Senator METCALF. Do you think that administrative standards could very easily be established?

Mr. KREVOR. Yes. I believe that if we were to visit any shopping center in this area, or any group of neighborhood stores, we could readily determine the businesses that could take their customers with them beyond a block or two. The net effect of the fixed payment provision would be that most small proprietorships could receive the fixed payment.

Occasionally there will be a case which is going to cause an administrator to think a little bit about it, and he will have to give it some consideration and exercise his best judgment, and that is all we can reasonably ask our administrators to do.

Senator METCALF. To bring this home to a situation that we both know about, do you believe that the merchants that were along Independence Avenue near the Old House Office Building lost their existing patronage when they were required to move two, three, and four blocks?

Mr. KREVOR. I believe those firms that relocated in the adjacent block or two did not suffer a substantial loss of customers. Unfortunately, many could not relocate in the immedate area, and these firms undoubtedly lost their customers.

Senator METCALF. That would be the kind of test that would confront an administrator almost all the time, a move of that short a distance.

The second provisions would prevent the fixed allowance from being paid to a business which had at least one other establishment not being acquired. Is there any reason for restricting this fixed payment to being made to operators of businesses which may have other establishments in distant cities or in distant places where the customers from one establishment cannot be transferred to the other?

Mr. KREVOR. The purpose of the fixed payment procedure is to provide a simple and expeditious means of disposing of relocation clearance. In firms that have more than one establishment, it frequently is difficult to allocate expenses and earnings to the individual units; and in such cases, it seems preferable to require the displacee to prove his actual losses or expenses.

Also, there is precedent for the limitation in the Housing Act of 1965, and there is a special concern for the smaller business operator who is forced to lose his livelihood.

Senator METCALF. Thank you very much, Mr. Krevor. Your testimony has been most helpful, most informative, and very expert. Mr. KREVOR. Thank you, sir.

Senator METCALF. We are grateful for your appearance before the committee.

Mr. KREVOR. I would like to express my appreciation for the invitation to appear before the subcommittee, and to repeat my offer to Dr. Walker to assist the staff in any way that I can.

Senator METCALF. Thank you.

The next witness is Mr. Ross Davis, Executive Administrator of the Small Business Administration. He is accompanied by Logan Hendricks, John Kivlan, and Tom Francis.

We are pleased to have you before the committee, Mr. Davis. I notice you have a prepared statement. You may proceed as you wish.

STATEMENT OF ROSS D. DAVIS, EXECUTIVE ADMINISTRATOR, SMALL BUSINESS ADMINISTRATION, ACCOMPANIED BY LOGAN HENDRICKS, JOHN KIVLAN, AND TOM FRANCIS

Mr. DAVIS. Thank you, Mr. Chairman.

I am accompanied today by Mr. John Kivlan, who is our counsel, Mr. Tom Francis on my right, who runs our 502 program, and also Mr. Logan Hendricks, who will be here momentarily, who is our Deputy Administrator in charge of our financial assistance programs. Senator METCALF. Gentlemen, we are pleased to have you with us today. We know that you will make a contribution.

Mr. DAVIS. Mr. Chairman, Mr. Eugene Foley, our Administrator, is out of town, and he asked me to convey his regrets that he was unable to appear here, but I am happy to appear in his place.

The purpose of these hearings is to consider legislation to protect the interests of persons adversely affected as a result of construction activity conducted by the Federal Government or with the assistance of the Federal Government. The urgency of such protection stems primarily from the vast physical upheaval attending area redevelopment, urban renewal, highway construction, and other extensive building projects now underway, with Federal assistance, all across the Nation.

The importance of such protection is further enhanced by the fact that the current construction activity is only the beginning of what is to come. As President Johnson has observed:

In the remainder of this century, urban population will double, and we will have to build homes, highways and facilities equal to all those built since this country was first settled. So in the next 40 years we must rebuild the entire urban United States.

Notwithstanding their obvious substantial contribution to the public welfare, Federal and federally aided construction projects are generating or intensifying a broad range of economic and social problems. Under consideration by the subcommittee are two bills-S. 1201 and S. 1681-containing numerous remedial proposals. The Bureau of the Budget, I am told, has presented the views of the administration on this legislation. Of particular concern to our agency, of course, are the problems which the described construction activity poses for the small business community. My testimony will be directed to this aspect of the matter and to the related portions of the bills. We are told that there is a distinct possibility that, by 1972, about 120,000 businesses will have been displaced from their premises by urban renewal. It is hardly necessary to add that this does not detract from the immense value of such projects to our society. We at SBA have the highest regard both for the urban renewal program itself and for the manner in which it is being administered. Nevertheless we must count the unavoidable costs entailed.

Indications are that, at the present time, 3 out of 10 firms displaced by such projects either liquidate or simply disappear. If this loss ratio continues, upward of 35,000 concerns will be put out of business by urban renewal alone. There is reason to fear that, unless we step up our efforts to assist displaced firms in reestablishing themselves, the total number of casualties from Federal or federally aided construction of all kinds will reach the vicinity of 50,000 by 1972.

We have available three principal forms of assistance: relocation payments, relocation guidance, and loans extended on liberal terms.

RELOCATION PAYMENTS

Existing rules governing relocation payments are a hodgepodge. For example, a firm which is displaced by a project conducted under the Federal Highway Act can obtain no more than $3,000 to meet the cost of moving the business to a new location. On the other hand, a firm displaced by federally aided urban renewal can obtain up to $25,000 for the same purpose. S. 1681 would have the laudable effect of eliminating such unjust disparities.

In substance, S. 1681 would repeal existing laws governing relocation payments and establish in their stead a program, to be directed by the President, for the purpose of making such payments "fair and reasonable and as uniform as practicable." Under this program every business concern displaced by any Federal or federally aided construction activity would be reimbursed for "actual and reasonable" moving expenses-up to any dollar limitation the President may consider appropriate.

There is no question in our minds about the desirability of this reform.

The bill contains additional provisions for the benefit of displaced firms which cannot be relocated without a substantial loss of their existing patronage. A firm in this category could elect to take a lump-sum settlement, rather than reimbursement for moving costs, in an amount equal to the average annual net earnings of the business after taxes-up to a maximum of $5,000. Since such earnings can be quickly determined from income tax returns, delay in obtaining the money should be minimal. According to one estimate, the average applicant would have it within a week from the day of his move.

The value of this option to proprietors of very small enterprises is obvious. For those who do not plan to continue in business, the lump-sum settlement represents compensation for the economic injury involved, the loss of earning power. Moreover, those who manage to relocate their businesses at a cost which is not substantially in excess of the allowable lump sum will, of course, take it, rather than face the delay, paperwork, and possible dispute that may result from an itemized submission of their costs.

Much as we agree with the idea of permitting such an election, we are not sure what the dollar maximum should be. The $5,000 figure proposed in S. 1681 may be high; but we have no reliable evidence upon which to base an opinion. The Bureau of the Budget recommends $2,500 because this figure is more comparable to similar payments now made by HHFA under the Housing and Community Development Act of 1964. HHFA now pays displaced small businesses $1,500 plus moving expenses.

RELOCATION GUIDANCE

In substance, S. 1681 provides that in the case of all Federal and federally assisted construction programs, the responsible agency must adopt measures to assist displaced business concerns in finding suit

able locations and to provide them with information regarding government programs being conducted for their benefit.

Insofar as small businesses are concerned, the responsible agencies can best perform these tasks by working closely with SBA. Our programs for the benefit of displaced firms cannot achieve their potentials without such coordination. Only by this means can we obtain the advance information essential to sound planning. We must be advised as early as possible of impending projects and of the number of firms likely to be displaced by them. Equally important, we must learn the identity of these firms so that we may send them direct notification by mail of the help we can provide.

The Urban Renewal Administration is now furnishing us such information on a regular basis. We send out our mailings as soon as preliminary approval is given to a project. In addition to a description of the financial assistance available from us, which I will discuss later in this statement, our letter seeks to alert the affected firms to the importance of obtaining expert advice in selecting a relocation site and in adjusting their methods of operation to it. Since this aspect of displacement has not received the attention it deserves, I would like to say a few words about it here.

At the time most displaced firms were established, market research. was not as important as it is today in selecting a site which will bring success to a small business. It seems probable that, with some exceptions perhaps, these concerns moved into their original sites on the basis of nothing more scientific than a hunch. Under the more complicated and more competitive conditions of the present market, however, guessing is perilous in the extreme.

If we are going to reduce the casualty rate, therefore, we must help these firms in making their site selections, advising them with respect to all relevant factors such as population trends, traffic patterns, buying habits, et cetera. Since the site chosen will rarely meet all specifications, displaced concerns must be given assistance in adjusting their businesses to changed conditions. For example, the physical shape of the new premises may require a different plant layout. If higher rentals are involved, as they usually are, it will become all the more important to find new ways of cutting costs. Sound advice on such matters is essential.

I might also add that this change of environment and conditions, competitive and otherwise, often requires significant upgrading of management techniques, and this is an important factor.

To carry out the program we have in mind, it will be necessary to sit down with the individual small businessman for a review of his particular problems. SBA is not staffed to provide such service to the many thousands of small concerns which will be displaced in the future. Budgetary considerations would not permit the staff expansion required for the purpose. For this reason we are exploring the possibilities of recruiting in each community, as the need arises, retired business executive who are willing to contribute their time and knowledge to the task.

This idea is an outgrowth of the program which we call SCOREthe Service Corps of Retired Executives. Inaugurated last year by Mr. Foley, it has already demonstrated the feasibility of utilizing the talents of retired business executives to provide management aid to

small business. We are hopeful that this successful program can be expanded or adapted to meet the special needs of small displacees.

Such, then, are the results that may flow from close cooperation between SBA and the agencies responsible for construction activities involving displacement. We welcome the provisions of S. 1681 stressing the responsibilities which rest on agencies in charge of construction activities to insure that displaced business concerns are advised of Government assistance available to them.

DIRECT LOANS ON LIBERAL TERMS

In 1961 Congress established a special loan program, embodied in section 7(b) (3) of the Small Business Act, to meet the needs of small firms suffering substantial economic injury as a result of being displaced by any kind of Federal or federally aided construction. In contrast to the 512 percent maximum applicable to our regular business loan program, the maximum interest rate on these loans is governed by a formula which is presently yielding 334 percent. Maturity on such a loan may extend as far as 20 years, and the rules respecting collateral are reasonably liberal.

S. 1201 contains a proposal to extend the benefits of the 7(b) (3) program to small firms which, though not physically displaced, nevertheless suffer substantial economic injury as a result of Federal or federally aided construction-for example, a gasoline station fronting on a road which, as a result of the Federal highway program, is reduced from a main artery to a secondary route. With perhaps onehalf to two-thirds of its patronage gone, such a business may have to close down unless it can finance a move to a new site.

Let us consider another example. Here is a little store situated on the edge of an urban renewal project. As all, or nearly all, of its customers across the way are compelled to leave their homes, this business finds itself deep in trouble. But it has prospects, because the project plans call for the construction of apartments on the site of the razed homes. If the store can hold out for a year or two, it may once again become a flourishing business. A loan under the liberal terms of 7(b) (3) would be most helpful in tiding the enterprise through its temporary difficulties.

Economic injury unaccompanied by displacement may be just as great, indeed greater in some cases, than economic injury resulting from displacement. It does seem inconsistent to extend the benefits of 7(b) (3) in the one case and, at the same time, withhold them in the other. The proposal of S. 1201 to eliminate the distinction has strong appeal. Nevertheless, some doubts have been expressed about the wisdom of it.

The administrative problems posed by the proposal cannot be disregarded. The little store that I just mentioned presents a disarmingly simple case, since virtually all of its customers were situated in the project area. The facts establishing substantial economic injury are easy to ascertain. But if we make a 7(b) (3) loan to such a firm, are we going to deny the same treatment to a man situated 3 blocks farther away from the area who lost, or claims that he lost, 60 percent of his customers as a result of the project? And how about the fellow 6 blocks away who gives us a 20 percent figure?

51-896-65- -11