U.S. Senate Committee on Environment & Public Works
U.S. Senate Committee on Environment & Public Works
Hearing Statements
Date:   04/29/2004
 
Phillip A. Singerman, Ph.D.
Executive Director
Maryland Technology Development Corporation
On behalf of the International Economic Development Council
Reauthorization of the Economic Development Administration

Mr. Chairman, distinguished members of the Committee, I am truly honored to be invited to testify before you on the Reauthorization of the Public Works and Economic Development Act of 1965. My name is Phillip Singerman, Executive Director of the Maryland Technology Development Corporation (TEDCO) and member of the International Economic Development Council Board of Directors. I believe I have a special perspective to bring to your deliberations: from 1995 to 1999 I served as Assistant Secretary of Commerce for Economic Development, and in that capacity was responsible for the Economic Development Administration (EDA) when Congress reauthorized EDA in 1998 – the first time the agency had been reauthorized in nearly twenty years. That was a milestone achievement of the Congress, carried out in a bi-partisan fashion, and I want to congratulate you for that visionary action.

I also want to commend Assistant Secretary David Sampson for his leadership of the agency and for helping push for an innovative bill to reauthorize EDA for the next five years. He and members of his staff have made a special effort to reach out my colleagues in the local economic development community and myself. I want to thank him for these personal and professional courtesies.

Since 1999 I have directed a public instrumentality in the State of Maryland, established by the General Assembly to create and sustain businesses through the development, transfer, and deployment of innovative technology. In Maryland EDA has played a crucial role in distressed urban areas such as Baltimore, rural communities on the Eastern Shore of the Chesapeake Bay, and depressed Appalachian counties of Western Maryland. EDA has taken a leadership role in helping underserved areas connect to high-speed internet service, and in aiding small companies through the development and support of business incubation.

I am also here today as a representative of the International Economic Development Council. IEDC is the leading association serving economic development professionals and those in allied fields. IEDC’s more than 4,000 members are committed to building local and regional economies worldwide. The key to IEDC’s reputation and steady growth is its access to a large and diverse pool of professionals and the quality of the council’s staff. For more than 30 years, IEDC and its predecessor organizations have been producing quality services that help find solutions to the complex and varied issues of economic development. For the past year, IEDC has been working with EDA and Congress to help contribute to the reauthorization of the EDA On behalf of the thousands of economic development professionals that I represent today, I thank you for this opportunity to voice our support for this critical agency.

I have carefully reviewed both the House passed legislation (HR 2535) and the Senate introduced Administration bill (S 1134), and have attached a set of policy recommendations provided by IEDC. In my testimony I want to highlight the following points:

· The importance of prompt passage of EDA reauthorization

· The importance of providing adequate funding authorization levels

· The importance of allowing more efficient management of EDA’s Revolving Loan Fund Projects, specifically, removing federal restrictions on these projects after 20 years.

EDA: HELPING TO ENSURE THE FUTURE OF AMERICAN MANUFACTURING

EDA is generally viewed in Washington as an anti-poverty program, alleviating low income, under-employment, and unemployment. Having worked and studied this general issue for my entire professional career – nearly 30 years – I have come to the conclusion that EDA is perhaps more importantly a capacity building program, which increases the productivity of the nation. It does this by making investments that leverage under-utilized economic resources – human capital, financial capital, and real estate – that are reflected in unemployment, inadequate business financing, and low valued land. It does this by redeveloping physical infrastructure that is threatened by abandonment due to such things as military base closures and changes in international flows of capital. And it does this by broadening the participation of minorities and women in the workforce.

Over the past three years, American manufacturing jobs have dramatically declined. The cause of this decline can be traced to decisions made by domestic manufacturers to relocate plants and factories in foreign countries offering a more lenient production environment and lower wage workforce. In light of these global changes, the Administration is actively seeking ways to address the critical loss of U.S. manufacturing jobs. Some of this attention is focused appropriately on job training, and some will seek to support emerging industries, including high-tech manufacturing. IEDC supports and encourages all of these steps, and believes the EDA, as the lead federal agency working with economic development districts and related state and local government agencies, should play a major role in these efforts to address the decline in the American manufacturing industry.

The EDA provides a number of demonstrated tools that can be used to secure manufacturing employment by creating new opportunities for job creation, technology advancement, skills and job training and infrastructure development. The EDA works directly in the communities that are most devastated by the loss of major manufacturers. The EDA’s Economic Adjustment grants provide the much-needed support for communities dealing with the “sudden and severe” distress caused by layoffs, downsizing and plant closings. This spring the Congress will be reviewing the Administration’s budgetary requests for FY 2005, and this summer, agencies will be submitting their requests to the Administration for FY 2006 funding.

I can assure this committee that in the normal give and take of the budgetary process, an agency that is not reauthorized will suffer in the process; for those who care about the ability of EDA to provide critically needed support to our most distressed communities and populations, delay is not an option.

Quick reauthorization of EDA will also be important for communities that suffer the closure — or significant downsizing — of a local military base during the 2005 Base Realignment and Closure (BRAC) round. During the previous four base closure rounds, the agency provided almost $650 million in grants to 106 communities for economic planning and redevelopment assistance. Up to approximately 100 installations could be closed through the 2005 round. EDA grants help communities achieve productive civilian reuse of closed military bases and rapid economic development through technical and financial assistance.

Although I believe there are one or two areas in which the House bill could be improved, I respectfully urge the Committee to promptly consider passage of legislation that reauthorizes the EDA.

Providing the Appropriate Authorization Levels (Section 701)

The House passed legislation proposes an authorization level of $2.25 billion for EDA programs for five years: $400 million for FY 2004, and an additional $25 million each year from FY 2005-FY 2008. The Administration requested $321 million for FY 2005 and such sums as necessary in the remaining years. The House bill provides authorization levels for the EDA that will allow Congress to respond to unanticipated economic difficulties.

The House passed version is a significant improvement over the current level of the budget in a number of major ways.

First, the legislation provides Congress with the authorization flexibility it needs to address unanticipated economic difficulties, such as those occasioned by international trade competition and homeland security. This is comparable to the flexibility previously utilized by the Congress to respond to natural disasters and defense conversion/base closures.

During the latter part of my tenure we were faced with economic crises in the steel and textile industry, yet the lack of sufficient authorization levels prevented an appropriate addition to EDA’s funding to address these severe and sudden problems. The result was that funding to address these issues was taken away from other communities that were suffering long-term economic deterioration, creating a conflict among equally needy regions. This new language does not eliminate the ultimate responsibility of Congress to make judgments about budget priorities, but it does remove an artificial constraint to your appropriate level of flexibility.

Second, IEDC and those in the economic development profession who rely on EDA funding, are concerned about the steady decline in funding for EDA programs, and particularly the disproportionate cuts imposed by the FY 2004 Omnibus Appropriations Act. The FY 2004 appropriation of $288 million is 15 percent below the authorized level and 30 percent below the House recommended authorization level of $400 million. Based on EDA performance data, a $43 million investment could result in an additional $129 – 430 million in private sector investment and the potential for 22,000 jobs. The House approved authorization levels give the economic development community options for addressing future funding needs for projects and initiatives the spur investment and help create jobs.

Revolving Loan Fund (RLF) Program Modifications (Section 207)

EDA’s revolving loan fund program (RLF) is a very important component of a local communities’ overall economic development activity. In 2002 the Center for Urban Policy Research, Rutgers University, released three reports totaling nearly 950 pages on EDA’s RLF program (Burchell, et al.) The study’s authors concluded that (1) an RLF is one of the most effective tools available to economic development agencies, (2) RLF loans enable businesses to prosper that would not have prospered under convention lending guidelines, and (3) the RLF program was supported by effective regional economic planning and good program planning. I recall that during my tenure the RLF program was particularly helpful in communities affected by base closure and natural disasters; by contrast emergency loan programs administered by the SBA are limited in the time during which they are available and not part of an overall local recovery strategy.

The House passed legislation does modify several regulations concerning the revolving loan fund (RLF) program of the EDA. The bill allows for more flexibility and options in delivering this important program. The House bill specifically gives EDA broad authority to issues new rules and regulations to ensure the “proper operation and financial integrity” of Revolving Loan Funds (RLF). The bill also adds new language allowing EDA to permit grantees that are operating more than one RLF to consolidate funds at the request of the local grantee. EDA is also given the authority to transfer assets of RLF to 3rd party for purpose of liquidation and adds new provision allowing EDA to authorize RLF operators to securitize or sell loans to secondary market.

One major provision was, however, left out of the House passed version that was included in the Administration’s proposed legislation. As proposed in the Administrations legislation and included in S 1134, modifications of section 209 to release the federal interest in a revolving loan fund grant is a long overdue correction to the law, which currently creates an unnecessary – and frankly – unmanageable administrative burden on EDA and local communities. This will remove a significant reporting requirement from local communities and monitoring responsibility from EDA.

This is really a very modest step and other agencies – such as USDA – “defederalize” local loan programs once the funds have been fully recycled (loaned out and then repaid). However, EDA’s revolving loan fund program is structured as a grant to a local community, and therefore a more stringent standard than in a loan program is appropriate. The requirement of 20 years of successful performance ensures that only well run programs will be able to qualify for this step, and the requirement of a reimbursement to the federal treasury – not to EDA - ensures that the agency will have no financial incentive to de-federalize non-qualifying programs. Please understand that this process can only be undertaken pursuant to formal regulations promulgated by the Secretary of Commerce, and that the Department’s Inspector General will undoubtedly also be monitoring this process carefully.

One final comment: we tried to defederalize RLFs six years ago but did not pursue it in the face of opposition by EDA’s friends in the Congress. The argument put forward at that time was that through de-federalization, Davis-Bacon protection would be weakened. At that time we did not have the data necessary to analyze that issue: however, the Burchell report on RLFs previously cited clearly demonstrates that these loans are not used in construction or public works but for working capital to small businesses for start-up, retention or expansion purposes, and thus Davis-Bacon does not apply.

Conclusion: Enduring Importance of EDA

In these times of economic recovery, it is imperative that the EDA continue its stated mission to “help our partners across the nation (states, regions and communities) create wealth and minimize poverty by promoting a favorable business environment to attract private capital investment and higher-skill/higher-wage jobs through world-class capacity building, planning, infrastructure, research grants and other strategic initiatives.” By quickly and decisively acting on this important reauthorization, the Congress can send a lucid and convincing message that EDA and its programs, that help create jobs and stabilize distressed economies, are a high priority of the federal government.