer some insights into economic development in urban
areas.
Them
I am in the process of setting up a briefing session with
&
their Board of Directors on May 10th or 11th. If you
or any of the other members of the Urban Issues Group
would like to join us, you are more than welcome. Regard-
less, I do believe the attached materials are worth looking
at.
ADQ
Attachment
CC: Art Fletcher
Steve McConahey
Pat Delaney
Lynn May
FORD & LIBRARY GERALD
MAY, 1975
OPPORTUNITY
FUNDING CORPORATION
Profile
John G. Gloster, President
2021 K Street, N.W., Suite 701
Washington, D.C. 20006
202/833-9580
Operating with a capital base of $7.4 million originally provided by
the Office of Economic Opportunity, OFC was chartered in June, 1970,
to test and demonstrate "a range of capital protection, rediscount
and incentive arrangements" and "to act as an experimental central
risk reduction mechanism" in support of economic development in
minority and low-income areas.
Although nearly all of OFC's activities inevitably result in direct
benefits to individual emerging businesses, this is secondary to the
Corporation's broader goal. OFC was not intended primarily as a
business-assistance organization to provide direct loans or technical
assistance to minority entrepreneurs. Rather, OFC attempts to show
how indirect financing techniques can stimulate private investment
to quicken the economic growth of capital-poor communities.
By sharing the risk with such investors, OFC seeks to reduce the
investors' exposure to more tolerable levels. In other words,
OFC seeks to NORMALIZE the risk of investment in capital-poor
communities. OFC has maximum flexibility in structuring the form
of assistance to be provided development projects. Special programs
have been designed to assist in specific areas of enterprise, but
unlike other government and private participants in economic de-
velopment, OFC is able to structure its assistance packages in
accordance with the unique needs of the applicant. Financing
vehicles which may be used include guarantees of every possible
type, rediscounting, put options, call options, interim funding,
etc. Through an affiliate organization under OFC management, CFC
is also able to consider venture-capital equity investments. OFC
may provide assistance to all forms of business organization, in-
cluding those which are not eligible under SBA and other government
programs. OFC may also provide assistance in those areas of business
not covered by government programs, such as the communications
media.
DERALD FORD
- 2 -
In all its programs, OFC seeks to leverage its funds so as to
multiply both the financial and technical resources flowing into
the low-income communities. One of the purposes of such leveraging
is to stretch to the utmost the tax dollars available to OFC. The
PRIMARY purpose, however, is to demonstrate how relatively small
amounts of money can be used to attract much larger amounts into
poverty-area economic development.
In just over four years, OFC has generated in excess of $30 million
of private investment into economic development. Actual losses have
been only about $600,000, or less than 8% of the total amount directly
guaranteed by OFC. These funds have assisted projects in over thirty
states. In addition, OFC maintains over $5 million of its funds on
deposit at some 45 commercial banks in disadvantaged communities.
These funds have been monitored to encourage use in stimulating
further lending within these communities.
OFC has administered five major special programs to test the
effectiveness of innovative risk-reduction techniques in increasing
the flow of capital to disadvantaged communities:
1. Assistance to Poverty-Area Banks: In addition to placing
deposits with poverty-area banks, OFC has played a key role in helping
minority banks raise capital. OFC guaranties have now helped bring
a total of $7,000,000 in new capital into minority banks, most
recently during the $3,000,000 recapitalization of Citizens Trust
Bank in Atlanta.
2. Flexible Guaranty Program: Under this program, OFC extends
lines of guaranty credit to selected local and regional economic
development organizations to assist in financing ventures which they
sponsor or support. OFC and its partners have extended guaranties
totalling $1,474,000 and leveraged some $7,100,000 to assist such
local ventures. Also under this program, OFC directly assists
selected programs or projects of significant scale and impact that
do not fall under the partnership arrangement.
3. Local Development Companies: OFC resources have generated
commitments totalling $1,050,000 for use as "local injection matching
funds" required for SBA participation in plant and facilities loans
to minority businesscs in high unemployment areas. To date, leverag-
ing has exceeded $7,500,000.
4. Real Estate Development Program: OFC guaranties have generated
nearly $6,650,000 for projects of importance to minority communities
and new towns.
5. Bonding for Minority Contractors: Using several advanced
guaranty techniques, OFC guaranties of $1,256,000 have generated
$10,536,000 in contracts for minority firms.
GERALD FORD
- 3 -
Under all of these programs, as well as in our flexible, or unprogrammed,
activities, we find that our guarantee is often placed with a local
commercial bank which serves as the actual funding entity. To
assure acceptability of our guarantee by commercial banks, OFC
corporate policy defines on exceptionally conservative reserve
approach, ranging from 33% to 100% of contingent liability de-
pending upon category. Total reserves currently stand at 67.2%
of total contingent liability. OFC has never failed to promptly
fulfill any obligation in accordance with the terms and conditions
of its guaranties, and can supply references within the banking
community.
OFC activities are directed by a sixteen-member Board of Governors
drawn from all areas of national affairs. Chairman of the Board is
David B. Hertz, Director, McKinsey & Company, New York. Other
members of the Board of interest to the banking community may include:
Theodore D. Brown, President, First National Bank of Denver
James M. Hall, Senior Vice President, The TI Corporation,
Los Angeles (Mr. Hall formerly served as Superintendent
of Banks, State of California)
John D. Mabie, President, Mid-Continent Capital Corporation,
Chicago
Robert O. Dehlendorf II, Senior Vice President, A.G. Becker
and Company, Chicago
Dan W. Lufkin, Donaldson, Lufkin, and Jenerette, Inc., N.Y.
Remaining members of the Board hold similar positions in areas such
as corporate management, education, communications, and public
affairs. A list of the OFC management staff is attached.
OFC also acts under contract as manager of the Cooperative Assistance
Fund. CAF is a privately-funded, non-profit corporation established
to provide investment risk capital (subordinated loans, equity,
guaranties) to promote the advancement of economic opportunity for
members of poverty and minority groups. Incorporators of CAF include
nine of the leading foundations in the country; Rockefeller Brothers,
Ford, Field, New World, New York, Norman, Ellis L. Phillips, Taconic
and the Sachem Fund.
As one result of the success of its own program, OFC has received
substantial funding from both private and government sources to design
and develop new joint participation programs within the minority/
low-income economic development area.
FORD is LIBRARY 07V830
Jack Gloster (A.B., Amherst; M.A., Columbia; MBA., Harvard),
joined OFC in December 1970 as its first President. Previously
he was Director of Economic Development for the National Urban
Coalition, and had worked in a black commercial bank in Atlanta
as well as in Federal government.
Paul Pryde, Senior Vice President, has also been with OFC since
its inception. He is a Howard University graduate with post graduate
credits in business and finance. His previous experience includes
Federal government, private management consulting and minority
enterprise development.
Arnold Nachmanoff, Vice President for Investment Management, holds
an A.B. from Columbia and an M.A. from the University of Denver and
has completed courses in finance and investment at George Washington
University. He came to OFC in Jaunary 1972 after 10 years experience
in foreign affairs, including top-level involvement with overseas
economic development.
Steven Nelson (B.S., University of Virginia; M.A., MIT), Treasurer,
came to OFC in March 1971 from Value Line where he was a financial
analyst specializing in banking and insurance.
Mildred Dickerson, Comptroller, joined OFC in March 1971, after
nearly 20 years experience in budgeting and fiscal management with
State Department.
James McWilliams, General Counsel, is a graduate of the University
of Wisconsin Law School with extensive prior experience, including
service as Assistant Attorney General of the Virgin Islands and
General Counsel of the V.I. Port Authority.
Rochelle M. Fashaw, Director of Communications, joined OFC in 1972;
previously worked as Director, Information Office, Interracial
Council for Business Opportunity and as Staff Assistant to Senator
Edward W. Brooke responsible for Federal and Special Projects.
Regional Managers - Investment Management Group:
Joseph Chavez, a C.P.A. with an M.B.A. from the University of Denver,
previously worked as a certified public accountant with Arthur
Anderson & Co; as comptroller of a private housing corporation;
and as financial director of the Denver Community Development
Corporation. He joined the OFC staff in January, 1973.
Allan Kozu (B.S., University of Washington; M.B.A., Stanford),
joined OFC in 1973 following experience with the Federal Home
Loan Bank and with Marshall Kaplan & Gans, Management Consultants.
David Jameson, (A.B., Princeton/University of Arizona) joined OFC
in 1975, following ten years experience in banking, with Wells
Fargo Bank, and as President or Executive Officer of Central Bank
of Mobile, Valley Bank of Livermore, California, and First National
Bank of Fresno, California; and as a government economic development
specialist in the western Pacific.
GERALD FORD
ESTABLISHED 1846
THE
BANKERS
MAGAZINE
VOL. 156 No. 2
SPRING 1973
Issues and Interpretations: Quotas in Banking, Lawrence S. Ritter,
Professor of Finance, New York University
and William L. Silber, Associate Professor of Economics, New York University
Where Does American Banking Go From Here? Henry C. Wallich,
Professor of Economics, Yale University
and Mable I. Wallich
The Marrow of Banking: Profit in the Spread, H. Peers Brewer,
Vice President, Manufacturers Hanover Trust Company, New York City
Banks and the Public-Louis Harris Talks to Paul Nadler
What Bankers Should Know About Tax-Sheltered Investments, David A. Gracer,
President, David Gracer Company, New York City
Banking By Mail, M. W. Martin, Columbus, Ohio
Flexible Guaranties, John G. Gloster,
President, Opportunity Funding Corporation, Washington, D.C.
Strategic Planning in Banks, Israel Unterman,
Professor of Management, C.W. Post Center, Brookville, New York
What Independent Accountants and Internal Auditors Should Expect From
Each Other, Robert W. Weber, General Auditor, Bankers Trust Company, New York City
and Jerry D. Lee, Partner, Ernst & Ernst, New York City
Loan Review-Bank Quality Control and R&D, Samuel Wm. Sax,
President, Exchange National Bank, Chicago
A Model for Banking Growth, Alan Gart
Vice President, Manufacturers Hanover Trust Company, New York City
Who Is Abe Pomerantz? Harold S. Taylor,
Contributing Editor, The Bankers Magazine
The Impact of Holding Company Acquisitions on Bank Performance,
Peter S. Rose and Donald R. Fraser, Associate Professors of Finance, Texas A&M University
Management Interlocks Between Mutual Savings Banks and Commercial Banks,
Jerome C. Darnell, Economist, Federal Reserve Bank of Philadelphia
Bank Capital Management: Investors Relations, David C. Cates
The World of Banking, International Report
The Economist's Corner, Banking and Regional Growth, Norman Robertson,
Senior Vice President and Chief Economist, Mellon Bank, Pittsburgh
FORD 076835
WG
Book Reviews
&
Urban ghettos and rural areas of poverty are being strangled
from the lack of capital investment. Normal financial
resources simply aren't providing enough funds. Now the
federally sponsored Opportunity Funding Corporation is
offering new assistance.
Flexible Guaranties
D
JOHN G. GLOSTER
O
F ALL THE FACTORS which stand as deterrents
capital), this reluctance on the part of outside in-
to the more rapid economic growth of our nation's
vestors operates to permanently seal off low-income
poor and disadvantaged communities, none, per-
communities from the capital needed to start and
haps, is more critical than the dearth of investment
sustain viable enterprises.
and working capital. This is not to deny the often
The causes for this investor reluctance are well
critical importance of other factors, such as the
catalogued: high crime rates, scarcity of experi-
need for greater managerial capacity, or the diffi-
enced management, high unemployment, low ed-
culties of identifying and obtaining dependable mar-
kets. Nonetheless, no single factor so effectively
John G. Gloster is President of the Opportunity Funding
stifles business development in black and other pov-
Corporation, Washington, D.C. He has a B.A. degree from
erty communities as the reluctance of outside capital
Amherst College, an M.A. from Columbia University, and an
M.B.A. from the Harvard Business School. Mr. Gloster for-
sources to invest in ventures or projects in these
merly served in the U.S. State Department, the Department of
communities. Coupled with the inability of poverty-
Housing and Urban Development, and as Director of the Urban
area residents, engaged as they are in day-to-day
Coalitions Economic Development and Manpower program.
struggle for economic survival, to accumulate sig-
Mr. Gloster wishes to express his appreciation to Paul Pryde
and other members of the OFC staff for their help in preparing
nificant savings (the ultimate source of investment
this article.
[52]
QERALD FORD LIBRAS
Flexibile Guaranties
[53]
ucational and skills levels, high cost of credit, low
Samuels in 1969, SBA loan guaranty programs have
level of productivity, economic isolation. In short,
made increasing amounts of bank credit available
the slum economy is "a mindless marketplace of
to small minority enterprises. As shown below, the
anarchy," into which the outside businessman will
impact of this program has steadily increased with
venture only when incentives or benefits are suffi-
the Nixon Administration's continued emphasis on
cient to cover "all the risks and uncertainties in-
minority enterprise.
volved."
The fact that in some cases, at least, these risks
SBA MINORITY ENTERPRISE LOAN GUARANTIES
may be more perceived than real does not alter the
(In millions of dollars)
situation for the minority or disadvantaged business-
Fiscal Year
Number of Loans
$
man. The stark reality for him is that more often
1969
4,120
$ 93.6
than not no investor can be found willing to under-
1970
2,716
89.0
take the risks which he fears may accompany such
1971
3,224
120.9
1972
3,703
158.1
an investment.
SOURCE: SBA
Investor reluctance tends to increase with the size
of the investment. This is a major reason why the
As helpful as present government loan guaranty
entrepreneurial instincts that do manage to over-
programs are, however, they are often too rigid to
come the anti-business environment of these com-
meet the needs of low-income minority community
munities tend to be channeled into so-called "Mom-
groups or entrepreneurs. Lending agencies tend to
and-Pop" businesses, with their typically minimal
demand the maximum guaranty coverage permitted
capital requirements. Even these frequently mar-
by law, and eligibility for guaranties is restricted to
ginal businesses, however, characteristically suffer
certain types of lending institutions and projects.
from under-capitalization and lack of access to
Beyond this, existing guaranty programs are ad-
working capital.
dressed almost exclusively to the need for debt cap-
ital, doing little to meet the ever-present need for
greater amounts of equity capital. Therefore, as a
part of its basic objective of demonstrating that in-
novative applications of risk-reduction and other
secondary financing techniques (guaranties, dis-
counting, incentives) can increase the flow of pri-
vate capital into low-income communities, Op-
portunity Funding Corporation (OFC) recently
launched an experimental Flexible Guaranty Pro-
gram.¹
REDUCING THE RISKS
THE OFC PROGRAM
Significantly, government efforts to foster greater
economic growth have long recognized the need to
The OFC Flexible Guaranty Program seeks to test
provide some form of risk reduction to encourage
a flexible guaranty mechanism for community-based
greater investment community participation in pro-
projects, primarily using carefully selected economic
viding capital for the economic growth and revital-
development organizations. These organizations
ization of poor and disadvantaged communities.
will be able to utilize OFC guaranties to increase
Under programs developed in the Sixties, both the
their financial packaging capacity. The purpose of
Economic Development Administration (EDA) of
the program is to demonstrate that effectiveness (in
the Department of Commerce and the Small Busi-
terms of community impact and financial success
ness Administration (SBA) began to use guaranties
of projects) and efficiency (in terms of dollars in-
as a means of reducing risks for private sector cap-
vested per dollar of guaranty cost) can be max-
ital sources investing in ventures in both poor rural
imized through flexibility to:
and urban minority communities. Although much
1 Established in June 1970, with a $7.4 million grant from
criticized, these government programs have grad-
the Office of Economic Opportunity, the Opportunity Funding
ually opened up traditional loan capital sources to
Corporation (OFC) is a privately-incorporated, tax-exempt,
minority businesses. Beginning with Project Own,
non-profit organization. Governed by its own Board of Gov-
ernors, it conducts projects designed to test new methods of
launched by then SBA Administrator Howard
attracting capital into low-income communities.
[54]
The Bankers Magazine
Negotiate guaranty levels and terms.
which can markedly affect the economic and/or
Employ various financial techniques not us-
social development of a low-income community.
ually associated with existing guaranty pro-
grams (e.g., puts, straddles, front-end guaran-
Selection of "Partner" Organizations
ties).
Provide guaranty protection to financing
The effectiveness of the Flexible Guaranty Pro-
sources not currently eligible under most gov-
gram to a great extent depends on the cooperating
ernment programs.
development organizations selected as OFC's "part-
ners." Business and economic development organi-
Thus the Flexible Guaranty Program is intended
zations, such as Community Development Corpora-
to provide the impetus for significant poverty area
tions (CDCs), Local Development Companies
economic development projects that would not-
(LDCs), Model Cities Economic Development
or could not-be assisted by existing federal or state
Corporations, and technical assistance agencies are
programs.
eligible for participation in the program. Because
OFC has allocated up to $2 million for reserves
of funding limitations, however, a careful selection
to support flexible guaranties. It is anticipated that
is made among applicants. Preference is given to
a considerable number of the projects supported
organizations which meet the following criteria:
with flexible guaranties will be successful. Thus, the
$2 million reserve fund should furnish leverage for
Demonstrated business development perfor-
mance.
project funds far in excess of this amount. The cash
Established working relationships with local or
reserve will remain as part of OFC's balance sheet
regional financial institutions, government agen-
until needed to meet the conditions of specific guar-
cies, and other resource organizations.
anty agreements.
Effective relationships with community-based
organizations and/or community residents.
How The Program Operates
In terms of their ability to develop financial pack-
The Flexible Guaranty Program is implemented
ages for business ventures, the organizations should
in two ways:
have:
(1) OFC delegates the responsibility for identifi-
- Qualified and well-balanced staff-i.e., a good
cation, financial packaging, and negotiation of
blend of executive personnel, financial analysts
specific projects to qualified technical assistance
and business management specialists.
and/or community development organizations, both
- Access to good advisors-i.e., management and
rural and urban. In effect, OFC commits a line of
technical consultants, legal and financial experts.
guaranty authority to selected "partners," who in
- Experience in successful packaging and financing
turn screen, evaluate, and negotiate financial pack-
of relatively large-scale business ventures.
ages in accordance with previously defined criteria.
- A range of potential business packages-i.e.,
These may be projects in which the "partner" par-
several projects either under development or pro-
ticipates directly or projects which it sponsors. The
posed for the future.
partner organization has the incentive to negotiate
While preference will be given to those organiza-
the best possible deals (lowest guaranty level, short-
tions that most closely meet these criteria, a suitable
est duration of guaranty) in order to utilize its
mix of organizations and geographic locations for
guaranty line to the fullest extent possible. While
experimental purposes will also be considered in the
OFC receives proposed packages at an early stage,
selection process. It is anticipated that OFC will
is kept informed throughout negotiations, and gives
enter into agreements with approximately four to
final approval to specific guaranties, it generally is
six "partners" during the first year of the program.
not directly involved in the negotiations. The part-
ner organization also submits periodic reports on the
project to OFC after the deal is completed.
Criteria for Eligible Projects
(2) OFC directly negotiates support for projects
The types of projects that community organiza-
if a suitable partnership arrangement is not feasible
tions may finance with flexible guaranties include
and there is a unique opportunity to demonstrate the
interim assistance to ongoing businesses, expansions,
effectiveness of flexible guaranties. This technique
acquisitions, and new enterprises. In all cases, but
will be used sparingly, usually for larger projects
particularly for new starts, preference should be
Flexibile Guaranties
[ 55 ]
given to projects that provide for management as-
ican and poor white communities in several parts
sistance from an investor or that include the cost
of the country: The Community Investment and
of such assistance in the financing package.
Development, Inc. (CIDI), a community develop-
ment corporation located in Little Rock, Arkansas
In general, projects supported under the OFC
will have a guaranty authority of $300,000; the
Flexible Guaranty Program should:
Lummi Indian Tribal Enterprise (LITE) of Mari-
Be innovative-the OFC guaranty should be em-
etta, Washington, $200,000; the Southern Coop-
ployed in a way or in a situation where existing
erative Development Fund (SCDF), headquartered
government guaranty programs cannot or are not
in Lafayette, Louisiana and assisting cooperatives
presently operating.
throughout the South, $200,000; and the Colorado
Have a reasonable prospect for continuing opera-
Economic Development Agency (CEDA), a tech-
tional viability without dependence on future
nical assistance organization which operates
grant or additional guaranty assistance.
throughout Colorado and other parts of the South-
Have sufficient scale to impact on substantial
west, $500,000.
numbers of poor or minority people in terms of
either employment, capital mobilization or redis-
FUNDING GUIDELINES
tribution of income and ownership.
Provide for effective management, technical, or
OFC generally limits the amount of guaranty au-
administrative assistance, as well as financial re-
thority it will extend to any one partner organiza-
sources to enhance the project's success potential.
tion to a maximum of $500,000. Specific amounts
depend on the size, capabilities and project poten-
More specifically, projects to be supported in the
tial of the cooperating organizations. To encourage
Flexible Guaranty Program should:
rapid use of the guaranty authority, the duration of
any "partnership" agreement usually is limited to
Be owned (totally, in part, or in future by agree-
two years, subject to renewal. To provide a useful
ment) or sponsored by an organization repre-
sample for evaluation purposes, partner organiza-
senting the interests of low-income people and/
tions are expected to utilize the guaranty authority
or low-income communities.
to complete several (four or five) substantial pack-
Utilize the OFC guaranty directly or indirectly
ages, rather than a single large package or numer-
to induce additional capital to flow into a low-
ous small ones. OFC retains the option to revoke
income community.
any unobligated guaranty authority if it determines
Demonstrate greater potential savings and/or
that performance under the terms of the agreement
flexibility than existing government guaranty pro-
is unsatisfactory. A nominal guaranty fee will be
grams. In no case will an OFC guaranty result
charged by OFC.
in placing an investor or lender in a riskless posi-
tion-i.e., where an investor or lender's exposure
In general, OFC places the following restrictions
would be 100 percent covered by an OFC guar-
on the use of its guaranties:
anty alone or in combination with other guaran-
ties. On the contrary, potential savings will be
OFC funds will not be used to guarantee financ-
demonstrated by negotiating guaranties of lower
ing where a government guaranty is otherwise
available on reasonable terms and conditions.
levels and/or shorter duration than the normal
terms of existing government guaranty programs
Partner organizations will be required to certify
for similar purposes. Flexibility will be demon-
that their projects are ineligible for other govern-
strated by negotiating a level or form of guaranty
ment guaranties before an OFC guaranty will be
considered.
not currently employed or by providing a guar-
anty for a source of funds which is not eligible
Unless expressly approved by OFC, its funds will
under existing programs.
not be used to collateralize any guaranty (OFC
will not place its funds in deposit or escrow ac-
The initial "partners" announced by OFC will
counts but will disburse funds only to meet actual
each have a line of guaranty authority to use in
losses covered under its guaranty).
packaging deals and assisting ventures which they
OFC funds will not be used to make direct loans,
sponsor or own. These "partners" represent a range
grants or investments, nor should they by virtue
of technical assistance and economic development
of a guaranty or other agreement entered into by
organizations, serving black, brown, native Amer-
any selected cooperating organization be encum-
[56]
The Bankers Magazine
bered for an excessive period of time. On the
eration and training of less skilled employees
contrary, OFC guaranty authority should be em-
and, most important, through the "call" option,
ployed to achieve the greatest possible turnover
an opportunity to obtain a larger share of the
and financing multipliers.
equity and assure control of the business when it
OFC guaranty authority should be used only
becomes successful.
when absolutely essential to the consummation of
- Use the guaranty authority to induce a bank to
the transactions for additional capital.
issue a letter of intent to provide a line of credit
Not wishing to overly restrict the latitude of action
for working capital so that the CDC could peti-
tion Federal Communications Commission for
available to "partners," OFC is prepared to con-
sider modifications of the general guidelines in spe-
a radio station license. Unless an applicant's
cial cases.
capital resources are lined up, the FCC would
not consider such a request for a communications
license.
Illustrative Cases
- Use the OFC guaranty authority to provide par-
The following is a hypothetical situation which
tial lease guaranties of a limited duration for
CDC business ventures to be relocated in a re-
illustrates how flexible guaranties might be utilized:
An economic development organization, such as
gional shopping center where sales volume in-
a Community Development Corporation, is selected
creases are virtually assured.
as an OFC "partner." OFC commits to it a line of
In rare instances, OFC will use the Flexible
guaranty authority. There are any number of typ-
Guaranty technique to facilitate the financing of
ical projects that the CDC might undertake, using
packages of significant size and impact, other than
the OFC guaranty authority to leverage the required
those sponsored by organizations selected as Flex-
financing.
ible Guaranty "partners." One example might be
- Provide a partial guaranty to a bank to extend
to facilitate acquisition by a community group of a
lines of credit to the CDC's existing businesses
profitable manufacturing enterprise whose present
owners wish to divest for reasons unrelated to the
which have had difficulty in meeting seasonal
needs for credit. Assuming that these businesses
company's continued financial viability. Another
were originally financed with SBA-guaranteed
could be to assist a community organization obtain
bank loans (secured by the assets of the busi-
a majority equity position in a cable television fran-
chise.
nesses), this type of working capital financing
probably would not be available from SBA.
IMPLICATIONS FOR CHANGE
- Identify a potential investor with a background
in manufacturing. In return for investment and
From the varied experiences that can be expected
management augmentation in a new plastics
to evolve under its Flexible Guaranty program,
molding plant, for example, the CDC could offer
OFC hopes to derive support for recommendations
the investor a "put" option-the right to sell his
for at least two kinds of change:
equity in the business to the CDC (or OFC) at
Through the development and publishing of
perhaps 60 percent of his original investment.
case histories describing innovative new approaches
Coupled with this effective 60 percent guaranty
undertaken under its Flexible Guaranty program,
would be a "call" option held by the CDC which
OFC will attempt to encourage replication of these
would permit the CDC to purchase after a min-
techniques by other private funding sources (foun-
imal period of time up to 50 percent of the in-
dations, church organizations, venture capital funds,
vestor's equity at perhaps 250 percent of his
etc.); and,
original investment. Thus, this unique type of
Based on experience with the Flexible Guar-
flexible financing arrangement would provide
anty Program, OFC will attempt to develop legis-
the investor with limited downside risk and the
lative recommendations to broaden the scope of
chance to multiply his investment by two and
present government guaranty programs.
one-half times. The CDC will be provided with
It is hoped that through these means the access of
the necessary financing to start up the plant,
poor and minority communities to outside invest-
management assistance to provide efficient op-
ment capital can eventually be vastly expanded.
gnibair
A reprint from
VOL. 5, NO. 5
BLACK
ENTERPRISE
FOR BLACK MEN AND WOMEN
WHO WANT TO GET AHEAD
CHUB
11011
U
100
FORD & 07V839
nomic development. apart from programs
banks make loans, increase their own earn-
doubling their risk when they buy into a mi-
OEO and other government agencies were
ings. and thus become viable institutions
nority company. Gloster says "While it
already funding. Cross conceived the notion
Part of the interest on OFC deposits is used
isn't easy to raise loan capital, it's a helluva
of a quasi-independent. but government
for management development programs for
lot easier than trying to raise equity capital.
funded entity which would provide guaran-
officers and directors of participating banks.
For the most part. minority enterprises must
tees and other indirect financing.
A minority contractor can get help over-
depend on OFC guaranty loans for equity
Working on that principle. OFC has stood
coming traditional barriers to bonding by
capital.
behind a number of diverse minority enter-
having OFC issue letters of credit on their
Another problem faced by OFC is distin-
Opportunity
prises, from the strawberry farm. to a
guishing between future winners and losers
$100,000 guaranty on a $600,000 real es-
among its deals. In this regard. OFC has an
tate-equipment mortgage package for a
outstanding track record as can be seen
nursing home in a Denver, Colo. black com-
from the fact that its losses to date amount
munity; a $50,000 guaranty on a $300,000
to $149,000, $116,000 of which is attributed
Funding Corp.
working capital loan for a Lummi Indian in-
to the Construction Bonding Program.
tertribal fish market operation in the state of
"While most contractors are good build-
Washington and through the Harlem Com-
ers,' Gloster reports. "they're not necessar-
monwealth Council in New York City, a 55
ily good businessmen. He was referring to
Four years after its birth, the Washington-based
per cent guaranty on a $164,000 loan for
what he termed "bad back office manage-
acquiring five closed-circuit sites in black
ment" in many minority construction com-
districts around the city for the telecast of
panies. Gloster also said inflation, the highly
company is proving that minority business is viable
volatile nature of the construction business
as a whole, as well as the fact that most
firms are undercapitalized, account for the
OFC construction bonding losses.
Ultimately, OFC wants to reach a point
where it can support itself entirely through
private funds. Currently it depends on direct
"My job," says Jack Gloster, OFC head,
support from OEO in the form of two-year
"was to make the concept work.
grants averaging $450,000 annually The
corporation expects to receive continued
behalf of a bonded construction job. The
funding from another government agency af-
Real Estate Program was designed to èn-
ter OEO officially ceases to operate after
courage investments in low-income real es-
June, 1975.
tate development projects.
At any rate, according to OFC lawyers, if
Under the LDC program, OFC commits a
line of guaranty authority to community de-
velopment agencies which then become
OFC's "partners." These organizations
screen, evaluate, and negotiate financial
packages for local projects.
OFC began its assistance to LDCs by
teaming up with the Presbyterian Economic
Development Corporation (PEDCO) to help
Theodore Cross, author of "Black Capital-
LDCs qualify for SBA loans. SBA allows
ism," and originator of the OFC concept.
LDCs in high unemployment areas to bor-
row up to $350,000 to lend to local busi-
wo years ago, 72 minority farmers
ily nearly doubled from the average $5,000
Since receiving its charter in 1970 as a
the Muhammad Ali-George Foreman fight
nesses so that they can buy or expand
T
near Salinas, Calif., wanted to buy
made working it as tenant farmers.
private, non-profit corporation, OFC, which
from Zaire. These projects got off the
plants and other business facilities, provided
the strawberry farm they had
"The farm co-op is illustrative of the kinds
was initially funded with a $7.4 million grant
ground through OFC's Flexible Guaranty
they raise at least 10 per cent of the re-
worked on as tenant farmers.
of deals we like to make," says John Glos-
from the Office of Economic Opportunity,
Program. OFC considers its guaranties flex-
quired funds.
Twelve of the group had been trained in the
ter, OFC president. "It's what we like to
has generated more than $29 million dollars
ible because they aren't limited, like the
For many of the companies this is a diffi-
business aspects of cooperative farming,
think we're about-creating ownership in a
in funds for some 90 low-income and minor-
SBA's, for example, to bank loans, but can
cult task. With an OFC guaranty, PEDCO
and outside technical assistance had been
low-income community, ownership of eco-
ity economic development projects in urban
be extended to include other fund sources
made $400,000 available to LDCs in New
Donald Rumsfeld, former head of the
lined up to help them over the bumpy pe-
nomic resources, which, in our opinion, is
as well as rural areas across the country.
like loans from manufacturers, suppliers and
York and New Jersey. As a result, 13
OEO, got OFC off the ground.
riod. What they needed was a $165,000
what economic empowerment of minorities
Through indirect financing and providing
letters of credit.
projects received $2.2 million dollars in
three-year loan to wrap up a $450,000 fi-
is all about."
guaranties on investments and loans to mi-
However, no loan or investment is guaran-
loans in the first year of the plan. The
the corporation is not funded after June by
nancing package.
Gloster, a native of Baltimore, Md., came
nority businesses, OFC increases the flow of
teed 100 per cent by OFC. Most of its guar-
projects included medical and dental clinics,
another government agency, it will still be al-
The farmers could not get help from the
to Washington to head the new OFC venture
private and public capital to minority busi-
anties fall into the 40 per cent to 80 per
a food products wholesale operation and a
lowed to keep the original $7.4 million dollar
Small Business Administration because the
in December, 1970, from the National Urban
ness ventures which potential investors or
cent category, for which the corporation
photofinisher. Because of the initial success
grant from OEO. In the meantime, OFC is
SBA does not make agriculture-related
Coalition where he directed the Coalition's
lenders might consider "high risk." Using
charges a 1.6 to 2.0 per cent per annum
of the program, PEDCO increased its alloca-
beginning to receive breakthrough money,
loans. In stepped the Opportunity Funding
Economic Development Program. He works
the $7.4 million grant as backup money,
guaranty fee for its services. Bonafide com-
tion and extended the program to all 50
$50,000 so far, from such private sources
Corporation. After talks with the Bank of
with 13 full-time staffers and a 15 member
OFC can be thought of, in a sense, as a co-
munity groups get discounts on the guaranty
states.
as the Rockefeller Brothers Fund to support
America, OFC agreed to guarantee the bank
Board of Governors who are drawn from a
signer.
fee.
One of the biggest problems OFC en-
its programs. In and of itself, OFC can sup-
against loss on the final two years of the
cross-section of businesses and economic
OFC got its start in 1969 when Theodore
OFC also has a Bank Support Program, a
counters is raising equity or venture capital
port two-thirds of its current operating cost,
$165,000 loan, and the families were able to
development organizations.
Cross, author of "Black Capitalism" was
Construction Bonding Program, a Real Es-
instead of just loan capital for minority busi-
which averages about $450,000 annually,
purchase their farm. They also purchased a
Much of his first two years was spent build-
asked by Donald Rumsfeld, then director of
tate Program, and a Local Development
nesses. "The general concept of those who
through interests on deposits in minority
new level of living because, after a period of
ing the organization, acquiring a staff, and get-
the Office of Economic Opportunity, to de-
Companies Program By placing its own
have the money is that minority enterprises
banks and through the annual guaranty fee
transition, the average income of each fam-
ting its initial program approved by OEO.
sign a new approach to community eco-
funds in poverty-area banks, OFC helps the
are risky anyway, and they think they're
it charges for its services.
40
BLACK ENTERPRISE / DECEMBER 1974
BLACK ENTERPRISE / DECEMBER 1974
41
THE NEW YORK TIMES, SUNDAY, AUGUST
Minority Entry to Mainstream Markets
business success. Great weight was also given
the acquisition strategy. One of the first
75 proposed corporate divestitures for the
By JOHN G. GLOSTER
to what a council staff member described
to do so was New York's Harlem Common-
period May-October 1973 alone, at least 13
as Mr. Wilson's "extremely aggressive, super-
wealth Council which now owns a foundry,
represented profitable situations with positive
For Carter Wilson, a black man in Norfolk,
salesman personality" and his willingness
a cafeteria equipment manufacturing compa-
potential. Included were a number of forced
Va., the American dream has come true.
to invest a significant portion of his life
ny and a Caribbean resort hotel, all acquired
divestitures. Statistics for other periods,
In June, after nearly 20 years as a policeman,
savings.
from white owners. The Delta Foundation,
backed up by information from investment
Mr. Wilson became the owner of the Resins
The council helped arrange vital additional
based in Greenville, Miss., has acquired an
bankers and major corporations, confirm the
Research Corporation, a manufacturer of ad-
investment by the Norfolk Investment Corpor-
electric fan manufacturing operation, an elec-
potential.
hesives and sealants with sales of some
ation, a small business investment company
tronics concern and a folding staircase com-
Many acquisition candidates are stable
$400,000 a year.
and provided managerial and marketing as-
pany. As a result, both Harlem Common-
operations ("cash cows") which may match
His story is but the most recent example
sistance which will tinue. A final critical
wealth and Delta were on Black Enterprise
perfectly the needs of Community Develop-
of an approach to minority economic develop-
factor: the company's previous owner remains
magazine's 1974 list of the top 100 black
ment Corporations and other organizations
ment that a growing number of those directly
as the active general manager.
companies.
interested in establishing a solid revenue
involved in this field regard as an important
Two objections to the acquisition approach
Finally, conventional capital sources-such
base for their over-all program activities
new strategy for enabling minorities to over-
are frequently raised by skeptics: Capital
as the Norfolk SBIC-find it easier to invest
and retaining or adding jobs in the depressed
come the economic chasm which presently
requirements for such deals are even greater
in such situations.
communities which they serve.
separates them from the American economic
than for the more typical, small, minority,
To the skeptic's doubts concerning the
To Opportunity Funding and others primari-
mainstream.
ly concerned with the financing of minority
If the capital and income gaps dividing
and community economic development, the
the minority and white communities are
greatest constraint is still the relatively large
ever to be significantly narrowed, creative
Blacks should stress buying established
amount of long-term venture capital required
ways must be found to transfer productive
to mount a truly effective acquisition strate-
assets Into minority hands. Most minority-
gy.
owned concerns are still concentrated on
the edges of the service industries, catering
businesses instead of starting their own.
To help combat this, Opportunity Funding
hopes during the coming year to launch
to limited markets characterized by low dis-
a major risk-sharing program to attract pri-
posable incomes, low savings, high unemploy-
vate investment capital into investments of
ment and general economic instability. It
this type by offering investors downside
is hardly realistic to rely exclusively on
enterprise and qualified minority entrepre-
availability of "qualified" entrepreneurs, there
protection in the form of put options (a
enterprises developed in the nation's backwa-
neurs may be hard to find.
are also several rebuttals. Many minority
pledge to buy back shares at a future date
ters and eddies to enable minorities to become
To the first of these objections advocates
enterprise advocates have long contended
and pre-arranged price).
integral parts of today's sophisticated Ameri-
reply that, while unquestionably private capi-
that given opportunities, many blacks and
can economy.
other minorities would emerge from other
Acquisition strategy advocates stress that
tal accumulation among minorities continues
their approach is no panacea or substitute
The acquisition strategy provides immediate
to lag well behind the white community,
areas (including certain wellknown illegiti-
for other much-needed programs to assist
entreé to mainstream markets, expertise and
growing numbers of the black and brown
mate businesses).
minority enterprise. Rather, it is one addition-
financing. Moreover, by providing those wish-
middle classes do have money to invest,
As a matter of fact, most minority enter-
al approach to helping America's disadvan-
ing to divest with what they want-a buyer-
which they will more readily put into an
prise experts seem to agree that the missing
taged bridge the economic gap.
it relies for its success on the mutual self-in-
established venture than one with less certain
ingredient has more often been, managerial
terest of whites and minorities rather than
training and experience than entrepreneurial
The strategy, they say, should be part of
prospects.
on charitable or philanthropic motivations.
And, although venture capital for minorities
drive. These are the very problems which
a greater national effort to develop more
Carter Wilson realized his dream with
remains scarce, the major sources developed
the acquisition strategy can help overcome
creative ways to afford minorities more equi-
table opportunities for participation in the
a big assist from the National Council for
in recent years are beginning to show a
through the retention of capable management.
mainstream economy, including programs-
Equal Business Opportunity, a Washington-
decided preference for investment in ventures
Moreover, as a result of their own growing
such as the reorganization of the nation's
based minority enterprise assistance program.
of greater scale and with demonstrated track
experience, as well as increasing support
railways-involving massive expenditures of
The council, with funding from the Commerce
records. Urban National, for example, Bos-
from the mainstream business community,
public funds.
Department's Office of Minority Business
ton's $10-million minority-oriented venture
organizations such as the Harlem Common-
Enterprise, operates a program designed to
Finally, since for some time to come &
capital firm, has now placed high priority
wealth Council, Delta Foundation and Nation-
identify. profitable, established businesses
on acquisitions and has assisted three major
majority of minority concerns undoubtedly
al Council for Equal Business Opportunity
which can be transferred into the hands
will continue to depend upon markets in
ones during the past year. Many of the
provide important management, marketing
of capable minority entrepreneurs.
their own communities, the challenge of as-
larger minority enterprise small business in-
and financial backup to the businesses they
Taking note of Mr. Wilson's activity as
sisting minority enterprise cannot be sep-
vestment companies and church-supported
acquire or assist.
board chairman of the Norfolk branch of
funds, such as the Presbyterian Economic
arated from that of the economic revitaliza-
Rev. Leon Sullivan's Opportunities Industriali-
What has the advocates of the acquisition
Development Corporation, Inc., are also be-
tion of those depressed communities in which
zation Center, part-time manager of his own
strategy most excited is the large number
ginning to give greater stress to this ap-
most minorities continue to live.
small business and member of the Norfolk
of potential opportunities in this arca. Re-
proach.
Chamber of Commerce, the council concluded
search done for the Opportunity Funding
John G. Gloster is president of the Oppor-
thas Mr. Wilson was a likely candidate for
There is also a growing trend among com-
Corporation based upon Securities and Ex-
tunity Funding Corporation of Washington,
munity. development corporations to adopt
change Commission data, Indicates that of
D.C.
Opportunity Funding Corporation
Annual Report 1975
Opportunity Funding Corporation began
operations in 1970 as a private nonprofit
corporation to develop, test and demon-
Opportunity Funding Corporation
strate means of channeling private invest-
ment into capital-poor communities.
Although designed to function effectively
within private capital markets, its initial
capital of $7.4 million and other grant
support have been provided by the Office
of Economic Opportunity, now the Com-
munity Services Administration.
OFC's major goal is to develop effective
ways of using risk-sharing and indirect
financing techniques to stimulate the flow
of capital and credit into business and
economic development ventures in low-
income communities. OFC does not nor-
mally provide direct debt or equity financ-
ing, nor does it provide technical assistance.
Rather, as a central strategy, OFC employs
a wide range of guaranty protection tech-
niques to reduce the level of risk assumed
by private investors to more normal levels
of safety.
Annual Report 1975
FORD
A
progress report
Funds generated vs. losses
For most people and organizations there
in funds for business and economic devel-
(Cumulative)
are being re-examined and results analyzed
Millions of dollars
is a special satisfaction in achieving a fifth
opment ventures, and through our efforts,
to determine how best to improve OFC's
50
anniversary. But the end of the fifth year is
over 3,000 jobs have been directly created
performance in accomplishing its primary
also a time for re-evaluation and the making
or maintained. And finally, in large part
goal: to demonstrate how capital-espe-
of fresh plans for the future. Because OFC
through the careful investment of its idle
cially risk capital-can be moved most
43,899,200
operates as an experimental corporation
funds and reserves and service contracts,
effectively into disadvantaged communities.
this is particularly true for our organization.
OFC is now generating sufficient revenues
During the first part of 1976 we will com-
Established in 1970 to test new ways of
to cover not only all of its losses, but ap-
plete a new corporate plan aimed at devel-
40
increasing the flow of private capital into
proximately half of its administrative, re-
oping improved strategies and programs for
low-income communities, we believe that
search and development costs as well. We
building even stronger relationships with the
over the last five years we also have been
need hardly add that much of this has oc-
financial, corporate, foundation, and gov-
able to achieve standing as a sound financial
curred during a period in which the nation
ernment sectors in order to provide in-
32,324,000
institution. While our mission requires us
has experienced the most severe recession
creased income and capital formation op-
30
to assume risks which conventional capital
since the Great Depression.
portunities within poor communities.
and credit sources typically are reluctant or
As a result of research and development
As a preliminary step towards strength-
unwilling to take, we are gratified that we
activities supported to an increasing degree
ening our links with local and regional de-
can look forward to 1976 and the years be-
by foundation and other private sources,
velopment and financing organizations, OFC
yond with our initial capital base still intact.
OFC in the coming year plans to launch
has reorganized its operations on a regional
In reviewing our performance, moreover,
several affiliated ventures to increase fur-
basis. We trust that our new plans, the steps
20
we believe that we have made significant
ther both income and ownership opportuni-
taken to implement them, and our commit-
17,504,900
strides toward demonstrating the feasibility
ties for the disadvantaged. At least two of
ment to high professional standards will
of moving substantial amounts of private
these new affiliates will address the need to
continue to enhance OFC's effectiveness as
capital into low-income communities
increase the scarce supply of equity capital
a vehicle in the area of high risk finance.
11,199,900
through the creative application of conven-
available to low-income communities. As in
10
tional risk-sharing techniques.
its other activities, OFC is being assisted
Using a variety of guaranty arrangements,
greatly in these ventures by its partnerships
OFC has triggered over $40 million of in-
with other economic development organiza-
vestment in enterprises in minority and
tions.
DavidBartz
684,245
other capital-poor communities while hold-
Recently, the Board and management of
0
113,924
ing losses to slightly under $700,000. Of
OFC began to review both the impact of
1972
1973
1974
1975
equal significance, each dollar expended
our demonstration programs and the poli-
David B. Hertz
John G. Gloster
Funds generated
Losses
during OFC's five years had generated $13
cies we have pursued. Basic assumptions
Chairman of the Board
President
2
3
OFC mission:
develop, test, demonstrate
a 50% guaranty of two loans totaling $115,000
OFC has carried out its objectives primarily
from the Chase Manhattan Bank enabled the
through five basic risk-reduction programs: Flex-
Anti-Poverty Action Corporation (ANTPAC)
ible Guaranties, Local Development Companies,
of Rochester, New York, to purchase 80% of
Banking, Real Estate, and Bonding. Under these
the stock of Ebi Champagne Manufacturing,
programs, OFC has used guaranties to:
Inc. and to meet the company's need for work-
ing capital.
Support directly minority and community-
owned business ventures of significant scale
a guaranty of a $115,000 line of credit enabled
OFC Flexible Guaranty Partners
or impact.
New Communities, Inc., a nonprofit develop-
Assist in financing ventures which are spon-
ment corporation in Georgia, to purchase the
Mexican-American Unity Council
fertilizer needed for its 5,000-acre community
(MAUC)
sored or supported by regional economic de-
farming enterprise.
San Antonio, Texas
velopment organizations through the exten-
sion of lines of guaranty credit to selected
Mexican American Council for Economic
In addition, under its Flexible Guaranty Part-
"partner" groups.
nership Program, OFC generated $2,933,000 in
Progress (MACEP)
Support expansion of minority businesses in
capital and credit on behalf of eight ventures
Austin, Texas
high unemployment areas by inducing two
through its 11 local and regional partners. Con-
Harlem Commonwealth Council (HCC)
church groups to lend the "local injection
tingent liabilities were increased by $497,500.
New York, N.Y.
matching funds" required for participation in
For example:
Indian fishermen after delivering salmon to the Lummi
the SBA plant and facilities (LDC 502) pro-
National Economic Development
Indian Fishing Company (LITE/LIFCO) processing plant in
working with the National Economic Develop-
gram.
Association (NEDA)
Bellingham, Washington.
ment Association (NEDA), OFC provided a
Assist new and existing minority banks to
50% guaranty of a $200,000 working capital
Los Angeles, California (plus 20 other
raise capital.
line of credit extended by Hibernia National
offices in 10 states and Puerto Rico)
Increase the availability of equity and mort-
Bank to the Commerce International Corpora-
Chicago Economic Development
gage financing to low-income community orga-
tion. This New Orleans business firm, operated
Corporation (CEDCO)
nizations wishing to undertake significant real
by a Mexican-American entrepreneur, deals
estate development projects.
Chicago, Illinois
in the import of industrial and agricultural
Strengthen the capability of minority con-
chemicals, lumber and construction supplies,
Delta Foundation
struction firms to acquire bonding needed to
and seeds and grains.
Greenville, Mississippi
secure larger and more profitable construction
working with Lummi Indian Tribal Enterprises
Colorado Economic Development
jobs.
(LITE), OFC guaranteed the first $75,000 of a
Association (CEDA)
$600,000 line of credit provided by the Rainier
Summary of past year
Denver, Colorado
National Bank (Seattle) to LITE/LIFCO, a
company organized to market fish harvested
National Council of LaRaza
During the fiscal year ended June 30, 1975, under
its risk-reduction programs, OFC generated $11,-
by several native American groups.
Phoenix, Arizona
575,200 in new capital and credit for 25 compa-
working with the Colorado Economic Develop-
Home Education Livelihood Program
nies while adding $1,538,493 in new contingent
ment Association (CEDA), OFC partially guar-
(HELP)
liabilities.
anteed a $200,000 loan backing a letter of
Albuquerque, New Mexico
Under its Direct Flexible Guaranty Program,
credit needed to secure $1,027,000 in mortgage
OFC assisted six companies in raising $1,025,000
financing for Los Cinco, a low-income housing
Southern Cooperative Development
in capital and credit. Contingent liabilities incurred
project in rural Colorado.
Fund, Inc. (SCDF)
were $439,375.
Lafayette, Louisiana
working with the Delta Foundation, OFC
Among the guarant ies:
guaranties helped secure a $85,000 crop pro-
Lummi Indian Tribal Enterprises (LITE)
a 75% guaranty of a $20,000 line of credit
duction loan from the First National Bank of
Marietta, Washington
enabled 1,800 small black farmers comprising
Greenville (Mississippi) for the Leflore County
the Southwest Alabama Farmers Cooperative
Area Cooperative, an 1,800-acΓe farming en-
Association (SWAFCA) to purchase fertilizer
terprise.
Los Cinco Apartments, a low-income housing project in
Loveland, Colorado.
and insecticides for the 1975 planting season.
4
5
Under its Local Development Companies Pro-
OFC did not participate in any financings under
gram, OFC generated $2,456,200 for nine minority
the Real Estate and Bonding Programs during the
businesses in fiscal year 1975. Additional contin-
past year. At present, OFC is considering only pro-
gent liability accepted was $140,610.
posals which present exceptional opportunities to
Some examples of the types of businesses as-
demonstrate replicable approaches to the financing
sisted under the LDC program are: a theater in
of such activities. Although the adverse impact of
the recession on construction and real estate devel-
Memphis, Tennessee; a microfilm processor in
Brooklyn, New York; a funeral home in Augusta,
opment generally was a factor, the primary impetus
Georgia; and a medical facility in West Louisville,
for this decision was the recognition that not
Kentucky.
enough of OFC's past efforts in this field have re-
sulted in significant improvement in the patterns
As a result of the success of this program, a
of financing community and minority enterprise in
new two-year agreement was signed with the
this industry. To help assess the results of its bond-
Presbyterian Economic Development Corporation,
ing program-and to assist in identifying those
Inc. (PEDCO), under which OFC's guaranty cov-
approaches which hold the greatest potential for
erage of local injection loans has been lowered
change-OFC commissioned an independent con-
from 75% to 50%. In addition, available PEDCO
sultant firm to perform an evaluation of the Mi-
funds were increased by $300,000, bringing total
nority Contractor Bonding Assistance Program.
commitments under the program to $1,050,000.
This evaluation, now nearing completion, will be
This sum includes $250,000 in funds made avail-
used to help OFC's Board and management define
able by the Ghetto Loan and Investment Commit-
the future directions of this program.
tee (GLIC) of the Protestant Episcopal Church.
Loss experience
Most guaranties issued by OFC extend beyond a
OFC's Banking Program was established to help
one-year period. Losses incurred, therefore, relate
strengthen minority and poverty area banks. Since
to the cumulative portfolio of investments guaran-
1970, OFC has participated in financings which
teed, not just the current year's activities. At the
have raised $6.5 million in new capital for minority
end of its fifth year of operations, on a cumulative
banks. In addition, as of June 30, 1975, OFC de-
basis, OFC's losses totaled $684,245 on investments
posits in 41 poverty area banks totaled nearly $5
guaranteed of $8,398,089. Of these losses, $147,045
million.
represent uninsured deposits in Swope Parkway Na-
tional Bank, currently under FDIC administration,
During the past year OFC participated in the $3
for which there is substantial prospect of recovery.
million recapitalization of Citizens Trust Bank,
Moreover, a major portion ($422,047) of OFC's
Atlanta, one of the nation's oldest black-owned
losses have occurred within the Bonding and Real
banks. Under this refinancing program, OFC pro-
Estate programs, reflecting in part the severe dis-
vided a $400,000 guaranty of $550,000 in preferred
location within the national construction industry
stock and capital notes purchased by a trust com-
during the past two years.
prised of Georgia banking institutions. In addition,
other investors, including the Ford Foundation,
MINBANC (an investment company established by
the American Bankers Association to provide capi-
tal to minority banks), and the Atlanta Life Insur-
ance Company (the nation's second largest black
insurance company) invested $2,450,000 through
the purchase of capital notes and preferred stock.
During the past year OFC also placed deposits in
eight community credit unions and fifteen minority
savings and loan associations.
Looking toward future OFC efforts to support
FORD
minority banks, a Board Committee chaired by
James Hall, former Superintendent of Banks for
the State of California, was established in early
1975 to explore means of improving coordination
among private and public organizations concerned
with improving the performance and financial con-
Leflore County Area Cooperative in Bolivar and Leflore
dition of minority banks.
Counties in Mississippi.
6
7
Investment highlights
Mana Hill Farmers Cooperative
Four years of planning by several small black
farmers in Palmetto, Florida, resulted in the Mana
Hill Farmers Cooperative beginning its first season
of operation in 1971. The cooperative owns and
operates a tomato packing house. Twice each year
during the late spring and late fall harvests, the
packing house processes, packs, and sells the
tomatoes grown by co-op members. Forty local
black residents are employed temporarily during
these two periods.
The local farmers no longer need to transport
their tomatoes over 40 miles to a packing house.
More importantly, the co-op brings independence
to the members. They now have an assured outlet
for their highly perishable crop. They receive a
higher financial return on their crop and have been
able to increase the number of their acres in culti-
vation. Current membership is 26 farmers.
The initial growth of the co-op was slow but
with the technical, management, and financial as-
sistance of the Southern Cooperative Development
Fund (SCDF) the co-op is now flourishing. OFC
10unidounty
participated with SCDF in a 50% guaranty of a
$30,000 fall season working capital line of credit.
This guaranty has now expired without loss.
Outdoor Venture Corporation
Job Start, a community development corporation
working in a 10-county area of Appalachian Ken-
tucky, has put social venture capital to work in the
Outdoor Venture Corporation. Outdoor Venture is
a manufacturer of a quality line of outdoor recrea-
tional tents. The company employs 60 people and
is in its third successful year of business. Sales for
1975 were $2.5 million. Outdoor Venture's record
Check out time at Fort Greene Co-op Supermarket, Brooklyn, New York.
of reliability in craftsmanship and delivery is the
source of a growing reputation as a manufacturer
of some of the nation's finest outdoor shelters.
Fort Greene-a lesson in participation
housing development. By the beginning of 1974, a
In early 1975, OFC guaranteed $200,000 of a line
Faced with a problem common to low-income
promotion committee was set up to sell shares in
the cooperative at a cost of $5 per share. In less
of credit for Outdoor Venture from the First Na-
communities-high food prices, low quality food,
tional Bank of Louisville. During its first two years
and declining number of supermarkets-the resi-
than five months the co-op had 800 members.
of operation, Outdoor Venture had been allowed a
dents of Fort Greene in Brooklyn made a direct
At that point the only thing missing for a suc-
credit line of 70% of its finished goods and raw
attack. They set up their own supermarket.
cessful operation was adequate financing. The
materials inventory. The Bank limited this line of
The August 1974 opening of the Fort Greene Co-
Fort Greene Board prepared a loan proposal and
credit to a maximum of $720,000. This, together
op Supermarket was the result of 2½ years of work
OFC agreed to secure 50% of the loan. As a result,
with the company's decision to maintain all of its
by many members of the Fort Greene Community.
Chase Manhattan Bank granted the requested loan
work force despite a slight decline in sales during
A Steering Committee of Fort Greene citizens took
of $100,000.
the latter part of its second year, presented Out-
a survey in the community which showed over-
The Fort Greene Co-op Supermarket offers
door Venture with a short-term cash problem.
whelming support for the project, and resulted in
quality food at competitive prices to the commu-
OFC's guaranty allowed the Bank to lend $920,000
the establishment of the Co-op.
nity. It employs 34 full-time and 30 part-time
on the inventory (the same amount as if the 70%
A year was spent searching for a proper site.
workers from the community. This partnership be-
formula had been followed) and asssisted Outdoor
Then in October, 1973, A & P decided to close its
tween many different organizations and the Fort
Workers inspect the tomato crop during processing at the
Venture over its temporary difficulty. This guaranty
Fort Greene store-situated in a good location,
Greene community serves as a model for other
Mana Hill Farmers Cooperative in Palmetto, Florida.
expired without loss in February 1975.
within walking distance of a large low-income
cooperatives in inner-city areas.
9
New ventures
Cooperative Assistance Fund
As the fiscal year ended, OFC had nearly com-
enced chief executive officer assumed operational
In September 1974, OFC entered into a contract
pleted the process of organizing and raising capital
management of the company in September 1975.
to manage the Cooperative Assistance Fund (CAF),
for two new companies.
Syndicated Communications (SYNCOM), a for-
a tax-exempt corporation established by nine foun-
The Southern Agriculture Corporation (SAC)
profit investment company, is planned as a vehicle
dations to administer program-related investments.
has as its purpose the development of profitable
for aiding minority and community groups to ac-
CAF, with assets totaling $3.6 million, provides risk
minority and community-owned agricultural opera-
quire and develop broadcast properties. OFC has
capital to minority and community businesses and
tions in the Southeastern United States. Based
recently completed the major portion of develop-
economic development ventures.
upon preliminary plans developed by OFC in co-
ment work on SYNCOM in cooperation with sev-
OFC's contract calls for the performance of all
operation with, and on behalf of, nine rural devel-
eral minority and community economic develop-
functions normally carried out by the management
opment organizations located in the Southern U.S.,
ment organizations, and has received preliminary
of a risk capital company, including analysis of in-
OFC has obtained preliminary capital commitments
commitments for $2 million in capital.
vestment proposals, presentation of recommenda-
totaling $1,750,000 from the Cooperative Assist-
In addition, two new ventures are in the plan-
tions regarding investment decisions and the man-
ance Fund and the Presbyterian Economic Devel-
ning stage.
agement of CAF's loan and investment portfolio.
opment Corporation, Inc.
The National Equity Partnership-a proposed
$20 million venture capital limited partnership de-
Investors in CAF include the Field, Ford, New
SAC is chartered as a for-profit company which
will be owned and controlled largely by ten
signed to provide risk capital to high potential
World, New York, Norman, Ellis L. Phillips, and
Taconic Foundations, as well as the Sachem Fund.
Southern economic development organizations
ventures in a fashion which will offer capital pro-
In addition, the Rockefeller Brothers Fund has re-
which have served as its prime sponsors and com-
tection to investors as well as increased ownership
mon stock investors. These co-sponsors are: Vir-
opportunities for minority and community organi-
cently become CAF's newest investment member.
zations.
ginia Community Development Organization, The
Since the initiation of its management contract
Delta Foundation, Emergency Land Fund, South-
Foundation/Industry Consortium-a project to
with OFC, CAF has made investment commitments
east Alabama Self-Help Association, Penn Com-
increase the access of minority and community
totaling $1,985,000 for five ventures including two
munity Services, Southern Development Founda-
economic development organizations to larger and
radio stations, a rural housing development com-
tion, Southern Cooperative Development Fund,
more profitable venture opportunities through the
pany, and the Southern Agriculture Corporation
Rural Advancement Fund, New Communities, Inc.
cooperative efforts of (1) community economic de-
and Syndicated Communications projects previ-
and The Federation of Southern Cooperatives.
velopment organizations, (2) business and financial
ously described.
institutions, and (3) private foundations. Initially,
OFC, through a foundation grant, has already
this effort will center on facilitating the acquisition
A separate report for the Cooperative Assistance
made a $150,000 investment in the company to
of businesses which meet certain tests of size,
Fund is available upon request.
finance start-up costs including the completion
location and profitability, and on venture oppor-
of final operating plans and strategies, and expects
An investment by CAF assisted Dudley Communications, a
tunities in the health care field. Private sector sup-
minority company which owns radio station KYAC AM/FM,
to make an additional $500,000 investment upon
port for this program to date has totaled over
to upgrade and extend its AM coverage in the Seattle-
the completion of final planning. A highly experi-
$80,000.
Tacoma area.
10
11
ARTHUR ANDERSEN & Co.
1666 K STREET, N.W.
WASHINGTON, D.C. 20006
(202) 785-9510
Financial Statements
Opportunity Funding Corporation
August 13, 1975
Statement of Assets, Liabilities and Fund Balances
As of June 30, 1975 and 1974
To the Board of Governors of
(Note 1)
Opportunity Funding Corporation:
Assets
We have examined the statement of assets, liabilities
1975
1974
and fund balances of OPPORTUNITY FUNDING
Cash (Note 2)
$ 257,738
$ 88,417
CORPORATION (a Delaware nonprofit corporation) as
Accrued interest receivable
60,259
121,687
of June 30, 1975, and June 30, 1974, and the related
Miscellaneous accounts receivable and
statement of changes in fund balances for the years then
prepaid expenses
2,923
3,279
ended. Our examination was made in accordance with
320,920
213,383
generally accepted auditing standards, and accordingly
Program fund investments
included such tests of the accounting records and
(Note 2):
such other auditing procedures as we considered
Demand deposits
92,783
188,612
necessary in the circumstances.
Certificates of deposit
6,687,638
7,498,500
In our opinion, the financial statements referred to
Savings accounts
895,062
554,538
7,675,483
8,241,650
above present fairly the assets, liabilities and fund
balances of Opportunity Funding Corporation as of
Program note and claim receivables, net of $222,045
reserve for possible losses (Note 3)
75,000
-
June 30, 1975, and June 30, 1974, and the changes in fund
Furniture and equipment (Note 4)
-
-
balances for the years then ended, in conformity with
Total assets
$8,071,403
$8,455,033
generally accepted accounting principles applied on a
basis consistent with that of the preceding year.
Liabilities and Fund Balances
Accounts payable and accrued expenses
$ 75,062
$ 29,428
Reserve for possible program losses (Note 1)
2,338,910
1,563,135
arthur
Commitments (Notes 1 and 5)
Fund balances
5,657,431
6,862,470
Total liabilities and fund balances
$8,071,403
$8,455,033
The accompanying notes to financial statements are an integral part of this statement.
12
13
Statement of Changes in Fund Balances
Notes To Financial Statements
For the Years Ended June 30, 1975 and 1974
(Note 1)
June 30, 1975 and June 30, 1974
1975
1974
Beginning balances
$6,862,470
$6,721,740
(1) Nature of Operations
In addition to the CSA grants mentioned above,
Opportunity Funding Corporation (the "Corpo-
the Corporation received the following grants
Add:
ration") was incorporated on June 22, 1970,
during the year ended June 30, 1975.
Community Services Administration grants
-
999,888
as a nonstock organization to acquire by
(a) $150,000 from the Rockefeller Brothers
Interest earned on deposits
558,647
427,508
grant, gift and otherwise funds to be applied
Fund for the design and implementa-
Commissions and guaranty fees
43,679
for programs designed to provide models for
20,277
tion of a model regional agricultural
economic development for low income areas
Rockefeller Brothers Fund grant
200,000
5,500
development corporation in the South.
and people in the United States. These pro-
Other private grants
The grant has no specified duration.
24,900
-
grams may be in the nature of experimental
Management fee-Cooperative Assistance Fund
54,167
or demonstration projects designed to test
(b) $50,000 from the Rockefeller Brothers
-
Total additions
881,393
Fund for coordinating work among
1,453,173
methods of achieving economic growth in
low income communities.
foundations, corporations and eco-
nomic development groups on behalf
Deduct:
The Corporation is exempt from Federal in-
of minority economic development.
Administrative costs—
come taxes under Internal Revenue Code
The grant is designated for the first
Salaries, wages and fringe benefits
Section 501(c)(3).
442,935
338,346
year of a planned two-year demonstra-
Consultants' and contract services
142,418
67,774
The Corporation's activities have been funded
tion project.
Travel and meeting costs
primarily by two grants from the Community
44,867
36,403
(c) $12,500 from the Delta Foundation for
Services Administration ("CSA"), formerly
Space cost and rental (Note 5)
42,404
22,341
planning and support of the model re-
the Office of Economic Opportunity: a Pilot
Consumable supplies
gional agricultural development corpo-
6,340
4,898
Grant of $4,178,000 and a Special Impact
ration in the South. The grant has no
Rental, lease and purchase of equipment (Note 4)
10,733
7,868
Grant of $3,900,000. The two grants were
specified duration.
Other costs
extended to June 30, 1977, with an addi-
38,244
24,990
tional $738,000 for administrative expenses
(d) $9,900 from The Center for Community
Total administrative costs
727,941
502,620
for the two years ending June 30, 1977. Ad-
Change for support of the model re-
ministrative expenses for the year ended
gional agricultural development corpo-
Provision for possible program losses—
June 30, 1975, were funded from a $997,751
ration in the South. The grant was for
Flexible guaranty program
399,088
118,000
grant for the two years ended that date and
the three-month period ended Septem-
Direct deposit program
340,330
2,880
a $54,167 management fee received from the
ber 30, 1974.
Cooperative Assistance Fund ("CAF").
Surety bonding program
280,677
171,200
(e) $2,500 from the Cummins Engine Foun-
Capital support program
133,333
Under an August 1974 agreement with CAF,
dation for support of the coordinating
-
the Corporation will manage and administer
work among foundations, corporations
Local development company/SBA 502 program
107,277
130,851
CAF's investment activities for one year.
and economic development groups on
Real estate program
86,436
386,892
CAF has agreed to pay $65,000 for the Cor-
behalf of minority economic develop-
Total provision for possible program losses
1,347,141
809,823
poration's services. CAF, like the Corpora-
ment. The grant has no specified dura-
tion, is organized for the purpose of invest-
tion.
Other-
ing funds in minority-owned and poverty-
The use of funds provided by the CSA grants is
Bank management development program expense
5,000
area enterprises.
I
restricted by the general and special grant
Miscellaneous program related expenses
6,350
-
A Special Impact CSA Grant for $46,000 was
conditions attached to each grant. The use of
Total other deductions
11,350
approved for the period April 1, 1974, to
the special impact program funds (CSA pro-
-
July 31, 1974 (subsequently extended to June
gram account #63) is limited to geographical
Total deductions
2,086,432
1,312,443
30, 1977), to research the need for a national
areas defined by CSA as communities or
Change in fund balances
(1,205,039)
140,730
organization or system created to provide
neighborhoods within urban areas having
long-term investment capital to economic
especially large concentrations of low in-
Ending balances
$5,657,431
$6,862,470
development and business ventures spon-
come persons and rural areas having sub-
sored or owned by low income and minority
stantial emigration to eligible urban areas. A
The accompanying notes to financial statements are an integral part of this statement.
groups.
special condition of this program is that there
14
15
The Corporation's CSA grants are subject to
is secured by a first mortgage on land
must be a non-Federal share contribution of
trative expenses are incurred.
audit by the United States Government. The
and improvements owned by New
ten percent of the grant amount. The Cor-
As of June 30, 1975, the Corporation has evalu-
Corporation believes that adjustments, if any,
Mexico Producer and Marketing Co-
poration has met this non-Federal share re-
ated its program fund investments and other
as a result of such audits will not have a
operative.
quirement by the participation of the Presby-
program commitments in force and has pro-
material effect on the Corporation's financial
terian Economic Development Corporation,
(b) $147,045 claim against the receivership
vided a reserve of $2,338,910 ($1,563,135 at
statements.
Inc. in the Corporation's direct deposit pro-
for Swope Parkway National Bank, a
June 30, 1974), against deposits of $5,252,000
direct deposit project, for uninsured
gram.
in poverty area community banks and guar-
(2) Restrictions on Cash and Program Fund
deposits lost upon the Bank's insolv-
Under the Corporation's accounting policies,
antees of $3,532,000, which, in the opinion of
Investments
ency.
program commitments do not in themselves
management, is adequate to cover possible
The use of cash and program fund investments
affect fund balances. Fund balances are re-
program losses. Charges against the reserve
is restricted to those expenditures authorized
As of June 30, 1975, the Corporation has evalu-
duced when the Corporation establishes re-
amounted to $499,000 for the year ended
by the terms of the CSA grants. If, upon
ated the above program receivables and has
serves to provide for possible losses resulting
June 30, 1975 ($100,000 for the year ended
termination of the present CSA grants, there
provided a reserve of $222,045 which, in the
from such commitments and when adminis-
June 30, 1974).
are any grant funds remaining after appropri-
opinion of management, is adequate to cover
ate reserves for liabilities and anticipated
possible losses.
expenditures, CSA may require that such
The following table summarizes the fund balances for each program as of June 30, 1975.
funds be returned to CSA.
(4) Furniture and Equipment
Furniture and equipment purchased by the
Program fund investments are resources against
Corporation was acquired from general pro-
which claims may be made in the event of a
gram expenditures under CSA grants.
default on any project which the Corpora-
tion has assisted. Program commitments and
Under the accounting prescribed by CSA, fur-
Grant Balance
the related reserves are discussed in Note 1.
niture and equipment purchases are charged
CSA Special
directly to expense at the time the cost is
CSA Pilot
Impact
In July 1971, the Corporation entered into an
incurred. The cost of certain nonexpendable
Program
Program
agreement with a consortium of banks in
Program
Account
Account
Total
furniture and equipment is recorded as an
Boston, Massachusetts. In connection with
asset with an offsetting valuation reserve.
Administrative fund (deficit)
$ (92,934)
$
$
(92,934)
this agreement, the Corporation has placed
-
The effect of this treatment is to expense all
certificates of deposit amounting to $400,000
furniture and equipment as it is acquired.
Direct deposit program fund
52,047
14,683
66,730
in a custodial account for the duration of the
The cumulative costs, and the correspond-
Capital support program fund
154,600
4,667
159,267
guaranty, which expires in July 1978. The
ing valuation reserves, of nonexpendable
banks have no security interest in the
furniture and equipment were $27,312 and
Secondary marketing program fund
325,000
295,000
620,000
$400,000. However, interest earned by the
$21,996 at June 30, 1975 and 1974, respec-
Corporation on $300,000 of the above cer-
Bank management development program fund
146,456
146,456
292,912
tively.
tificates of deposit is to be remitted semi-
Surety bonding program fund
124,898
-
124,898
annually on September 1 and March 1 to a
Residual title to furniture and equipment ac-
second custodial account and is pledged un-
quired from CSA grant funds rests with
Flexible guaranty program fund
739,687
1,069,500
1,809,187
til the guaranty expires.
CSA, and CSA controls the disposition there-
Real estate program fund
of at the termination of the grants.
226,332
800,340
1,026,672
The Corporation is required to maintain mini-
Local development company/SBA 502 program fund
176,362
159,310
335,672
mum deposits of at least $217,000 in certain
(5) Commitments
banks to secure letters of credit issued by
Program-related expense fund
622,662
496,207
The Corporation has entered into two lease
1,118,869
those banks.
agreements for office space expiring in Jan-
CSA research grant
-
20,829
20,829
uary and November 1979. Annual rental
(3) Program Note and Claim Receivables
payments will approximate $43,700 for each
Total CSA grants
$2,475,110
$3,006,992
5,482,102
Program note and claim receivables consist of
of the next three years, $30,400 in the fourth
the following at June 30, 1975.
Private grants
175,329
year and $6,100 in the fifth year. Rental ex-
(a) $150,000, 7% note receivable due March
pense under these agreements and reflected
Total fund balances
$5,657,431
1980, from New Mexico Producer and
in the accompanying financial statements
Marketing Cooperative, a flexible guar-
was $37,553 and $18,302 for the years ended
anty project which defaulted. The note
June 30, 1975 and 1974, respectively.
16
17
Board of Governors
David B. Hertz, Chairman
mittee, is Senior Vice President for Corporate
Carol M. Khosrovi
Walter J. McNerney
David Hertz, a Director of McKinsey & Co., Inc.,
Affairs of The TI Corporation, located in Los
Carol Khosrovi, a member of the OFC Board of
Walter McNerney is President of the Blue Cross
has been Chairman of the Board of Governors of
Angeles. He previously served as Secretary of
Governors since 1973, is Chairperson of OFC's
Association, headquartered in Chicago. He joined
Opportunity Funding Corporation since its incep-
Business and Transportation and as Secretary of
Nominating Committee. She is a Principal of Plan-
the OFC Board in 1974. Mr. McNerney has written
tion in 1970. Dr. Hertz is a former President and
Human Relations for the State of California. Mr.
ning Research Consultants, Inc., of Berkeley, Cali-
extensively on the subject of health care, and is
Chairman of the Institute of Management Sciences.
Hall was also the California Superintendent of
fornia, and Chicago, Illinois. Ms. Khosrovi previ-
active in many organizations in the health field.
Banks from 1967 to 1969.
ously served in several positions with the Office of
Theodore D. Brown
Economic Opportunity including Director of the
Thomas F. Miller
Theodore Brown joined the OFC Board in 1973.
Jesse Hill, Jr.
Office of Program Development and Director of
Thomas Miller was recently elected to the OFC
He is President of the First National Bank of Den-
Jesse Hill was recently elected to the OFC Board of
the VISTA program.
Board of Governors. He is currently President of
ver. Mr. Brown is a past President of the Colorado
Governors and was appointed Chairman of OFC's
Jesse Lay
Job Start Corporation, a community development
Bankers Association and has been a Director of
Audit Committee. Mr. Hill is President and Chief
Jesse Lay joined the OFC Board of Governors in
corporation in southeastern Kentucky. Mr. Miller,
the Denver branch of the Federal Reserve Bank of
Executive Officer of Atlanta Life Insurance Com-
1972. He is the Sales Manager of Riverview Mobile
a Certified Public Accountant, is also a member
Kansas City.
pany. He is a member of the Georgia State Board
Homes in Barbourville, Kentucky. Dr. Lay is a
of the Board of Directors of the National Congress
of Regents and is slated to become the President-
former Superintendent of Schools in Knox County.
for Community Economic Development.
Robert O. Dehlendorf II
Elect of the Atlanta Chamber of Commerce in
He is active in many community civic organiza-
Robert Dehlendorf, one of the original members of
1976. Mr. Hill is a member of the Board of Direc-
tions including the Knox County Economic Council.
the OFC Board of Governors, is Senior Vice Presi-
tors of Delta Air Lines.
Joseph H. Price
John D. Mabie
dent, Corporate Finance, of Warburg, Paribas,
Joseph Price, a newly elected member of the OFC
Becker, Inc., located in San Francisco.
John Mabie, one of the nine original OFC Board
Board of Governors, is a Partner in the law firm of
James A. Joseph
members, is Chairman of OFC's Finance and In-
James Joseph is Vice President for Corporate
Leva, Hawes, Symington, Martin & Oppenheimer.
Nathan T. Garrett
vestment Committee. Mr. Mabie is President of
Mr. Price is a former Vice President for Insurance
Action, Cummins Engine Company, and President
Nathan Garrett, a member of the OFC Board since
Mid-Continent Capital, Inc. of Chicago.
of the Overseas Private Investment Corporation,
of The Cummins Engine Foundation. He joined
the Board of OFC in 1974.
Alex Mercure
and was also a member of OPIC's Investment Com-
1972, is President of Garrett, Sullivan & Co., P.A.,
Alex Mercure, one of the original Board members,
mittee.
C.P.A.'s, of Durham, North Carolina. He is a
founder and former Executive Director of the
C. Robert Kemp
was recently elected Vice Chairman of OFC's
Foundation for Community Development in Dur-
Robert Kemp, a member of the OFC Board since
Board of Governors. He is Vice President for Re-
Theodore S. Weber, Jr.
ham.
1974, is Chairman of OFC's Planning Committee.
gional & Community Affairs at the University of
Theodore Weber, Senior Vice President for Admin-
Mr. Kemp is President of the Economic Resources
New Mexico in Albuquerque. Mr. Mercure is also
istration of McGraw-Hill, Inc., joined the OFC
James M. Hall
Corporation of Los Angeles. He also serves as
Chairman of the Board of Siete Del Norte, a com-
Board of Directors in 1974. Mr. Weber is also a
James Hall, one of the original nine OFC Board
Director of the Minority Enterprise Coalition of
munity development corporation in Espanola, New
member of the Board of Directors of the Public
members and Chairman of OFC's Banking Com-
Los Angeles.
Mexico.
Affairs Council.
18
19
Partial listing of private companies and financial
institutions participating in OFC ventures
Air Products & Chemicals
First State Bank
Pensacola, Florida
Austin, Texas
American National Bank &
Francis Clark Contractor
OFC's Management Staff
Trust Company of Chicago
Seattle, Washington
Chicago, Illinois
Ghetto Loan & Investment
American Security Bank
Committee of the Domestic and
Washington, D.C.
Foreign Missionary Society of the
Bank of America
Protestant Episcopal Church in
John G. Gloster, President
the United States
Paul L. Pryde, Jr., Senior Vice President
San Francisco, California
New York, N.Y.
Arnold Nachmanoff, Vice President for Investment Management
Bankers Trust Company
New York, N.Y.
Guaranty National Bank
Mildred R. Dickerson, Treasurer
Corpus Christi, Texas
James D. McWilliams, Secretary and General Counsel
Board of Pensions of the United
Hibernia National Bank
Rochelle M. Fashaw, Director of Communications
Presbyterian Church in the
United States of America
New Orleans, Louisiana
Indiana National Bank
New York, N.Y.
Regional Investment Managers
Indianapolis, Indiana
Broadway United Church
Joseph H. Chavez, Western Region
Irving Trust Company
New York, N.Y.
New York, N.Y.
R. Allan Kozu, Northern Region
Chase Manhattan Bank
Manatee National Bank
David L. Jameson, Southern Region
New York, N.Y.
Bradenton, Florida
Chemical Bank
Northern
Southern
Western
Morgan Guaranty Trust Company
New York, N.Y.
New York, N.Y.
Region
Region
Region
Chicago Sun-Times
Chicago, Illinois
National Sharecroppers Fund
New York, N.Y.
Alabama
Alaska
Church Pension Fund
Connecticut
National Shawmut Bank
New York, N.Y.
Illinois
Arkansas
Arizona
Boston, Massachusetts
Indiana
California
Citizens Bank of Jackson
Delaware
New England Merchants
Jackson, Kentucky
Iowa
District of Columbia
Colorado
National Bank
Citizens and Southern National Bank
Kansas
Florida
Hawaii
Boston, Massachusetts
Atlanta, Georgia
North Carolina National Bank
Maine
Georgia
Idaho
Citizens Trust Bank
Charlotte, North Carolina
Massachusetts
Kentucky
Montana
Atlanta, Georgia
Omaha National Bank
Michigan
Louisiana
Nevada
Colorado National Bank
Omaha, Nebraska
Minnesota
Maryland
New Mexico
Denver, Colorado
Presbyterian Economic
Nebraska
Mississippi
North Dakota
Douglass State Bank
Development Corporation, Inc.
New Hampshire
Missouri
Oregon
Kansas City, Kansas
New York, N.Y.
New Jersey
North Carolina
South Dakota
Electrical Supply, Inc.
Rainier National Bank
New York
Puerto Rico
Texas
High Point, North Carolina
Seattle, Washington
South Carolina
Utah
Emergency Land Fund
Ohio
Reformed Church in America
Atlanta, Georgia
Oklahoma
Tennessee
Washington
New York, N.Y.
Fidelity and Deposit Company of
Pennsylvania
Virgin Islands
Wyoming
Security National Bank
Maryland
San Antonio, Texas
Rhode Island
Virginia
Baltimore, Maryland
Vermont
West Virginia
First National Bank of Boston
State Street Bank & Trust Company
Boston, Massachusetts
Wisconsin
Boston, Massachusetts
First National Bank of Chicago
Swift & Company
Chicago, Illinois
Montgomery, Alabama
First National Bank of Denver
Travelers Indemnity Company
Denver, Colorado
Hartford, Connecticut
First National Bank of Greenville
USS Agri-Chemicals
Breed, Abbot & Morgan
Greenville, Mississippi
Atlanta, Georgia
New York, N.Y.
First National Bank of Louisville
United California Bank
Counsel
Louisville, Kentucky
San Francisco, California
Arthur Andersen & Co.
First National City Bank
United Christian Missionary Society
Washington, D.C.
New York, N.Y.
Indianapolis, Indiana
Independent Public Accountants
First Pennsylvania Bank
Valley National Bank of Espanola
Philadelphia, Pennsylvania
Espanola, New Mexico
20
Opportunity Funding Corporation
Suite 701, 2021 K Street N.W., Washington, D.C. 20006, 202/833-9580
Manager of the Cooperative Assistance Fund, 202/833-8543
THE WHITE HOUSE
At- van M
Urban.,Policy
WASHINGTON 23, 1976 6 we
April
mething offer dirums,
MEMORANDUM FOR:
JIM CANNON
ART QUERN
should
ART FLETCHER
LYNN MAY
ALAN MOORE
80M with th the
FROM:
STEVE McCONAHEY
PAT DELANEY
NAAZP
SUBJECT:
Materials Relating
to Annexation
you
We have reviewed the materials on the question of annexation
and offer this memorandum to summarize the thoughts of ACIR
and Brookings. Several factors stand out as important:
1.
The rationale for annexations tend to be (a) to
gain efficiencies of service, or (b) to spread the
financial burden and gain property tax revenues.
Some minority groups have claimed that annexation
has taken place in order to dilute the black vote.
2.
According to Richard Nathan at Brookings, the
ability or inability of a municipality to annex
has been a critical factor in determining the
financial health of that jurisdiction. Those
cities who have not been able to "spread" the
financial burden of city services to surrounding
areas have found financially hard times.
3.
The annexation process takes several forms depend-
ing upon State law. Legislative, referendum,
judicial and quasi-legislative and administrative
approaches exist throughout the country.
4.
Factors in the use of annexation:
A.
Size of Cities
Medium sized cities tend to use this tactic
more than larger cities. Part of this can be
explained by the fact that larger cities are
RALD FRUIT FORD
-2-
more established and tend to be surrounded by
other strong municipalities, and by the fact
that there are strong social, racial and
other feelings that tend to polarize these
jurisdictions.
B.
Nature of Local Government
In cases where local towns and townships play
a strong role in local government and are in
many cases immune from annexation, the annexa-
tion tactic does not occur as frequently as
it does in other areas of the country such as
the South or the West where townships and
other small jurisdictions are not as prevalent.
C.
Social Factors
The greater the social, economic and racial
similarity of central cities to the surrounding
areas, the more likely annexation will occur.
Also, central cities operating under the
manager form of government tend to use the
annexation tactic more than non-manager
cities.
5.
Annexation is more likely to occur in areas that
have been most recently developed. Not only is
there more inertia for an agressive city policy,
but there is less opposition in terms of existing
development and existing political powers to
prevent cities from expanding their boundaries.
6.
One of the major reasons that annexation has
slowed in recent years has been the voting rights
issue. The Richmond, Virginia case is based on the
charge that annexation occurred to dilute the
impact of the black vote in city-wide elections.
As a result of these cases, some states have
placed moritoriums on annexation until these trial
court cases can be resolved.
Out of all of this, I think it is clear that annexation is
a state/local issue, one that is fraught with social, economic
and racial overtones, but one that has played a critical
role in the financial viability of cities.
Urba-Pricy
THE WHITE HOUSE
WASHINGTON
April 27, 1976
MEMORANDUM FOR:
THE URBAN TASK FORCE
FROM:
STEVE McCONAHEY Sem
SUBJECT:
Proposal
U.S. Conference attached of Mayors
Sometime back, I circulated for comments a copy of a
proposal developed by the USCM to assess the role of private
industry in seeking solutions to urban problems. I would
appreciate your providing me with your comments on this
proposal and indicating to me whether we should encourage
it and/or help support it.
FORD is LIBRARY 9ERALD
THE WHITE HOUSE
WASHINGTON
April 5, 1976
MEMORANDUM FOR:
JIM CANNON
ART QUERN
PAT DELANEY
ART FLETCHER
LYNN MAY
ALLEN MOORE
sham
FROM:
STEVE McCONAHEY
SUBJECT:
Urban Problems
Attached is a copy of a proposed study to be conducted by
the U.S. Conference of Mayors to assess the potential role
for private sector organizations in helping to solve urban
problems. This is a tentative study statement and will be
used by the Conference to discuss possible funding with
HUD and ERDA.
While this study outline has some imperfections in it, I
think it is relevant to our discussion of a week or so ago
when we tried to identify a strategy for our urban centers.
We specifically discussed the role of the private sector
and the need to identify what it is that makes certain
projects successful and others unsuccessful. This study
may well be one subject of further discussion by our group
at the next meeting.
Attachment
TELEPHONE: 293-7330
(AREA CODE 202)
UNITED STATES CONFERENCE OF MAYORS
1620 EYE STREET, NORTHWEST
WASHINGTON, D. C. 20006
President:
MOON LANDRIEU
Mayor of New Orleans
OVERCOMING PROBLEMS OF THE CITIES THROUGH
Vice President:
KENNETH A. GIBSON
JOINT PUBLIC AND PRIVATE SECTOR EFFORTS
Mayor of Newark
Past Presidents:
RICHARD J. DALEY
Mayor of Chicago
HENRY W. MAIER
This memorandum outlines a project the U.S. Conference of
Mayor of Milwaukee
JACK D. MALTESTER
Mayor of San Leandro
Mayors proposes to conduct to identify and document practical
Trustees:
JOHN J. BUCKLEY
ways in which the private sector can work with or on behalf of
Mayor of Lawrence, Mass.
RICHARD G. HATCHER
Mayor of Gary
local governments in resolving some of the major problems they
WILLIAM H. McNICHOLS
Mayor of Denver
RALPH J. PERK
face. Below we briefly summarize: (1) the scope of proposed
Mayor of Cleveland
CARLOS ROMERO BARCELO
Mayor of San Juan
project and our planned approach to carrying it out; (2) the
GEORGE M. SULLIVAN
Mayor of Anchorage
WESLEY C. UHLMAN
timing and estimated costs of the project; and (3) how we would
Mayor of Seattle
KEVIN H. WHITE
Mayor of Boston
organize for the project.
Advisory Board:
LEE ALEXANDER, Chairman
Mayor of Syracuse
PROJECT SCOPE
ABRAHAM BEAME
Mayor of New York
AND OUR APPROACH
RICHARD CARVER
Mayor of Peoria
DORIS A. DAVIS
Much has been said and written in recent years and months
Mayor of Compton
PETER F. FLAHERTY
Mayor of Pittsburgh
about the serious financial, administrative, and program prob-
WILLIAM S. HART, SR.
Mayor of East Orange
MAYNARD JACKSON
lems affecting many of the nation's cities and the need to come
Mayor of Atlanta
HARRY KINNEY
Mayor of Albuquerque
to grips with these problems quickly and effectively. It has
PATIENCE LATTING
Mayor of Oklahoma City
BEN H. LEWIS
been suggested frequently that the public and private sectors
Mayor of Riverside, Calif.
LEWIS C. MURPHY
Mayor of Tucson
work together in a joint attempt to resolve - or at least to
JOHN H. POELKER
Mayor of St. Louis
JOHN H. READING
ameliorate - the problems. At least three conditions have prompted
Mayor of Oakland
JOHN P. ROUSAKIS
Mayor of Savannah
these suggestions: (1) many cities do not have the internal capa-
HANS G. TANZLER, JR.
Mayor of Jacksonville
LOUIS J. TULLIO
city to successfully overcome the problems on their own; (2) di-
Mayor of Erie
TED C. WILLS
Mayor of Fresno
rect Federal and state assistance to the cities - through whatever
PETE WILSON
Mayor of San Diego
WES WISE
Mayor of Dallas
Executive Director:
JOHN J. GUNTHER
funding mechanisms - will most likely not be sufficient to
their needs over the long term; and (3) the private sector has
a clear and substantial vested interest in the general stability
and overall economic health and welfare of the cities.
The concept of cooperative efforts by local governments
and the private sector to overcome the major problems of cities
is, we are convinced, rich with potential. However, before the
extent of that potential can be accurately determined and steps
taken to fully realize it, it is necessary to answer such funda-
mental questions as:
What, in practical terms, can the private sector
realistically do to aid the cities in overcoming
their problems?
What incentives must be provided to gain the ongoing
cooperation and commitment of the private sector?
How can a close working relationship between a local
government and the business community best be estab-
lished and maintained?
How can successful joint-sector approaches used in one
city be transferred to and adapted for use by another?
What, if any, is an appropriate role for the Federal
Government and state governments in support of joint
sector efforts?
There is considerable demonstrated interest and willing-
ness on the part of both the public and private sectors to work
together in addressing the problems of cities. However, there
has as yet been no concerted attempt, on more than a very
localized basis, to move beyond the expression of good in-
tentions and seek definitive answers to these important ques-
tions - answers that would provide a clear understanding of
what is possible and practical, and show the direction needed
to make it a reality. The project we propose would provide
these answers for purposes of general application in the
nation's cities.
Project Scope
To maximize the opportunity to produce practical and
useful results in a reasonable period of time and to ensure
its overall manageability, the proposed project would:
Be focused explicitly on those problem areas facing
cities where the utilization of traditional private
sector skills, techniques, approaches, and resources
would likely be effective. To this end, the three
principal areas proposed for study are: (1) the over-
all effectiveness and efficiency of local government
management and operations - to include such aspects
as organization, management support systems, resource
planning and management, service level determination,
and staff productivity; (2) the physical development
of the city; and (3) the state of the local economic
base - e.g., the adequacy of the city's business mix,
tax base, and employment opportunities.
Be concentrated principally on cities with populations
exceeding 50,000. Although we fully expect the results
of this project to be useful to smaller cities, the de-
cision to work primarily with larger cities during the
project is based on two major considerations: (1) it is
in these cities that the most serious visible problems are
found; and (2) most businesses with resources sufficient
to aid the cities will also be found in these locations.
Consider the role that could be played in joint-sector
efforts by the full range of possible participants.
While it is clear that the ultimate concern of the pro-
ject is to determine ways to resolve local-level prob-
lems, our intention is to go well beyond the mere
consideration of what a specific city government and
the private sector in that locality can do together.
That is, we intend to seek ways in which public and
private sector "units" at all levels could contribute
to the resolution of a city's problems. Thus, in the
public sector, we would consider what roles would be
appropriate for local, state, and Federal Government
units, as well as for regional, state, and national
associations that represent the cities. Likewise, in
the private sector, we would give considerable attention
not only to the local private sector but also to the
role that could be played by the corporate giants and
by business associations at the local, state, and
national levels.
Project Approach
We would conduct the proposed project in three phases.
The first of these is essential, the latter two are optional.
The objective of Phase I would be to provide answers to
the fundamental questions raised earlier in such a way that
joint-sector efforts with a high probability of success could
and would be developed and initiated throughout the country.
To accomplish this objective, we would:
Identify and catalogue - without initial limitation -
the types of actions that could possibly be taken by
the private sector in cooperation with the public
sector to effectively address the three selected prob-
lem areas
Assess and evaluate each type of action on the basis
of its: (a) potential to significantly impact on one or
more problem areas in a reasonable period of time; and
(b) general applicability and/or transferability
Select those joint-sector actions having the best pro-
mise and identify factors likely to inhibit their broad
acceptance and implementation - e.g., the political
ramifications of the action or, the reluctance of the
private sector to absorb the costs that would be neces-
sary to implement it
Determine, where practical/necessary, appropriate ways
in which inhibiting factors could be overcome - e.g.,
by state governments and/or the Federal Government pro-
viding tax incentives to companies to locate new manu-
facturing facilities in cities
Document our findings, conclusions, and recommendations
for distribution to prospective public and private
sector participants in joint-sector efforts*. This
documentation would include comprehensive discussion
of: (a) the types of joint-sector actions that are
appropriate to specific problems; (b) the level at
which specific actions should be carried out - e.g.,
local, national; (c) the steps necessary to organize
for and implement a particular type of action; (d) how
to establish the mechanisms to transfer a successful
approach from one locality to another; (e) policies in
need of adoption by the states and the Federal Govern-
ment to support and facilitate joint-sector activity; and
(f) the appropriate role of public and private sector
associations.
To gather the information and data essential to the per-
formance of these Phase I tasks, we would visit a minimum of
30 cities and spend at least a week holding extensive discus-
sions with leading public and private sector officials about:
(1) the types of city problems they believed could be jointly
attacked; (2) the extent of their willingness or reluctance to
participate in joint-sector efforts; and (3) their previous
experiences with such efforts. Additionally, we would inter-
view or survey by questionnaire - on the same subject matter -
*Because important information that could be used at the local
level could be expected to become available throughout this
phase, we would make this information generally available as
early as possible rather than waiting until the end of the
phase to provide it.
the mayors of all cities with populations in excess of 50,000,
the chief executives of the country's 1,000 largest companies,
and the heads of major public and private sector associations*.
We would also analyze well-known efforts involving the private
sector in addressing the problems of a city (e.g., the Hartford
Process) to document how the effort was/is put together and to
identify the factors responsible for its success or failure.
Finally, we would spend considerable time with state and Federal
officials discussing their current and potential roles with re-
gard to joint-sector activities.
With the completion of Phase I, a number of joint-sector
approaches to solving city problems would have been generated
but some of these approaches would not have been tested. Thus,
even though the project could end with the conclusion of Phase I,
an option would be to initiate a Phase II to test some of the
more innovative joint-sector approaches through demonstrations
in selected cities. Phase III would overlap this second phase
and principally involve an ongoing evaluation of the demonstra-
tions and the development of transfer mechanisms and promotional
programs to encourage the types of approaches being tested.
PROJECT
TIMING AND COSTS
We would complete Phase I within six months of the project's
initiation. Should a decision be reached to proceed with Phases
II and III, we estimate that they would run concurrently for an
additional 18 months.
* A number of these individuals would be seen in the course of
our visits to the cities selected for extensive coverage.
Because Phases II and III are not essential to the main
thrust of the project, we have developed cost estimates only
for Phase I. We would plan to devote some 10, 240 professional
man-hours to this first phase. Our estimate is that the costs
for this level of effort and the accompanying expenses would
not exceed $69.0,000.
PROJECT ORGANIZATION
The project that has been outlined in this document would
be conducted by the U.S. Conference of Mayors. However, we
would seek the active and continued involvement and participa-
tion of key representatives of both the public and private
sectors in all aspects of the project. To facilitate this, we
would establish an Advisory Committee of public and private
sector leaders to provide comment and overall guidance to the
direction of the project. While we have not identified speci-
fic members of the Advisory Committee, we would seek represen-
tation from among mayors, the chief executives of major
corporations, representatives of other public interest groups
and of such private organizations as the Business Roundtable
and the U.S. Chamber of Commerce.
McKinsey & Company, Inc. - an international management
consulting firm with extensive experience in both the public
and private sectors, as well as with joint-sector efforts -
would assist us throughout the project.
***
This memorandum has been prepared only for the purpose of
providing a basis for discussion about an important and timely
project we would like to carry out. As such, it only
summarizes the effort and, therefore, should not be viewed
as a formal proposal or grant request. We would, of course,
be willing to prepare a more detailed document at such time
as that would be appropriate.
PROPOSED PHASE I BUDGET
OVERCOMING PROBLEMS OF THE CITIES THROUGH
JOINT PUBLIC AND PRIVATE SECTOR EFFORTS
SALARIES
Program Management (195 hrs. @ 18.97)
3,699
Sr. Staff Associate (960 hrs. @ 12.47)
11,971
Two Staff Associates III (1285 hrs. @ 10.31)
13,248
Clerical Support (960 hrs. @ 4.82)
4,627
33,545
Benefits @ 25% of 33,545
8,386
Overhead @ 22% of 41,931
9,225
CONSULTANTS
Includes travel and all related expenses
527,000
TRAVEL
Staff:
30 trips X 232
6,960
Per Diem - 30 trips X 5 days X 35
5,250
12,210
Advisory Council Members:
20 trips X 232
4,640
Per Diem - 10 members X 2 trips
X 2 days X 35
1,400
6,040
18,250
OTHER DIRECT COSTS
Part Time Help $50 X 6 mos.
300
Xerox $100 X 6 mos.
600
Postage $ 200 X 6 mos.
1,200
Office Supplies $60 X 6 mos.
360
Rent - 1.33 staff X 125 sq.ft. X $9 X 1/2
748
Telephone (Long Dist.-Non Watts) $50 X 6 mos.
300
Dues & Subscriptions
300
Mtgs.-Information Dissemination
300
Printing-Survey Materials
3,000
7,108
G & A @ 13.6%
82,078
TOTAL 685,592
THE WHITE HOUSE
WASHINGTON 4/28/76
TO:
JIM CANNON
FROM:
STEVE McCONAHEY
SUBJECT:
Urban Task Force
The attached material is FYI.
5794
CONGRESSIONAL RECORD-SENATE
April 14, 1976
generation are passed on to the next and
chancellor of the state firs chancery divi-
tion, housing, sewerage and day care fa-
then to the next and so on. In this regard,
sion, to which he Wis applinted by the
cilities.
one could say that you have been involved in
governor in 1939.
Fifth. Immediate renewal of the gen-
3 positive domino effect."
After three and a half years in the Army
To say the least, it's been a "Unique Career
Air Corps during World War II-during
eral revenue sharing program and the
Advancement Program."
which he was assigned to try. numerous
incorporation of Incentives to encourage
court martial cases-Judge Miller returned
regional tax base sharing.
to Tennessee and resumed a career which
Sixth. Use of Federal Government pro
JUDGE WILLIAM MILLER
was to propel him into consideration for a
curement and employment expenditures
Mr. BAKER. Mr. President, I was sad-
seat on the U.S. Supreme Court.
to aid the economies of declining and
dened to hear yesterday that the Nation
He was appointed judge of the Middle
pressed areas.
has lost one of its finest and most highly
District of Tennessee in 1955 by President
Seventh. Greater coordination of Fed
Eisenhower, and it was in this spot that he
respected jurists, Judge William E. Miller
eral, State and local government eco-
complled the greater part of his outstanding
of the U.S. Sixth Circuit Court of Ap-
nomic policies and further incorpora
record as a jurist.
peals, who died Tuesday in Cincinnati
tion of State and local government opin-
Judge Miller presided over the conspiracy
Prior to his appointment to the-circuit
trial of ex-Teamsters Union Boss James R.
ions into the Federal Government budget
court in 1970, Judge Miller served from
Hotfa, which led to Mr. Hoffa's being charged
process.
1055 on the U.S. District Court for the
with jury tampering in Judge Miller's court.
Mr. President, since many of my col-
Middle District of Tennessee, and as
It was through Judge Miller's determination
leagues are interested in revitalizing our
chief judge of that court from 1961 until
to protect the integrity of his court-after
major urban centers, I ask unanimous
1970. He was a graduate of the Univer-
he learned of the jury-tampering efforts-
consent to incorporate the full text of my
sity of Tennessee and the School of Law
that the facts were brought out and Mr.
remarks to the Democratic mayors at
Hoffa and others were tried and convicted
of Yale University. For many years he
this point in the RECORD.
of the charges In Chattanooga.
practiced law in his native east Tennessee
I further ask unanimous consent that
Although Judge Miller decided many cases
and was a member of the bar of-Johnson
an article from U.S. News-& World Re-
involving legislative reapportionment, con-
City.
gressional redistricting, and others, he said
port, entitled "Are All Big Cities
Judge Miller's distinguished service as
at a celebration of his 20th year on the
Doomed," be printed in the RECORD.
a Federal judge cannot be accorded jus-
federal bench that the Hoffa case was the
There being no objection, the remarks
tice in the course of these brief remarks
most dramatic to come before him.
were ordered to be printed in the RECORD,
because in addition to the many learned
Judge Miller was appointed to the Sixth
as follows:
decisions that he authored in over 21
U.S. Circuit Court of Appeals in Cincinnati
URBAN POLICY FORUM
years of service on the Federal bench,
in 1970. At about the same time, he was be-
(Remarks of Senator HUBERT H. HUMPHREY
he was also responsible for a number of
ing mentioned promihently for a vacancy on
to the National Conference of Democratic
the Supreme Court. He remained in 'con-
landmark and historic decisions that
Mayors, New York, N.Y., April. 1, 1976)
tention for that seat until shortly before a
have changed the course of Federal jur-
nomination was made.
It is a pleasure and an honor to be here
isprudence and altered for the better the
Judge Miller was an outstanding legal
today with my good friends from the Na-
face of the Nation itself.
scholar, a dedicated citizen and valued
tional Conference of Democratic Mayors.
neighbor. He will not only be missed in his
We have fought side by side in all of the
In the first, he authored the plan that
community and state, but the vacancy he
great battles for social and economic jus-
first truly implemented the principle of
tice in America over the last three decades.
"one man, one vote", that is the essence
leaves in the judiciary will be extremely
We have shared glorious triumphs and pain-
of our democratic system. In the second,
difficult to fill.
setbacks. But we always have given our.
he developed the "stairstep" school de-
best and we always stick together.
segregation plan which without the
Today is a landmark in the history of
tragedy and violence that still haunts
REBUILDING AMERICA'S CITIES
the Democratic Party. For the first time the
other areas of the country today, led the
A NEW URBAN POLICY
leaders of our Nation's greatest cities have
called the aspirauts to the Democratic nomi-
South in correcting the inequities of
Mr. HUMPHREY. Mr. President, last
nation before them to exchange views on
racially segregated schools. In addition,
Thursday, I had the privilege of address-
crucial national issues.
Judge Miller presided over the trial of
ing the Conference of Democratic May-
The-Mayors have eloquently expressed the
Teamster President Jimmy Hoffa, which
ors in New York City. In my speech I
hopes, concerns, frustrations, and needs of
ultimately resulted in his conviction on
outlined a comprehensive program for
our Nation's cities. And the candidates have
charges of jury tampering.
redeveloping and revitalizing our Na-
presented their policies and programs for
Throughout his career, first as a law-
tion's major urban centers. I suggested
revitalizing our major urban centers.
We all have been educated, the level of
yer and then as a Federal judge, Judge
that a new partnership be established,
debate has been elevated, and the Demo-
Miller was admired not only for his
involving all levels of government and
cratic Party has strengthened. It has
scholarly knowledge of the law, but for
the private sector, to correct many of our
been a productive day and I appland Mayor
his ability to apply that knowledge to the
major urban problems. I called for a
Beame, Mayor Maler, and the National Con-
problems before him with a deeply in-
commitment, equal in scope and in
ference of Democratic Mayors for taking this
grained sense of fairness and wisdom.
vision. to the famous Marshall plan
important initiative.
The Nation was well served by Judge
which restored European cities.
This Urban Policy Forum demonstrates
William E. Miller, and he will be sadly
As part of this new partnership, I out-
once again that ours is the Party of crea-
tivity, compassion, and commitment.
and sorely missed.
lined a seven-point program of Federal
I am here to speak with you of opportunity.
I ask unanimous consent that an edi-
Government activity.
and hope for our great-urban areas. Too
torial that appeared in the Nashville
First. A binding commitment to main-
often our attention is so taken with the
Tennessean be printed in the RECORD.
tain full employment in the Nation and
tragic problems in our cities that we fall to
There being no objection, the editorial
our cities. This commitment involves
look at their great strength. An objective
was ordered to be printed in the RECORD,
both monetary and fiscal policy and spe-
dialogue on urban America in the 1970's is
as follows:
cific economic development programs for
truly a "Tale of Two Cities."
Our cities represent the best and the worst
JUDGE WILLIAM MILLER: LEGAL SCHOLAR,
the cities.
that American society has to offer. They are
JURIST
Second. Acceptance of primary re-
the pinnacle of American culture-contain-
U.S. Court of Appeals Judge William E.
sponsibility by the Federal Government
ing the great orchestras, the theaters, the
Miller, one of the most outstanding jurists
for financing welfare and health pro-
great libraries and universities. They are the
produced by the state, is dead at the age of
grams to aid the disadvantaged.
vibrant centers of world commerce and in-
CR.
dustry. They are the great gathering places
Judge Miller, a native of Johnson City
Third. A permanent system of anti-
for the American people-the plazas and
and son of a judge, had a long and distin-
recession programs to assist State and
market places of 20th century America.
guished career in the law-both in private
local-governments whenever the Federal
Our cities are wealthy. they are powerful,
practice and on the bench.
Government fails to maintain full em-
they are fascinating, they are cosmopolitan
After graduating from the University of
ployment.
and, most of all, they are tolerant.
Tennessee, he obtained his law degree from
Yet in the shadow of these great accom-
Vale University and entered private practice
Fourth. A public works investment
plishments lies the shame and despair of
in Johnson City.
program to revitalize and rehabilitate
America. Ugly slums, overcrowded housing.
His first experience on the bench was as
public intrastructure such as transporta-
poor schools, rampant crime, malnutrition,
April 14, 1976
CONGRESSIONAL RECORDSENATE
5795
drugs and widespread human suffering-all
nated, slums must be rehabilitated; discrim-
and presidential candidates should listen.
untouched by the grandeur and splendor
ination must be halted, neighborhoods must
We should accept that advice.
that stand a few short blocks away.
be restored, social services must be revital-
The States must make sure that their po-
Our nation cannot afford this paradox any
ized, hope must be returned to our cities.
litical off-spring. the cities, have sufficient
longer. The sunshine of social betterment
Nothing less will do, There are no more easy
financial resources to provide essential serv-
and economic development must burn away
choices.
ices.
the clouds of squalor that hang over large
In attacking these problems, there is much
And the local governments must marshal
portions of our cities. and inflict untold
we can learn from our previous experience.
their resources frugally so that they can pro-
misery on our people
In the 1960's a compassionate and energetic
vide essential services without driving out
Eight years ago month, the National
Federal Government plunged headlong into
middle income families and jobs.
Advisory Commission on Civil Disorders is-
the against our urban problems. In
This is not an easy task. It involves
sued its final report. That report should have
this historic experiment in social change, the
changes in both the institutions and the
changed the direction of America's urban
Federal Government identified the problems,
policies of government. But it is a challenge
policies. Every chapter, every page, every
it made the commitment and it proposed the
we must accept. It is the highest priority for
word of that report cried out for action.
solutions.
a Democratic president and a Democratic
It described in shocking detail the condi-
Most of these programs were well con-
administration.
tions that percipitated-violence and disorder
celved. They were all well intended and most
We recognize that a New Partnership can-
in our cities. As mayors, many of you must
of them were successful. A few were less suc-
not be built on empty promises or unsup-
live with these conditions every day-abject
cessful than others. But even the failures did
ported dreams. A massive commitment is
poverty, widespread unemployment, deterio-
not result solely from poor program design.
needed. I remind you that when this Repub-
rated housing, disintegrating families, and
Most of these were less successful due to poor
lic was started, people committed their lives,
worst of all broken promises and shattered
administration, others due to gross under-
their fortunes and their sacred honor. They
dreams.
funding, and some because the programs were
didn't commit one hour a week, they didn't
Eight years ago, the members of that
not effectively coordinated among responsi-
commit ten percent of their fortune, and
Commission reached. sad but prophetic
ble levels of government. In the 1960's we
they didn't commit just a little bit of their
conclusion. They said, Nation mov-
clearly learned that the Federal Government
honor. They committed it all-and because
ing toward two societies, one black, one
could not do it alone.
they made that commitment, this Nation has
white-separate but unequal."
But we have learned an equally important
survived. We need that commitment again.
But the members of that Commission
lesson in the 1970's under the so-called "New
A commitment that possesses all the scope,
realized that is:conclusion was not an
Federalism." And the problems we see in
the vision, the financial backing, and the
irreversible truth. They knew that 'America
Detroit, New York, Boston, Milwaukee and
spirit that the Marshall Plan embodled. We
was at a crossroads with two possible paths
many other-large and small cities are part
need a new partnership-the Federal Gov-
,to the future.
of that lesson.
ernment, state governments, local govern-
One was the path of neglect, abandon-
We've learned that rhetoric about "local
ments, business and labor, all working to-
ment, and decline. The signposts along that
control" is worthless without a coordinated
gether; a new partnership of the people with
path were a cold shoulder from the Federal
plan of action involving all levels of govern-
their government.
Government, a fanatical worship at the al-
ment; that talk of local discretion is point-
A New Partnership requires coordinated
tar of the "free market forces," and a con-
less without a commitment of funds from
planning by all levels of government. It
tinuation of oversold but underfunded so-
the Federal and State Governments that is
means that Ideals must flow from the bottom
ctal programs. In all fairness, many of the
sufficient to meet the needs. Rhetoric won't
up. as well as from the top down. It means
programs that are being criticized today
pay the policemen and firemen, rhetoric
goals and priorities must be carefully set
were never given a chance. They were un-
won't operate the school system, and rhetoric
and examined by all levels of government.
derfunded and after 1969, there seemed to be
won't meet local housing needs. We have
It means that resources must be made avail-
a deliberate effort to sabotage them.
learned that state and local governments
able on a continuing basis-not in a stop
The other path would be the path of re-
cannot do it alone either. We've learned that
and go manner.
vitalization, enrichment and conservation.
the people's government, the Federal Govern-
The New Partnership means planning
This path would be marked by a commit-
ment, must join the fight, become the lead-
goals, commitments, consistency. and ade-
ment of resources equal to the problem, by
er, and actively bear its fair share of the
quate resources. All are necessary and all
an unwillingness to tolerate the waste and
burden.
are required.
indignity of unemployed people and re-
Let's take a look at what has happened
This is the way we put a man on the
sources, and by a commitment to make good
to the dollar since the so-called "New Fed-
moon. We planned our space program. We
the promises of American democracy to all
eralism" was instituted.
set goals- a time frame. We committed
citizens-urban and rural, black and white.
From 1950 to 1972, Federal grants-in-ald
resources. We never back away from that
Eight years ago, this choice was presented
grew every year until they represented al-
commitment. We didn't hesitate, we com-
to the American people and to their leaders.
most 25 percent of all domestic outlays. Since
pleted the task. We did the same in Europe
Since then, our nation and our cities have
1972, the numbers tell another story. In
under the famous Marshall Plan. We planned
not fared too well. Unemployment in. our
Fiscal Year 1977, grants-in-aid will be only
the recovery of Europe and we made the com-
cities has soared, inflation has ravaged fam-
21 percent of domestic outlays, the fifth
mitment. And it is the miracle of the
ily and city budgets, the quality of public
straight year of decline.
twentieth century. Why is it that America
services has declined. and middle income
The "New Federalism" of Nixon and Ford
can plan to rebuild Berlin? Why 13 It that
families and jobs have left our cities, leav-
is nothing more than a conscious and de-
we can plan to rebuild London? Why is it
ing behind ever greater concentrations of
signed policy to reduce the Federal Govern-
that we can rebuild Rome? Why is it that
low income families.
ment's commitment to our cities and to the
we can rebuild the cities of Germany. and
Where have the leaders of our nation been
millions of American citizens who live in
of Italy, and of England, but we can't rebuild
during this period?
them. And who are many of these millions?
the citles of America?
The Nixon-Ford Administration simply
The poor, the elderly, the sick, the handi-
If this New Partnership is to become a
sat on its hands with cruel and callous in-
capped, the unemployed, the black, the
reality, the Federal Government must under-
difference. "After all," they asked, "what
brown, the Puerto Ricans, the American
take several actions.
could we do. this simply is 'the market' at
Indians-the people who most need a gov-
foremost we must make a blad-
work-tough luck if you get hurt."
ernment that cries out for justice and under-
ing commitment to maintain full employ-
In this blind ideological determination to
stands human need. At this very hour, Fed-
ment in our nation and its cities. That is the
let "nature take its course," the White House
eral Government policies discriminate
only premise on which we can build recovery.
has vetoed every major effort by the Demo-
against these people.
We simply cannot afford the catastrophic
cratic Congress to improve conditions in our
The challenge that we now confront is to
waste of unemployed workers and capital
cities. We have suffered seven sad years of
develop & comprehensive national urban
that we have experienced in the last two
years.
conscious and official neglect of urban Amer-
policy that combines the commitment of the
ica.
1960's with a New Partnership that actively
The entire economic terrain is littered
The time has come to return to the high
involves all levels of government in close co-
with the casualties of Nixon-Ford economic
road of revitalization and recovery. We can-
operation with all elements of the private
mismanagement.
not shy away from that challenge. We can-
sector.
Seven million people are now officially
not allow this Nation to crumble and decay
The Federal Government must accept its
unemployed. Another three million have
as its cities are abandoned.
responsibility to maintain full employment
dropped out of the full-time labor force.
The problems aren't going to disappear by
and reasonable price stability and to provide
Some 827 billion in revenues was lost by
themselves. They aren't going to be solved
income assistance to families that do not
state and local governments in 1975 alone.
just because someone says, "We need less gov-
participate fully in our economic system. If
Over $400 billion in output and income
ernment" or "Let's blame it on Washington."
Arthur Burns can tell us that the Federal
has been lost due to this recession. That's
These problems must be attacked by every
Government should be the employer of last
waste.
level of government working closely in 3
resort and that the Federal Government
partnership with the private sector. Jobs
Yet these national figures mask even
should set specific goals and priorities. then
must be provided, poverty must be elimi-
greater hardship and suffering in our central
Democrats, citizens, Members of Congress
cities.
S5796
CONGRESSIONAL RECORD SENATE
April 14, 1976
While the "official" national unemploy-
Fourth we need a major public works
federal policy after it has been released
ment rate is 7.6 percent, it is 20 percent in
investment program to modernize and re-
the press.
Newark, 17 percent in Detroit, 12 percent in
place deteriorating Infrastructure. For too
Second, a system of permanent segional
Cleveland, 12 percent in Boston, 11 percent
long, our Nation has been privately rich
councils should be established. These coun-
in New York and 10 percent in Philadelphia.
and publicly poor.
cila would be composed of state and local
National rigures tell us very little. You've got
It is time to make a major commitment to
government elected officials and representa
to look where the people live.
revitalize our transportation to im-
tive of the Federal Government. The Prest-
It is time that we accept the fact that the
prove our sewage treatment facilities, to
dent would use the regional councils to be
major long-term solution to our urban prob-
upgrade our housing stock, and to provide
come acquainted with the unique concerns
lens is full employment in our cities.
day care centers for pre-school education.
of each region. The Federal representative
A true full employment program must
People say, "We can't afford this Mr. Hum-
would be an official just below Cabinet
start with sound monetary and fiscal policies.
phrey." But I remind you that every project.
who would act a3 the eyes and the ears.of
That means getting the Federal Reserve to
is job-producing; every project is revenue-
the President. The Federal representative
be part of this government and not allowing
producing. The only programs that do not
would report directly to the President and
it to stand in the corner as if it had national
produce jobs, revenue, and income are wel-
the Vice President, and not through the
sovereignty. But these policies alone will not
fare and unemployment compensation. This.
Cabinet
be enough. Their impact just doesn't, trickle
country was built on hard work, not welfare
Finall State and local government offi
down into the pockets of high unemployment
and unemployment compensation. And
clals should be included in the Federal
in our central cities
people- still want to work. They are crying
budget process before the budget is signed
National economic policies must include
out for a chance to do something. I think
sealed, and delivered. At present. they are
economic development programs=designed
it's our job to make sure they have that
invited for a little party in the White House
specifically to create new private sector jobs
opportunity
after the budget is released.
in our central cities.
We must identify all major public invest-
Our Nation's cities represent the best of
We need 3 National Domestic Development
ment needs and begin to meet these needs
times and the worst of times-the hope and
Bank. We have over $9 billion worth of com-
with consistent funding and a permanent
despair-of 20th century America. The
mitments this year for international eco-
program.
poverty of the ghetto languishes next to the
nomic development. These are long-term
We also should identify an inventory of
affluence of Park Avenue. Pockets of 30 and
loans with low rates of interest. Yet we have
individual projects that could be taken off
40 percent unemployment are just a few
no banking system to meet the financing
the shelf quickly if the unemployment rate
short blocks from the plush offices of the
needs of our states and municipalities. We
starts- to rise. These should be important
captains of American industry. Luxurious
need long-term low interest loans to encour-
projects that can be started and completed
townhouses cast shadows over crumbling
age businesses to locate in central cities and
rapidly. We then would be prepared to swing
slum tenements. Open spaces and parks are
to help state and local governments build
into action quickly with useful projects if
fed by rubbish-strewn streets. And tightly
the infrastructure necessary to attract new
we enter another recession. It's very simple-
knit ethnic neighborhoods are surrounded
industry. And we need selective tax credits
we just do a little planning ahead.
by pockets of alienation.
that make investing in high unemployment
Fifth, the revenue sharing program must
In many senses our cities represent the
areas more attractive.
be renewed immediately to allow cities to
apex of American achievement, that portion
There are some people in this Nation that
plan next year's budgets. And it must be re-
of society that results from our hardest work
say we can't afford full employment. They
newed on- a long-term-basis so cities can
and that which is most worth saving. But in
are concerned that full employment can only
plan for future years.
other respects, the shame of our cities is the
be achieved at the expense of price stability.
In the future. however, I believe we should
largest scar on the national body politic,
They are wrong. We have seen that as em-
consider: the desirability of using revenue
that portion of society that is most in need
sharing to encourage regional tax base shar-
of work so that it can be saved.
ployment increases inflation is reduced.
But even if they were not wrong. I could
ing. One of the major problems confronting
It is that task-turning despair into hope,
not accept their philosophy. No national eco-
some of our older cities is that they are
promises into results. opportunities into ac-
nomic policy should ask millions of American
islands of urban poverty in a sea of suburban
complishments-to which we must be will-
families to suffer the hardship of unemploy-
wealth. Revenue sharing could be used to
ing to commit ourselves and our Party today.
ment so that the majority of Americans can
encourage suburban jurisdictions to share a
I'm reminded of the words of the great
experience the pleasure of price stability.
small portion of this wealth with the central
Victor Hugo. He said the future has several
That's wrong and morally unacceptable.
city on whom their viability relies.
names. "For the weak, it is the impossible.
We once had an economic system in this
The Twin Cities area in my home state of
For the faint-hearted, it is the unknown. For
country where the few suffered for the bene-
Minnesota already has developed an ex-
the thoughtful and valiant, it is the ideal."
fit of the many. But we ended that system
tremely effective tax sharing scheme. Other
We face an enormous Job. It will require
113 years ago with the Emancipation Procla-
regions should be encouraged same.
a great deal of the human energy and finan-
I also believe we should consider adjust-
cial resources of the American. people. But it
mation.
It is time to provide that same freedom to
ing the revenue sharing formula to refect
is a job that we simply cannot afford to put
those enslaved by unemployment.
more adequately the number of low income
off until tomorrow
Second the Federal Government must ac-
families that reside within each jurisdiction.
ceptiprimary responsibility, once and for all,
Sixth we must utilize Federal Government
From U.S. brid Report,
for financing welfare. and health programs
procurement and employment expenditures
for disadvantaged American families.
to boister the economies of depressed cities
Criss DOOMED?
No state or al-government should be
and areas. At present, the Federal Govern-
news that America's major cities,
driven to bankruptcy by welfare expenditures
ment is spending three and four times more
on which SQ much of the nation's growth de-
because a large share of the Nation's poor
per person in growing areas than in de-
pended for the last 200 years, are in decline.
have chosen that city or state as a place in
clining areas. Where the money should be
The challenge is whether this decline can
which to live. Nor should any state or local
spent, it is not being spent: And where the
be halted, or whether all big cities are to
government be forced to bear a dispropor-
money is not needed, it is being poured in.
falter and eventually become ghosts of their
tionate share of the burden of providing es-
Finally. we must re-examine our institu-
once-thriving selves.
sential health services to the poor.
tions for formulating economic policy and
The situation as It stands: Many of the
The health and welfare of individual
for coordinating federal, state and local gov-
most famous centers of Industry. culture and
American citizens always has been and
ernment activities. At present there is no
government are losing people. And the ones
should remain a chief concern of the Fed-
systematic institution through which states
they're losing are mostly their solid taxpay-
eral Government. There is nothing wrong
and cities can make their concerns known.
ers-middle-income families whose bread-
with a government by the people, of the
Nor is there any method for coordinating
winners have technical and professional
people, and for the people being concerned
federal, state and local government policies.
skills.
about the people's health, education and
Mayors and governors quite Trankly are on
Companies, too, are leaving, and with them,
well-bein
the outside looking
Jobs.
we need a permanent system of
This relationship should be changed in
Left behind are increasing proportions of
programs ready and in place
several respects.
the poor, the badly educated. the unskilled,
the unemployment rate rises above
First, the Vice President should Become
the unemployed and those on welfare-peo-
full employment levels.
2 permanent liason with state and local gov-
ple who cannot leave if they want to.
There should be two elements to this anti-
ernment officials-their man or woman in
Reasons for decline: The pages that fol-
recession strategy-emergency public service
Washington. You need someone that you can
low make clear some major causes of the de-
jobs and emergency budget support grants.
go to, someone that understands. The Vice
cline-the interstate-highway system, other
The concept is quite simple. The Federal
President should be the spokesman for state
technological changes. crime, poor schools,
Government has an obligation to maintain
and local governments in the President's
heavy taxes, high living costs. and budgets
full employment. When it falls, it should
Cabinet. When I was Vice President, gover-
that now have less leeway for attacking the
provide assistance to cities that experience
nors and mayors regularly were consulted
problems.
excessive unemployment. These programs
on major policy decisions and they had direct
The figures on pages 50 and 51 make it clear
will allow cities to maintain essential serv-
access to the White House through my office.
that the problem is most acute in the North-
ices.
Now, they're lucky if they get a peek at
eastern quadrant of the U.S. But they also
April 14, 1976
CONGRESSIONAL RECORD-SENATE
5797
show that declining cities are not limited to
People living in small towns and rural
this older industrial region. Moreover, some
areas-up 5.0%.
Change
Number
from
per
urban experts are predicting that the process
PARTICULARLY IN EASTERN HALF OF UNITED STATES
1970-74
1,000
of decay will in time engulf other cities that
(percent)
residents
are still growing and prospering.
Others suggest that the decline will even
Population
Population
Nashville
make for better cities-less congested, with
decline,
is now the
Up 51.7
57.8
Newark
1970-73
lowest
Up 2.9
84.8
more open space for parks and other uses.
New Orleans
since-
Up 9.9
61.4
But that leaves unanswered the question of
Among biggest cities
(percent)
New York
Up 0.4
62.2
Oakland
Up 41.1
120.2
how the cities, with fewer taxpayers, shrink-
ing property values-and tax rates already
12.0
1920
Oklahoma City
Up 140.7
61.8
Minneapolis
Omaha
St. Louis
10.3
1890
Up 101.7
55.4
high. are to foot the bills
9.6
1910
Philadelphia
Up 78,7
33.8
Cleveland
A number of solutions are being urged.
Phoenix
Atlanta
8.9
1950
Up 162.3
96.8
It's proposed that financial distress in some
Fort Worth
8.6
1960
Pittsburgh
Up 3.0
54.7
8.4
1920
Portland, Oreg
Up 79.7
95.7
cities, such as New York, Detroit and
Detroit
St. Louis
Buffalo
8.1
1910
Up 44.6
114.4
Louis, could be eased if they became parts
St. Paul
7.8
1900
Up 38.2
67.7
Pittsburgh
of areawide metropolitan governments, Then
San Antonio
St. Paul
7.3
1930
Up 35,7
57.2
Louisville
7.2
1940
San Diego
Up 127.5
60.2
middle-class families : and industries that
San Francisco
Down 2.1
83.7
have moved to suburbs would pay &
Chicago
5.8
1920
San Jose
Cincinnati
5.6
1920
Up 176.6
67.9
larger-some urbanologists say a "fairer"--
Seattle
5.2
Up 47,6
80.1
Seattle
1950
Toledo
share of inner-city costs. The effect would be
1920
Up 121.0
63.1
Philadelphia
4.5
Tucson
Up 235.4
68.5
somewhat similar to the process of annexa-
Oakland
4.3
1940
Tulsa
tion that helps keep Houston and Charlotte
San Francisco
3.9
1940
Up 88,6
55.4
Washington.
Down 7.9
69.5
Kansas City, Mo
3.8
1960
growing.
Milwaukee
3.7
1950
But that idea appeals to few suburbanites.
Newark
3.7
1910
And there are city bosses, too, who-lack
Boston
3.6
1900
Note: In some cases, unusually high increases in crime may
enthusiasm. The suburbs could easily- over-
Dallas
3.4
1960
be due to annexation by cities of surrounding territory.
New Orleans
3.4
1950
whelm their political machines. So this idea
Long Beach, Calif
3.4
1960
Job market is shrinking in many cities
usually leads to suggestions for a major
New York
3.2
1940
From 1970 to 1974, even before the wave of
change in federal-State relations, not some-
Baltimore
3.1
1940
Washington
3.0
1940
recession layoffs, employment was declining
thing that is going to happen soon.
in major cities-at a time when jobs in U.S.
Welfare reform, often urged for other rea-
as a whole increased by 9.3 per cent. Among
sons, has its save-the-cities aspect. Mayors
Source: U.S. Bureau of the Census,
big cities losing jobs—
and Governors would like the Federal Gov-
ernment to take over the entire cost, and
CITIES VERSUS SUBURBS: DIFFERENCES
PEOPLE AT WORK
some suggest setting more-uniform stand-
IN THEIR POPULATION
ards for relief across-the nation. That would
Change
take a load off the budgets of New York and
Suburbs
1970
Cities
1974
(percent)
many other cities, and give the poor less rea-
son to stay in places where living costs are
high. Financial and social burdens would be
Median family income
$14,007
Detroit
577,000
$11,343
470,000
Down 18.5,
5.0
St. Louis
224,000
Proportion of blacks (percent)
22.3
183,000
Down 18.3.
distributed more evenly.
Baltimore
353,000
308,000
Down 12.7.
But the budget benefit would be limited.
Proportion of families headed by
women (percent)
18.9
9.5
Philadelphia
776,000
682,000
Down 12.1.
Some big citles-Chicago and Los Angeles are
59.8
68.5
Washington
342,000
307,000
Down 10.2,
High-school graduates (percent)
examples-already have little expense for
College graduates (percent)
13.1
16.2
Chicago
1,354,000
1,249,000
Down 3.4.
New York
3,131,000
2,932,000
Down 6.4.
welfare, which in their case is mostly a State
San Francisco
454,000
443,000
Down 2.4.
or county function. And the Federal Gov-
Los Angeles
1,282,000
Among persons aged 25 and over.
1,273,000
Down 0.7,
ernment, it own books badly out of balance,
is trying to reduce its outlays for welfare,
Source: U.S. Bureau of the Census.
Source: U.S. Department of Labor.
not add to them.
Crime inside citles: far more common than
The federal deficit also makes it unlikely
outside.
The bigger the city, the heavier the financial
the cities will get substantially larger
burden
amounts for revenue sharing, community de-
Number of crimes per 1,000 of population
Taxes
velopment and other block grants. Indeed,
at latest official count
the way the revenue-sharing formula works,
In cities
52.1
Average revenues per capita from local
a city that loses population also loses some
In suburbs
36.1
sources, in citles with populations of-
of its allocation.
In rural areas
15.9
1,000,000 and over
$426.90
PRESIDENT'S STAND
500,000 to 1,000,000
285.47
HOW CRIME INCREASED IN MAJOR CITIES
300,000 to 500,000
231.37
In short, no big:federal rescue is in the
(Based on serious crimes as reported by the Federal Bureau
All U.S. cities
208.58
making. The Ford Administration's policy:
of Investigation]
Let each city work out its own salvation
Debt
with such help it now gets from Washington,
Average local debt per resident in citles
and without anything extra for inflation.
Change
Number
from
with populations of-
per
Even so, the outlook is not all dark. In:
1970-74
1,000
most cities, the revival of some decaying
residents
1,000,000 and over
(percent)
$1,052
neighborhoods indicates what might happen
500,000 to 1,000,000
569
if a formula is found to win back more upper
300,000 to 500,000
526
United States as a whole
Up 25,6
41.3
and middle-income families. Business and
All U.S. cities
464
Atlanta
Up 77.7
99.9
government, too, are building new offices,
Austin
Up 182.0
56.9
Source: U.S. Bureau of the Census.
hotels and sports and cultural centers, hoping
Baltimore
Up 22.7
78.1
they will attract more patrons instead of
Birmingham, Ala
Up 74.4
67.3
NEW YORK: WHERE ALL THE PROBLEMS ARE
Boston
Up 71.6
84.9
PRESSING IN
merely luring them from other declining
Buflaio
Up 38.0
53.6
downtown areas.
Charlotte
Up 76.5
56.5
NEW York-The financial and social ills
Finally. there is this overriding fact: Big
Chicago
Up 90.0
67.6
of America's big cities are nowhere so pain-
cities still are the centers of finance, com-
Cincinnati
Up 77.1
67.8
ful as in this, the biggest of them all. And
Cleveland
Up 16.7
62.1
merce and government, the focal points for
Columbus
Up 52.5
57.9
it's hard to see how things are going to get
the arts, the homes of eminent universities
Dailas
Up 63.2
85.6
better here.
and research hospitals. Those functions are
Denver
Up 26.2
85.4
New York's festering fiscal crisis has forced
likely to remain, no matter how the metro-
Detroit
Up 9.1
85.2
El Paso
Up 157.6
56.8
Mayor Abraham Beame to slash millions of
politan areas change in the nation's third
Fort Worth
Up 62.2
60.5
dollars and thousands of Jobs from the city
century. That's the best guarantee that
Honolulu
Up 172.5
104.8
budget. Taxes are up.
American cities will not be allowed to be-
Houston
Up 52.1
62.4
Indianapolis
Up 35.3
40.7
The result is a speedup In New York's
come ghost towns.
Jacksonville
Up 62.4
66.4
decline as an attractive place to work and
BIG CITIES: BEHIND THE GROWING CRISIS-
Kansas City, Mo.
Up 40.3
66.3
live. Businesses and taxpayers are fleeing to
Long Beach
Up 65.1
68.3
THE FACTS AND FIGURES
the suburbs.
Los Angeles
Up 22.7
77.1
Big cities are losing people-
Louisville
Up 4.8
50.6
A year after the start of the emergency
Population change since 1970-
Memphis
Up 132.1
65.1
here, officials are worried that the patchwork
Miami
Up 60.4
85.8
People living in big cities-down 1.9%,
Milwaukee
Up 67.2
44.2
plan to save New York may unravel, plunging
People living in suburbs-up 8.4%.
Minneapolis
Up 43.7
$6.8
the city Into full-fledged default.
5798
CONGRESSIONAL RECORD-SENATE
April 14, 1976
For people in other big cities, New York's
If construction.or-other Investment takes
employes are able to do under the law. The
crisis stands as a warning of the direction
place on city-owned property, developers
city figures to save 200 millions annually
in which they may be headed. For New York-
may opt for 3 special break on leasing costs
by leaving the system.
ers, the crisis of the cities is already a day-
Among the first to make use of the plan
Major savings could come if New York
to-day reality.
is a group that intends to reconstruct a
can shift to the federal or State governments
In municipal hospitals, 750 nurses have
1,400-room hotel near Grand Central Sta-
such expenses as welfare, costs of the
been lopped off staffs. Atone institution, that
tion.
court and prison systems or outlays-1
means a lone nurse and an aide must care
The city also plans to expand port facili-
City University.
for each 43 patients. Visitors frequently per-
ties in New York harbor and to add a new
Mayor Beame has also proposed a major
form vital chores for patients that once were
industrial park in the south Bronx to the
program to enlist volunteers to
part of the nurses routine. Some city hospi-
five that are already owned by the city.
parks and streets and to perform other neigh-
tals are being closed.
Tourism is climbing in New York, and the
borhood services. But unions are worried
Schools are victims: Massive layoffs in the
theater is enjoying a renalssance.
that the plan may take jobs from city em-
schools have forced teachers to take on larger
But the pluses do not outweigh the
ployes.
classes, while a shorter class day gives stu-
minuses in New York's future, in the view
Projects to increase the space for indus-
dents less time to learn. Vandalism at school:
of most experts.
trial parks in the and to offer incen-
buildings has climbed since 50 per cent of
How did the city get into such a fix? Like
tives for companies locating in New York
the security personnel were dismissed
most cities, New York has been caught be-.
also figure in the city's-efforts to reinforce
Criminals and prostitutes ply their trades
tween rising demands for city services and
the sagging economy.
more blatantly, now that the city's police
growing resistance to tax hikes from the
Spreading impact: Such efforts alone may
force has been reduced. by 12 per cent.
companies and individuals who foot the bill.
not be enough to cure the present crisis
The cutback has hampered the city's drive
According to Juan de Torres, economist at
Money troubles have spread from New York
to clear the Times-Square area of por--
the Conference Board, New York's big mis-
to other cities and the State government
nography shops and massage parlors.
take was to give priority to spending for the
Their problems will make it even harder for
Libraries have shortened their hours. Some
poor while ignoring the outflow of taxpaying
New York to meet the terms of the pack-
galleries in museums are closed because the
businesses and residents and the deteriora-
age of federal loans and private aid that
stad of guards is too small to keep an eye
tion of its stock of taxable housing.
bailed the city out in December.
on all the art works.
The city has not been a profiigate spender,
Even if New York City avoids default, it
In the last 14 months, the city has elimi-
compared with other cities on & service-by-
faces the arduous task of rebuliding its
nated 44,275 public jobs, or 15 percent of the
service basis. But New York has paid for
economy.
municipal work force. Private industry
costly programs that no other city offers.
The struggle is costing the city much of
pulled 100,000 more jobs out of the city last
Among these are a free-tuition university,
the glitter that once made It this nation's
year, bringing to 500,000 the number of po--
an extensive hospital system, a big welfare-
premier city.
sitions lost since 1969.
benefit program, transit-fare subsidies and
Industry is leaving largely because taxes,
housing aid for low and middle-income
CITIES ARE BECOMING DUMPING GROUNDS FOR
POOR PEOPLE
wages and prices in New York are too high
groups.
for many companies to bear profitably. But
New York's budget is still 12.3 billion dol-
Interview With Pierre de Visé, Professor of
lars for-the-1975-76 fiscal year, among the
Urban Sciences, University of Illinois at
the city's decline plays a part. For example,
the president of a company that moved to
largest- government-spending packages in
Chicago.
suburban Long Island explained:
the U.S.
Critical questions for the nation's decay-
"The last straw came when one of my
To keep up with rising outlays, taxes have
ing cities: Is the decline fated to continue?
mushroomed. From 1964 to 1974, for in-
What can be done to arrest the downslide? A
executives was mugged and knifed while rid-
stance, the bite from the city's major taxes.
prominent urbanologist gives his views on
ing his bicycle in Central Park during day-
light hours on Sunday."
jumped from 7.6 to 10.2 per cent of personal
these and other problems.
income. Total take from these taxes
Q. Professor de Visé, why is it so many
A symbol, moting can: As life in the city
doubled.
large and famous American cities-and some
deteriorates and job. openings disappear-
Put together, the State and local tax
of their suburbs, too-have stopped growing
464,000 of them in the last five years-many
New Yorkers are leaving the city.
burden on New Yorkers is the heaviest in the
and are losing population?
nation, 24 per cent more than that of the
A. We no longer need very large cities. We
Felix Rohatyn, chairman of the Municipal
Assistance Corporation. put it this way:
next highest State and 55 per cent above.
developed these behemoths like New York,
"Every week, almost 2,000 New Yorkers who-
the national average.
Chicago and Philadelphia on the basis of
could not be replaced called the moving
Decline in advantages: The tax load in-
late nineteenth-century transportation and-
creased just at a time when many of the
technology.
van."
advantages of locating in New York were
The railroad, for instance, was important
Many who stay behind are out of work.
slipping away.
not only in the development of the large
Unemployment hovers at 12.2 per cent in
New York City, despite big improvements
A case in point is the securities industry,
cities but also in the -concentration of in-
in most of the country
which traditionally has been tied to Wall
dustry near the downtown. After supplies got
Street
to the railroad terminal, it was literally a
The exodus of businesses has strangled
New York's once high-fiying real-estate in-
Nine dealers- deserted New York for New
matter of using horses and carts to get them
Jersey when the latest round of taxes on se-
to the industries that needed them. This
dustry.
curities trades was announced. They were
kind of central location is no longer fusti-
Companies occupying the newest build-
ings, such as the giant World Trade Center,
able to leave because electronic communica-
fied for most industries. They're better off
are leaving older buildings vacant-even the
tions have made proximity to the stock and
in the suburbs because of the need for more
Chrysler Building, with its landmark stain-
bond-trading floors unnecessary.
land, more floor space, and off-street parking
New York's crisis has been exacerbated by
for employes.
less-steel top.
the city's failure to follow basic budgetary
Also, business organization itself has
Now, office construction has all but come
to a halt
rules. Officials hid problems from taxpayers
changed. Today, the large holding companies
Inflated costs have also slammed into rent
for years, running the city deeply in the red
that used to operate giant factories in the
controls on apartment buildings, limiting
through budget trickery that evaded the
central city operate out of many small, dis-
construction in that sector and spurring
spirit, if not the letter of the law.
persed plants.
many landlords to abandon their buildings
One example: Despite rules requiring the
I really see little in- the cards that will
rather than to take a financial beating on
city to review pension liabilities periodi-
make the city attractive again to industry.
them.
cally, no blg changes were made for years
Q. Is part of the problem that the indus-
Property-tax delinquencies rose last year
in several of the programs. Pension costs
tries that were important to the older cities
to 7 per cent of the tax base. For the first
were vastly understated as a result. Revised
are growing less rapidly?
time in 33 years, the assessed value of real
estimates show that the city has promised
A. Yes. Chicago's economy was based large-
property in New York is expected to fall in
future benefits of 6 billion dollars for which
ly on steel production and fabrication. Now
1976.
no money is set aside.
steel is being replaced by other metals and
Another sign of decline: A survey by
Proposals for lifting New York out of
plastics-and even though the need for steel
Helmsley-Spear, Inc., found that the num-
its financial mess abound.
is still growing, the industry is highly auto-
ber of hotel rooms in New York dropped for
Further budget trimming seems inevita-
mated, so that there has been a constant
the eleventh straight year in 1975.
ble. For instance. discussions about taking
attrition in the work force.
No new hotel rooms were added in the city
another whack at university expenditures
Tax rates are another problem. Generally,
last year.
are under way.
industries, retailers and services get a much
Limited tax break: Reasons for optimism
Rent controls are being challenged, al-
better tax rate in a suburb.
about this city's future are hard to track
though Mayor Beame has opposed any out-
Q. Why is that?
down. For one, Mayor Beame has inaugur-
right lifting of the ceiling on rental increases.
A. Because city areas have n superabun-
ated a program of limited property-tax re-
Officials also have decided that most city
dance of poverty relative to the number of
lief to lure private developers to build in
workers will drop out of Social Security on
schoolchildren. The mix of residential and
the
March 31, 1978, something local-government
nonresidential property is also a factor. Some
April 14, 1976
CONGRESSIONAL RECORD-SENATE
S5799
districts in Cook County, III., outside of Chi-
population. If poor blacks are more likely to
Q. What about the idea that education
cago, have $300,000 of assessed valuation per
commit economic or violent crimes, then as
will, in time, provide the needed uplift for
pupil. Other districts, including the city,
the proportion of poor blacks increases, the
the poor?
have $30,000.
crime rate is bound to go up
A. I'm not sure we should give up on that,
As a result, we find that the average prop-
Homicides doubled in Chicago and other
but we are getting smarter about how dif-
erty-tax cost in a Chicago industrial suburb
large cities between 1965 and 1970, but that
ficult the problem is. Regardless of how
is about 40 cents per-square foot-a year, and
is not a very good indicator of crime in gen-
many dollars you pour into a local commun-
inside Chicago it's about $1.80.
eral, because murder is mostly a crime of
ity-Into schools, health facilities, and so
Q. What accounts for the flight of middle-
passion that takes place between acquaint-
on-the fact that that neighborhood Is Iso-
income families from the cities?
ances or blood relations. A better indication
lated from middle-clacs communities is go-
Crime of danger, is gen-
is the fact that vandalism, thefts and other
ing. to make it almost impossible for the
erally regarded. No. problem when
crimes have considerably increased in the
people in it to become educated. skilled and
urban residents are polled with regard to
assimilated into middle-class society.
their perception of problems in the city. To
Those are about the-only hard data we
There have been many attempts to provide
some extent, crime- a surrogate for race.
have. The so-called major-crime index isn't
standard education for low-income kids—
That is, you almost never find racism or fear
very helpful, because we know that only a
and no success. We're not even sure what the
of blacks cited among the top problems, but
fourth or a fifth of all crimes are actually
problem is. Some educators say it has to
when people y crime, many of them really
reported. An increase in the index may merely
do with the quality of teaching. Others say
mean blacks
indicate better reporting, while a decrease
it's the peer group that is important, or the
The
school
situation
is
generally
the
No.
may mean that the police department is tail-
family environment. Still others contend
2 reason and refers to the quality of
loring its figures to indicate it is doing & bet-
that schools have little to do with the quality
education and also-to:the fear of schools in
ter Job of controlling crime.
of education-that most of what you learn
which there are high proportions-of-blacks.
You talked about less polluted cities.
you learn in the street and at home.
Q. Does that mean that programs inte-
But aren't cities becoming more littered with
Q. Some cities, like Chicago, seem to cope
grate schools have worked against the cities?
trash?
with budget problems that grow out of these
A. De facto segregation, the heavy concen-
A neighborhood that experiences drastic
changes much better than others, such as
tration of blacks in some neighborhoods, is
racial or economic change tends to become
New York. Why is that?
the real problem.-The-typical adjustment is
dirtier, because the production of litter is
A. The major reason is that Chicago's mu-
that within years in a racially changed
greater in places that have less sophisticated
nicipal government handles only about a
community, white parents will pull' their
populations.
fourth of the activities that are handled by
kids out of public schools; and within five
The basic problem is this: The citles are
the city government of New York. Welfare
years, they will move.
becoming dumping grounds for minority peo-
comes under the Illinois department of pub-
There's also. thispAmericans have always
Die, poor people, and people who are not in
lic ald; health is handled by the health and
preferred small-town living. Most Americans
the labor force but are dependent on welfare.
hospitals governing commission; transporta-
have accommodated:this preference by mov-
Historically, poor people were drawn to the
tion is under the regional transportation au-
ing to a low-density-suburb where they can
city because their labor was needed. That
thority; recreation under the Chicago park
have some vestiges. of 'small-town living but
need no, longer exists. Now some are being
district; schools under the Chicago board of
also have the economic and cultural advan-
attracted by the fact that the levels of wel-
education, and housing under the Chicago
tages of a large urban area.
fare are more respectable in the North, and
housing authority. So the general govern-
Q. Will large cities continue
because the large cities have the public
ment in Chicago is doing fine, but these sep-
population?
housing, the model-cities. programs, the
arate taxing and spending authorities, by
A. I think the decline will continue. Given
neighborhood health centers, and a plenti-
and large, are bankrupt.
the greater mobility of Americans, the grow-
ful supply of housing. In addition, there is
At the same time, the mayor of New York
ing viability of small cities, and the prefer-
the natural increase-the fact that there are
and his predecessor have been much more
ence many people show for places with
a lot more births than deaths.
concerned with the welfare of the poor and
warmer climates, the migration will go on:
Q. Can anything be done to keep the cities
minorities insofar as there is a conflict of
I don't foresee great resurgence of
from becoming overloaded with poor people?
interest between them and the middle class
industry or commerce- in the city. What we're
A. One way would be to try to stop the
and the affluent, whereas in Chicago it's the
seeing to some extent is equalization of pop-
migration of the poor by establishing na-
other way around. That's an admirable pol-
ulation and employment. The huge concen-
tional standards for welfare. The standards
icy for New York City to adopt, but it can't
tration of people and jobs in the Northeast-
should allow for some differences in living
afford it. It's self-defeating, because if you
ern. part of the country is diminishing.
costs from one part of the country to another,
develop a national reputation for being gen-
The distribution of income also is being
but they should be uniform within each
erous to poor people, you're going to attract
equalized. Some of this is due to the-push of
State, so that there would be a strong in-
more poor people.
congestion, of high wage costs labor-
centive for poor people not to live in the
New York is also more of a dumping
union activity in the big cities, and some is
high-cost areas like the big cities.
ground than other cities, because it's a point
due to the pull of areas in the South and
There's a need, too, for more birth con-
entry for Puerto Ricans and immigrants
Southwest that have less congestion, lower
trol, but this is politically sensitive. Gener-
from abroad. So I think that city has to be
wages, and lots of unorganized labor
ally, second and subsequent births have been
given support, even at the price of greater
Eventually, that's going to change.
reduced tremendously. But the rate of initial
State and federal control over the city's
in those areas will go up. Unions will orga-
births has not gone down at all, and most
policies.
nize. But for the present, we're talking of a
surveys show that only about-10 per cent of
Downtown's "unique activities"
deconcentration in which the less-developed
low-income people use birth control, not
portions of the nation and the less-developed
through any lack of desire for controlling
Q. Do you think that big cities will just
portions of the urban areas are going to get
birth, but because of a sad lack of knowl-
fade away?
a little more population, a little more income,
edge. It would mean teaching birth con-
A. Not entirely. There are, I think, two im-
portant functions of downtown and the cen-
a little more employment at the expense of
trol and making it available to 12-year-olds
tral city:
those portions that are already well-endowed.
and 13-year-olds.
Q. Do you feel that the declining cities are
Q. Is there anything the cities can do to
One is for unique activities, of which there
becoming less and less attractive as places in
lure middle-income families back from the
can be only one in an urban area-a first-
which to live and work?
suburbs?
rate symphony, 8 major art museum, an
A. Paradoxically, think city life has im-
A. The energy crisis has been of some help,
opera company, a ballet. In some metropoli-
proved constantly in recent years. First of all,
because the natural-gas shortage is making
tan areas, these activities can take place
the density of the center cities has gone
it more difficult for industries to build in the
somewhere other than in the center-along a
down: they have become less congested.
suburbs. And it would be possible to equalize
suburban beltway, for example. But in oth-
Q. So losing population can be a good
tax rates between the cities and the suburbs
ers, like Chicago, all major roads lead to the
thing-
if the States took over a larger part of the
center.
A. In one sense, yes; but it's a bad thing,
school costs,
There are a number of other activities that
too, because the city loses some of Its reve-
But the big things that would induce
"have got to be next to each other, and this
nue base, and it loses jobs. But most people,
people to come back into the city are chang-
is where the downtown really is at-the seat
looking at the inner city and comparing it
ing the crime picture and changing the
of government, the news media, the courts of
with 10 years ago, will find that there is less
school picture-and nobody knows how to do
law, the lawyers, business headquarters. For
crowding. And the data we have also suggest
this because, to an important extent, there
many decades, most of these functions are
that the quality of the air has improved,
is a 1-to-1 association between crime and
going to remain in a central location, in spite
noise pollution is down, and the water is
quality of schools on the one band and the
of the revolutionary changes that are coming
better.
concentration of minority people on the
in communications.
Q. On the other hand, didn't you suggest
other. We don't know how to reduce crime
Q. How will the cities be able to support
that cities are becoming more dangerous, as
and improve schools without eliminating the
these functions If they continue to lose
indicated by rising crime rates?
poor blacks. At least that's the way the
industry and taxpayers?
A. That's largely a reflection of change in
middle-income whites perceive the problem.
A. That calls for tax-pooling and equality
5800
CONGRESSIONAL RECORD-SENATE
April 14, 1976
of public services at the level of the county
been built for every new family that has been
"I kept asking myself, "Why work like a
or multicounty area.
formed since 1960.
dog every day only to come home and lock
Here in the Chicago area, we're dealing
Q. Do you see much hope of reclaiming the
yourself up in your home?' I never knew
with Cook County, which is 950 square miles,
abandoned housing, as some cities are try-
what to expect in the neighborhood. and I
and with six counties and 250 municipalities.
ing to do?
was always tense about my family's safety.
I've called for & countywide school district
A. It's terribly expensive. There's no prob-
was getting an ulcer from living in a constant
with open attendance throughout, and for a
Iem about rehabilitation in & community
state of fear."
second tier of government consisting of local
where there's an active demand. But if you're
Worth the costs: In June, 1975, the Lem-
community councils that would have some
talking about rehabilitation for the kind of
onses made their long-awaited escape. They
voice in decision-making. In effect, the af-
people-who are concentrated in the cities—
bought a home 25 miles outside the city, in a
fluent suburban ring of large urban areas
people who can't pay more than $100 a
neighboring county. It is situated on several
should help to subsidize the center cities.
month rent for an apartment-the cost is
acres of land, which Joyce calls "our own
Q. Do you see much prospect of this kind
prohibitive.
small corner of the world, where no one
of areawide government in view of the op-
Q. Will the same broad changes show up
bothers us."
position from the suburbs?
in other cities?
Steve, who earns $16,000 a year as an auto-
A. No. but this is. a process by which the
A. Chicago and New York are better off
parts salesman, says his house payment: is
cities were allowed: to grow until around the
than many other large cities, because they
three times more than his city rent, "but it's
turn of the century: If the boundaries of the
are regional capitals. Newark falls in the
well worth it." Also, he's closer to his work
city of Chicago had-been fixed as they were
shadow of New York City and cannot get the
He adds:
in 1888, when, they enclosed only 36 square
national-office functions that New York
"Never under any circumstance would I-
miles, instead of encompassing 230 square
City can get. Detroit and Cleveland fall un-
move back into the city. I would change
miles as they today, Chicago would have
der the shadow of Chicago. So I think that
jobs and leave the State first. I was raised
gone down the drain 20 years ago, because
most other large urban areas in the North-
in a nice, clean neighborhood. but what I
almost all of the city would now be a poverty
east will probably not do as well as Chicago.
left was a ghetto.
area. And if the.multicounty metropolitan
WHY SOME PEOPLE LEAVE, AND SOME COME
"I don't have the answers to Chicago's
government which is New York City. had
BACK-SIX FAMILIES TELL THEIR STORIES
problems, but I do know that a lot of the
been allowed to continue to annex counties,
America big cities are becoming
people who helped make the city's neigh
it would not be bankrupt today. So it seems
more and more dominated by two types of
borhoods strong are now leaving."
to me that what we are really asking for is
a resumption of nineteenth-century policies
residents:
"We Feel More Like a Family": When Mr
(Well-to-do) couples, usually with grown
and Mrs. Edward Cox decided to move into a
of annexation of contiguous suburbs, which
children, who can afford expensive apart-
lake-front condominium in Chicago, they
are still in effect some parts of the coun-
ments or houses in choice locations.
wondered if they were making life more dim-
try.
Q. How do you expect your own city, Chi-
(Poor people trapped in the cities by rising
cult for their sons, ages 6 and 10. The boys
costs, which prevent them from fleeing to
were used to a large house, a yard, a good
cago, to change in the years ahead?
A. My projections the year 2000 indi-
the suburbs.
public school and friends who all lived close
(Those who seek to escape consistently cite
by in South Holland, Ill.
cate the city proper will have a lot fewer
people, possibly 2 million compared with
two principal reasons for wanting to leave—
The Coxes' fear proved unfounded, they
inner-city crime and deteriorating school
say. The boys have enjoyed their seven
slightly over 3 million now, and a. peak of
3.7 million about the middle of the 1950s.
situations.
months in Chicago's luxurious downtown
Q. Will the Chicago metropolitan..are
(Those who elect to stay, or to return from
area. They swim in an outdoor pool at their
continue to grow?
the countryside, are drawn by the. con-
building and in a nearby indoor pool in bad
venience of urban attractions.
weather. They have made friends quickly.
A. Mostly through the natural excess of
(To find out more about this ebb and flow
play in the huge lake-front park and take
births over deaths, less perhaps a million
to big-city residents, U.S. News & World Re-
art courses sponsored by the park board. The.
outmigrants in the next 25 years. I foresee
about 8 million people in the standard metro-
port interviewed six Chicago-area couples
public school they attend is rated as one of
Chicago's best.
politan statistical. area by the year 2000,
about their experiences.)
somewhat below- the official forecasts which
"We Just Became Prisoners in Our Home":
Mrs. Cox says she actually feels safer in
range between 9 and 10 million.
It was a bitter and difficult decision for
their new -home, as compared with South
Q. In the city-itself, what other changes
Steve and Joyce Lemons to move away from
Holland, where she was afraid to go out walk-
ing alone after dark.
do
you
see?
the neighborhood where they both were
A. The city will be Increasingly bifurcated
raised on Chicago's North Side. They had
"Here, streets are well-lighted and there
between the rich and the poor. The affiuent
hopes of raising their two daughters in the
are always policemen visible," she says. "The
fact that people are active at all hours in
will have a base In town and a permanent
same community where they had roots.
this area makes you feel safe."
residence in the suburbs. Or if they're with-
About six years ago, the Lemonses began'
Mr. Cox is marketing director of the real-
out children-the young and the elderly-
to have doubts about the quality of life in
estate company that owns the condominium
they will live in a lake-front community in
their old neighborhood. Long-established
the family lives in. He hated commuting
the city.
families, mostly whites, but blacks and Latin
from South Holland, & 90-minute drive to
There will also be some pockets- of de-
Americans as well; began moving away.
his city office.
tached, single-family housing occupied by
Friends disappeared.
Before moving to Chicago, he was consid-
the white middle class, almost all restricted
Many homes were put for sale. Often
ering building a larger home farther out in
to the far northwest section of the city-s
they were converted into rental units or
much smaller area than now.
apartments. Property deteriorated as welfare
the country. But then he began thinking
About 60 per cent of the population will
recipients and illegal aliens from Mexico
about the yard work and commuting time
be black, perhaps 20 per cent Latino, and
flooded into the neighborhood. Crime in-
and decided to see if city life agreed with
the children:
20 per cent English-speaking white. And
creased.
Easier living: Grocery shopping is easier
most of that last 20 per cent will be people
"There were as many as 12 or 13 of them
without- schoolchildren.
living in a small apartment," Steve Lemons
now for Mrs. Cox. A store in the apartment
Q. Do you think the city will look very
recalls. "On Sunday morning, we would have
building provides immediate needs, although
prices are a little high. Costs are more
different?
to call the police to come take the drunks
reasonable at a supermarket that's within
from in front of our door so we could go to
A. Much of the present housing will have
walking distance.
been demolished. Some of the vacant land
church. I couldn't even keep my own prop-
"We sold our second car," says Mrs. Cox.
will be turned into small parks, but much
erty looking neat, even though I had put up
"I walk everywhere and so do my sons. I
of It will be taken over by institutional ac-
a fence. I had to pick up beer cans in my
think it's healthy. In the suburbs I was
tivities-education, government and the like.
yard every morning. Once, I planted a shrub
always driving them somewhere. There
that was stolen from my yard the same night.
The ghetto's vicious circle
wasn't much time to develop my own inter-
We gave up trying to raise flowers."
ests."
Q. Why do you expect a great deal of hous-
Joyce Lemons remembers this:
The Coxes find living expenses to be lower
ing to be torn down, when there seems to be
"In the last year or so we just became
in the city. And both parents have more
a need for more good housing in the cities?
prisoners in our home. We never knew what
time to spend with their sons.
A. Whites are leaving the inner city-the
was going to happen, there was so much
"We feel more like a family, now," says
areas peripheral to the black ghetto-faster
crime in the area. Houses were being burned
Mrs. Cox.
than blacks take their places. The blacks
all the time. We always had our doors and
"It Costs Us More
but It's Safer":
move into the better housing the whites leave,
windows closed and locked."
When Joshu and Manju Patel and their two
and then the price of housing goes down in
Burglaries, vandalism, harassment and
young children moved into Chicago's Rogers
the old ghetto, until landlords can no longer
shooting became commonplace, and the
Park area in 1973 and rented an apart-
cover expenses. Chicago's 1960 ghetto lost a
Lemonses became increasingly dismayed.
ment, they did so with the thought that
third of its housing in this process.
Any toys left outside were stolen, their
they would someday buy a home in the
In the metropolitan areas of this country,
swimming pool was "poked full of holes and
city. But they found that wasn't to be.
we have execessive housing construction. In
my new car was shot up all over with BB
Rogers Park seemed like a safe neigh-
the Chicago area, 1.7 new housing units have
guns," says Steve.
borhood, and it wasn't far from Chicago's
Detroit
Cleveland
Yonkers
Newark
Boston
Baltimore
Buffalb
Unemployment Rate (Dec.75) 17.4
(Nov75) 10.8
16.9
Total Budget FY 75-76
808.0 Million
324.8 Million
124.0 Million
209.8 Million
661.0 Million
1,425.5 Million
480.0 Mill
(with School)
(1/75-12/75)
(with school)
(with schools)
Federal Revenue Sharing
39.5 Mill.
16.0 Mill.
1.6 Mill.
8.7 Mill.
25.0 Mill.
27.0 Mill.
8.2 Mill
State Revenue Sharing or
Aid
67.2 Mill.
-
10.2 Mill.
2.5 Mill.
140.0 Mill.
I
21.4 Mil
Projected Deficit
44.3
0 22
8.5 Mill.
5.5 Mill.
33.0 Mill.
0
34.0 Mill
Previous Year Carry over
17.2
0
6.5 Mill.
0
14.7 Mill.
0
20.0 Mil
Highest Level of
Employment
19,942 (1/75)
13,000 (1970)
5,500 (1975)
6,100 (1/75)
23,327 (2/1/74)
31,000
6,330 (19
Present Level of
Employment
18,314 (12/75)
10,992
4,683
5,100
14,282
32,882
5,250
Projected Level 7/1/76
?
10,800
4,500
4,900
13,700
32,882
4,050
CETA Employment (Current)
2,864
1,700
?
?
1,310
200
1,600
Areas of Past Employer
Waste,Health,
Across the Bd.
Across the Bd.
Mostly garba
Reduction
Across the Bd.
Rec, Finance
Parks but
Across the B
Areas of Anticipated
Employee Reduction
Across the Bd.
Recreation &
Parks & Rec.
8.FORD
LIBRARY
Pks. to go 0
Across the Bd.
of business
Property
Shorter work week
Yes
Work Without Pay
Reduced Services
Mounted Squad
No backyard
Disbanded
garbage
Closed Facilities
Library, Museum
Printing plant
Closed Parks
shorter hours
closed
Rec Centers
-2-
Detroit
Cleveland
Yonkers
Newark
Boston
Baltimore
Buffalo
Pay Freeze
Municipal increase
Pay freeze 11/75
negotiated
Pay Cut
Tax Increase
Referendum Rejected Real Prop. Tax
by voters
increased to max.
Bonding Operating Exp
85.0 Mill.
54.0 Mill.
or Tax Anticipation Notes
8.5 Mill.
15.0 Mill.
Interest Rate
9.0 %
8.75 %
7.30 %
9.0%
GERALD FORD LEBRARY
-2-
Grand
Royal
Seattle
Atlanta
Philadelphia
Saginaw
Flint
Rapids
Oak
Tax Increases
Prop. Tax Increase
Tax increases in
Prop. Tax Increase
In 1974
virtually all
3 mils. for 5 year
categories
Bonding Operating Exps. or
Tax Anticipation Notes
Interest Rate
100 Million
R. FORD LIBRARY
DERALD
Seattle
Atlanta
Philadelphia
Saginaw
Flint
Grand
Royal
Rapids
Oak
Unemployment Rate
8.8
12.0
(Metro) 9.4
(Jan.76) 8.5
12.0
Total Budget FY 75-76
279.9 Million
130.5 Million
1,160.0 Million
36.6 Million
49.9 Million
?
13.0 Mill
Federal Revenue Sharing
-
7.0 Mill.
52.2 Mill.
2.7 Mill.
4.2 Mill.
3.5 Million
.5 Mill
State Revenue Sharing
or Aid
8.7 Mill.
2.5 Mill.
-
2.6 Mill.
5.1 Mill.
6.9 Mill.
2.2 Mill
Projected Deficit
0
0
80.0 Mill.
0
0
0
3.0 Mill
Previous Year Carry Over
0
0
11.0 Mill.
0
0
0
0
part of
Mill.
Highest Level of
Employment
12,000 (1973)
35,000
1,073
2,000
2,517
461
Present Level of
Employment
9,090
35,000
1,073
2,000
2,447
451
Projected Level 7/1/76
9,090
35,000
1,073
1,800
2,447
451
?
CLTA Employment (Current)
600
400
417
74
Areas of Past Employee
Reduction
Across the Bd.
Across the Bd
Across the Bd
Areas of Anticipated
Employee Reduction
Across the Bd.
Across the Bd.
Shorter Work Wook
FORD
Work Without Pay
LIBRARY
Rextuced Services
BERALD
Closed Facilities
Close Hospital
Pay Freeze
Freeze being negotiated
Pay Cuts